Leeds Building Society Annual Report and Accounts 2022
Annual
Report
and
Accounts
2022
01Leeds Building Society | Annual Report and Accounts 2022
Strategic Report
3
Chair’s Welcome 4
Chief Executive Officer’s Highlights 6
Business Model and Strategy 10
Financial Review 33
Risk Overview 42
Viability Statement 46
Climate-Related Financial Disclosures 48
Non Financial Information Statement 80
Risk Management Report
81
Approach to Risk Management 82
Principal Risks 86
Governance
109
The Board of Directors 110
The Executive Committee 116
Corporate Governance Report 118
Nominations Committee Report 137
Audit Committee Report 143
Board Risk Committee Report 152
Directors’ Remuneration Report 155
Directors’ Report 169
Financial Statements
173
Independent Auditor’s Report 174
Income Statements 186
Statements of Comprehensive Income 187
Statements of Financial Position 188
Statements of Changes in Members’ Interest 189
Statements of Cash Flows 190
Notes to the Accounts 191
Other Information
241
Annual Business Statement 242
Country by Country Reporting 244
Glossary of Terms 245
Contents
02
Strategic
Report
1.
CACI’s CSDB, Stock, January to December 2022, latest data available. CACI is an independent company that provides �nancial benchmarking data for the retail cash savings market. 2.
Overall customer
satisfaction in a survey of 3,387 members from January to December 2022.
3. Your Voice colleague survey, 1,350 respondents (87% response rate) in October 2022.
2022: How we performed
£25.5bn
(2021: £22.5bn)
Total assets
8.0
(out of 10)
We’re committed
to being a great
place to work
Colleague engagement
3
Common Equity Tier 1 Capital
33.3%
(2021: 38.0%)
Reserves available
to protect us from
future problems
£5.0bn
(2021: £4.4bn)
We helped 42,500 more
people have the home
they want including
18,000 �rst time buyers
Gross residential lending
93%
(2021: 93%)
We have an ongoing
commitment to be
customer focused in
everything we do
Customer satisfaction
2
An annual bene�t to all
our savers of £80.5m
1.15%
compared to the rest of the
market average of 0.65%¹
Average savings rate
£220.5m
(2021: £163.7m)
Pro�t before tax
£17.5bn
(2021: £15.3bn)
We helped 85,500
more people save
for their future
Savings balances
£
Performance over 2022
Last year brought significant new challenges as the cost
of living crisis began to engulf the country with large
increases in energy prices, rising interest rates and a rapid
uplift in the rate of inflation. This was compounded by the
impact of the Government’s mini budget, which caused a
considerable economic shock.
Our focus throughout the year was three-fold: we
continued, in a responsible manner, to support borrowers
get a foothold on the housing ladder; we helped those
borrowers who are struggling in this difficult climate;
and we supported savers by providing competitive
products and by passing on increases in interest rates to
a significantly greater degree than the high street banks.
Through this the Society achieved an exceptionally strong
financial performance in 2022 but, as a mutual, maximising
profit is not an objective. Our aim over the long term is
to optimise the delivery of benefits to members whilst
generating sufficient profit to keep the Society secure,
maintain our capacity to grow the business and invest for
the future.
Our colleagues are at the heart of the Society’s success
and our people strategy was a particularly important
area for us during the year, with the Society committed
to further investment in training, development and
succession planning so that we continue to attract and
retain the best people and allow them to fulfil their true
potential. Naturally, the cost of living pressures also
affect our colleagues and we have looked to protect
them, particularly those colleagues on lower pay, with
appropriate interventions during the year.
We have also sought to play our part in providing additional
support for the communities which we serve. We have
showed our support in many ways. We have now raised
over £500,000 for our national partner Dementia UK,
as well as donating more than £100,000 to support the
humanitarian disasters caused by the invasion of Ukraine.
Supporting our members and the communities in which
they live and work, is an integral part of our business.
In September, the whole nation was deeply saddened
when the death of Her Majesty, Queen Elizabeth II was
announced after 70 years of devoted service. Following a
period of mourning when people paid their respects to
Her Majesty, we were honoured when His Majesty,
King Charles III visited Leeds in early November and
officially opened our new head office.
This was a very proud day for everyone at the Society and
we were delighted that His Majesty took so much time to
talk to so many of our colleagues. We will remember the
visit with great pride and fondness.
Board changes
Following a successful handover from David Fisher,
Neil Fuller started his role as Chair of the Board Risk
Committee (BRC), from 1 January 2022.
After just over five years as Non Executive Director,
Lynn McManus stepped down from the Board in January
2023. Lynn has been offered a unique opportunity to
take an executive role elsewhere and I wish her well
with her new position. Lynn held the role of Chair of the
Remuneration Committee since January 2019.
Annette Barnes, who has been on the Remuneration
Committee since March 2021, will be appointed as the
new chair, subject to regulatory approval. Additionally,
Annette will also take on the role as the designated non
executive for colleague engagement, which includes both
attending Colleague Association meetings and liaising
with colleagues directly, so their vital insight can be shared
with the Board.
Due to the departure of Lynn, the Board asked
David Fisher to extend his term into 2023. David has a vast
amount of knowledge of the Society, which will provide the
Board with additional resilience and continuity whilst we
complete the recruitment of new non executive directors.
The hiring process has taken longer than anticipated, but
we are committed to appointing the right people for these
roles, so that the Board can continue to demonstrate
robust and diverse thinking and decision making.
The Covid-19 pandemic prevented us from meeting
members face to face in 2020 and 2021, so it was with
great pleasure that we returned to an in-person AGM
meeting last year.
Full details of this year’s AGM have been sent to members
and we welcome members’ questions or comments
relating to Board matters at any time – please email these
to agm@leedsbuildingsociety.co.uk marked ‘For the
attention of Iain Cornish’.
Outlook
The UK is entering what is likely to be a period of recession,
with continued high inflation rates causing ongoing
pressure on household budgets. The likelihood of rising
unemployment, flat or falling house prices, as well as
much stronger competition in the mortgage and savings
markets will all be factors for us to contend with in 2023.
The Society is a business focused on the long term
and is in an extremely strong financial position. Whilst
not sacrificing our resilience, we will use this strength
prudently and responsibly to support our members and
stakeholders through these difficult times. We will also
continue to invest in our future.
Finally, I would like to thank our colleagues once again
and congratulate them on what they have achieved
throughout the last 12 months. Through their support of
members, intermediary partners, local communities, as
well as each other, they have contributed to what has been
a very successful year for the Society.
Iain Cornish
Chair
23 February 2023
Last year was another year of
exceptional turbulence and
challenge for our members
and colleagues alike. However,
our purpose of putting home
ownership within reach of more
people, and offering a safe place
for members’ savings remains as
relevant today as it was nearly 150
years ago when the Society was
established.
I’m pleased to report that this clear
focus, combined with the incredible
efforts of our colleagues, led to the
Society delivering a very strong
performance for all its stakeholders.
Chair’s Welcome
04 05Leeds Building Society | Annual Report and Accounts 2022
Strategic Report
Risk Management
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Governance Financial Statements Other Information
2022 was a tremendously challenging year for us in a world
where the concerns surrounding the Covid-19 pandemic
were replaced by a cost of living and energy crisis triggered
by the war in Ukraine and global issues in the supply of
goods. All this was against a backdrop of domestic political
upheaval, together with rapidly rising interest rates and
soaring inflation.
Despite all these concerns, we have managed the
business carefully to be in an even better position to help
our members deal with the uncertainty we all now face.
We delivered an excellent business performance, with
many records broken and key milestones achieved.
Throughout the year, our continued support for the
housing market enabled us to surpass all previous records.
We achieved record gross mortgage lending of £5.0 billion
as we really delivered on our purpose of helping to put
home ownership within reach of more people than ever
before.
As always, central to our success have been our members
and colleagues and I would like to offer them my sincere
thanks for their continued support and commitment.
We will remain focused on supporting our members
to ensure that the Society remains successful and
sustainable for the long term.
Creating solutions to help people
onto and up the housing ladder
Our record-breaking mortgage performance was just one
reason why 2022 was a landmark year for the Society, with
continued strong support for customers less well served
by the wider market. We helped 18,000 first time buyers
get a foothold onto the housing ladder – approximately
one in three of all our mortgages now goes to helping first
time buyers.
Having reaffirmed our purpose, we backed our thinking
with real action, and we took the decision to withdraw
from lending on second homes. We were the first lender
to do this, and the decision was well received by industry
experts as well as by those communities where second
homes have had a detrimental impact on their locality.
The decision has allowed us to direct more of our energies
to helping other sectors, especially first time buyers.
Chief Executive
Officer’s
Highlights
As the UK’s largest shared ownership lender, the Society
maintained its strong performance in this sector,
rewarded for the seventh consecutive year with the
title of Best Shared Ownership Mortgage Lender in the
‘What Mortgage’ 2022 awards. We were also awarded the
coveted Financial Adviser 5-star Service Award – great
recognition for the excellent levels of customer service our
colleagues deliver day in, day out.
During the year we launched a scheme which enabled
those borrowers buying new homes with an A or B energy
efficiency rating to borrow more than they could on an
equivalent, less energy efficient property. This latest
innovation is part of our ongoing work as we develop new
ways of supporting our members in reducing their carbon
footprint. Housing is responsible for 16% of the UK’s total
emissions
1
, so it’s important as a lender that we play our
part and support our members in this new and developing
market.
As a mutual, we are acutely aware of our commitment
to our borrowers to be there for them, particularly
when times get tough. Since December 2021, as the
UK’s economic situation worsened, the Bank of England
increased the base rate on nine occasions by a total of
3.40%. In response to this, we increased our standard
variable mortgage rate (SVR) by a total of 1.70%.
We also continued to work with those members at risk of
financial difficulty, by offering them tailored support and
guidance, as well as further extending our waiver of arrears
fees until at least the beginning of 2024.
Our members had to face further worries as political
upheaval and the reaction to the Government’s mini
budget caused the cost of fixed rate mortgages to
increase rapidly. Although some lenders temporarily
pulled out of the mortgage market altogether, we
continued to offer products throughout, including
those aimed at first time buyers and shared ownership
customers.
1 Source: 2021 UK Greenhouse Gas Emissions, Final Figures.
We’ve been helping people save money and have the
home they want for almost 150 years. We believe that to
make our country prosperous and help grow our economy,
everybody should have access to housing that is decent
and affordable. Sadly, housing is now at its least affordable
point since records began and for too many people the
dream of owning their own home remains unfulfilled. For
many others the security of a safe and decent home to
rent at an affordable price is despairingly remote.
I firmly believe that our country needs to develop a long
term plan to provide stability in the housing market by
delivering more homes, supporting first time buyers to
save for their deposit and extending affordable routes
into homeownership. That’s why we published ‘Tackling
the UK’s Homeownership Crisis’ – a clear set of public
policy proposals that we believe should guide both the
Government and the housing industry in their support of
first time buyers.
Rewarding customers as well
as investing for the future
After a decade of low interest rates in the UK, our savings
members started to benefit from rising interest rates. By
continuing to offer a competitive savings product range
we saw record savings inflows into the Society during
2022. We consistently paid above the market average rate
– which equated to an extra £80.5 million in our savings
members’ pockets. The extra value that we give to our
savers is especially important – particularly now as we face
into a cost of living crisis.
Our fixed rate savings products were particularly popular
to savers and appealed to both new and existing savers
alike. We now have savings balances of over £17.5 billion
and over 580,000 saving members – the highest in the
Society’s history.
We really delivered on our
purpose of helping to put home
ownership within reach of more
people than ever before.
06 07Leeds Building Society | Annual Report and Accounts 2022
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Chief Executive Officer’s Highlights continued
I’m delighted that because of our ongoing competitively
priced savings products we were able to attract so many
new members but acknowledge the elevated demand
for our savings products led, at some points, to long
waiting times for our callers. We didn’t always meet the
high standards of service we strive for but, I’m pleased
that through a combination of increased recruitment and
training, the situation has now improved.
We were delighted to report that our profit before tax
increased to £220.5 million – the highest in our history.
But as a mutual, we are able to reinvest this money for
the current and future benefit of our members and the
Society. We do this by improving products and services as
well as by paying higher savings rates and by helping our
borrowers through these difficult times.
Through a rolling programme of improvement and
refurbishment, we have also continued to invest in our
50 strong national network of branches. Our branches and
our colleagues working in them are a tremendous asset for
the Society and our continued investment in the network
reinforces our commitment to offer a face to face service
for our members where this is sustainable.
We know that great service comes from skilled and
committed colleagues and I’m delighted our colleague
engagement scores remain at a high level of 8.0 (out of 10),
while customer satisfaction scores have reached a record
of 93%. We were also awarded a Fairer Finance Gold
Ribbon for savings accounts for the fifth year running.
This was in recognition of our clarity in explaining products
and our savers’ high levels of satisfaction.
Our investment to make sure the Society is fit for the
future, and keep on improving service for members and
intermediaries, included bolstering the size and skills of
key teams, including our contact centre as well as our IT
and underwriting departments. It was with great pride
therefore that our Contact Centre colleagues were
awarded an Institute of Customer Service ‘ServiceMark’
in recognition of providing outstanding customer service.
The investment in our ambitious multi-year IT
transformation is progressing to plan and on budget.
During 2022 we successfully completed the transfer of our
data centres, which boosted our IT resilience and security.
We continue to invest in our online functionality and
capacity for our members, and this remains a key focus for
us to ensure our processes are simpler and quicker to use.
Serving our members and
society for generations
Our fantastic people are key to our ongoing success, and
they continue to demonstrate how mutual support and
co-operation make a difference to each other and to our
members.
We have taken steps to become a more inclusive and
diverse organisation, supporting our people to share and
embrace different perspectives. We sponsored Leeds
Pride and took part in the incredible parade through the
city, as well as championing Racial Equality Week and Black
History Month.
Being a mutual, it’s only right that we find ways to help
colleagues, as well as members and communities, by
sharing our success during difficult times as we’ve done
throughout our history. Therefore, in July, we agreed
that all permanent and fixed term contract colleagues,
excluding chief officers and directors, received a
£1,200 payment which reflected the amount by which
expenditures were forecast to rise during the year. We
also took the opportunity in January 2023 to increase our
minimum salary levels by 14.6% to £22,000 – a reflection
that our colleagues are rewarded fairly at all levels of the
business.
The compassion and generosity of our colleagues were
evident again in the speed and scale of donations for the
humanitarian disaster caused by the invasion of Ukraine.
With matched funding from the Society, more than
£100,000 was given to relief efforts in both Ukraine and
the UK, including refugee aid in our home city of Leeds.
In Peterborough, we redeveloped vacant office space
above the Society’s city centre branch for use as
emergency accommodation for refugees. This has been
a widely supported and collaborative effort with local
businesses, stakeholders and colleagues, for which I offer
my heartfelt thanks.
We also donated £25,000 to the Disasters Emergency
Committee’s Pakistan floods appeal, as well as donating
£27,600 to Kevin Sinfield’s fundraising efforts for his
ex-Leeds Rhino teammate Rob Burrow’s campaign to raise
awareness of motor neurone disease (MND).
In September, the Fair Tax Foundation confirmed that the
Society had been re-accredited with the Fair Tax Mark.
Paying our fair share of tax is one of the principal ways we
contribute to society, helping to fund the public services
we all rely on. Transparency around our tax affairs is very
important to us and to our members. In 2018, we were the
first national high street financial institution to receive the
Fair Tax Mark and have received re-accreditation each year
since then – something we are very proud of.
Supporting our communities and causes our members
care about are key to our identity as a mutual. We
continued our enthusiastic support for our national
partner Dementia UK, taking fundraising beyond
£500,000. I’m also delighted to confirm that through the
Closer to Home project, we will be hosting face to face
specialist dementia care clinics in our branch network –
a first for the Society.
We also more than tripled our funding to the Leeds
Building Society Charitable Foundation to £300,000 per
year. In 2021 we set ourselves a target of distributing
£1.5 million by 2025 to local communities through a
mixture of donations, grants, fundraising, volunteering,
and sponsorship. I’m pleased to announce that we have
now doubled this target, and we will now aim to donate at
least £3 million to charities and local communities by 2025.
We maintained our successful, long-standing partnership
with Leeds Rhinos for a record breaking 16th consecutive
year and announced our sponsorship of Leeds 2023, a
celebration of the culture and talent in our home city.
We also became one of the main sponsors of the Leeds
Digital Festival – a high profile event to showcase the city’s
credentials as a hi-tech centre and employment base.
Outlook: facing challenges together
As a mutual, we always keep the needs of our members
and their communities at the heart of our business. We
will continue to support our members through the cost of
living crisis, whilst also balancing the various needs of our
savers and our borrowers.
Our strong performance during 2022 means we are in a
very good financial position to face into what could be a
turbulent economic headwind.
In common with other successful modern businesses, we
work towards a genuine purpose. But we have a distinction
that it was the very reason we were founded almost
150 years ago, and we have been living up to it ever since.
Combining this with a sustainable business strategy,
innovative mindset and care for colleagues and customers
means I look forward to the future with confidence.
As always, I’m grateful to you, our members, for your
continued trust and confidence in our Society.
Richard Fearon
Chief Executive Officer
23 February 2023
08 09Leeds Building Society | Annual Report and Accounts 2022
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we are owned by our members and we act in the best interest of our members and wider stakeholders, over the long term.
Home ownership has always been an important focus for our business, as we believe more people should have the security
of owning their own home. We are committed to supporting our members onto and up the housing ladder, as well as
supporting them to remain in their home when faced with an uncertain economic and market environment among other
challenges.
Our purpose
During 2022, we continued to embed our purpose, “Putting home ownership within reach of more people – generation
after generation”, as well as our new strategic drivers and behaviours.
Strategic drivers: What we’ll deliver
More responsive model – it’s our
responsibility to serve members and society
for generations. We will build foundations that
are strong and responsive to the changing
context we will face.
Close-the-gap innovation – there are too
many barriers to people getting the home they
deserve. We will be relentless in partnering
and creating solutions to help people onto and
up the ladder of home ownership.
Step-up savings – savers are the lifeblood of
our business. For them we will create
experiences that are straightforward and
human no matter the channel, and ensure
that when people save with us they save
with purpose.
Behaviours: How we’ll deliver it
I am curious – seeking out expertise from
different perspectives in the business, and
looking outside for insight and inspiration.
I focus on what matters – doing the things
that will make the biggest difference, and
always doing the right thing for our members
and our Society.
I push forward – taking action, making
decisions and creating solutions to barriers.
I have the right conversation – facing into
difficult conversations, and celebrating
great work.
Our business model
1 CACI’s CSDB, Stock, January to December 2022, latest data available. CACI is an independent company that provides financial benchmarking data for the retail cash
savings market.
Our purpose is delivered through our simple business
model – providing a safe and rewarding place to save
We provide residential mortgages in the UK, through a
network of approved mortgage brokers and directly to
members through online and telephone channels, to help
members into homes of their own. We offer mortgage
products across mainstream residential, buy to let and a
range of other segments, such as shared ownership and
interest only.
We fund the majority of mortgage lending with members’
savings, through a range of channels. We’ve continued to
support savers with our rates averaging 1.15%
1
during
the year. The remainder is funded from wholesale money
markets on competitive terms, as well as reserves of
previous profit, and government-supported funding
schemes aimed at increasing the level of lending across
the market.
Our strong liquidity position helps to make sure that there
are sufficient funds available to meet the requirements of
savers, investors and other creditors. Assets are invested
conservatively, in a range of high quality investment
instruments and across a range of counterparties.
Environmental, Social and Governance (ESG) factors
are considered when assessing the creditworthiness
of our counterparties for liquidity investments and, if a
counterparty was judged not to meet these criteria, then
their limit may be rescinded.
We aim to generate sufficient profit through cost
efficiency and management of the net interest margin,
in order to maintain a strong capital position. As a
result, we can continue to invest in the Society for the
benefit of our membership as a whole – for example, by
improving customer experience, building digital capability,
maintaining branches and enhancing the colleague
working environment.
Longer term, while we believe that our core product lines
are sustainable into the future, we expect the markets we
operate in to remain fiercely competitive, and we will need
to adapt accordingly.
We continue to invest in our mortgage systems to improve
efficiency, speed up processing times and improve
customer experience. This will help us to serve the
evolving needs of more members, both through how they
choose to do business with us and by providing products
relevant to them. We continue to review opportunities to
meet existing and new members’ needs better, including
the development of our products and distribution
channels.
Business Model and Strategy
Year ended 31 December 2022
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Business Model and Strategy continued
Our business model is summarised below:
Where our funding comes from
•
Savers (via our branch network,
phone, online, post)
•
Wholesale markets
•
Reserves of previous profits
How we use our funding
We lend to help members have the
home they want, including:
•
Mainstream residential
•
First time buyers
•
Shared ownership
•
Buy to let
•
Interest only
Why we need to make profit
We
are member-owned and do not pay
an
y shareholder dividends, however we
need to make profit to
:
•
Maintain financial strength
•
Invest in the business for the benefit
of our membership as a whole (for
example, maintaining our branch
network, improving digital capability
and customer experience, enhancing
the colleague working environment)
and to set up the business for future
success
•
Provide benefits for the communities
in which we operate
How we remain financially stable and
operationally resilient
•
By maintaining liquid investments
with strong credit rated institutions
and central banks
•
By making sufficient profit to maintain
a strong capital base
•
By having a prudent lending approach
•
By maintaining a long term strong
credit rating
•
By maintaining a multi-channel
business model
•
Ongoing investment and focus on
operational risk reduction including
a robust cyber strategy
What we need to spend
•
Costs of running the business and
investing to provide the right level
of service in an efficient way
•
Paying our colleagues fairly to attract
and retain talent
•
Paying our fair share of tax
•
Putting money aside for bad debts
£
A key element of our mutual business model is also providing social value to our stakeholders, and there are some
examples of how we do this on the next page.
Our new Purpose Impact Report demonstrates the impact of our responsible business activities and clearly outlines our
aim to drive positive social and environmental impact through what we do, now and into the future. The report is published
on our website at leedsbuildingsociety.co.uk/press/financial-results/.
We deliver social value through the provision of…
Members and brokers
A range of mortgages – our mortgages enable borrowers to achieve the basic societal need of having a
home. Our segmental focus provides access for those less well served by the wider market.
Competitive savings rates – we have a range of simple products designed to meet the different savings
needs of our members and enable them to save for what’s important to them.
A secure home for members’ savings – our financial strength means we are able to generate robust profits
that allow us to pay our fair share of tax to support essential services and make longer term decisions in the
best interest of members.
Superior customer service – our colleagues are focused on supporting the differing and evolving needs
of our members and brokers, generating consistently high levels of satisfaction.
Colleagues
Stable employment opportunities – we offer meaningful roles that are fairly rewarded. We have a
supportive and inclusive culture, creating career development opportunities for all. Our engagement score
places us in the middle range of the UK financial services sector benchmark.
Communities
Support for the communities in which we operate – we contribute directly to society through the work
of the Leeds Building Society Charitable Foundation, our fundraising efforts and colleague volunteering
scheme.
Environment
Products and services that reduce climate risk and environmental impact – the increased focus on
climate issues presents further opportunities for the traditional mutual model to evolve and deliver
innovative solutions that contribute to a sustainable future. We are also taking actions to reduce our
own emissions footprint.
Third parties
Products and services through partnerships with trusted third parties – we use partners who are aligned
with the Society’s behaviours and whose goals and objectives are consistent with our responsible business
aims.
Regulators
A strong focus on risk management and customer-centred decision making – our ‘How We Do Business’
standards
2
set out how we continually strive to do the right thing for our members, colleagues and
communities.
Investors
A safe and secure investment – we maintain our financial stability through strong income performance,
a continued focus on cost efficiency and by keeping a robust liquidity position.
2 These can be found on our website at leedsbuildingsociety.co.uk/your-society/how-we-do-business/
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Business Model and Strategy continued
Progress on 2022 corporate priorities
During the year, we’ve continued to deliver against our strategic drivers, by focusing on our corporate priorities. We’ve
demonstrated our responsiveness through a changing economic and market environment, and have pushed forward on
developing our innovation capability for the future, whilst also improving customer experience, products, and propositions
for our saving members. Our progress against our corporate priorities is detailed below.
Corporate priority Progress in 2022
More responsive model
Ensure we have highly engaged and
empowered colleagues, a diverse workforce
and talent pipeline to respond to our
changing context and needs
• We transitioned how we measure colleague engagement by
introducing Peakon as a new supplier, utilising an average score across
core engagement questions. In 2022 we achieved an engagement
score of 8.0 (out of 10) which places us in the middle range of the UK
financial services sector benchmark.
• We invested in an inclusive leadership programme and are now
measuring whether our leaders are fostering an inclusive environment
as part of our broader internal inclusion and diversity measures. In
addition, all leaders are required to have a personal objective for 2023
focused on the relevant leadership challenges in their area.
Build a sustainable technology platform and
rapid transformation capability
• We’ve delivered the first phase of our technology roadmap,
successfully moving several of our savings member journeys onto our
new digital platform.
• During 2022 we’ve implemented a significant amount of change to
keep our technology safe and secure. As part of this, we concluded our
data centre migration, and proved its enhanced technical resilience.
• We significantly increased our capacity to deliver change, focusing on
priority areas such as digital, where capacity has increased by 300%,
to support strategic initiatives. We’ve driven substantial increases in
the pace of our delivery (e.g. 70% more releases in savings and digital
areas) and have also proven the responsiveness of our change model
to evolving internal and external priorities.
Maintain the capital strength and cost
efficiency to support our differentiated
product mix and thrive through the cycle
• The level of profits we have generated in 2022 has enabled us to
further increase the amount of capital we hold. Industry-wide changes
in regulation have meant our capital ratios have fallen, but we remain
highly capitalised.
• Our costs have increased in the year as we have invested in colleagues
and our technology, but we retain a close control over costs and a focus
on operating efficiently. Our cost ratios remain among the best in our
sector.
Lead the business and our members
through the transition to net zero
• We continue to be carbon neutral for scope 1, 2 and selected scope
3
3
emissions, and we’ve been re-accredited with The Carbon Trust
Standard for Carbon.
• We’ve worked with sustainability experts, Carbon Intelligence, to
better understand our emissions and as a result, we’ve set stretching
targets to reduce our scope 1 and 2 emissions and climate-related
risks – for further information, see our disclosures under the Task
Force on Climate-related Financial Disclosures (TCFD) requirements
on pages 48 to 79.
• Our new Purpose Impact Report demonstrates the impact that we’ve
made during the year on climate and the environment. For example,
we’re working closely with some major house builders around the
Government’s upcoming Future Homes Standard, supporting efforts
to build more energy efficient homes.
3 In line with Climate Impact Partners’ framework, The CarbonNeutral Protocol, this includes emissions from our business travel, fuel and energy related activities (FERA),
waste generated in operations and home working.
Corporate priority Progress in 2022
Close-the-gap innovation
Develop streamlined lending journeys to
make it easy for members and brokers to do
business with us
• During 2022, we’ve further improved our mortgage application
system, Mortgage Hub, to become more responsive in an ever-
changing market. For example, we’ve removed the need for a wet
signature, and have brought in an automatic valuation instruction on
application submission.
• Our average application to offer speed has improved from 18 days in
2021 to 15 in 2022, with some cases now able to offer automatically
within seconds on submission. Our broker Net Promoter Score
reached 76 in July (our highest ever).
• Our speed to launch mortgage products has improved from eight days
in 2021 to four days in 2022 and we’ve made it easier than ever for
members to arrange appointments to speak to colleagues through a
new appointment booking tool.
Proactively spot opportunities to meet the
needs of our members and intermediaries
through our data and insights
• We’ve continued to gain an understanding of members’ and our wider
stakeholders’ needs during the year, through a number of engagement
surveys and by analysing call demand. We’ve modernised our reporting
capabilities to enable advanced data visualisation and focused this on
services directly impacting members. This insight has enabled us to
prioritise processing and digital enhancements, including introducing
confirmation of deposit and confirmation of documentation
processes.
• We continue to review and refine ESG risks within lending appetite and
our supplier procurement process to protect the Society and members
and align to climate strategy ambitions.
Develop an innovation capability and
mindset focused on helping more people
onto and up the property ladder
• We’ve identified three key areas of focus for us to partner and
collaborate with the FinTech community in order to remove the
barriers to home ownership: making home ownership more accessible
and affordable, building savings habits and improving the mortgage
journey.
• We held ideation sessions with colleagues and third parties to devise
solutions for specific member needs in relation to deposit building and
accessing home ownership. We are currently building out these ideas
into prototypes which have undergone customer testing and feedback
in order to iterate and improve.
• Colleagues were also encouraged to collaborate with each other
and charities or community groups to pitch for a share of a £250,000
donation for good causes which included those which demonstrated
innovation and support for people in need of a safe and secure home.
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Corporate priority Progress in 2022
Step-up savings
Cherish our branch network and the service
and loyalty it delivers
• We’ve continued to invest in our branches during the year, through
maintaining all of our leasehold commitments and, where appropriate,
securing renewals in line with the lease provisions, and we’ve also
purchased the freehold to our branch in Norwich.
• We’ve enhanced technology within our branches, including the
provision of wifi and the centralisation of all servers, both designed to
provide a more robust level of service.
• Member satisfaction with our branch network remains extremely high,
at an average of 98%
4
during 2022.
• We continue to have one of the most efficient branch networks
amongst our peer group according to the latest eBenchmarkers
analysis
5
.
Define a multi-channel experience that
meets member needs and drives a step
change in awareness, accessibility, and
service
• We’ve partnered with accessibility information provider AccessAble,
to help our members with disabilities find the information they need to
know before they take a trip to any of our branches, and we’ve installed
hearing loops in all of our branches to support members with hearing
difficulties.
• We’ve agreed a target standard for digital accessibility, and all new
savings journeys have reached these standards, improving our overall
conformity, along with several changes on the public site.
• We’ve been continually tracking and monitoring member experience
across all channels. As a result, we’ve improved a number of online
customer journeys including password reset, forgotten username and
online registration, with all of these journeys now working across all
types of devices.
Define and deliver a savings member
value proposition that creates connection
beyond rate
• In 2022, despite the savings market growing more slowly than in
previous years, we delivered over £2 billion in net retail savings in one
year for the first time ever. This is because we’ve continued to offer
great value to new and existing members. A key part of our success
has been our response to the eight base rate changes over the last 12
months and ensuring we’re offering products that are competitive to
our peers (savings rates were on average 0.50%
6
above the rest of the
market).
• In October we launched a 21-month fixed rate savings bond in
support of Dementia UK, whereby the Society will make a donation to
Dementia UK based on total balances invested, equating to £114,000
over the 21 months.
• In December we launched our new customer savings account opening
journey for our eSaver product. It has performed well and is already
providing insights, with two improvements applied to the journey so
fa r.
• We’ve been re-accredited with the Fairer Finance Gold Ribbon for our
savings products, which recognises the good customer service we’ve
offered to savers, our transparency and how well we handle complaints.
4 Branch satisfaction in a survey of 1,263 members from January to December 2022.
5 eBenchmarkers Savings Report, Spring 2022.
6 CACI’s CSDB, Stock, January to December 2022, latest data available. CACI is an independent company that provides financial benchmarking data for the retail cash
savings market.
People
In 2022 we created a new people strategy. We have taken the best of our journey to date and combined it with external
insight and fresh thinking to create a re-imagined people strategy to ‘power up’ our people to deliver our purpose and
direct our focus through to 2025.
People
experience
Leadership excellence
Right people, right skills,
right role
Inclusive and diverse
Personalised learning
Optimised people
technology
Modern reward
Brilliant basics
Our people experience and ways
of working reflect our culture, so
our colleagues feel highly engaged
with the Society and are able to
maximise their own true potential.
We work with our key stakeholders
to help them predict and prepare
for the future, ensuring we have
the right people, with the right
skills, in the right role, at the
right cost.
Our colleagues can easily build the
knowledge and skills they need to
perform at their best, through a
personalised, engaging and
sustainable learning experience.
We have a modern purposeful
reward and recognition strategy,
enabling us to attract, retain and
engage the best people and ensure
we become and remain a magnet
for talent.
Our leaders create the right
environment for colleagues to
innovate and perform at their best.
Every colleague at every level
experiences great leadership that
inspires, coaches and cares.
We are an organisation where
difference is embraced, and all
colleagues feel includedand valued
for who they are and the unique
perspectives they bring.
We use integrated technology to
provide streamlined services,
remove friction and deliver
relevant insight.
We flawlessly deliver the core
people processes, removing
complexity and improving
efficiency.
We have made significant progress in 2022 and the following pages highlight what we have done.
People experience
In 2022 we moved to using a new provider for our employee survey in order to align with our purpose and also enable us to
benchmark our colleague experience more confidently against other organisations.
As 2022 represents our transition year, we have a new baseline for colleague engagement of 8.0 (out of 10), which places us
in the middle range of the UK financial services sector benchmark, a position we will look to build upon.
We’ve also completed a comprehensive review of our culture by extending our engagement survey to measure how well
our new behaviours are being embedded, alongside how colleagues, managers and leaders all experience our current
culture day to day. We recognise that a vibrant, healthy culture is a key enabler of a thriving member-focused business
delivering good customer outcomes.
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Business Model and Strategy continued
These changes have allowed us to provide our people managers with rich insight, empowering them to understand the
impact of their leadership. An 87% participation rate gives us confidence that this is representative of our colleague
sentiment across the Society, so actions taken will be relevant and impactful.
We are also using this insight to inform what we focus on within each component of the people strategy ‘battery’.
Inclusion and diversity
In 2022, we refreshed our approach to inclusion and diversity, to include broader diversity characteristics and to ensure that
creating an inclusive culture became a core focus. Our refreshed inclusion and diversity strategy ‘Being You: Transforming
Us’ aims to ensure every colleague feels valued and included for who they are and the unique perspectives they bring. You
can read more about our strategy in our Purpose Impact Report, available on our website at leedsbuildingsociety.co.uk/
press/financial-results/.
We’ve continued to focus on improving our gender and race representation on the Board and in our Leadership Team. The
gender composition of our workforce is detailed below:
2022 2021 2020 2019 2018
Female Male Female Male Female Male Female Male Female Male
Colleague
Group
Number
926 596 838 507 829 499 838 486 822 465
Percentage 61% 39% 62% 38% 62% 38% 63% 37% 64% 36%
Leadership
Team
Number
49 90 40 85 33 70 33 66 31 62
Percentage 35% 65% 32% 68% 32% 68% 33% 67% 33% 67%
Directors* Number 3 8 3 8 2 8 3 9 3 10
Percentage 27% 73% 27% 73% 20% 80% 25% 75% 23% 77%
*number includes executive and non executive directors
2022 saw the launch of our new HR platform, which has enabled us to expand the data set we collect from our colleagues in
relation to diversity, including protected characteristics data and broader fields such as socioeconomic data.
This data will enable us to better understand our diverse colleague representation at all levels in the Society and support
us in measuring progress. As our data set improves, and as we continue to mature our inclusion and diversity strategy,
we will engage with our Board and Senior Leadership Team to review and consider broadening our targets beyond gender
and ethnicity to ensure that we have a truly diverse workforce in all senses, which is representative of the communities we
serve.
Personalised learning
In 2022, we clearly defined our desired future state of personalised learning for all colleagues. This will provide a learning
offer that is simple to access, relevant to an individual, and delivers an engaging experience.
To create more engaging and effective learning experiences for our contact centre colleagues, we have successfully piloted
interactive simulations to build confidence with the identification and verification process.
We have also reviewed our induction programme for customer facing colleagues and have made a range of enhancements
to reduce the time to competence, whilst building greater colleague confidence.
Modern reward
We have a long-standing commitment to fair pay for colleagues and in 2022 we undertook a strategic review of our
fair reward approach. Our new fair reward principles give us confidence that we pay salaries which reflect the skills and
experience required to attract and retain colleagues.
Since 2019, we have been a Real Living Wage employer, paying colleagues at least the Real Living Wage. Our minimum
salary from January 2023 is £12.08 per hour, which is £1.18 above the Real Living Wage of £10.90 per hour.
In recognition of the challenges posed by the cost of living crisis, we awarded eligible colleagues (excluding our Senior
Leadership Team) a £1,200 non consolidated payment (full time equivalent). Additionally, we brought forward our April
2023 pay review to January 2023, providing further support to colleagues, which included a minimum increase of 6% to
eligible colleagues and 14.6% to colleagues on our minimum salary.
During 2022, we have improved our benefits offering to colleagues, with enhanced family leave pay and have launched
other benefits to support wellbeing. All our colleagues continue to share in the Society’s success by participating in an
annual bonus scheme, which reflects the performance of the Society as well as individual contribution, determined by
achievement of objectives and demonstration of behaviours.
Communications and ways of working
Communication and collaboration continue to be critical elements of our culture. In 2022 we launched a new colleague
intranet platform and committed to an investment in collaborative technology for every colleague.
Using the enhanced engagement survey platform, we have been able to identify and respond to the things that matter
most to our colleagues in real time. A core focus has been to communicate how the Society is navigating the cost of living
crisis for our members and colleagues.
Many of our office-based colleagues are working in a hybrid way, with some of their time spent in the office and the
remaining time working from home. Additionally, we offer a broad range of flexible working options and patterns,
supporting colleagues to balance their home and work life effectively.
The Board
The Board recognises the critical role our colleagues play in powering up our purpose to meet the needs of members,
generation after generation, and all Board members play an active role in supporting this.
In 2022, the Board prioritised meeting more colleagues in person as the pandemic subsided, including members of our
inclusion and diversity forums who shared their lived experiences of work with them. Iain Cornish, Chair of the Board,
met with each forum during the year and personally launched our ‘This is Me’ campaign which has seen our colleagues
generously sharing their personal stories to help us better understand the true diversity of our workforce.
Since 2019, Lynn McManus, Non Executive Director and Chair of the Remuneration Committee, has had responsibility for
representing colleagues’ views at the Board. Lynn met with our Colleague Association three times during 2022 and has
taken a keen interest in colleague matters, views and opinions. Annette Barnes has taken on this role from 2023.
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Key performance indicators
We measure our performance against our strategic drivers using a number of key performance indicators (KPIs), including
both financial measures, as defined under IFRS, and non financial measures. Alternative Performance Measures (APMs)
given below are in common use across the financial services industry and are useful in explaining the performance of the
business. The APMs are defined in the Glossary on page 245.
Home ownership
First time
buyers
The number of new mortgage
members in the year who
are first time buyers,
demonstrating our purpose of
putting home ownership within
reach of more people.
2018
2019
2020
2021
2022
12,000
10,500
8,000
20,000
18,000
In 2022 we delivered our
highest ever level of shared
ownership lending and
maintained our share of the
first time buyer market.
More responsive model
Profit before
tax
Profit before tax, as reported
in the Income Statement,
creating capital to support
future business growth.
2018
2019
2020
2021
2022
£116.9m
£88.0m
£80.7m
£163.7m
£220.5m
Increased net interest income,
driven by strong margins,
increases in base rate and
balance sheet growth, has
increased profits to the
highest level in our history,
which will support ongoing
achievement of our purpose.
Net interest
margin
The difference between
interest received on assets
and interest paid on liabilities,
measured as a percentage
of mean assets. This is the
Society’s main source of
income.
2018
2019
2020
2021
2022
1.15%
1.00%
0.99%
1.31%
1.50%
Strong mortgage margins and
relatively low funding costs,
along with a rising interest rate
environment have in recent
years enabled us to increase
our net interest margin while
supporting savers through
paying above market average
rates.
Common
Equity Tier 1
(CET1) ratio
The highest quality form of
capital that mainly comprises
retained earnings and other
reserves, as a proportion of
risk weighted assets (RWAs).
This is measured to help make
sure that the Society retains
an excess over the regulatory
minimum.
2018
2019
2020
2021
2022
31.3%
33.6%
36.3%
38.0%
33.3%
Our high levels of profitability
have meant we have grown
the amount of capital we hold.
Market-wide changes in the
regulations for calculating the
amount of capital we require
have meant that our CET1
ratio has fallen, but our capital
position remains very strong.
UK leverage
ratio
Another measure of capital
strength. Measured as the
Society’s Tier 1 capital as a
proportion of relevant total
assets excluding central bank
reserves.
2018
2019
2020
2021
2022
5.5%
5.3%
5.8%
6.1%
6.2%
Our profits in the year have
meant our capital has grown
in excess of our balance sheet
and driven an increase in the
leverage ratio. In 2021, the
regulator confirmed that this
measure is not binding on the
Society.
More responsive model (continued)
Cost to
income ratio
A cost efficiency ratio which
measures costs in relation
to the Society’s income. It is
calculated as the percentage
of the Society’s total income
spent on administrative
expenses and depreciation
and amortisation.
2018
2019
2020
2021
2022
44.8%
53.5%
51.0%
43.9%
37.4%
Our costs have increased
by 12% in the year due to
investment in our colleagues
and technology, for the
benefit of current and future
members. We continue
to focus on operating as
efficiently as possible over
the long term, with this
investment enhancing
capabilities, productivity
and ongoing resilience. A
significant increase in income
has supported a reduction in
the cost to income ratio.
Cost to mean
asset ratio
An additional cost efficiency
ratio which measures costs
in relation to the Society’s
total assets. It is calculated as
administrative expenses plus
depreciation and amortisation,
divided by average total
assets.
2018
2019
2020
2021
2022
0.52%
0.50%
0.48%
0.58%
0.59%
The growth in our cost base
has remained in line with the
growth in our assets. We have
developed greater flexibility in
our investment expenditure
to allow us to manage costs
effectively.
Colleague
engagement
score
Colleague engagement is
measured annually across
all colleagues through our
colleague survey. The Society’s
objectives are delivered by
highly engaged colleagues.
2018
2019
2020
2021
2022
12,000
10,500
8,000
20,000
8.0
We have changed the provider
we use for our colleague
survey so the 2022 results
are not on a consistent
basis with previous years.
Our score of 8.0 (out of 10)
places us in the middle of the
range for the UK financial
services sector benchmark,
which is considered a good
performance in the first year
of this survey
7
.
Close-the-gap innovation
New (gross)
residential
lending
The value of residential lending
advanced by the Society
during the year, including
loans for house purchases,
remortgages and further
advances.
2018
2019
2020
2021
2022
£3.8bn
£3.5bn
£2.5bn
£4.4bn
£5.0bn
The mortgage market was
very active for most of 2022
and our product proposition,
focused on our purpose,
allowed us to support
members and deliver our
highest ever level of new
lending.
Net
residential
lending
Gross residential lending, less
repayments of principal and
redemptions.
2018
2019
2020
2021
2022
£1.0bn
£1.0bn
£0.0bn
£1.5bn
£2.0bn
Our record levels of new
lending and competitive
product transfer offering to
existing customers coming to
the end of their initial product
term have supported an
increase in net lending.
7 Your Voice colleague survey, 1,350 respondents (87% response rate) in October 2022.
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Close-the-gap innovation (continued)
Number of
days from
mortgage
application
to offer
The number of business days
it takes to issue a mortgage
offer from initial receipt of the
application.
2018
2019
2020
2021
2022
16
15
24
18
15
Continued investment in the
Mortgage Hub and supporting
technology have allowed us
to speed up the process for
issuing offers.
Broker Net
Promoter
Score
Demonstrates how likely
brokers are to recommend
the Society to their peers.
Calculated using the
percentage of people who are
extremely likely to recommend
and subtracting those who are
unlikely to recommend.
2018
2019
2020
2021
2022
49
54
46
56
63
Improvements to the
Mortgage Hub have also
simplified processes
for brokers submitting
applications and supported an
improvement in satisfaction.
Step-up savings
Savings
balances
The value of shares and
deposits held by the
Society’s members and other
customers, as reported in
the Statement of Financial
Position.
2018
2019
2020
2021
2022
£13.9bn
£14.5bn
£14.2bn
£15.3bn
£17.5bn
Our attractive product range,
particularly our fixed rate ISAs
and increases in the variable
rates we pay our existing
savings members, have helped
us deliver record net savings
inflows in the year.
Savings rate
benefit
The annual benefit to all our
savers of paying above market
rates to savers, based on the
Society’s weighted average
savings rate compared to the
rest of market rate.
2018
2019
2020
2021
2022
£81.5m
£88.5m
£82.8m
£71.5m
£80.5m
During the year we paid
an average rate of 1.15%,
compared to the rest of
market average of 0.65%
8
.
As base rate has risen we have
increased the rates on our
variable accounts, with the
minimum rate paid on these
accounts now 1.45%.
Customer
satisfaction
The percentage of customers
surveyed who described
themselves as quite, very or
extremely satisfied with the
service received from the
Society.
2018
2019
2020
2021
2022
91%
91%
93%
93%
93%
Despite service pressures at
some of our busiest times, we
have maintained our customer
satisfaction scores at their
record level of the previous
two years and we remain
focused on delivering the
service our members expect
9
.
8 CACI’s CSDB, Stock, January to December 2022, latest data available. CACI is an independent company that provides financial benchmarking data for the retail cash
savings market.
9 Overall customer satisfaction in a survey of 3,387 members from January to December 2022.
Responsible business
At the end of the second year of our responsible business strategy (2021 to 2025) we are pleased to report good progress.
Following increased investment and a clear operational focus on demonstrating our commitment to being a responsible
business, we can point to tangible outcomes, with 13 out of our 14 responsible business KPIs on target at the end of 2022,
as illustrated on page 25. These targets will be kept under review to ensure we continue to stretch our ambition.
This year, as part of our aim to report in a clear and transparent way, we have created a separate Purpose Impact
Report which outlines in more detail how we are delivering our responsible business strategy under our five key pillars:
‘Supporting Home Ownership’, ‘Sustainable Communities’, ‘Inclusion and Diversity’, ‘Climate and Environment’ and ‘Trust
and Transparency’. These themes were developed following extensive consultation with over 3,800 stakeholders on what
responsible business issues were most important to them.
The report can be found on our website at leedsbuildingsociety.co.uk/press/financial-results/.
Key achievements this year
Supporting home ownership
• Our purpose-led strategy has supported 18,000 first time buyers in 2022. We’re proud that one in three of our new
mortgages helps a first time buyer onto the housing ladder.
• Withdrew from lending on second homes as part of our commitment to home ownership.
• Launched a clear set of seven public policy proposals to guide the Government and the housing industry in tackling the
UK housing crisis.
• Awarded What Mortgage ‘Best Shared Ownership Mortgage Lender’ for seventh year running.
• Supported our members during market turmoil including:
– Continuing to offer first time buyer and shared ownership products.
– Honouring mortgage offers (including offered rate) to new customers for six months from date of issue
10
.
– No arrears fees if borrowers fall behind on their mortgage repayments until at least 1 January 2024, extending
suspension of these fees since the start of the pandemic.
– Tailored support to members who struggle with repayments or are in arrears.
Sustainable communities
• Awarded over £970,000 to over 160 charities in 2022.
• Met our £500,000 fundraising target for our charity partner Dementia UK.
• Raised over £100,000 in response to the Ukraine crisis and converted space above our Peterborough branch into
accommodation for people fleeing the conflict.
• Donated £25,000 to support people impacted by the devastating floods in Pakistan.
• Reached over 3,900 pupils from 29 schools via our financial education programme.
• Colleagues volunteered more than 2,200 hours.
• £250,000 was awarded to colleague-nominated charities.
• Leeds Building Society Charitable Foundation awarded just under £230,000 in new grants to 107 charities, which align
with its new purpose of helping people in need of a safe and secure home.
Inclusion and diversity
• Renewed our investment in the ‘Mission INCLUDE’ mentoring programme, with a further 24 colleagues participating.
• Continued our reverse mentoring programme, pairing nine senior leaders with nine colleagues of different and diverse
ethnic backgrounds, as well as expanding to include an age reverse mentoring programme, pairing nine senior leaders
with nine colleagues under 30.
• Inclusive leadership programme delivered to 141 leaders across the Society, with bespoke inclusion and diversity
training delivered to all colleagues.
• Stepped up our inclusion and diversity communication, establishing a regular drumbeat of colleague stories and articles
reflecting the key pillars of our strategy around learning and listening.
• Attended Leeds Pride as a visible employer sponsor, with over 100 colleagues and families attending.
10 We may withdraw an offer in limited circumstances, which include fraud, misrepresentation, or non disclosure of material information. Full terms and conditions are
outlined in the mortgage offer.
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• Delivered seven Society-wide inclusion and diversity webinars, all with a focus on growing understanding and raising
awareness.
• Launched our ‘This is Me’ campaign, where our colleagues shared their lived experience on a variety of inclusion and
diversity subjects, which helped create space for conversations.
Climate and environment
• Certified as a carbon neutral company by Climate Impact Partners
11
.
• Completed assessment and quantification of the Society’s full carbon footprint.
• Agreed new targets to reach net zero for our operations
12
by 2030 (or sooner), supported by multi-year investment in
our property portfolio.
• Funding research into affordability of energy efficient Future Homes.
• Completed pilots for a range of new green mortgages which adhere to the Green Finance Institute’s Green Home
Finance Principles.
• Reflected energy efficiency savings in the affordability assessment for new build homes.
• Planted over 3,300 trees in partnership with Yorkshire Dales Millennium Trust.
• 79 colleagues donated 447 volunteering hours maintaining a mile of waterway behind our new energy efficient Leeds
head office with the Canal & River Trust.
Trust and transparency
• The Society has been re-accredited as a Real Living Wage employer, a Disability Confident Employer and for the Fair Tax
Mark.
• We continue to align ourselves to our Fair Pay Charter.
• We’re committed to providing the best experience possible for our members and brokers, and here are a few examples
of awards we received in 2022:
– Financial Adviser 5-star Service Award for Mortgages and Cash Investment 2022.
– Fairer Finance Gold Ribbon for Savings.
– Institute of Customer Services ServiceMark accreditation.
• Our latest ESG audits demonstrate our credentials, with Sustainalytics placing us in the top 10% of lending peers and
Vigeo Eiris placing us in the top 15% of industry peers.
• We have produced a standalone Purpose Impact Report to clearly outline our responsible business strategy and
progress against our goals.
• Updated our ‘How We Do Business’ statement, which outlines our approach to responsible business.
Our responsible business goals
Two years into our five-year responsible business strategy, we have made excellent progress against all our targets, as
set out on the next page. As a result, we have introduced a more ambitious community outreach target and redefined our
climate and colleague engagement measures. Our Purpose Impact Report outlines progress in more detail.
11 For scope 1 and 2 market-based emissions and selected scope 3 emissions (business travel, fuel and energy related activities, waste generated in operations and
home working).
12 Includes our scope 1 and 2 market-based emissions.
Sustainable
communities
Provide £1.5m
to charities and
communities through
grants, donations and
sponsorship by 2025.
Progress: Ahead
2022 target: £600k by end
of 2022
2022 actual: £1.4m by end
of 2022
We have set a new, more
ambitious target of providing
£3m to communities by 2025.
Maintain our share of UK
high street branches at
higher than 0.5%.
20
Progress: Achieved
2022 target: >0.50%
2022 actual: 0.62% (as at March
2022)
Inclusion
and diversity
Achieve 12% overall
ethnic minority
representation among
our colleagues by 2025.
Progress: Ahead
2022 target: 9.75%
2022 actual: 11.9%
Achieve 7% ethnic
minority representation
among leaders by 2025.
Progress: Ahead
2022 target: 4.6%
2022 actual: 7.2%
Improve gender
diversity with 33%
female Board members
by 2025.
Progress: Behind
2022 target: 33%
2022 actual: 27%
Improve gender
diversity with 35%
female senior leaders
by 2025.
Progress: On track
2022 target: 33.5%
2022 actual: 35.25%
Climate and
environment
Reduce absolute scope
1 and 2 market-based
emissions by 90% by
2030.
15
Progress: Ahead
2022 target: 10% reduction
2022 actual: 19% reduction
Reduce absolute scope
1 and 2 location-based
emissions by 60% by
2030.
13
Progress: Ahead
2022 target: 7% reduction
2022 actual: 43% reduction
Maintain carbon neutrality
for scope 1 and 2
market-based emissions
and selected scope 3
emissions, on the pathway
towards net zero.
16
Progress: Achieved
17
2022 target: 0 tCO₂e
2022 actual: 0 tCO₂e
13
Broker and member satisfaction figures are taken from a rolling 12 month average.
14
CACI’s CSDB, Stock, January to December 2022, latest data available. CACI is an independent company that provides financial benchmarking data for
the retail cash savings market.
15
From a 2021 base year.
16
In accordance with Climate Impact Partners' CarbonNeutral Protocol, this includes emissions from our business travel, fuel and energy related activities,
waste generated in operations, and home working.
17
Subject to independent verification which will be completed during 2023. Any additional carbon offset credits that need to be purchased as a result of
verification / final emissions calculations will be bought during 2023.
18
Overall customer satisfaction in a survey of 3,387 members from January to December 2022.
19
In 2022 we moved to a new provider for our Employee Engagement Survey (Peakon) in order to align with our purpose and enable us to benchmark our
colleague experience more confidently against other organisations.
20
Based on bank and building society UK business count data, Office for National Statistics.
Key
Ahead – where the cumulative
performance to date is >5%
above the target on a pro-rata
basis (where appropriate).
On track – where the cumulative
performance to date is between
100%-105% versus the pro-rata
target.
Behind – where the cumulative or
in year performance is below the
associated target.
Achieved – where the reported
performance for the year is in line
with or above the in year target.
We're working towards
alignment to an overall
net zero pathway by 2050
or sooner. As part of this
ambition we have updated
our climate targets in 2022,
and the new targets above
replace our previous goals.
Trust and
transparency
Maintain high member
satisfaction scores of
over 90%.
13,18
Progress: Achieved
2022 target: >90%
2022 actual: 93%
Maintain strong
colleague engagement
score which places
us in line with the UK
financial services sector
benchmark.
19
Progress: Achieved
2022 target: 8.0 (out of 10)
2022 actual: 8.0 (out of 10)
Help 65,000 first time
buyers into a home of
their own by 2025.
Progress: Ahead
2022 target: 30,000 first time
buyers supported by end of 2022
2022 actual: 38,000 first time
buyers supported by end of 2022
Improve mortgage broker
satisfaction scores by
20% by 2025.
13
Progress: Ahead
2022 target: +54 Broker NPS
2022 actual: +63 Broker NPS
Maintain an average
savings rate premium of at
least 0.25% compared to
market average.
14
Progress: Achieved
2022 target: >0.25%
2022 actual: 0.50%
Supporting home ownership
We set the following targets in 2021 to measure progress against our responsible business strategy. We are pleased to
report good progress as outlined below and have reviewed and updated these targets to match our ambitions.
24 25Leeds Building Society | Annual Report and Accounts 2022
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Business Model and Strategy continued
Directors’ regard to stakeholder interests
Our approach to corporate governance is based on the Principles and Provisions of the 2018 UK Corporate Governance
Code (available at frc.org.uk). Although the Companies Act 2006 does not directly apply to us as a building society, the
Code expects the Board to provide a statement of how it has carried out its duties under section 172 of the Companies
Act 2006 in promoting the success of the organisation for the benefit of all our stakeholders. Further detail on the Board’s
activities, engagement with stakeholders and how it demonstrates its commitment to doing the right thing can be found in
the Corporate Governance Report on pages 133 to 136.
The Board’s approach
We consider the needs of a diverse range of stakeholders, which have been identified as those who may be affected by our
activities and those groups whose actions can affect the operation of the business. These stakeholders are also actively
considered in the development of our strategy. In particular, we consider members’ product and servicing needs, the
expectations of regulators, the needs of mortgage brokers, views of investors and credit rating agencies, as well as any
potential impact on colleagues. The Board recognises that agreeing a strategy, which is cognisant of key stakeholders, will
optimise long term value creation and ensure relevance in a fast-changing environment.
Examples of two key decisions made by the Board during the year, and how stakeholder impact was considered, are shown
on pages 30 to 32 – specifically the decision to approve the updated climate targets, and the ‘voice of the colleague’ Board
sessions.
Our behaviours help to underpin a strong culture appropriate for a mutual organisation, encouraging actions that are in the
best interests of members and other stakeholders. Demonstration of the behaviours in the workplace forms a key part of
our performance management approach. For further information on culture and how this is monitored, see the Corporate
Governance Report on page 122.
Stakeholder engagement
We have set out below our key stakeholder groups and how we engage with them. Further information on the Board’s
engagement with each of these stakeholder groups can be seen in the Corporate Governance Report on pages 133 to 136.
Key performance indicators relevant to members, colleagues and brokers can be seen in the Key Performance Indicators
section on pages 20 to 22.
Stakeholder
group
Why they are important to us How we engage with them Reporting to the Board
Members and
brokers
Members own the Society,
and the Society acts to benefit
members’ interests over the
longer term.
Most of our lending is done
via brokers, who are key to
our business model of helping
members into homes of their
own.
• Gain feedback though our
online panel TalkingPoint.
• Social media.
• Trustpilot.
• Independent external
customer and broker
research.
• Annual General Meeting
(AGM).
• Annual analysis of five-year
forecast of member joiners
and leavers and monthly
reporting.
• Regular reports on service
performance and complaints.
• Consideration of mutual
dividend.
• Reporting on savings rate
benefit.
• Consideration of member
input on specific topics e.g.
mortgage services.
Stakeholder
group
Why they are important to us How we engage with them Reporting to the Board
Colleagues Colleagues are critical to
the success of the Society.
High levels of engagement
mean colleagues will be more
productive, have a higher level
of wellbeing and will go the extra
mile for our members.
• Department and branch
visits.
• Yearly colleague survey.
• Colleague Association.
• Board-appointed colleague
representative Lynn
McManus (Non Executive
Director) met with the
Colleague Association three
times in 2022.
• Attendance by Iain Cornish
(Chair) at diversity forum
meetings.
• Colleague development and
wellbeing sessions.
• Communication on matters
relevant to colleagues and
the Society.
• Colleague survey results.
• Colleague update from
colleague representative and
‘voice of the colleague’ Board
sessions.
• Colleague Association topics.
• Pension scheme information.
• Update on inclusion and
diversity and progress
against our targets.
• Annual Speak Up policy
review and approval.
Third parties Our supplier partners are key to
our ability to develop and deliver
services to members and are
an important aspect of how we
are represented with our other
stakeholders.
• Governance meetings at
appropriate levels take
place in accordance with
the materiality of the
relationship.
• Our policies and standards
drive a fair and transparent
supplier selection and
relationship management
process for new and renewed
requirements, proportionate
to business risk.
• The Board receives regular
updates on the progress
made against our third party
management roadmap and
is involved in decisions on
suppliers for key strategic
projects.
• Management information on
suppliers and our approach
to managing third party
relationships.
• Annual approval of modern
slavery and transparency
statement.
Communities As a mutual, we strive to
make a positive difference to
the communities in which we
operate.
• Annual General Meeting
(AGM) voting for charity
donations.
• Engagement via
communication with
charity partners and their
beneficiaries.
• Colleagues nominate and
volunteer for charities and
community groups.
• Approval of our updated
responsible business
strategy targets and regular
updates of progress against
these.
• Approval of increased
investment in communities.
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Business Model and Strategy continued
Stakeholder
group
Why they are important to us How we engage with them Reporting to the Board
Environment The Society is committed to
minimising our impact on the
environment in the places
in which we operate, as well
as managing environment-
related risks. This is also an
increasing focus for our wider
stakeholders.
• Discussions held with a
wide range of stakeholders,
including government
bodies, building society
peers and third party experts
such as Carbon Trust and
external sustainability and
consultancy specialists
Carbon Intelligence.
• Progress reports on our
climate data and insights.
• Approval of green strategy
and updated climate targets.
• Detailed training on setting
climate targets, including the
requirements of the science-
based net zero pathway
and the activity required to
meet these climate targets
(training included material
developed in partnership with
Carbon Intelligence on the
Society’s climate targets and
net zero methodology).
Regulators Regulators are responsible
for maintaining a safe and
sound financial system, as
well as ensuring consumer
protection. Meeting regulatory
requirements engenders trust
from our stakeholders and
demonstrates that we are doing
the right thing.
• Regular dialogue and
interactions with our
regulators both directly, and
through our industry bodies.
• Monitoring regulatory
publications from the
regulators and wider
stakeholder groups.
• Reviewing regulatory
publications and taking
action as required.
• The Board receives updates
on regulatory matters and a
summary of key regulatory
actions being undertaken by
the Society.
• Material dialogue and
interactions with our
regulators are shared with
the Board as appropriate.
• The Board has sight of
the progress in delivery of
regulatory actions.
• In 2022, the PRA engaged
directly with the Board to
discuss the conclusions
from the Periodic Summary
Meeting.
Investors Investors provide an important
part of our funding, which
supports our aim to help
members into homes of their
own.
• Individual meetings with key
institutional investors, group
presentations, attendance at
investment conferences and
investor events.
• Regular and close dialogue is
maintained with credit rating
agencies, including formal
annual review meetings.
• Investor relations approach
considered as part of the
wholesale funding strategy,
contained within the overall
treasury strategy, as
approved by the Assets and
Liabilities Committee.
Members and brokers
The Board balances the interests of borrowing and saving members, as well as brokers, when making
decisions about the Society’s short and longer term strategy.
Further details on engagement with our members can be seen within the Corporate Governance Report
on page 134 and in our new Purpose Impact Report.
Colleagues
Consideration of diversity in the workplace is a key focus for the Society, which is supported through our
wellbeing, gender diversity, race equality and LGBTQ+ colleague forums and our new disability forum.
Further information on inclusion and diversity can be found in the People section on page 18 and our new
Purpose Impact Report.
We engage with our colleagues through an annual survey, gaining insight into how colleagues experience
the Society and the impact of its leadership, highlighting areas of strength as well as areas of the
colleague experience to prioritise. We provide colleagues with access to a personalised learning
experience, as well as benefits including wellbeing support and a long-standing commitment to fair pay.
Further information on engagement with colleagues can be found in the People section on page 17 and
within the Corporate Governance Report on pages 135 to 136.
Third parties
Our supply chain includes suppliers of goods and services, including professional services (such as
conveyancing services), IT platform services (access and administration) and IT software licences.
In 2022 we continued to grow our third party management capability in recognition of the increasingly
important role our suppliers play in our ability to thrive in a demanding business climate. We select
suppliers based on their ability to reliably deliver services that enhance our members’ experience, their
alignment to the Society’s behavioural standards and the measurable benefit we receive.
Our Third Party Management Policy includes a clear risk-based classification of suppliers which enables
us to take a more consistent and risk-appropriate approach to our management of each engagement.
Communities
Leeds Building Society was set up to help members save and buy homes of their own. As a mutual, we
also aim to make a positive difference in wider society and the Board understands that our mortgage
and savings business needs to be underpinned by a broader commitment to the communities in which
we operate. Examples of this include our charity partnerships, donations, fundraising and colleague
volunteering for charities and organisations who provide support within these communities, as well as
our commitment to pay our fair share of tax as evidenced by our Fair Tax accreditation. Our communities
are defined as the places where our members and colleagues live and work, however we consider social
issues as well as geography in defining where we focus our efforts.
More detail, as well as further information on responsible business at Leeds Building Society, can be
found within the Responsible Business section on pages 23 to 25 and our new Purpose Impact Report.
Climate and environment
We continue to take the impacts of climate change seriously. During 2022, the Board approved revised
climate targets aligned to the principles of the Science Based Targets initiative and has overseen the
implementation of our green strategy – see key decision case study on climate targets on pages 31 and
32. The Society’s green strategy has been designed to support our key stakeholders through an orderly
transition to a greener, net zero economy by 2050 or sooner. This includes engaging and supporting our
members and colleagues to reduce their carbon footprint, working collaboratively to understand and
reduce the emissions from our supply chain and partnering with industry stakeholders to develop our
climate response.
We continue to report on our carbon emissions in our climate disclosures which are aligned to the
TCFD requirements. These aim to help stakeholders understand how we are managing the risks and
opportunities associated with climate change. More information on this can be found on pages 48 to 79
and also within our new Purpose Impact Report.
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Regulators
We have an open and transparent relationship with our regulators – the Prudential Regulation Authority
(PRA) and the Financial Conduct Authority (FCA). Regular meetings are held with the PRA which
are attended by our Chief Financial Officer and Chief Risk Officer along with members of the Senior
Leadership Team. Whilst we are not relationship managed by the FCA, we adopt both a proactive
approach (for example, updating the FCA of any new material issues arising), and a reactive approach
(for example, completing regulatory returns and surveys as prescribed by the FCA from time to time).
Investors
We have a variety of different types of investors who support our wholesale funding strategy across
secured and unsecured types of debt. Our financing strategy aims to have the appropriate level of
diversification of funding, so we are not exposed to only one type of funding.
Key decisions made in the year
The key decisions taken this year by the Board have been mindful of all stakeholders’ needs, while benefitting our members
over the long term. These decisions aim to improve member, broker and colleague experience, as well as increasing our
financial stability through improving income performance or reducing costs. This means that we can continue to operate
successfully in the future for the benefit of all of our stakeholders.
Examples of two such key decisions made in 2022 are given below and a summary of Board activities during the year can be
found in the Corporate Governance Report on pages 132 to 133.
Approval of updated climate targets (November 2022)
Stakeholders impacted
environment members colleagues communities third parties
Context
The Board understands that climate change is an important global issue, which is affecting all communities and
countries around the world. Given that 16% of the UK’s carbon emissions come from homes
21
, we understand that we,
along with the rest of the industry and the Government, have an important role to play in reducing these emissions.
Given the reduction of our scope 3 emissions from mortgaged properties is largely outside of our direct control and will
be subject to the Government delivering on its net zero commitments and improvements in the energy efficiency of
UK homes, we have not yet set targets for our scope 3 emissions. However, we remain committed to playing our part in
resolving the challenges to enable alignment with net zero.
During the year, we worked with our external partner, Carbon Intelligence, to gain a better understanding of our
greenhouse gas emissions. This has enabled the Board to approve new interim near term targets for scope 1 and 2
emissions, to better align with an overall net zero pathway by 2050 or sooner.
21 Source: 2021 UK Greenhouse Gas Emissions, Final Figures.
Considerations and discussion
The Board is cognisant of potential impacts on stakeholders of climate change decisions, and that these impacts
could be varying and conflicting. In setting the new targets to reduce our emissions, the Board carefully considered
and discussed stakeholder implications in the context of the Society’s purpose and strategy and the current external
environment, including uncertainties around government policy that will be required to meet net zero targets.
By considering all stakeholders, the Board ensured that an appropriate balance was achieved between credibility and
stretch of the targets, whilst minimising the risk of creating unintended negative consequences in the near term. For
example, targets which aim for an immediate and significant reduction in emissions would positively impact the climate
and the environment, and subsequently the climate impact on members’ homes. However, if not set in the right way,
both by individual companies and across the wider industry, targets (such as a very strict lending policy regarding
energy efficiency of properties) could also lead to climate-related mortgage prisoners – those who are unable to
remortgage or sell their homes due to these being less energy efficient.
Outcomes and actions
• The updated climate targets, focused on reductions to our scope 1 and 2 emissions from the operation of our
buildings, were approved (see more detail in our TCFD disclosures on pages 48 to 79).
• Alongside these targets, the Board emphasised that we should continue to explore how to best influence reductions
in our indirect scope 3 emissions (generated by our suppliers and our mortgaged properties) to ensure purposeful
progress is made over the course of the next decade.
• We will continue to work with the Government and the industry, including lobbying via UK Finance, to encourage and
support development of green mortgage products and greener homes.
‘Voice of the colleague’
Stakeholders impacted
colleagues members communities
Context
The Board values the relationships with our stakeholders and in recent years has purposefully sought to develop its
focus on how to maintain and develop those relationships and ensure that our decisions take stakeholder impact into
consideration.
In order to do this, the Board has taken the decision to focus on its engagement, particularly with colleagues, through
a programme of direct colleague interaction by a variety of means, for example, by inviting colleagues to present at
Board meetings in dedicated sessions entitled ‘voice of the colleague’. Members of the Board have also attended
meetings of the colleague-led inclusion and diversity forums and, more recently, invited members of these forums
to attend an informal session with the Board to share their lived experiences and discuss where the forums willl focus
their future plans.
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Business Model and Strategy continued
Considerations and discussion
Throughout the year the Board received presentations from colleagues which revolved around various themes
including: the challenges with delivering the Society’s new purpose; hybrid working; automation; the challenges faced
by colleagues in their roles; cultural dynamics within their department; and what changes could be made to improve
colleague and member experience. In addition, several colleague members from our inclusion and diversity forums
were invited to an informal session with the Board and were invited to share their lived experiences and discuss where
the forums willl focus their future plans. At 31 December 2022, the Society’s inclusion and diversity forums covered the
areas of disability, gender diversity, LGBTQ+, race equality and wellbeing.
Outcomes and actions
The Board has, over the year, concluded that its direct engagement with colleagues has been extremely beneficial to
not only understand their views and day to day challenges, but also to monitor culture and gauge the ongoing response
to the Society’s new purpose. The positive feedback and engagement indicate how our purpose has really resonated
with colleagues at all levels and colleagues feel part of its delivery. Given the positive outcome of such engagement,
the Board intends to schedule more ‘voice of the colleague’ sessions at Board meetings and Board committees
during 2023.
Throughout 2022, the economic environment in the UK
has been challenging for our members and the Society,
with the rising cost of living, geopolitical instability and the
Bank of England increasing base rate in response. Despite
this uncertainty, we have performed strongly, continuing
to serve our members and delivering on our purpose of
putting home ownership within reach of more people.
Our robust underlying financial position supports the
Society and its members through these uncertain times
and also allows us to re-invest into the Society for the long
term benefit of members, generation after generation. In
2022, we have achieved record levels of new lending and
helped 18,000 first time buyers on to the housing ladder, in
line with the guiding principles of the Society’s purpose.
It remains important that we balance the interests of
our savings and mortgage members through this period
of rising market interest rates. We have significantly
increased our minimum savings rate and maintained
highly competitive savings products throughout the
period. In addition we have opted to not pass on full base
rate increases to our mortgage holders, and renewed our
decision to suspend the charge of arrears fees until at
least 1 January 2024, so that we can continue to support
members in financial difficulties. In making these choices,
we aim to serve our members, whilst also considering
the long term sustainability of the business by managing
current and future financial risks.
This report includes a number of alternative performance
measures (APMs) which are not defined in International
Financial Reporting Standards, but provide useful
additional information about our financial performance
and position
1
. Further information on the calculation of
APMs and reconciliation to equivalent statutory measures
can be found on page 245.
Mortgage lending
We provide residential mortgages in the UK, through a
network of approved mortgage brokers and directly to
customers through online and telephone channels. We
fund the majority of mortgage lending with members’
savings, through a range of channels, while the remainder
is funded from other financial institutions, including central
bank schemes, on competitive terms.
Our approach to mortgage lending is driven by our
purpose of “putting home ownership within reach of
more people – generation after generation”. This purpose
is fulfilled by supporting borrowers in key market areas
such as shared ownership customers, as well as first time
buyers and later life borrowers.
1 Financial information refers to the performance of the Group, as reported on pages 186 to 240.
During the year we have invested further in the Mortgage
Hub, our core mortgage application system, to make
the process smoother and faster, with our quickest
applications taking as little as 25 seconds for an offer to be
made. This helps us to provide a great service to brokers
and customers and to increase our lending volumes whilst
staying efficient. We have also continued to invest in our
mortgage support capability to assist customers who
find themselves in financial difficulty. Reflecting the high
quality of the mortgage book and lending controls, arrears
have stayed relatively stable during the year. However, we
are mindful that the cost of living crisis is likely to result in
more members experiencing financial pressure and have
taken steps to ensure we are well placed to provide extra
support when it is needed.
Gross new lending during the year was £5.0 billion (2021:
£4.4 billion). The increased level of lending was driven by
continued strong demand across the market throughout
the first half of the year, against a backdrop of low interest
rates and high demand for housing. Towards the end of
the year the mortgage market slowed significantly due to
economic instability and customer affordability challenges.
In keeping with our purpose, we continued to serve the
market by ensuring products were available throughout
the uncertainty.
The chart below shows the mix of new lending by product
type in 2022.
2022 new residential lending by type
54
%
7%
4%
12
%
23%
Mainstream
owner-occupied
Buy to let
Shared ownership
Other affordable
home ownership
Other
The focus of our purpose is on home ownership and
helping people onto the housing ladder and this is
reflected in the level of shared ownership and other
affordable home ownership lending. Buy to let remains
an important part of our lending mix as it allows us to
balance risks across our book and supports the long term
financial resilience of the Society. We also recognise that
good quality rental accommodation is an important part of
the UK housing market and many people are using it as a
stepping stone towards home ownership.
Financial Review
Year ended 31 December 2022
32 33Leeds Building Society | Annual Report and Accounts 2022
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Our share of new mortgage lending was 1.6%
(2021: 1.4%) compared to our natural market share of
1.2% (2021: 1.2%)
2
.
Our lending policy reflects an appropriate balance
between supporting home ownership and protecting
borrowers and the Society. During the year we updated
our policy in response to the challenging economic
environment and credit criteria were tightened in response
to the rise in the cost of living.
The average loan to value of new lending in 2022 was
65.1% (2021: 67.4%), reflecting our balanced, risk-
managed approach to lending with lower risk lending
enabling the delivery of more of our most purposeful
lending.
Overall net lending increased to a record £2.0 billion
(2021: £1.5 billion). Redemptions remained in line with
our expectations, with more customers redeeming in
the second half of the year as their mortgage products
matured. Many customers decided to keep their mortgage
with the Society at the end of their initial term and used
our product transfer offering. We support members by
offering product transfers to all customers at the end
of their initial product term who are up to date on their
mortgage repayments.
Profitability
The Income Statement for the year is summarised below:
2022
£m
2021
£m
Net interest income 359.6 282.2
Fees, commissions and other income 2.4 5.3
Fair value gains / (losses) 14.7 (0.5)
Total income 376.7 287.0
Management expenses (141.0) (126.0)
Impairment (charge) / credit on loans and
advances to customers
(11.9)
4.1
Other impairments and provisions (3.3) (1.4)
Profit before tax 220.5 163.7
Tax expense (58.6) (43.5)
Profit after tax 161.9 120.2
2 Share of new mortgage lending and natural market share are calculated using UK mortgage market data obtained from UK Finance. Natural market share represents the
Society’s gross UK mortgage exposures at 31 December 2022 as a proportion of total UK mortgage market balances.
3 CACI’s CSDB, Stock, January to December 2022, latest data available. CACI is an independent company that provides financial benchmarking data for the retail cash
savings market.
We made a profit before tax in 2022 of £220.5 million
(2021: £163.7 million), the highest in our history. This
significant increase is primarily due to a rise in net interest
income, driven by higher market rates and lending volumes
coupled with our strong margin performance carried
forward from lending since the pandemic.
Profit after tax is our primary source of new capital and is
essential in ensuring long term security for members, as
well as meeting the regulator’s capital requirements. We
also use profits to reinvest into the Society, to improve
the experience and offering to our members and our
colleagues.
Net interest income
2022
£m
2021
£m
Net interest income 359.6 282.2
Mean total assets 24,013.8 21,576.7
% %
Net interest margin 1.50 1.31
Net interest income is our principal form of income and
has increased by 27% year on year, driven by balance sheet
growth and elevated margins from higher net lending rates
and increases in the base rate. Mortgage margins on new
lending have been strong since the latter part of 2020,
driven by high levels of demand as borrowers reassessed
their needs during and following the pandemic. Although
demand reduced as market interest rates and affordability
challenges increased in the second half of 2022, supply
remained somewhat restricted, which continued to
support margins.
Funding costs have remained low relative to historic
levels, as a result of elevated savings arising through
the pandemic as people moderated spending down to
essentials. We have continued to offer competitive rates
to members throughout the year and our attractive
product range has enabled us to achieve record net retail
savings inflows of £2.1 billion (2021: £1.0 billion) in the
year, further enabling us to fund our purpose and give back
value to members.
As base rate has risen through the year, our savings
members benefited from several rate increases and our
minimum member variable savings rate increased to
1.45%. During the year we paid an average rate of 1.15%
(2021: 0.79%) to our savers, compared to the rest of the
market average rate of 0.65% (2021: 0.29%)
3
.
Financial Review continued
Fees, commissions and other income
We offer home insurance and other services to our
members through relationships with third parties and
the Society earns commission on these products. Other
income also includes rental income, foreign exchange
movements and other ancillary fees and receipts.
Fair value gains and losses
We hold certain financial assets and liabilities at their
current fair value, defined as the value an independent
third party would be willing to pay or receive, and the
movement in this fair value is recognised in profit or
loss. Changes in fair value are primarily due to timing
differences, which will trend to zero as the asset or liability
reaches maturity.
During the year, significant increases in market interest
rates have resulted in fair value gains of £14.7 million
(2021: £0.5 million charge). These gains have largely
been recorded on our collateral loan secured on a pool of
equity release mortgages and on swaps which have been
transacted to manage the interest rate risk associated
with fixed rate mortgage and savings products.
During the second half of the year we introduced cash flow
hedge accounting to manage volatility and mitigate some
of the impact of these movements. The adoption of cash
flow hedging enabled us to recognise £112.9 million of fair
value movements related to pipeline mortgage swaps in
the cash flow hedge reserve as opposed to the income
statement.
Management expenses
Management expenses for the year are summarised
below:
2022
£m
2021
£m
Colleague costs 83.8 73.0
Other administrative expenses 46.3 43.9
Depreciation and amortisation 10.9 9.1
Total management expenses 141.0 126.0
% %
Cost to income ratio 37.4 43.9
Cost to mean asset ratio 0.59 0.58
Management expenses £m and colleague numbers
0
40
80
120
160
20222021202020192018
0
200
400
600
800
1,00
0
1,20
0
1,40
0
1,600
1,308
98.9
101.2
100.4
126.0
141.0
1,303
1,313
1,361
1,466
Management expenses £m (left hand scale)
Average number of colleagues (FTE)
(right hand scale)
In the year, management expenses have increased
by 11.9%. As in previous years, we aim to operate as
efficiently as possible, controlling our costs so that our
cost ratios remain among the best in our sector. This is
particularly important when faced with current market
inflationary pressures.
We have continued to invest in technology that improves
the experience of members and brokers, such as the
Mortgage Hub, with the benefits reflected in our improved
broker Net Promoter Score of 63 (2021: 56). We have also
maintained our investment into the branch network as we
recognise the value our members place on engaging with
our colleagues through this channel. Our enhancements
to the branch network also have a particular focus on
environmentally friendly initiatives to align with our
purpose.
For those members who prefer to deal with us online,
we have a number of initiatives underway to improve the
experience of our digital customers. We recently launched
a pilot of our new account opening journey and are working
on similar improvements for other customer journeys.
We continue to invest in our colleagues. Emphasis has
been placed this year on developing the right talent and
capability to deliver on our purpose and consequently
the average number of colleagues (full time equivalent)
employed by the Society in 2022 has increased to 1,466
(2021: 1,361). We have also provided additional support to
our colleagues in response to the cost of living crisis.
Although costs have increased in year, we have developed
a greater degree of flexibility to speed up or slow down
project related spend to manage our overall cost position
therefore allowing us to be more agile when responding to
the current uncertainty, so that we can serve our members
in the best way.
34 35Leeds Building Society | Annual Report and Accounts 2022
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Financial Review continued
Impairments and provisions
The table below summarises the impact of impairments
and provision charges in the year:
2022
£m
2021
£m
Residential loans 12.0 (3.9)
Commercial loans (0.1) (0.2)
Impairment charge / (credit) on loans
and advances to customers
11.9
(4.1)
Other impairments and provisions 3.3 1.4
Total impairments and provisions 15.2 (2.7)
Residential impairment
We make provisions for expected credit losses across all
loans, based on the probability of each loan defaulting
and resulting in a loss, while taking into account a range
of assumptions about future economic scenarios and
an assessment of whether the credit risk of the loan has
increased.
Despite the challenges faced by borrowers as a result
of high inflation, the number of borrowers in arrears has
remained broadly flat over the year, with the proportion in
arrears by 1.5% of balance or more reducing from 0.66%
to 0.58%.
However, provisions for residential impairment have
increased significantly during the year as a result of the
heightened economic uncertainty and the expectation of
further challenges ahead. The macroeconomic scenarios
used for calculating impairment have been revised to
reflect the current and emerging economic pressures,
including high levels of inflation and the high interest rate
environment. The central scenario has been updated
and forecasts a rise in unemployment as employers will
attempt to reduce costs in the anticipated sustained
inflationary environment during the next two years.
The uncertain economic environment is also reflected
in the alternative modelled scenarios, overlays and post
model adjustments. In particular, we have considered the
effect of rising mortgage rates on customers’ ability to
maintain mortgage repayments. The key judgements and
estimates involved in the calculation of impairment loss
provisions are set out in note 2 of the accounts on pages
197 to 203.
The impact for the financial year is a £12.0m charge
(2021: £3.9 million credit) which equates to a cost of risk
of 0.06% (2021: (0.02%)). Total balance sheet impairment
loss provisions against residential mortgages at
31 December 2022 are £48.0 million (2021: £37.3 million),
as summarised below:
2022
£m
2021
£m
UK 41.8 30.4
Overseas 6.2 6.9
Total residential impairment provisions 48.0 37.3
UK coverage 0.21% 0.17%
Impairment of properties
We revalue our freehold and long leasehold office and
branch properties every three years. The latest valuations
were undertaken at 31 December 2022 and showed a £5.7
million (10.8%) reduction in values, driven by falls in market
rents due to the current economic uncertainty. £1.9 million
of this reduction was recognised in the revaluation reserve
with the remaining £3.8 million recognised as impairment.
Taxation
The income tax expense of £58.6 million (2021: £43.5
million) represents 26.6% (2021: 26.6%) of profit before
tax. We pay UK corporation tax at the prevailing rate of
19% for 2022 (2021: 19%) and also pay the 8% surcharge
on banking profits over a £25 million threshold.
We have adopted the Code of Practice on Taxation for
Banks and established appropriate procedures, controls
and oversight to ensure we meet our obligations under
the Code. We manage our tax obligations to ensure
compliance with all statutory requirements and do not
intentionally structure transactions to give a tax result
which is contrary to the intentions of Parliament. We
maintain an open and transparent relationship with HMRC.
The Audit Committee reviews our tax policy annually.
This provides a framework for the operation, planning
and oversight of tax and tax risk to ensure compliance
with relevant legislation. The policy has been complied
with throughout the year. Our tax strategy is published on
our website and we are committed to transparency in the
reporting of our tax affairs. We have been a proud holder of
the Fair Tax Mark since 2018.
Assets
Our strong lending and savings growth is reflected in
overall balance sheet growth of 13.3% from £22.5 billion to
£25.5 billion.
2022
£m
2021
£m
Residential loans 20,372.3 18,340.3
Commercial loans 8.6 10.4
Other loans 164.4 218.0
Impairment provision (52.1) (41.5)
Loans and advances to customers 20,493.2 18,527.2
Liquid assets 4,580.7 3,646.8
Derivative financial instruments 679.9 219.3
Fair value adjustments (585.9) (169.1)
Fixed and other assets 346.0 289.5
Total assets 25,513.9 22,513.7
Loans and advances to customers
Our loans and advances to customers comprise mainly UK
residential mortgages. Our legacy overseas residential and
UK commercial loan portfolios continue to reduce, with no
new lending taking place. Other loans include a collateral
loan that represents a pool of equity release mortgages
purchased from a third party, where some of the risks
relating to those mortgages were retained by the third
party.
Residential mortgage asset quality 2022
%
2021
%
Proportion of mortgages in arrears
4
0.58 0.66
Balance-weighted average indexed LTV of
mortgage book
48.8
50.5
Balance-weighted average LTV of new
lending
65.1
67.4
UK residential mortgage balances
The Society’s purpose focuses us on enabling home
ownership, with a particular emphasis on first time buyers
and products such as shared ownership. The mix of our
mortgage book as a whole reflects our segmental lending
strategy of recent years, with buy to let and shared
ownership making up significant proportions of the book
alongside mainstream owner-occupied.
4 Arrears of more than 1.5% of the balance or in possession
2022 UK residential mortgage balances by type
46
%
9%
4%
12
%
29%
Mainstream
owner-occupied
Buy to let
Shared ownership
Other affordable
home ownership
Other
The distribution of the loan to value profile of the portfolio
is shown below and reflects our balanced approach to
lending and the effects of house price inflation in recent
years reducing loan to values.
2022 UK residential mortgage balances by indexed LTV
55
%
6%
1%
8%
13
%
17%
Less than 50%
50% to 60%
60% to 70%
70% to 80%
80% to 90%
More than 90%
Liquid assets
Liquidity ratios 2022
%
2021
%
Liquidity Coverage Ratio 195.4 187.2
Liquid assets as a percentage of shares
and borrowings
20.15
17.90
The level of liquid assets, which includes cash reserves
with the Bank of England, as well as investments in other
assets, varies throughout the year depending on the level
of funding receipts compared to mortgage completions
and other obligations. The level of liquidity required is
closely monitored and considers forecasted and stressed
outflows on a dynamic basis. We have increased our levels
of liquidity during 2022 and the year end position is strong,
which provides protection and flexibility in this uncertain
economic environment.
36 37Leeds Building Society | Annual Report and Accounts 2022
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Financial Review continued
At 31 December 2022 liquidity included £4.1 billion of High
Quality Liquid Assets (2021: £3.4 billion), which are either
in cash or are readily realisable as cash when required.
100% of our liquidity assets are rated A or above (2021:
100%). We also have access to additional contingent
liquidity through the Bank of England’s Sterling Monetary
Framework.
The mix of liquid assets at 31 December 2022 is shown
below.
2022 liquidity portfolio
68%
3%
11%
3%
3%
3%
9%
Cash in hand and
balances with the Bank
of England
UK Government
securities
Government agency
debt
Supranational bonds
Residential mortgage
backed securities
Covered bonds
Certificates of deposit
The PRA monitors liquidity under the Capital
Requirements Regulation (CRR) framework. Our
Liquidity Coverage Ratio (LCR) is 195.4% (2021: 187.2%),
significantly in excess of the regulatory minimum of 100%.
Liabilities
A summary of our liabilities is shown below:
2022
£m
2021
£m
Shares 17,520.4 15,258.0
Wholesale funding 5,209.1 5,111.0
Derivative financial instruments 251.9 166.8
Other liabilities 519.0 136.6
Subordinated liabilities 309.1 339.4
Subscribed capital 197.6 227.3
Total liabilities 24,007.1 21,239.1
Equity attributable to members 1,506.8 1,274.6
Total liabilities and equity 25,513.9 22,513.7
Key ratios 2022
%
2021
%
Wholesale funding as proportion of total
borrowing
22.9
25.1
5 CACI’s CSDB, Stock, January to December 2022, latest data available. CACI is an independent company that provides financial benchmarking data for the retail cash
savings market.
Shares (retail savings)
As a mutual building society, we remain committed to
providing savers with a safe home for their money, as well
as a compelling proposition and competitive interest rates.
Our savings members are vital to us and the achievement
of our purpose, as their funds allow us to support more
people into home ownership. Achieving record net retail
savings growth of £2.2 billion (2021: £1.1 billion) further
supports this purpose and we are investing in our branch
network and our online channel to provide our savings
members with the service they require, however they
choose to interact with us.
Our savings balances now stand at £17.5 billion (2021:
£15.3 billion) and our 2022 growth has been particularly
driven by our popular fixed rate ISA products which have
had market-leading rates during the year.
We aim to support our members through this challenging
period of higher living costs by paying attractive rates
while managing current and future financial risks. We
continue to pay above average market rates to our
members, with our average rate for the year of 1.15%
(2021: 0.79%) being 0.50% (2021: 0.50%) above the rest
of the market average of 0.65% (2021: 0.29%)
5
.
We offer our members a range of savings products
including easy access and fixed rate bonds and ISAs. The
chart below shows the mix of savings balances by rate
type, with fixed rate ISAs now making up over half of our
book (2021: 41%).
2022 retail savings balances by types
17%
30
%
53%
Fixed rate bonds
Fixed rate ISAs
Administered
Wholesale funding
Total wholesale funding at 31 December 2022 was
£5.2 billion (31 December 2021: £5.1 billion), representing
22.9% of total funding. Our Net Stable Funding Ratio
(NSFR), a measure of the stability of our funding sources
relative to our assets, was 139.9% (2021: 150.6%), well
above the regulatory minimum of 100%.
In 2022 we issued two £500 million covered bonds
to support the overall funding plan. We timed these
transactions to avoid significant market volatility and were
pleased with their success which has resulted in higher
liquidity balances ahead of more economic uncertainty and
known repayments of other funding. We also conducted a
tender of our April 2023 covered bond, which has further
reduced our refinancing requirement in 2023 and boosted
the risk profile of our liabilities. The mix of our wholesale
funding portfolio at 31 December 2022 is shown below:
2022 wholesale funding portfolio
42
%
11%
4%
41
%
2%
Covered bonds
Securitisation
Senior unsecured
debt
Time deposits
TFSME
Our final TFSME drawings were made in October 2021 and
the scheme is now closed.
The maturity profile of our wholesale funding is shown
below:
2022 wholesale maturity
10%
40%
10
%
16%
24
%
Less than 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
We maintain robust credit ratings from two key agencies
reflecting our strong capital base, good profitability and
strong funding position.
Long term Short term Outlook
Moody’s A3 P-2 Stable
Fitch A- F1 Stable
Derivative financial instruments
We transact derivative financial instruments to mitigate
the risks within the balance sheet, primarily interest
rate risk associated with offering fixed rate mortgage
and savings products. In accordance with accounting
standards, derivatives are initially recognised at fair value
on the date that they are transacted and are subsequently
re-measured monthly at their fair value.
Interest rates have risen significantly during the financial
year and, as a net recipient of floating rates on swaps,
this has resulted in both an increase in the balance sheet
position and the recognition of a net fair value gain.
We make use of fair value hedge accounting to reduce
volatility in profits by hedging exposures to variability in
the fair value of financial assets and liabilities. Changes in
the fair value of derivatives that are designated in fair value
hedges are recorded in the Income Statement together
with any changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk.
During the financial year, we adopted cash flow hedge
accounting which has enabled us to recognise £112.9
million of fair value movements related to pipeline
mortgage swaps through other comprehensive income
(cash flow hedge reserve) rather than the Income
Statement.
Capital
Our regulatory capital principally comprises accumulated
retained profits in the general reserve and subscribed
capital provided through subordinated debt and
permanent interest bearing shares (PIBS). Capital is
ultimately held for the protection of depositors and other
creditors by providing a buffer against unexpected losses.
We maintained our strong capital position throughout
the year, with all capital ratios significantly in excess of
the regulatory minima. We have used the Internal Ratings
Based (IRB) approach to calculate our capital requirement
for most of our residential mortgage book since 2018.
Total regulatory capital has increased by £164.2 million
during 2022 to £1,622.9 million (2021: £1,458.7 million).
This is mainly due to retained profits accumulated during
the year, which are added to the general reserve.
At the start of 2022, updated prudential regulation
changed the IRB approach for calculating capital
requirements. We have applied a temporary adjustment to
our calculations to reflect the estimated impact of these
changes while we await regulatory approval of our updated
IRB models. Until this happens, the adjustment is subject
to change.
38 39Leeds Building Society | Annual Report and Accounts 2022
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Financial Review continued
As a result of the regulatory changes and growth in our
mortgage book, risk-weighted assets (RWAs) have grown
by £932.7 million during 2022. Our CET 1 ratio, calculated
on a transitional basis, has reduced to 33.3% from 38.0%
at 31 December 2021.
The following table shows the composition of our
regulatory capital as at 31 December 2022. More detailed
disclosures can be found in the Pillar 3 document available
on our website.
Capital resources 2022
£m
2021
£m
Total equity attributable to members
(excluding cash flow hedge reserve)
1,425.5 1,274.6
Less pension surplus, intangible assets
and other regulatory adjustments
(37.2) (45.9)
Common Equity Tier 1 (CET1) capital 1,388.3 1,228.7
Additional Tier 1 capital – 2.5
Total Tier 1 capital 1,388.3 1,231.2
Tier 2 capital 234.6 227.5
Total regulatory capital resources 1,622.9 1,458.7
Senior non preferred notes 350.0 350.0
Total MREL eligible resources 1,972.9 1,808.7
Risk-weighted assets (RWAs) 4,163.9 3,231.2
CRD V capital ratios
6
2022
%
2021
%
CET1 ratio 33.3 38.0
Total capital ratio 39.0 45.1
Total MREL ratio 47.4 56.0
UK leverage ratio
7
6.2 6.1
8
6 The capital ratios are calculated as relevant capital divided by risk-weighted assets and the leverage ratio is calculated as Tier 1 capital divided by total exposure (total
assets per the prudential group consolidated position subject to some regulatory adjustments).
7 The UK leverage ratio represents the UK regulatory regime which excludes deposits with central banks from the leverage exposure measure. The UK regime does not apply
to the Society as the applicable threshold set by the regulator (more than £50 billion of retail deposits) is considerably in excess of the Society’s balance. Despite not being
captured by this regime, the Society continues to exceed the minimum 3.25% regulatory expectation.
8 2021 UK leverage ratio presented on a transitional basis.
Capital requirements
Pillar 1
We hold capital to meet Pillar 1 requirements for credit
risk, operational risk and market risk. The IRB approach
to capital modelling allows us to calculate our capital
requirements using internally determined risk parameters
that reflect the specific risks of our residential mortgage
book. The standardised approach is applied to all other
credit risk exposures, operational risk, market risk and
credit valuation adjustments.
Pillar 2A
The PRA requires us to hold additional Pillar 2A capital for
the risks not covered under Pillar 1. At 31 December 2022,
the regulatory requirement was 2.90% of risk-weighted
assets, a point in time estimate set by the PRA during the
year.
Capital buffers
In common with other banks and building societies, we are
required to hold capital buffers that can be used to absorb
the impact of a stress scenario. Our buffer comprises the
following elements:
• Sector-wide capital conservation buffer, set at 2.5%.
• Macroprudential countercyclical capital buffer currently
set at 1% of RWAs for exposures to the UK.
• Additional requirements calculated through the Internal
Capital Adequacy Assessment Process (ICAAP) to
satisfy our risk appetite over the planning horizon and
absorb the impact of a severe, but plausible, stress
scenario.
The ICAAP is reviewed by the PRA when setting our total
capital requirement (Pillar 1 and Pillar 2A). We perform
regular stress tests on our capital base and these
tests have consistently demonstrated a surplus above
requirements after applying management actions.
We have utilised available transitional arrangements in
relation to the impact of adopting IFRS 9 on regulatory
capital and the figures above reflect those arrangements.
Had the transitional arrangements not been adopted, at
31 December 2022 the CET 1 ratio would have been two
basis points lower and the UK leverage ratio would be
unchanged.
Minimum Requirement for Own
Funds and Eligible Liabilities (MREL)
MREL aims to increase resilience within the financial sector
and reduce the risk to taxpayers if a firm were to fail. As
part of this, the Bank of England has stated a preferred
resolution strategy for the Society of bail-in, due to our
balance sheet being in excess of £15 billion. As a result we
are required to hold both recovery and resolution MREL
requirements.
We are currently within the transitional period for MREL,
so our requirements are 18% of RWAs, which will apply
until 20 July 2023. End state MREL requirements are
two times minimum regulatory requirements plus any
regulatory buffers. We have capital resources considerably
in excess of both transitional and end state requirements
and continue to forecast significant headroom moving
forward.
New and emerging regulation
Changes to IRB models under revised capital requirements
applied from January 2022 have increased RWAs. Further
refinement is ongoing across the industry in relation to
these regulations and this is expected to be finalised
in 2023. The Society is expected to retain significant
headroom over risk appetite following the finalisation of
these regulatory changes.
We are well prepared to meet the requirements of the
Basel 3.1 standards, which come into force in January
2025. As an IRB lender, the predominant impact will be the
new capital floor, to be phased in from January 2025 until
January 2030.
Financial outlook
Going into 2023, the outlook for the UK economy remains
unclear, with a rising cost of living and continued high
levels of inflation and global political instability. Whilst
higher interest rates are positive for savers, they have
increased the cost of borrowing for mortgage customers
and therefore uncertainty for many of our members. As
our mortgage holders come to the end of their product
term, we remain committed to supporting them, and
balancing their interests with those of our savers.
As we navigate through these uncertain times, we will
continue to utilise our expertise in key segments that
helps us achieve our purpose of putting home ownership
within reach of more people. We will manage growth and
invest in the business, supported by strong efficiency
ratios, a keen awareness of risk and our members’
interests at the heart of every decision.
The strength of our balance sheet and our business model
are set up to generate sustainable levels of profitability
across the economic cycle and as we progress through the
current challenges. We are resolute in delivering on our
purpose of balancing support for members through this
difficult time with maintaining a resilient balance sheet and
ensuring sustainable profit.
40 41Leeds Building Society | Annual Report and Accounts 2022
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Our purpose can only be achieved if risks are identified, understood and managed effectively. By understanding the nature
of our risks, we can make informed decisions and reduce anticipated performance variability, which supports delivery of our
strategic objectives and protection of our longer term viability and members’ interests.
We deliver our purpose through a corporate strategy, which is built upon three strategic drivers (as described on page 10).
Inherent within this strategy are eight principal risk categories. These comprise: credit; funding and liquidity; capital;
market; operational; conduct; model and strategic/business risks. For each of these principal risk categories, we operate
an appropriate Enterprise Risk Management Framework including risk governance, appetite setting, policies and key
risk indicator reporting. These set the risk parameters within which the corporate plan needs to be delivered, as well as
providing appropriate triggers for management response under stressed conditions.
Corporate plan
Enterprise Risk Management Framework (ERMF)
Principal risks
Credit MarketCapitalFunding and liquidity
Emerging risks
Risk governance and
culture
Risk reporting
Risk assessment and
management
Risk appetite and
stress testing
Operational Strategic/businessConductModel
Enterprise Risk Management Framework
To ensure that risks are appropriately managed across the organisation, the Society operates a Board-approved Enterprise
Risk Management Framework (ERMF), which sets out a structured approach to identifying, assessing, controlling and
monitoring risks.
Further information on the Society’s ERMF and its key components can be found on pages 82 to 85 within the Risk
Management Report.
Risk profile
The risks that the Society is exposed to fall into two separate categories:
1. Principal risks
The Society has identified eight principal risks, which are inherent within our strategy and have the potential to significantly
impact performance or viability. These principal risk categories remain consistent with those disclosed within the 2021
Annual Report and Accounts. Further information can be found on pages 86 to 108 of the Risk Management Report.
With regard to climate change, the Society does not view climate-related risks as a separate principal risk category, but
as risk factors that have a bearing across the Society’s principal risk universe. Refer to pages 48 to 79 for details of our
assessment of the potential impacts of climate-related risks.
2. Emerging risks
Emerging risks are new or evolving risks where the impact is uncertain but they have the potential to materially impact the
Society’s performance or strategic objectives.
When assessing emerging risks, we consider the likelihood of the risk materialising and the potential impact on our
business strategy and stakeholders. These risks are considered by the Board and Board Risk Committee (BRC), on an
ongoing basis, as part of our strategic and business planning processes.
The most significant emerging risks are described below, together with key developments and a summary of actions we
are taking to manage the risk.
Economic and geopolitical risks:
Overview Mitigating actions
• The outlook for the UK economy remains highly
uncertain. Elevated levels of inflation and increasing
interest rates have eroded household real income and
lowered consumption. Consequently, the UK economy
is now expected to enter a period of recession during
2023.
• Against this economic backdrop, activity in the housing
market is forecast to moderate and house prices reduce
further. Larger than anticipated impacts may threaten
the delivery of strategic objectives.
• Geopolitical risks remain prevalent, which may
negatively impact the UK economy, including
the ongoing war in Ukraine, a potential second
independence referendum in Scotland and
renegotiation of the Northern Ireland protocol
agreed as part of Brexit.
• Macroeconomic risks are regularly assessed under
both central and stressed conditions to understand
and manage the impact on the business model
e.g. tightening of lending appetite (volume, risk premia
and mix).
• Horizon scanning and close monitoring of key economic
data and forecasts to support timely management
response.
• Maintain robust levels of capital and liquidity, supported
by frequent stress testing and sensitivity analysis to
understand the impacts on the Society’s balance sheet.
Risk Overview
Year ended 31 December 2022
42 43Leeds Building Society | Annual Report and Accounts 2022
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Risk Overview continued
Affordability risks:
Overview Mitigating actions
• During 2022, mortgage affordability challenges have
continued to develop, with heightened levels of inflation
driven by demand and supply side pressures and rising
energy prices eroding household disposable income.
• Affordability pressure on household finances is also
starting to emerge from the significant increase in
interest rates during 2022, as members transition from
their current (lower) fixed rate mortgage products onto
higher pay rates.
• Whilst some market commentators believe that
inflation may have already peaked it is still expected
to outpace wage growth in the near term. In addition,
further increases to interest rates are expected during
2023 which will also place additional pressure on
households.
• Closely monitoring the performance of the Society’s
lending portfolios and the appropriateness of credit
policies, criteria and affordability assessments versus
prevailing conditions. In particular, the Society has
adjusted the stressed interest rate used in affordability
assessments to account for the higher interest rate
environment.
• Credit provisions have been increased reflective of the
expected deterioration in the UK economy.
• The Society has continued to invest in its Mortgage
Services department to ensure it is adequately
resourced to manage the potential heightened number
of members in financial difficulty.
• Deployment of pre-delinquency strategies to
proactively engage members who may find themselves
in financial difficulty.
Operational resilience risks:
Overview Mitigating actions
• Geopolitical risks have heightened the operational
resilience risk profile of the Society over the short to
medium term.
• The most material operational impacts relate to a
heightened cyber threat landscape, supply chain
disruption and potential power outages from volatility
in the energy markets.
• Resilience to such threats and an ability to respond
effectively remain essential to protect the Society and
maintain the trust of our members and the confidence
of regulators.
• The Society manages resilience related risks through its
Operational Resilience Framework and regularly tests
its response to potential resilience events.
• The Society continues to invest in its IT security and
operational controls to improve overall resilience and
combat these evolving threats.
• The Society has undertaken an impact assessment to
understand potential direct and indirect vulnerabilities
for our key suppliers, and continues to monitor
developments closely.
Change risk:
Overview Mitigating actions
• The Society has a multi-year change portfolio to deliver
several major strategic priorities and new complex
regulatory requirements. The volume of change activity,
along with time and resource constraints, could lead to
heightened execution, operational and people risks.
• The Society continues to prioritise, manage and
implement change in line with its strategic plans while
assessing execution risks and taking appropriate
mitigating action.
• In addition, the Society continues to invest in its change
management processes, capabilities and governance to
mitigate the execution risks associated with change.
People risk:
Overview Mitigating actions
• The UK labour market remains very tight, with
unemployment trending at historically low levels. This
has resulted in higher levels of wage inflation and an
excess of demand versus supply across various niche
skill sets required by the Society, such as IT and digital.
The Society’s success is dependent on attracting and
retaining skilled and highly performing colleagues.
• The Society has continued to invest in its people
strategy across various dimensions including:
– Salary and reward benchmarking.
– Implementation of flexible/hybrid working
arrangements.
– Career development pathways.
– Roll out of a new inclusion and diversity strategy.
• Detailed resource planning and close monitoring
of attrition levels are in place to ensure the Society
proactively manages the associated risks to deliver its
strategy.
Climate change risk:
Overview Mitigating actions
• Climate risk continues to be classified as an emerging
risk due to uncertainty surrounding the exact nature
and timing of the impact on the Society’s strategy and
operations. Both transitional and physical risks could
materially affect the Society’s eight principal risks,
with impacts dependent on the future path of climate
change and timescales of government intervention and
actions.
• Stakeholder expectations continue to rise with regards
to the Society’s management and response to climate
risk, which could present heightened reputational risks.
• During 2022, the Board approved a green strategy,
along with a set of revised targets in relation to climate
change.
• The Society has continued to embed its Climate Risk
Management Framework across the organisation,
including use of climate risk factors and data in our
mortgage lending policy and credit decisioning
processes.
• Scenario analysis is undertaken to assess possible
future climate-related risks and exposures that may
impact the Society.
• Refer to pages 48 to 79 of the Strategic Report for
further information on how the Society manages the
risks from climate change.
Regulatory risk:
Overview Mitigating actions
• The volume, scale and complexity of regulatory change
continues to shape our operating environment. There
are a number of key regulatory instruments on the
horizon, which will need careful implementation e.g. IRB
capital models, Basel 3.1 and Consumer Duty.
• The Society closely monitors upstream regulation,
with developments managed through an oversight
framework, which allows management to respond in an
efficient, proportionate and prioritised manner.
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Governance Financial Statements Other Information
In accordance with provision C2.2 of the UK Corporate Governance Code, the directors are required to assess formally the
longer term prospects and viability of the Society. This assessment considers our ability to continue in operation and meet
our liabilities as they fall due, taking into account our current financial position and the principal and emerging risks set out
on pages 42 to 45.
Assessment of longer term prospects
Our business model, purpose statement and strategic drivers are set out on pages 10 to 12. The Board receives strategic
updates throughout the year, which assess the business model across multiple dimensions, including threats from
principal and emerging risks, additional scenarios that may occur and stress testing. The directors have also reviewed our
strategy in respect of the environment, considering the opportunities and risks to the Society’s business from climate
change. This includes physical risks to the Society’s mortgage stock and own properties and transitional risks as the UK
migrates to a net zero economy.
The strengths of our business model and financial position, capital strength and levels of profitability over the next five
years and beyond are included in the Board’s consideration.
These reviews concluded that the Society remains in a strong and resilient financial position which will enable us to support
members, colleagues and communities through the current period of economic uncertainty and is well placed to build on
its position. Our purpose statement and strategic drivers reflect the environment in which we now operate and aim to
maintain the relevance of our business model, including managing and mitigating potential threats.
Financial and operational stress testing
The Society utilises a stress testing programme which includes regular operational planning exercises and more formal risk
assessments. The elements of this programme, ranked in order of increasing severity, are summarised as follows:
Operational
sensitivities
Corporate plan
and trading
sensitivities
Alternative
scenarios
ILAAP
ICAAP
Recovery Plan
testing
Reverse
stress testing
The Society’s process for forecasting financial performance takes into account our strategic objectives, the risk involved
in meeting those objectives and our strategic risk appetite. The corporate planning and alternative scenario modelling
processes assess these forecasts under a range of macroeconomic scenarios which reflect the current uncertainty in the
macroeconomic environment and the behaviours and needs of current and potential future members.
The Board assesses the Society’s capital and liquidity viability through the ICAAP and ILAAP. These consider our ability
to withstand severe capital and liquidity stresses set out by regulators. The processes incorporate new and emerging
regulation, where sufficient information is available. Mitigating management actions and the ability of those actions to
minimise the impacts of the applied stresses are also evaluated.
The ICAAP concluded that the Society has headroom over regulatory requirements and would have sufficient capital
resources to withstand both the central and stressed scenarios under current and confirmed future requirements.
The ILAAP also concluded that the Society is able to meet both internal and external liquidity risk capacity requirements
and regulatory requirements under modelled stress scenarios.
Further stress testing, including Recovery Plan testing, is carried out on each of the principal risks outlined on pages 86
to 108. This is performed to understand our ability to withstand extreme stress scenarios, including adverse economic
scenarios that go above and beyond those experienced at any point previously, major volatility in financial markets,
significant liquidity outflows and operational risk events. This testing demonstrates that there are appropriate resources,
measures and controls in place to withstand these extreme events.
Reverse stress testing considers a range of specific scenarios which would cause the Society to fail and concluded that,
since such scenarios are unlikely to occur, they do not pose a risk to the viability of the business.
Stress testing of operational resilience is undertaken to verify that the Society has appropriate measures in place for
the delivery of key customer facing services during a stress event. This is performed using a number of severe but
plausible scenarios, including third party failure, cyber attack, IT and system failures and loss of key premises. The testing
demonstrated that resilience is broadly in line with expectations and supports the ongoing viability of the business.
The Society assesses its resilience to people risks and capabilities by regularly conducting talent and succession planning
reviews for key roles, up to and including the Board. We also identify and monitor key person risks for roles with strategic
importance and mitigate these where appropriate to maintain operational resilience and to safeguard continuity of service.
The risk management process, detailed on pages 82 to 85, includes ongoing monitoring and reporting of new and
emerging risks. This allows us to make additional enhancements to the control environment, to adapt to and respond
quickly to these risks.
Assessment period used for reviewing viability
The Board considers the viability of the Society over a three year period to 31 December 2025. A three year period for
viability is determined to be appropriate for the following reasons:
• Uncertainty is inherent in the predictions of economic, competitive and regulatory environments, particularly in
the current climate. Going beyond the three year period increases this uncertainty and reduces the reliability of the
assessment of viability.
• It is within the period covered by our projections of cash flows, capital and profitability. However, there is nothing in our
planning beyond the three years that would cause a change in the Board’s consideration of viability.
Assessment of viability
The Board has assessed the financial impact of the modelled stress scenarios and the outcomes from operational
resilience testing described previously. Based on these assessments the Board believes that:
• Our business model remains appropriate and will continue to be relevant as the operating environment evolves.
• We have and will continue to maintain an appropriate level of liquidity, which meets the expected demands of the
business and the requirements that arise in modelled stressed scenarios.
• We hold sufficient capital resources, including an excess above the regulatory minimum and have plans in place to ensure
we meet future known requirements. We have sufficient resources under both central and modelled stressed scenarios.
• There are suitable operational capacities in place to manage the impacts of risk events to a reasonable extent, though
it is impossible to eliminate all risk. This has been evidenced as we operated effectively under the stress of the global
pandemic and the economic disruption seen during 2022.
The Board has a reasonable expectation that the Society will be able to continue in operation and meet our liabilities as
they fall due, over the three year period to 31 December 2025.
Viability Statement
Year ended 31 December 2022
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Governance Financial Statements Other Information
Our climate disclosures are aligned with the Task Force on Climate-related Financial Disclosures (TCFD) framework, which
is structured around four key pillars and aims to provide consistent disclosures and information on the Society’s exposure
to, and management of, climate risks and opportunities.
1. Governance 2. Strategy 3. Risk management 4. Metrics and targets
The Society’s governance
arrangements around
climate-related risks and
opportunities.
Actual and potential
impacts of climate risks
and opportunities on
the Society’s business,
strategy, and financial
planning.
The processes used by
the Society to identify,
assess, and manage
climate-related risks.
The metrics and targets
used by the Society
to assess and manage
relevant climate-related
risks and opportunities.
See section 1 See section 2 See section 3 See section 4
Climate-related disclosures overview
The Society signed up as a TCFD supporting signatory in 2021 and we are committed to implementing the
recommendations fully in line with the principles of our responsible business strategy and requirements under the
Companies (Strategic Report) (Climate Related Financial Disclosure) Regulations 2022.
Good progress continues to be made against the 11 TCFD recommendations, with several important activities completed
during 2022 to enhance our understanding of climate risks and opportunities and further develop our strategic targets and
response plans.
We recognise that this is just the start of a multi-year journey to support the orderly transition to a greener, net zero
economy and we will continue to develop our targets, plans and disclosures in line with emerging standards and good
practice (for example, forthcoming recommendations from the UK’s Transition Plan Taskforce (TPT) and the International
Sustainability Standards Board (ISSB)).
Summary of progress against TCFD recommendations
TCFD recommendation Key progress areas Future priorities 2023+ Further details
1. Governance
a) Describe the Board’s
oversight of climate-
related risks and
opportunities.
• Climate objectives defined
and included in 2022
objectives for all members of
the Senior Leadership Team.
• Target operating model for
the management of climate
risks and opportunities
refined and embedded.
• Net zero and
decarbonisation training
delivered to the Senior
Leadership Team and Board.
• Oversight of progress
against our climate targets.
• Oversight of changes in the
Society’s climate risk profile.
• Development and
refinement of transition
plans, targets and
disclosures.
• Implementation of climate
risk training to the wider
colleague population.
Section 1.1
b) Describe management’s
role in assessing and
managing climate-related
risks and opportunities.
Section 1.2
Climate-Related Financial Disclosures
Year ended 31 December 2022
“Climate change remains one of the biggest challenges currently facing us all.
Now, more than ever, we need to work together to urgently address the causes.
We’re committed to playing our part by reducing our carbon footprint on a pathway
towards net zero, and we will continue to work with key stakeholders to help them
to do the same so that there is an orderly and equitable transition to net zero.”
Andrew Greenwood
Deputy Chief Executive Officer
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TCFD recommendation Key progress areas Future priorities 2023+ Further details
2. Strategy
a) Describe the climate-
related risks and
opportunities the
organisation has
identified over the short,
medium, and long term.
• Assessment of climate risks
and opportunities reviewed
and enhanced.
• Partnered with Carbon
Intelligence, a sustainability
consulting firm, to calculate
and baseline emissions
across our full value
chain (including scope 3
emissions).
• Revised near term emissions
reduction targets and
decarbonisation plans
for our scope 1 and 2
operational emissions
developed and approved by
the Board.
• Scenario analysis capabilities
further developed.
• Implementation of actions
to support our near term
climate targets.
• Development of long term
transition plans and targets
for our full value chain.
• Wider stakeholder
engagement across our
value chain, including our
members and material
suppliers.
• Further development
and roll-out of our green
finance proposition and
partnerships.
• Development of our scenario
testing capabilities.
Section 2.1
b) Describe the impact of
climate-related risks
and opportunities
on the organisation’s
businesses, strategy, and
financial planning.
Section 2.2
c) Describe the resilience
of the organisation’s
strategy, taking into
consideration different
climate-related scenarios,
including a 2°C or lower
scenario.
Section 2.3
3. Risk management
a) Describe how processes
for identifying,
assessing, and managing
climate-related risks
are integrated into the
organisation’s overall risk
management.
• Climate risk and control
review completed, to assess
climate risks on a present
and future basis.
• Physical and transition risk
factors and data embedded
in our mortgage lending
policy and credit decisioning
processes.
• Monitoring of climate
physical and transitional risk
data for our mortgage book.
• Climate risk factors
embedded into third party
management processes.
• Review, update and
refinement of our climate
risk appetite in line with
agreed net zero targets and
transition plans.
• Further analysis of climate
transition risks following
finalisation of government
net zero policy proposals.
• Development of our climate
data architecture and
reporting capabilities.
Section 3.1
b) Describe the
organisation’s processes
for identifying and
assessing climate-
related risks.
Section 3.2
c) Describe the
organisation’s processes
for managing climate-
related risks.
Section 3.2
TCFD recommendation Key progress areas Future priorities 2023+ Further details
4. Metrics and targets
1. Describe the targets used
by the organisation to
manage climate-related
risks and opportunities
and performance against
targets.
• Monitoring of climate-
related key risk indicators
(KRIs) and management
information (MI).
• Scope 3 emissions
(categories 1 to 15)
baselined and disclosed for
the first time in accordance
with the GHG protocol.
• Decarbonisation plans
and revised targets for our
scope 1 and 2 operational
emissions agreed, guided by
the principles of a science-
based net zero pathway.
• Verified as carbon neutral
(scope 1 and 2 market-based
emissions plus selected
scope 3 emissions
1
).
• Development and
refinement of climate-
related internal MI, KRIs, and
external disclosures.
• Implementation of
decarbonisation plans
for our scope 1 and 2
operational emissions.
• Further analysis of material
scope 3 categories
(purchased goods and
services and investments)
and refinement of calculation
methodologies to enable
development of long term
transition plans and targets
for these emissions.
Section 4.1
2. Disclose the metrics used
by the organisation to
assess climate-related
risks and opportunities
in line with its strategy
and risk management
process.
Section 4.2
3. Disclose scope 1, scope 2,
and, if appropriate, scope
3 greenhouse gas (GHG)
emissions, and the related
risks.
Section 4.3
Governance and assurance approach
These disclosures have been subject to internal review and validation and have been reviewed by the Audit Committee
before approval by the Board. Our greenhouse gas emissions are also subject to annual validation and accreditation by
independent third parties.
Production of these disclosures is governed by a policy standard which covers, inter alia, adequacy, verification, frequency
and medium of publication of the disclosures. There is currently no external audit requirement in relation to these
disclosures.
Section 1 – Climate risk governance
The Society has embedded appropriate governance arrangements to identify and manage the risks and assess the
opportunities associated with climate change. Where appropriate, this integrated model has used existing committees and
built on their area of responsibility and expertise.
Responsible
Business
Forum
Board
Nominations
Committee
Credit
Committee
Models and
Rating System
Committee
Assets and
Liabilities
Committee
Conduct and
Operational Risk
Committee
Operational
Resilience
Committee
Audit
Committee
Board committee Executive committee
Working group
Board Risk
Committee
Remuneration
Committee
Executive
Committee
Climate
Change Forum
1 In line with Climate Impact Partners’ framework, The CarbonNeutral Protocol, this includes emissions from our business travel, fuel and energy related activities (FERA),
waste generated in operations, and home working.
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Section 1.1 – Board-level oversight of climate-related risks
Committee Role Meetings with
climate-related items
Activities and areas of focus in 2022
Board The Board has ultimate
accountability for overseeing the
implementation of our purpose led
strategy, including the management
of climate-related risks.
Whilst the Board fulfils some of these
duties directly, other responsibilities
are cascaded through the Society’s
committee structure. See pages
120 to 122 for further details of the
Society’s governance arrangements.
3
• Oversight of implementation
of the Society’s responsible
business and green strategies and
associated targets and objectives.
• Review of the external
environment and competitor
benchmarking.
• Deep dive on the risks and
opportunities of climate change
on the private rental sector.
• Review and approval of new
climate targets for our operational
emissions, aligned with the
principles of an SBTi net zero
pathway.
Board Risk
Committee
The Board has delegated
responsibility to the Board Risk
Committee for overseeing the
identification and management of
current and future risks associated
with climate change in line with its
stated appetite.
4
• Oversight of Society-wide
programme of climate activities
and deliverables.
• Approval of credit risk climate
backstop controls and
incorporation of climate factors
into the Society’s lending policy.
• Review and approval of outputs
and conclusions from climate
stress testing activity, as part of
the ICAAP.
• Monitoring of a suite of climate
risk indicators and climate
management information.
Audit
Committee
The Audit Committee assists the
Board in ensuring that the internal
systems of control and external
disclosures relating to climate
change are appropriate.
3
• Training on ESG reporting
requirements, including TCFD and
associated controls.
• Review of climate risk and control
self-assessment outputs.
Remuneration
Committee
The Remuneration Committee
oversees the design and
implementation of reward structures
to ensure they appropriately
motivate colleagues, whilst
underpinning the longer term
viability of the Society.
1
• Review, approval and monitoring
of 2022 climate-related objectives
for all the Senior Leadership Team,
and assessment of associated
impacts on variable remuneration.
Section 1.2 – Management level oversight of climate-related risks
Executive risk committees
The Board Risk Committee is supported by five executive risk committees, each of which focus on discipline(s) of the risk
universe and how these are influenced by climate change factors.
Forum Chair Responsibilities Meetings with
climate-related items
2022 discussion topics
Credit
Committee
Chief
Commercial
Officer
Oversees the management
of risks from climate change
on the Society’s residential
mortgage portfolio and the
development of associated
policy and appetite.
4
• Climate credit controls
and policy.
• Impacts on borrower
affordability
assessments.
• Climate risk credit MI.
Assets and
Liabilities
Committee
Chief Financial
Officer
Oversees the management
of treasury related risks
impacted by climate change
(e.g. funding and liquidity,
market risk and capital)
and the development of
associated policy and
appetite.
2
• Treasury policy.
• ICAAP scenario
analysis.
Conduct and
Operational
Risk
Committee
Chief
Customer
Officer
Oversees the management
of conduct and operational
risks from climate change
(e.g. customer detriment
and physical damage to
the Society’s operational
properties) and the
development of associated
policy and appetite.
2
• ICAAP scenario
analysis.
Operational
Resilience
Committee
Chief
Operating
Officer
Oversees the management of
resilience risks from climate
change (e.g. disruption to
operations from physical
climate events such as
flooding and increased
supply chain costs) and the
development of associated
policy and appetite.
2
• Climate risk training.
• Climate resilience
deep dive.
Models and
Rating System
Committee
Deputy Chief
Executive
Officer
Oversees the development
and use of models used
to quantify and profile
the Society’s climate
risk exposures, and the
development of associated
policy and appetite.
2
• Climate model
materiality.
• Climate model
methodology and
developments.
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Given the cross-cutting nature of climate risk, the Society also operates two cross-functional governance forums, which
are responsible for the day to day oversight of climate-related risks under the oversight of the Executive Committee:
Forum Chair Responsibilities Times met during
2022
2022 discussion topics
Responsible
Business
Forum
Chief Strategy
and Insights
Officer
Ensures appropriate
alignment of climate change
initiatives to the Society’s
responsible business strategy.
4
• Oversight of
responsible business
strategy.
• Progress updates from
Climate Forum.
Climate Forum Chief Risk
Officer
Delivery of climate activities
including compliance with
PRA SS3/19, industry best
practice and operational
implementation of the green
strategy.
5
• Embedding of
climate target
operating model and
deliverables.
• Green strategy and
climate targets.
• Property
refurbishment
strategy.
• Climate
communications.
Senior Management Function
Responsibility for managing climate-related risk has been assigned to the Deputy Chief Executive Officer, as the
appropriate Senior Management Function under the PRA’s Senior Managers Regime. This includes ensuring that climate-
related financial risks are adequately reflected in risk management frameworks, and that the Society can identify, measure,
monitor and report on its exposure to these risks.
Training and awareness
Ensuring robust understanding of climate-related risks and opportunities is crucial for colleagues at all levels of the
organisation. During the year, both the Board and Senior Leadership Team undertook training facilitated by external
specialists on the Science Based Targets initiative (SBTi) and approaches for setting climate targets. Wider colleague
engagement has been facilitated through colleague roadshows and internal communications during the year.
Remuneration
During 2022, climate factors were reflected in the Society’s remuneration scheme for the first time with all members of the
Senior Leadership Team required to have a personal objective linked to climate priorities within their area of responsibility.
Supporting the transition to net zero has also been included as one of the Society’s ten corporate priorities under our
revised purpose to help put home ownership within reach of more people generation after generation.
Section 2 – Climate risk strategy
Section 2.1 – Our approach
The Board has approved a climate strategy centred around supporting the orderly transition to a greener, net zero
economy by 2050 or sooner.
This strategic aim will be underpinned by a transition plan setting out our strategic pillars, targets and capabilities that will
be required to support our net zero ambitions. We intend to continually review, update and disclose progress against our
plans and targets in the coming years as our strategy evolves, in line with changes in the external environment and net zero
standards and guidance. Refer to section 4 for further detail on current targets and action plans.
Climate strategic framework
Climate change strategic aim
Support the orderly transition to a greener, net zero economy by 2050 or sooner
Transition plan
Climate strategic pillars
Our carbon footprint
Reduce the Society’s own
operational emissions
Support transition to net zero
Help key stakeholders reduce
emissions across our value chain
Climate-related risks
Measure, manage and disclose
climate risks and opportunities
Climate targets
1
Reduce our absolute scope
1 and 2 market-based
emissions 90% by 2030
from a 2021 base year
2
Reduce our absolute
scope 1 and 2 location-
based emissions 60% by
2030 from a 2021 base
year
3
Maintain carbon neutrality
for scope 1 and 2
market-based emissions
and selected scope 3
emissions, on the pathway
towards net zero
Climate capabilities and enablers
Green
finance
Data Disclosure Engagement Governance
Operating
model
Risk
management
Transition plan roadmap
Mobilise plans
Our operations:
• Reduce our absolute scope 1 and 2
emissions by 90% (market-based
approach) and 60% (location-based
approach) by 2030 from a 2021 base year.
• Maintain carbon neutrality for scope
1 and 2 market-based emissions and
selected scope 3 emissions on the
pathway to net zero.
Our value chain:
• Engage with key stakeholders to address
the challenges of scope 3 emissions and
develop near term and long term net zero
aligned transition plans and targets.
Near term targets and actions
Net zero
Transition to net zero:
• Accelerate actions and
align our operations
and value chain with a
pathway to achieve
net zero by 2050 or
sooner.
• Neutralise hard to
abate residual
emissions through
investment in carbon
removal solutions.
Long term aims
Develop capabilities
Key achievements:
• Reduced our scope 1 and 2 market-based
emissions by 95% between 2016 and 2022.
• Carbon Trust accreditation held since 2018
and verified as carbon neutral since 2021.
• Inaugural green strategy agreed and TCFD
disclosures published in 2022.
• Full carbon footprint baselined in 2022
(including scope 3 emissions).
• Near term targets agreed in 2022 to reduce
our own operational emissions (scope 1 and 2)
in line with the Paris Agreement aim to keep
future temperature increases below 1.5°C.
2016 2020 2022 2025 2030 2050
Progress to date
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Pillar 1 – Our carbon footprint
90%
60%
reduction of our absolute
scope 1 and 2 emissions by
2030 from a 2021 base
year using a market-based
approach
reduction of our absolute
scope 1 and 2 emissions by
2030 from a 2021 base year
using a location-based
approach
Targets
We’re committed to reducing the climate change impacts from our own operations
(scope 1 and 2 emissions) in line with Paris Agreement goals to limit future
temperature increases to 1.5°C.
Since our 2021 TCFD report, we have set ambitious near term targets, guided
by the principles of a science-based net zero pathway, to reduce our absolute
scope 1 and 2 emissions by 90% (using a market-based approach) and by 60%
(using a location-based approach) by 2030 from a 2021 base year. This means
that we will transition our remaining electricity to renewable sources, remove gas
from our remaining properties, and complete an ambitious multi-million pound
refurbishment programme across our branch estate to enhance the energy
efficiency of the buildings and reduce consumption in line with the latest net zero
standards.
We’re also maintaining our commitment to be carbon neutral (for our scope 1 and
2 market-based emissions and selected scope 3 emissions). This means we will
purchase high quality carbon credits to voluntarily offset our residual emissions to
zero whilst we are taking action to permanently eliminate them, but offsets will not
be relied upon to meet our reduction targets. Refer to section 4 for further details.
Pillar 2 – Supporting the transition to net zero
In addition to our own operational emissions, we are also committed to reducing
the indirect emissions from our full value chain (referred to as scope 3 emissions),
in line with a 2050 science-based net zero pathway.
We’re just at the start of the journey, but during 2022 we completed an
assessment to calculate and baseline our full scope 3 emissions footprint and
identify the most material categories that we need to focus our efforts on in the
coming years. These include emissions from our supply chain and the goods
and services that we buy, mortgaged properties that we finance, and employee
business travel, commuting and homeworking.
We acknowledge the potential size of these emissions and importance of reducing
them to achieve net zero, but many of the levers required to do so are outside the
direct control and influence of the Society. For example, reducing emissions from
the mortgaged properties that we finance will be heavily reliant on delivery of the
UK Government’s net zero strategy, improvements in the energy efficiency of UK
homes and decarbonisation of energy supplies.
A careful balance is also required to ensure an orderly and just transition is achieved, without creating negative unintended
consequences (such as climate mortgage prisoners). For this reason, we have not yet set formal targets for scope 3 and
instead we will focus our immediate efforts on helping to resolve the challenges around these emissions, so that credible
net zero targets can be set. A series of strategic actions have been agreed in this regard to ensure we continue to make
purposeful progress during 2023. Refer to section 4 for further details.
Pillar 3 – Managing the risks from climate change
Whilst the transition to a low carbon economy creates opportunities, it will also be accompanied by risks, which must be
understood and effectively managed. The Society has integrated climate change risks into its Enterprise Risk Management
Framework (ERMF), which facilitates the appropriate identification, management, monitoring and reporting of climate-
related risks. Our approach to climate risk management is set out further in section 3.
During 2023, our focus will be on continuing to enhance our risk management capabilities and insights through
development of our scenario testing approach and data sources, deep dive assessments of material risk categories,
monitoring of changes in the external landscape and development of our disclosures and internal reporting.
Section 2.1 – Stakeholder considerations
Our climate strategy has been designed to consider the requirements of our key stakeholders:
Communities
Government
Members and
Brokers
Investors
ColleaguesSuppliers
•
Support members to reduce their
carbon footprint.
•
Education around potential impacts
of climate change risks.
•
Work with key suppliers to
understand and reduce our
supply chain emissions.
•
Identify and mitigate potential
resilience risks from adverse
climate impacts.
•
Provide disclosure around the
Society’s climate strategy, targets,
and exposures.
•
Demonstrate the Society
understands and manages its
exposure to climate risk.
• Demonstrate that the Society
understands and manages its
exposure to climate risk.
• Deliver compliance with regulatory
requirements.
• Encourage, educate, and
support colleagues to reduce
the Society’s carbon footprint.
• Support participation in
community events to improve
the local environment.
• Green partnerships/sponsorship
and volunteering activities.
• Purchasing carbon offset credits
to improve the environment.
Section 2.2 – Memberships and affiliations
The Society has partnered with or joined the following organisations to increase our knowledge and understanding of
climate-related risks and opportunities:
We have partnered with Hometrack and their data partners Ambiental and
Terrafirma to obtain industry-leading climate risk data and insights for our
mortgage portfolio. Data is also delivered at the point of origination for new
mortgage lending, enabling the Society to incorporate climate change metrics
into our mortgage origination strategy and decisioning processes.
We were one of the first building societies to sign up to the Green Finance
Institute’s Green Home Finance Principles which promote a consistent
methodology for the application of financial proceeds towards the purchase or
retro-fit of domestic buildings that achieve verifiable environmental benefits.
We are a member of the Partnership for Carbon Accounting Financials (PCAF)
to better understand the challenges of measuring and reporting emissions
associated with our mortgage portfolio.
We have held the Carbon Trust Standard for Carbon since 2018. This is a
voluntary certification and mark of excellence, only awarded to organisations
that can demonstrate they have reduced their carbon footprint and have the
right processes in place to continue to reduce it in future.
During 2022, we partnered with leading sustainability experts, Carbon
Intelligence, to baseline our scope 1, 2 and 3 emissions and set climate targets.
We will continue to work with Carbon Intelligence in 2023 to implement our
transition plans and refine our strategy and targets.
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Section 2.3 – Climate-related risks and opportunities over the short, medium and long term
Time horizons
The time horizons over which financial risks and opportunities from climate change may be realised are uncertain and may
occur outside of traditional planning horizons. The Society assesses these risks and opportunities as set out in the table
below:
Time horizon Description
Short term 0 to 3 years Our horizon for assessing business model viability
Medium term 3 to 5 years Our financial planning horizon
Long term 5 to 30 years Our climate risk stress testing horizon
Climate-related risks
Risks to the Society from climate change arise through two primary channels, or risk factors: physical and transition risk.
Summary of key climate risk physical risk drivers and relevance to our business model
Climate risk
factor
Description Key drivers Relevance
2
Horizon
Physical risks Arise from the
increased severity and
frequency of extreme
climate and weather-
related events.
Flooding
High
Long term
Subsidence
Medium
Coastal erosion
Medium
Heatwaves
Medium/Low
Wildfires
Medium/Low
Hurricanes
Low
Water stress
Low
Desertification
Low
Transition risks Arise from the process
of adjustment towards
a low carbon economy.
Government policy
High Medium term
Carbon pricing
Medium
Medium/Long termConsumer sentiment
Medium
Investor sentiment
Medium
Technological change
Low Long term
Refer to sections 2.5 and 3.2 for further details of our assessment of these risks, potential impacts and current mitigants in
place.
2 Reflects our assessment of the relevance of these risks based on our current business model and operating environment.
Climate-related opportunities
As well as risks, we have also identified several potential climate-related opportunities as part of our support of the
transition to a net zero economy.
Opportunities Description Stakeholders Horizon
Green finance Development of innovative new financial
products to help members reduce their carbon
footprint.
• Members
• Communities
• Investors
Short/ Medium term
Communication Engagement with colleagues, members, and
suppliers to increase understanding of climate-
related risks and drive the transition to net zero.
• Members
• Colleagues
• Third party suppliers
Short term
Partnerships Collaborate with key organisations to increase
knowledge, develop good practice and lobby for
change.
• Third party suppliers
• Industry bodies
• Government and
regulators
Medium term
Section 2.4 – Climate change impact on our business, strategy, and financial planning
As a UK-based mutual that is focused on residential mortgage lending, with no appetite for any exposure to carbon-
intensive industries, our business model is most likely to be impacted by climate-related risks and opportunities in the
following ways:
Key potential impacts Our response and future plans
Physical risk
• Future rises in temperatures and precipitation in the
UK have the potential to impact the credit quality of
our mortgage portfolio e.g. damage to properties from
flooding and erosion leading to reductions in the value
of mortgage collateral or impacting borrowers’ ability to
repay the debt.
• Partnered with Hometrack to assess property level
physical risk profile.
• Climate data incorporated into our mortgage
origination process and lending policy and
underwriting.
• Scenario analysis completed as part of our 2022
ICAAP to better understand the potential financial
impacts from physical risks. Refer to section 2.6 for
further details.
• Physical risk profile of our key operational sites,
branches and key third parties assessed.
• An increase in adverse weather events, such as flooding,
may impact the resilience of our operations through
damage to our premises, infrastructure, and disruption to
our critical third party services and colleagues.
• Macroeconomic shocks in the UK due to increased
global disruption from climate change may impact our
future profitability and growth because of increased
unemployment and falling house prices.
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Key potential impacts Our response and future plans
Transition risk
• Changes in government policy, such as minimum energy
standards for homes, have the potential to impact the
future credit quality of our mortgage book i.e. reductions
in house prices where properties do not meet minimum
standards, and stresses to borrower affordability due to
the cost of making energy efficiency improvements and
rising energy prices.
• Scenario analysis completed in the 2022 ICAAP
to assess financial impacts from the transition to
minimum energy ratings.
• Backstop credit controls implemented in line with
minimum requirements for energy ratings.
• Development of green commercial proposition and
green customer communications.
• Alignment with TCFD for climate-related disclosures
and consideration of emerging new requirements.
• Climate targets developed and implemented to
minimise and reduce our emissions over the medium
to longer term.
• Rising carbon prices caused by the transition to net
zero could negatively impact our future income where
emission offsets are purchased to reduce our carbon
footprint.
• Increasing demand for green mortgage and savings in the
UK may impact our future profitability and growth if we
fail to adapt to meet changing consumer preferences.
• An increased focus from stakeholders on green
credentials may impact our reputation if the risks and
opportunities are not effectively managed and disclosed.
Section 2.5 – Scenario analysis
The Society has developed a proportionate approach to climate risk scenario analysis as part of our Internal Capital
Adequacy Assessment Process (ICAAP), to understand the potential future impacts of climate change on our overall risk
profile and to inform strategic planning.
Scenario testing approach
Aligned with the Bank of England’s Climate Biennial Exploratory Scenario exercise, the Society models three climate-
related scenarios as part of our ICAAP. The scenarios assess the potential financial impacts from different combinations
of physical, transition and economic risks over a 30-year time horizon (2022 to 2050s). Impacts on expected losses are
modelled based on a static balance sheet
3
(i.e. no run off of assets and liabilities and no management actions).
Climate change scenarios
Transition risk
High
1. Late policy action scenario (LPA)
Disorderly transition to a net zero economy by 2050
Low
2. Early policy action scenario (EPA)
Orderly transition to a net zero economy by 2050
3. No additional policy action scenario (NPA)
No further climate policy leading to a 3.3°C rise in
temperatures by 2050
Low High
Physical risk
3 Excluding residual commercial loans and Gibraltar and Spanish mortgages. Outstanding balances are de minimis and were therefore excluded from the analysis.
2022 Climate change scenario descriptions and key assumption
Late policy action (LPA) Early policy action (EPA) No policy action (NPA)
Description
Disorderly transition to a
net zero economy by 2050
Orderly transition to a net
zero economy by 2050
No further climate policy
leading to a 3.3°C rise in
temperatures by 2050
Transition risk
High Medium Limited
Transition begins 2031 2022 N/A
Nature of transition Late and disorderly; new
climate policy from 2030
Early and orderly; new
climate policy from 2022
Only climate policies in
place pre-2022
EPC ratings All properties reach their
maximum potential rating
by 2030s
All properties reach their
maximum potential rating
by 2020s
No change
Peak carbon price £690/tonne CO
2
£580/tonne CO
2
N/A
Physical risk
Limited Limited High
Mean global warming
4
1.8°C increase 1.8°C increase 3.3°C increase
Emissions RCP
5
2.6 2.6 8.5
Economic impact (UK)
Sudden recession Temporary downturn Permanent downturn
Scenario conclusions
The exploratory climate scenario analysis completed during 2022 has provided the following insights:
• Modelling of climate change impacts continues to be complex and highly uncertain. This is primarily due to the longer
term time horizons that the risks are expected to materialise over (versus the relatively short behavioural lives of the
current mortgage book) and uncertainties around the timings and impacts of future government climate policies.
• The Society continues to have limited potential exposure to physical risk, both currently and under a range of future
climate pathways modelled over the next 30 years (see figures 1, 2 and 3), due to the geographically diversified and low
LTV profile of our UK-focused mortgage portfolio.
• More material potential impacts have been observed through transition risks. For example, 48% of the mortgaged
properties in our portfolio with a valid energy performance certificate (EPC) were rated D or lower at 31 August 2022
(see figure 4) and are therefore more exposed to changes in government policy for minimum energy ratings.
• Transitional impacts were greatest under a late transition scenario, where actions to achieve net zero are disorderly and
concentrated in a short time period during the 2030s. As a result, total expected losses under this scenario were almost
three times higher than an orderly scenario. Despite these potential impacts, the Society’s business model and capital
position were found to be resilient to the risks under all three of the scenarios modelled.
• Based on current progress, there is an increasing probability of a disorderly scenario materialising between 2030 and
2050. In this context, the Society is closely monitoring exposure to transitional risks and factoring this into strategic
decision making where appropriate. We intend to continue to refine and enhance our scenario testing capabilities in
future years as additional data becomes available and further industry good practice emerges.
4 Increase in average global temperatures compared to pre-industrial levels.
5 Equivalent Representative Concentration Pathway (RCP) developed by the Intergovernmental Panel on Climate Change (IPCC) to model different climate futures based
on the volume of greenhouse gas emissions. RCP 2.6 is a very stringent pathway where emissions fall to zero by 2100 and keep temperature rises below 2°C. RCP 8.5 is a
pathway where emissions continue to rise throughout the 21st century.
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Figure 1 – 2050s flood risk profile
6
Figure 2 – 2050s coastal erosion risk profile
6
Mortgage Balance (£bn)
0
2
4
6
8
10
12
14
16
18
Very HighHighModerateLowVery LowNegligible
Mortgage Balance (£bn)
0
2
4
6
8
10
12
14
16
18
20
Very HighModerateLowNegligible
EPA/LPA Scenario
NPA Scenario
EPA/LPA Scenario
NPA Scenario
Figure 3 – 2050s ground hazard risk profile
6
Figure 4 – Current and potential EPC ratings
6
Mortgage Balance (£bn)
0
1
2
3
4
5
6
7
Very HighHighModerateLowVery LowNegligible
Mortgage Balance (£bn)
0
1
2
3
4
5
6
7
GFEDCBA
EPA/LPA Scenario
NPA Scenario
Current EPC Rating
Potential EPC Rating
Impacts on our longer term strategy
Using the scenario insights, we have implemented the following actions to support the development of our green strategy
and mitigate against the evolving risks from climate change:
• Investment in our climate risk management capabilities to ensure that we are well positioned to respond and adapt
quickly to changes in the external environment.
• Development of our green finance proposition to support members through the transition to net zero.
• Lending policy controls have been implemented to manage exposure to transitional and physical risks.
We will continue to use scenario analysis to monitor the potential impacts of climate change on our business model and
adapt our strategy accordingly.
Section 3 – Climate risk management
Section 3.1 – Integration of climate change in risk management
Climate risk management framework
The Society has developed a Climate Risk Management Framework (CRMF) to ensure that climate risks and opportunities
are appropriately identified, measured, managed, monitored, and reported.
The Society does not view climate-related risks as a separate principal risk category, but as risk factors that have a bearing
on existing risks across the Society’s principal risk universe.
6 Based on the mortgage portfolio as at 31 August 2022.
The management of climate-related risks and opportunities has been incorporated into existing governance and risk
management processes, where appropriate, and ensures that the risks are being managed in line with Board-approved
appetite.
Enterprise Risk Management Framework (ERMF)
Climate Risk Management Framework (CRMF)
Climate risks (physical and transitional)
Credit risk
Funding and
liquidity risk
Climate data
standard
Level 1 policies
Strategic/
business risk
Model risk
Climate key risk
indicators
Governance and
reporting
Conduct risk
Capital risk
Climate scenario
analysis standard
Stress testing
Operational risk
Market risk
Climate disclosure
standard
Risk appetite and
limits
Risk appetite
Our climate risk appetite has been defined in line with current good practice guidance, combining a qualitative statement
with measures the Society uses to assess adherence to appetite over a time period reflective of the risks from climate
change.
Aim
Climate change strategic aim
Support the orderly transition to a greener, net zero economy by 2050 or sooner
Appetite
“The Society has a low tolerance for ESG risks in order to create long term
value for its key stakeholders and protect its brand and reputation.”
Supporting measures
• Reduce absolute scope 1 and 2 emissions by 90% by 2030
7
, using a market-based approach.
• Reduce absolute scope 1 and 2 emissions by 60% by 2030
7
, using a location-based approach.
• Maintain carbon neutrality for scope 1 and 2 market-based emissions and selected scope 3 emissions
8
,
on the pathway to net zero.
• Maintain negligible/low exposure to physical climate risks (flooding, ground hazards, and coastal erosion),
both currently and under a high emissions 30-year representative scenario (as defined under the ICAAP).
• Limit exposure to transition risks through our credit policy and criteria.
• Maintain zero appetite for the funding of fossil fuel and other carbon-intensive industries.
7 From a 2021 base year.
8 Emissions from our business travel, fuel and energy related activities (FERA), waste generated in operations, and home working.
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Section 3.2 – How climate risks are identified, assessed and managed
Climate risk operating model
A climate change operating model has been established to assist the Board and Deputy CEO in the effective identification
and management of climate risks. A central strategy and risk management hub ensures there is close alignment between
the Society’s purpose and climate risk appetite and policy and provides direction to relevant functional areas that have
accountability for the management of each aspect of climate risk.
Deputy CEO = Climat
e risk SMF holder
CRO
Chief Risk Officer
CCO
Chief Commercial
Officer
CSIO
Chief Strategy and
Insights Officer
COO
Chief Operating
Officer
CFO
Chief Financial
CRO CSIO
Strategy and risk
management
COO CFO
Operational
resilience
Green finance
CFO CCO
CSIO CCO
Communication
CSIO COO
Operational
infrastructure
CRO
CSIO
Carbon
footprint
CRO CFO
Reporting and
disclosure
Three lines of defence
The Society defines roles and responsibilities in relation to climate risk under a three lines of defence (3LOD) approach,
reflective of the Society’s size and complexity.
3LOD Climate-related remit
First line
(Business lines)
• Development of the Society’s green strategy and wider responsible business strategy.
• Identification, assessment and management of climate change risks across the Society.
• Member and colleague engagement campaigns.
Second line
(Risk division)
• Maintenance of the Climate Risk Management Framework.
• Climate risk monitoring and reporting.
• Development of climate scenario analysis and stress testing.
Third line
(Internal Audit)
• Independent assurance of the adequacy and effectiveness of first and second line risk
management, on a risk-based approach.
• Supplemented by external assurance reviews as required.
Assessment and management of climate-related risks
The Society uses its CRMF to assess how climate change risks could impact each of the Society’s principal risks. Our
current assessment of potential impacts against each of our eight principal risks is presented on the following pages
along with key mitigants and climate risk metrics in place to manage the risk. The assessment is based on available data
and insights and should be viewed in the context of the current complexity and high degree of uncertainty around future
climate change.
Summary of climate-related risks, potential impacts and mitigants
= High potential impact = Medium potential impact = Low potential impact
Risk factor Risk description Horizon Mitigants Climate risk
metrics
Credit risk
Physical risk • Increasingly frequent/
severe flooding,
subsidence, and erosion
from climate change
causes physical damage
to properties, negatively
impacting the value of the
collateral.
• Higher insurance/repair
costs for members,
impacting debt
serviceability.
• Increased default risk for
wholesale counterparties
exposed to climate change.
Long term • Automated flood and
ground risk assessment
as part of the credit
decisioning process.
• Credit policy controls.
• Building insurance required
under mortgage terms and
conditions.
• Stressed affordability
assessments.
• Postcode concentration
limits.
• LTV limit structure for
lending segments.
• Semi-annual back book
assessment of physical
risks under multiple climate
pathways and stresses.
• ESG assessments for
wholesale counterparties.
• % mortgage
balances with
high/very high
physical risk.
• Stressed credit
risk losses.
Transition risk
• Changes in government
policy negatively impact
house prices and borrower
affordability (e.g. minimum
EPC ratings).
• Transition to a green
economy impacts borrower
affordability (e.g. rising
energy costs).
• Macroeconomic downturn
from climate change
impacts house prices and
borrower affordability (e.g.
higher unemployment).
Medium
term
• EPC data incorporated
into automated credit
decisioning processes
and assessed as part of
underwriting for certain
products.
• Credit policy controls.
• Stressed affordability
assessments.
• Semi-annual back
book assessments of
EPC ratings to assess
concentration risks.
• Transitional risk stress
testing conducted as part
of ICAAP assessment.
• Horizon scanning for
technological changes,
changes in consumer
sentiment or government
policy.
• % mortgage
balances with
current EPC >C.
• % mortgage
balances with
potential EPC >C.
• Stressed
transitional credit
risk losses.
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Risk factor Risk description Horizon Mitigants Climate risk
metrics
Strategic/business risk
Physical and
transition risk
• Loss of income from an
increase in the severity
and frequency of climate
events.
• Changes in member
expectations relating to the
provision of green strategic
objectives.
• Reputational impact
of carbon footprint of
products and services
leading to lower member
attraction and retention.
Medium
term
• Responsible business and
green strategies, including
the setting of appropriate
appetite and targets for
climate risk.
• Green product proposition
and governance.
• ICAAP stress testing and
sensitivity analysis.
• Disclosures articulating
the Society’s approach to
climate risk management.
• Horizon scanning and
assessment (e.g. regulatory
change).
• Member engagement and
education.
• Climate targets,
refer to section 4.
• External ESG
ratings.
• Adverse publicity.
• Carbon prices.
• Climate risk
landscape.
Operational risk
Physical risk • Branches or offices are
damaged, or loss of
systems, processes or
data, due to physical
impacts (e.g. flooding).
• Increased incidence of
environmental perils
affecting the delivery of
third party goods and
services.
• Internal capability affected
by physical events
preventing colleagues from
accessing the office or
branches.
• Regulatory breaches or
censure.
Medium/
Long term
• Corporate insurance policy.
• Business continuity
planning and operational
resilience factored into our
investment strategy (e.g.
additional flood defences
for our new head office site
in Leeds).
• Disaster recovery testing.
• ICAAP operational risk Pillar
2A assessment.
• Remote working
capabilities.
• Environment factors
considered as part of
supplier due diligence.
• Supplier audits and
recovery testing.
• Regulatory horizon
scanning and compliance
assessments.
• Number of Society
properties with
high/very high
physical risk.
• Number of
supplier sites with
high/very high
physical risk.
• % employees
located in high
physical risk area.
• Stressed
operational losses.
Transition risk
• Increased supply chain
costs due to climate-
related inflationary
pressures.
• Reputational damage from
third party relationships.
Medium
term
• Supplier due diligence and
exit planning.
• Supplier relationship
meetings to engage and
monitor progress with
implementing climate
targets and plans.
• Number of critical
suppliers without
a climate risk
assessment.
Risk factor Risk description Horizon Mitigants Climate risk
metrics
Model risk
Physical and
transition risk
• Increased reliance on
complex models to
understand climate-related
risks over longer term
horizons to support current
day decision making.
• Models are based on the
latest climate science,
with historic performance
not an indicator of future
performance.
• A lack of transparency
around model assumptions
and limitations results in
incorrect decision making.
Medium/
Short
term
• Model Risk Policy
requirements and
materiality assessment.
• Independent model
validation reports.
• Data completeness checks
and reconciliations.
• Variance analysis and
associated commentary to
understand key trends.
• Model documentation and
localised procedures.
• Credit risk and modelling
subject matter experts.
• Third party management
arrangements/oversight.
• Under
development.
Funding and liquidity risk
Physical and
transition risk
• Erosion of savings deposits
(e.g. due to property
retro-fit costs or loss of
income from climate-
related macroeconomic or
transitional impacts).
• Reduction in savings
balances due to a change
in member preferences
towards green products.
• Increased cost of wholesale
funding due to a change in
investor appetite for green
bonds.
• Increased losses from
counterparties with a
higher exposure to climate
risk.
Medium/
Long term
• Annual ILAAP and recovery
planning processes.
• Daily monitoring of
the Society’s liquidity
position and early warning
indicators.
• Weekly cash flow
forecasting.
• Liquidity management
actions under the Recovery
Plan.
• Climate risk disclosures
articulating the Society’s
approach to the
management of climate
risk.
• Green product proposition
and governance.
• Number of liquidity
investments with
high climate risk.
• Carbon prices.
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Risk factor Risk description Horizon Mitigants Climate risk
metrics
Market risk
Physical and
transition risk
• Changes in market
pricing as a result of the
implementation of new
climate policies (e.g. rising
price of renewable energy
and carbon offsets).
• Changes in the value of
certain financial assets
and liabilities as a result of
macroeconomic events
in response to climate
change (e.g. interest rate
movements).
• Changes in member
behaviour in relation to
their mortgage or savings
deposits.
Long term • ICAAP stress testing and
sensitivity analysis.
• Implementation of the
Market Risk Policy and
associated limit structure.
• Environmental factors are
considered annually as part
of counterparty credit limit
assignment.
• Regular testing of the
liquidity of market
securities.
• Monitoring and
recalibration of behavioural
life models for savings and
mortgages.
• Under
development.
Conduct risk
Physical and
transition risk
• Potential liability and
conduct risks from green
propositions and assumed
advice.
• Inappropriate treatment
of members who are in
financial difficulty as a
result of the impacts of
climate change.
• Increased member
activity (e.g. increased call
volumes) resulting from
physical risk, impacting the
Society’s service capacity.
Medium/
Long term
• Product governance
framework.
• Credit risk appetite and
policy.
• Colleague training, with
regular oversight and
assessment.
• Compliance monitoring
reviews.
• Complaints handling and
resolution procedures.
• Resource planning and
business continuity
arrangements.
• % mortgage
balances with
high or very
high physical or
transitional risk.
• Complaints related
to climate risk.
Capital risk
Physical and
transition risk
• Reduction in capital from
changes in risk weighted
assets and impairment
provisions for mortgages
as a result of climate-
related events.
• Increase in operational
losses linked to climate
events.
• Impairment of balance
sheet assets, such as
premises or branches, due
to either physical damage
or transitional impacts.
Long term • The annual ICAAP
considers the risk profile
of the Society across all its
principal risk categories
(including the impact of
climate change).
• Further alternative
scenarios and sensitivity
analysis.
• Credit risk appetite and
policy.
• Stressed physical
and transitional
credit risk losses.
Section 4 – Climate risk metrics and targets
Section 4.1 – Climate risk targets, actions and performance
The Society is committed to the global call to action on climate change, recognising the critical and urgent role that the
financial services industry has in supporting the response.
A key area of focus for us in 2022 was completing the measurement and baselining of our full emissions footprint (including
scope 3, which we are disclosing for the first time this year). This has enabled us to better understand emissions hot spots
and begin the process of developing climate targets and action plans for scope 3.
Our greenhouse gas (GHG) emissions
The Society’s GHG reporting has been completed in accordance with requirements of The Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations 2013 and the UK’s Streamlined Energy and Carbon Reporting (SECR) regulations.
Reported emissions have been calculated using the World Resources Institute and the World Business Council for
Sustainable Development GHG Protocol, which is the internationally recognised standard for the measurement,
management, and reporting of GHG emissions. The Society has set its organisational GHG emissions boundary using the
operational control approach, which captures GHG emissions linked to entities under our control.
Reported emissions encompass the seven GHGs defined under the Kyoto Protocol and are broken down into three main
categories:
Category Control Source Disclosure Description
Operational emissions
Scope 1 Direct Our buildings Mandatory
Direct GHG emissions that originate from
assets that the Society owns or controls
e.g. emissions from the combustion of gas
to heat branches or fugitive emissions from
ventilation systems.
Scope 2 Indirect
Purchased
electricity
Mandatory
Emissions from the generation of purchased
electricity. Under the GHG Protocol, the
Society is required to report scope 2
emissions of both market and location-based
approaches.
Market-based approach – reflects
emissions from energy that the Society
has purposefully chosen e.g. renewable
electricity.
Location-based approach – reflects
emissions from purchased energy based on
the average emissions intensity on the grids
upon which consumption occurs, such as
using UK Government grid average emissions
factors.
Value chain emissions
Scope 3
(Category
1 – 14)
Indirect
Upstream and
downstream
activities
Voluntary
Indirect emissions from activities linked to
the provision of our products and services
(predominantly from the third party goods
and services that we purchase).
Scope 3
(Category 15)
Indirect
Downstream
activities
Voluntary
Indirect emissions from the use of our
products, services and investments
(predominantly from the mortgaged
properties that we finance).
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Table 1 below outlines the Society’s GHG emissions for 2022, with comparison to 2021 (our baseline year for reporting
purposes), in line with reporting requirements under SECR. Our 2021 disclosures for gas, fugitive emissions and business
travel have been restated
9
following an exercise to baseline and validate the calculations. Prior year disclosures are
provided in table 2 for comparative purposes.
We have calculated a data score of 1.89 for our scope 1 and 2 market-based emissions and 2 for our scope 1 and 2 location-
based emissions using the PCAF methodology (with 1 being the highest data quality and 5 the lowest quality). This reflects
the high proportion of actual vs estimated consumption data and average emissions factors used in the calculations.
Table 1 – 2022 SECR reporting
10
11
Market-based approach Location-based approach
Emissions (tCO
2
e) 2022
2021
(Baseline)
Change 2022
2021
(Baseline)
Change
Scope 1
Diesel 1 0 – 1 0 –
Gas 34 45 (25%) 34 45 (25%)
Fugitive emissions 20 12 56% 20 12 56%
Scope 2
Electricity 7 18 (64%) 493 906 (46%)
Total scope 1 and 2 61 75 (19%) 547 963 (43%)
Scope 3
Business travel 156 103 52% 156 103 52%
Total scope 1, 2 and 3
business travel
217
178
22%
703
1,066
(34%)
Purchased carbon offsets (217) (178) 22% (217) (178) 22%
Net carbon outturn 0 0 0% 486 888 (45%)
Other metrics
Emissions per FTE
(scope 1 and 2)
0.04
0.06
(25%)
0.37
0.71
(47%)
Energy consumption (Mwh) 2,732 4,491 (39%) 2,732 4,491 (39%)
Energy consumption per FTE 1.86 3.30 (44%) 1.86 3.30 (44%)
Data score 1.89 – – 2.00 – –
9 The adjustments did not change the net carbon outturn for 2021, with additional voluntary carbon credits purchased during 2022 to offset the difference.
10 tCO
2
e stands for tonnes of carbon dioxide equivalent (the recognised measure for GHG emissions).
11 Offsets for our 2022 emissions will be finalised once final energy consumption data is available and has been independently verified.
Table 2 – SECR prior year disclosures
Market-based approach Location-based approach
Emissions (tCO
2
e) 2021 2021
Scope 1
Diesel – –
Gas 41 41
Fugitive emissions 0.01 0.01
Scope 2
Electricity 18 906
Total scope 1 and 2 59 947
Scope 3
Business travel 32 32
Total scope 1, 2 and 3
business travel
91
979
Purchased carbon offsets (91) (91)
Net carbon outturn 0 888
On a market-based approach, our scope 1 and 2 emissions have reduced by 19% since 2021 (95% since 2016 when we first
started reporting) due to a reduction in the consumption of gas and increased use of renewable electricity.
On a location-based approach, our scope 1 and 2 emissions have reduced by 43% since 2021 (67% since 2016). This has
been driven by reductions in the consumption of electricity following the consolidation of three of our existing head office
sites into one and the divestment of another legacy contingency site during 2022, as well as a lower emissions conversion
factor for electricity due to a higher proportion of renewable vs fossil fuel generated electricity on the UK National Grid
in 2022.
Energy consumption (Mwh) Emissions intensity ratios (per FTE)
0
2000
4000
6000
20222016
0.0
0.5
1.0
1.5
2022202120202019201820172016
Renewable energy
Non renewable
Market-based tCO
2
e per FTE
Location-based tCO
2
e per FTE
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Market-based emissions (tCO
2
e) Location-based emissions (tCO
2
e)
0
500
1,000
1,500
2,000
20222016
1,258
61
95%
0
500
1,000
1,500
2,000
2,500
20222016
1,660
547
67%
Scope 1
Scope 2
Scope 1
Scope 2
Section 4.1.1 – Our operational scope 1 and 2 emissions
Targets
Since our 2021 disclosures, we have agreed two new ambitious and stretching near term targets for our scope 1 and 2
emissions as part of our strategic aim to support the orderly transition to net zero by 2050 or sooner:
Market-based
90%
By 2030
Reduce our absolute scope 1 and
2 emissions by 90% by 2030, from
a 2021 base year using a market-
based methodology.
Location-based
60%
By 2030
Reduce our absolute scope 1 and
2 emissions by 60% by 2030, from
a 2021 base year using a location-
based methodology.
These targets have been guided by the principles of a science-based net zero pathway and will align our scope 1 and 2
operational emissions with the Paris Agreement goal to limit future temperature increases to 1.5°C. This means we will
reach net zero for our scope 1 and 2 emissions by 2030 on a market-based approach, and more than halve scope 1 and 2
emissions on a location-based approach by the end of the decade.
To achieve these targets, we have agreed a multi-million pound investment plan to upgrade all our offices and branches to
the latest net zero standards by 2030. We will also transition all our energy usage to renewable sources by 2027.
We’re committing to maintaining carbon neutrality for our scope 1 and 2 market-based emissions and selected scope 3
emissions
12
. We will purchase only high quality verified carbon credits to offset our residual emissions to zero whilst we
are taking action to permanently eliminate them. Offsets will not be relied upon to meet our reduction targets. Once we
have reached our net zero market-based target, we will offset any residual hard to abate emissions through investment in
nature-based or man-made carbon removal projects.
Scope 1 and 2 transition plan
The key actions that will be taken over the remainder of the next decade to deliver our operational scope 1 and 2 emissions
reduction targets are set out at figure 1.
12 In accordance with Climate Impact Partners’ CarbonNeutral Protocol, this includes emissions from our business travel, fuel and energy related activities (FERA), waste
generated in operations, and home working.
Figure 1 – Scope 1 and 2 operational emissions reduction plan
2021
Base year
2030
target year
2022
Consolidation of
three offices into our
new ‘A-rated’ head
office
2024
All sites moved to
renewable electricity
tariffs
2027
Gas removed from
all sites
2023 – 2030
Complete deep retro-fit of our sites to improve efficiency and reduce consumption.
Maintain carbon neutrality during this period.
Progress against targets
Figures 2 and 3 below demonstrate current progress against our operational scope 1 and 2 reduction targets.
Figure 2 – Progress against our 90% market-based target
Current status:
Ahead of target
-80
-60
-40
-20
0
20
40
60
80
2030
Ta rget
202920282027202620252024202320222021
Base year
Voluntary GHG offsetting Mandatory GHG removal
90% reduction target Progress against target
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Figure 3 – Progress against our 60% location-based target
Current status:
Ahead of target
0
200
400
600
800
1,000
2030
Ta rget
202920282027202620252024202320222021
Base year
60% reduction target Progress against target
To maintain our carbon neutral status, we’re working with
Climate Impact Partners, a specialist in carbon market solutions for
climate action.
During 2022, we achieved CarbonNeutral company certification in
accordance with The CarbonNeutral Protocol, the leading global
framework for carbon neutrality, and had an independent assessment
of our scope 1 and 2 market-based emissions and selected scope 3
emissions.
Our offsetting programme delivers finance to projects which are reducing and removing emissions now, supporting the
transition to a low carbon global economy. All the projects are independently verified to assure emission reductions or
removals are occurring. This ensures the highest environmental integrity in our commitment to have an immediate,
positive impact on the climate.
Section 4.1.2 – Our value chain scope 3 emissions
During 2022, we completed a full assessment and baselining of our scope 3 value chain emissions, in partnership with
Carbon Intelligence, a leading sustainability consultancy. This has enabled us to gain a better understanding of our full
emissions footprint and identify categories where we now need to focus our attention to begin the process of defining
reduction plans and targets and improve the quality data used for the calculations. We have based our assessment on the
methodologies set out in the GHG Protocol Scope 3 Accounting and Reporting Standard. Nine of the 15 scope 3 categories
have been identified as relevant for our business model.
Table 3 – Assessment of scope 3 emission categories
Scope 3 category Description Relevance
13
Influence
14
Data quality
15
Categories 1-8 (upstream activities)
Category 1 – Purchased
goods and services
Goods and services purchased as part
of our operational activities during the
reporting period.
High Medium Low
Category 2 – Capital goods
Capital goods purchased during the
reporting period.
Medium Medium Medium
Category 3 – Fuel and
energy related activities
(FERA)
Extraction, production and
transportation of fuels and energy
purchased in the reporting period.
Low Medium Medium
Category 4 – Upstream
transportation and
distribution
Transportation and distribution of
products and services purchased in
the reporting period.
Low Medium Medium
Category 5 – Waste
generated in operations
Disposal and treatment of waste
generated from our operations during
the year.
Low High Medium
Category 6 – Business
travel
Transportation of employees for
business-related activity in the
reporting period.
Low High Medium
Category 7 – Employee
commuting and
homeworking
Transportation of employees between
their homes and worksites and
emissions while working from home in
the reporting period.
Medium High Low
Category 8 – Upstream
leased assets
Operation of assets leased during the
reporting period.
N/A N/A N/A
Categories 9-14 (downstream activities)
Category 9 – Downstream
transportation and
distribution
Transportation and distribution of
products and services sold during the
reporting period.
N/A N/A N/A
Category 10 – Processing
of sold products
Processing of intermediate products
sold in the reporting period.
N/A N/A N/A
Category 11 – Use of sold
products
End use of goods and services sold in
the reporting period.
N/A N/A N/A
Category 12 – End of life
treatment of sold products
Waste disposal and treatment of
products sold in the reporting period.
N/A N/A N/A
Category 13 –
Downstream leased assets
Operation of assets owned by the
Society during the reporting period.
Low High Low
Category 14 – Franchises
Operation of franchise during the
reporting period.
N/A N/A N/A
Category 15 (downstream activities)
Category 15 – Investments
Operation of investments (including
mortgaged properties) during the
reporting period.
High Low Medium
13 Based on our assessment of materiality of the categories, reflective of our business model (high to low).
14 Reflects our ability to influence reductions in the emissions (high to low).
15 Reflects availability and completeness of data used to calculate the emissions (high to low).
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Scope 3 – Categories 1-14
As at 31 December 2021, purchased goods and services accounted for most of our scope 3 category 1-14 emissions.
We have used a spend-based methodology
16
to calculate these emissions aligned with the GHG Protocol and assigned a
data score of 5 based on principles of the PCAF standard. This score is reflective of the use of average emissions factors
to estimate the emissions because actual supplier emissions are unavailable. We intend to work with our key suppliers to
improve data quality during 2023 as part of plans to monitor and reduce our supply chain emissions.
As indicated by the data scores
17
in table 4, our calculations for the remaining categories are also based on a large
proportion of estimated data because actuals are not currently available. As this data quality improves, we will update our
calculations and re-baseline our disclosures where there are any material changes.
Table 4 – Scope 3 category 1-14 emissions at 31 December 2021 (our baseline year)
Scope 3 category 2021 baseline (tCO
2
e) % total Data score
17
Purchased goods and services
16
17,292 76.3% 5.00
Capital goods 2,544 11.2% 5.00
Fuel and
energy related
activities (FERA)
Upstream emissions of
purchased fuels
8 0.0%
2.03
Upstream emissions of
purchased electricity
257 1.1%
Transmission and distribution
losses (T&D)
18
80 0.4%
Upstream transportation and distribution 409 1.8% 5.00
Waste generated in operations
18
2 0.0% 2.00
Business travel
Air, public transport, rented/
leased vehicle, and taxi
18
85 0.4%
3.84
Hotel accommodation
18
18 0.1%
Employee
commuting and
homeworking
Commuting 1,496 6.6%
5.00
Homeworking
18
431 1.9%
Downstream leased assets 40 0.2% 4.00
Total scope 3 category 1-14 22,663 100%
Subject to voluntary offsetting (616) 3%
Net outturn 22,047
Scope 3 – Category 15
Using the methodology prescribed by PCAF, the Society has calculated the scope 3 category 15 emissions from the UK
residential mortgaged properties that we financed at 31 December 2021.
16 Annual spend per supplier (converted from £ to $ using the average spot exchange rate) * emission factor (derived from the appropriate Quantis emission category).
17 A data score has been applied to each category based on the principles of the PCAF standard (1= highest data quality; 5 = lowest data quality).
18 Emissions categories that are subject to voluntary carbon offsetting.
Figure 4 – PCAF methodology for calculating financed emissions
Attribution factor
Financed
emissions
X
= ∑
Building emissions
Emissions attributed to the Society based on:
Outstanding loan amount
Property value at origination
Property emissions calculated based on:
Energy consumption
×
Emissions factor (EF)
In applying the PCAF methodology, we have used the following approach to calculate the attribution factor and building
emissions:
• All UK residential mortgages on the Society’s balance sheet as at the reference date of 31 December 2021 have been
included in the calculation.
• The outstanding loan balance as at the reference date has been used, including the balance of any further advances on
these properties, divided by the original property valuation. The attribution factor has been capped at 100% where a
further advance has resulted in a loan to value of greater than 100%.
• Where available, property level EPC reports have been used to estimate energy consumption for properties and
therefore our calculation excludes unregulated emissions (for example, emissions linked to the charging of an electric
vehicle). We believe that this approach gives a more accurate view of the emissions directly associated with the
properties that we are financing.
• Where an EPC report is not available or is more than 10 years old and no longer valid (38% of the Society’s properties),
a proxy for estimated emissions has been applied using the average of the Society’s actual EPC data (as at 31 December
2021).
• Point in time emission factors for gas and electricity have been used (2012, based on the current EPC SAP
methodology).
Using the PCAF standard, a data score of 3.56 has been attributed to our scope 3 financed emissions, reflective of the high
proportion of estimated data used in the emissions calculation. This is an industry-wide issue, but the Society expects the
data score to improve over time as data availability continues to mature.
Table 5 – Scope 3 financed emissions for our mortgage portfolio
19
at 31 December 2021
Scope 3 mortgage portfolio data 31 December 2021
Total mortgaged properties 168,731
Total mortgage lending £18.43 bn
% of properties with a valid EPC 62%
PCAF data score 3.56
Absolute financed emissions (tCO
2
e/year) 290,493
Physical emissions intensity (kgCO
2
e/m
2
/year) 20.26
Economic emissions intensity (tCO
2
e/£m lent/year) 15.76
Scope 3 action plan
There are several inherent challenges around accurately measuring and setting credible targets to reduce scope 3
emissions, many of which are outside the direct control of the Society. These include the availability and quality of data,
a lack of co-ordinated government policy and support to help drive the transition, and barriers limiting the supply and
demand for green mortgage finance. In particular, any future targets to reduce emissions from the mortgages that we
finance will require careful consideration to ensure they support the transition without creating unintended consequences
for vulnerable homeowners (for example, penalising those who cannot afford to pay to improve the energy efficiency of
their home, which could potentially create climate mortgage prisoners).
19 Excluding residual commercial loans and Gibraltar and Spanish mortgages. Outstanding balances are de minimis and were therefore excluded from the analysis.
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For this reason, we haven’t yet set targets for our scope 3 emissions, but we remain committed to playing our part in
resolving the challenges, and have set several key actions to progress in 2023 as part of the development of our scope 3
transition plans and targets:
• Review and develop our green finance proposition and innovative partnerships to help members navigate the barriers to
greening their homes.
• Engage with all our material suppliers to improve the data quality for our purchased goods and services and encourage
them to set science-based reduction targets.
• Lobby the government and other industry bodies to ensure that appropriate policies, advice and support is in place to
help homeowners transition to net zero.
• Review our colleague proposition and roll out mandatory training to encourage the adoption of greener choices for
commuting, business travel and homeworking.
• Enhance our scope 3 data sources and reporting methodologies.
Section 4.2 – Climate risk metrics
Physical risk
As at 31 August 2022, the Society’s UK mortgage portfolio
20
demonstrated a low current and future risk posture for
flooding, ground hazards and coastal erosion, under a range of stress scenarios.
Table 1 – Summary of physical risk metrics as at 31 August 2022
Present day Low emissions scenario (2050s) High emissions scenario (2080s)
Properties
Exposure
(£m)
% of
book
Properties
Exposure
(£m)
% of
book
Properties
Exposure
(£m)
% of
book
Flood risk
Negligible 140,322 15,311 78.7% 140,660 15,349 78.9% 140,045 15,276 78.5%
Very low 13,836 1,508 7.8% 11,449 1,294 6.4% 4,339 488 2.4%
Low 3,401 391 1.9% 3,687 416 2.1% 4,270 479 2.4%
Moderate 2,991 333 1.7% 4,438 457 2.5% 4,823 561 2.7%
High 5,069 558 2.8% 4,995 549 2.8% 7,920 886 4.4%
Very high 2,906 291 1.6% 3,296 327 1.8% 7,128 701 4.0%
Unmatched 9,864 1,283 5.5% 9,864 1,283 5.5% 9,864 1,283 5.5%
Coastal erosion
Negligible 162,234 17,933 90.9% 162,216 17,930 90.9% 162,155 17,924 90.9%
Low 7 1.1 0.0% 5 0.8 0.0% 3 0.4 0.0%
Moderate 10 1.1 0.0% 21 2.7 0.0% 33 3.6 0.0%
Very high 4 0.9 0.0% 13 2.1 0.0% 64 8.1 0.0%
Unmatched 16,134 1,738 9.0% 16,134 1,738 9.0% 16,134 1,738 9.0%
Ground hazards risk
Negligible 54,701 6,102 30.7% 51,938 5,783 29.1% 51,078 5,684 28.6%
Very low 48,818 5,371.2 27.4% 48,030 5,248.7 26.9% 48,161 5,257.9 27.0%
Low 40,457 4,122.4 22.7% 43,955 4,557.4 24.6% 43,659 4,509.9 24.5%
Moderate 17,375 2,241.0 9.7% 17,420 2,246.5 9.8% 18,398 2,378.5 10.3%
High 885 97 0.5% 884 96 0.5% 880 96 0.5%
Very high 19 3 0.0% 28 4 0.0% 79 10 0.0%
Unmatched 16,134 1,738.3 9.0% 16,134 1,738.3 9.0% 16,134 1,738.3 9.0%
20 Excludes de minimis legacy commercial, Gibraltar and Spanish lending portfolios, which are closed books in run-off and have therefore been excluded from the analysis.
Climate-Related Financial Disclosures continued
Notes:
1. Unmatched refers to properties where we have been unable to source physical risk data.
2. Low emissions scenario equates to a 1.8°C increase in global temperatures by 2050s. High emissions scenario equates
to a 3.3°C increase in temperatures by 2080s.
Transition risk metrics
The Society currently uses EPC data as the primary way of assessing the potential impact of transition risk. An EPC shows
the energy performance of a property based on a traffic light rating from A to G (with A being the best and G the worst).
Ratings show the estimated energy cost (heating and lighting) and associated carbon emissions for the property. Current
and potential ratings (after considering available energy efficiency improvements) are provided on the EPC report.
EPC ratings for our UK mortgage portfolio are monitored to provide an overall view of the energy efficiency (and potential
emissions) of our mortgaged properties and transition risk impacts from potential future changes to government policy.
Table 2 presents the current and potential EPC profile of our UK residential mortgage portfolio as at 31 August 2022.
Table 2 – Summary of EPC ratings for our mortgage portfolio as at 31 August 2022
Current EPC rating Potential EPC rating
EPC rating
Total mortgage
book
Owner-
occupied
Buy to let
Total mortgage
book
Owner-
occupied
Buy to let
A 0.4% 0.5% 0.1% 19.3% 27.2% 4.1%
B 27.2% 38.2% 6.2% 56.2% 52.9% 62.6%
C 24.5% 19.8% 33.5% 22.6% 18.3% 30.8%
D 34.8% 29.4% 45.1% 1.7% 1.3% 2.3%
E 11.1% 9.8% 13.7% 0.2% 0.2% 0.2%
F 1.6% 1.9% 1.1% 0.0% 0.0% 0.0%
G 0.4% 0.4% 0.3% 0.0% 0.0% 0.0%
Average
21
C C D B B B
Overall, 57% of the Society’s total UK mortgage portfolio was matched with a valid EPC
22
. Of those properties, 52% had a
current EPC rating of C or better, which is consistent with our disclosures in 2021. The average rating for the total portfolio
with a valid and matched EPC was C (compared to a UK average of D
23
). Based on potential EPC ratings, 98% could reach
C or better and the average for the total portfolio would increase to B. During 2022, we have trialled the use of artificial
intelligence to model proxy EPCs where an actual rating is not available. A wider roll out of this modelled data is planned for
2023 to improve our understanding of the portfolio risks and associated emissions.
Other climate-related metrics
The Society has a suite of internal key risk indicators (KRIs) to support the monitoring of climate risks, as outlined in Section
3.2. These KRIs will continue to be refined and built out over time, as more data becomes available and new risks emerge.
Refer to the Purpose Impact Report published on our website for details of additional climate and environmental related
metrics, such as waste management.
21 Average EPC rating based on number of properties.
22 Only properties that are newly built, sold, leased or rented out are required to have an EPC under current UK regulations. An EPC is only valid for 10 years therefore we have
excluded any EPCs older than this from the analysis.
23 Source: data provided by Hometrack.
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We have complied with the requirements of s414CB of the Companies Act 2006 by including certain non financial
information within the Strategic Report. The required information can be found as follows:
• Our business model is described on page 11 and key indicators of performance are on pages 20 to 22.
• Our approach to managing our impact on the environment and to managing the risks arising from climate change
is explained on pages 48 to 79. Further details of some of the actions already undertaken as part of our responsible
business strategy are set out in our Purpose Impact Report.
• Our Colleague Policy is designed to ensure the fair, transparent and consistent treatment of colleagues in accordance
with legislative and regulatory requirements. Further information on our strategy in relation to colleagues is detailed on
pages 17 to 19.
• We have a zero tolerance approach to bribery and corruption, upholding ethical behaviours in our business activities
at all times. The Prevention of Financial Crime Policy sets out the requirements of colleagues in this respect and all
colleagues undertake regular mandatory training.
• Additionally, our Third Party Management Policy ensures that we only enter into third party arrangements with suppliers
that have the policies and procedures in place to comply with all applicable anti-bribery and corruption laws, including
the Bribery Act 2010 and the Modern Slavery Act.
Line managers throughout the business are responsible for ensuring colleagues in their teams comply with these policies.
Attestation of compliance is provided by first line management annually. Periodic independent reviews of compliance are
undertaken by the Risk division (second line) and Internal Audit (third line), using a risk based approach.
Approval of the Strategic Report
This Strategic Report (on pages 3 to 80) has been approved by the board of directors and is signed on behalf of the Board.
Andrew Conroy
Chief Financial Officer
23 February 2023
Non Financial Information Statement
Year ended 31 December 2022
Risk
Management
Report
80
Strategic Report
Risk Management
Report
Governance Financial Statements Other Information
The Enterprise Risk Management Framework (ERMF) integrates various risk management processes to consistently
support the development and implementation of our strategy. The framework sets out a structured approach to identify,
assess, control and monitor risks. The ERMF is periodically reviewed by the Board Risk Committee (BRC), on behalf of the
Board. The Chief Risk Officer (CRO) has responsibility for its implementation.
• Identify and understand
the key risks, which could
impact the delivery of our
strategy and corporate
objectives.
• Increase the range of
strategic opportunities
through consideration of
risks, creating value for
our members.
• Provide assurance to the
Board that risks are being
identified and managed
effectively, in line with its
expectations.
• Reduce performance
variability through
anticipation of the
risks that may affect
performance and taking
action to minimise
potential disruption.
• Effectively allocate
resources based on robust
risk-based information.
The ERMF
Risk reporting
Risk assessment and
management
Risk appetite and
stress testing
Society strategy
Risk appetite
Sets appetite in the context of our principal risks
to our strategy and corporate plan
Business performance
Manages and monitors business performance
against strategy, plan and appetite
Risk governance and culture
is integral to the way we manage our
business…
by enabling us to...
The main components of the ERMF are outlined below:
Risk governance and culture
Risk governance is the processes followed to support risk-based decision making and oversight of risk across all our
operations, whereas risk culture relates to the behaviours and attitudes of colleagues in making these decisions.
Appropriate committee structures and our risk culture support the Board in discharging its accountability for risk
oversight, with management responsible for day to day decision making and management of risk.
Committee structure
The Board is our governing body, responsible for overseeing the implementation of our strategy and holding management
to account. To support the Board in the delivery of its responsibilities, we operate four Board committees, each with
distinct mandates in their terms of reference.
BRC provides independent oversight of the effective management of risks, on behalf of the Board, and is supported by five
executive risk committees, each focusing on a particular risk discipline. These committees are decision making in nature
and operate within delegated mandates and limits provided by the Board or BRC. Our committee structure as at the year
end is as follows:
Board
Chair: Iain Cornish
• Safeguards member interests.
• Ensures robust risk management systems
and internal controls are in place.
• Sets risk appetite.
• Leads, develops and implements the
Society’s culture.
Models and Rating
System Committee
Chair:
Andrew Greenwood
Assets and
Liabilities
Committee
Chair:
Andy Conroy
Credit Committee
Chair:
Andy Moody
Conduct and
Operational Risk
Committee
Chair:
Parveen Kaur
Operational
Resilience
Committee
Chair:
Rob Howse
Board Risk Committee
Chair: Neil Fuller
• Reviews the Society’s
risk exposures and
oversees the ERMF.
•
Develops strategic
risk appetite and the
Society’s ICAAP, ILAAP
and RRP for Board
approval.
Nominations Committee
Chair: Iain Cornish
• Reviews the structure
size, diversity and
composition of the
Board.
• Oversees succession
planning and identifies
candidates to fill
Board vacancies.
Audit Committee
Chair: Gareth Hoskin
• Monitors the integrity
of external financial
reporting.
•
Reviews the
effectiveness of
systems of internal
controls.
• Assesses the
effectiveness,
performance and
independence of the
Internal Audit function.
• Supports BRC
in relation to
model risk
matters and
maintenance of
the IRB Rating
System.
• Supports BRC
in relation to
balance sheet
risk matters.
• Supports BRC
in relation
to conduct,
customer
related and
operational risk
matters.
• Supports BRC
in relation to
operational
resilience
matters.
• Supports BRC
in relation to
lending related
matters.
Remuneration Committee
Chair: Lynn McManus
1
• Ensures remuneration
policies, principles and
practices support the
long term interests of
the Society.
Policies and delegated authorities
Mandates are provided by the Board to management via the following routes to manage our day to day activities:
Delegation route Summary
1. Corporate plan The Board approves a corporate plan annually, subsequent to the setting of risk
appetite, which provides the parameters within which management should operate.
2. Policy framework We operate a tiered policy framework, through which mandates and limits are
delegated to management. Our policies are reviewed on an annual basis (or as
appropriate), by relevant committees.
3. Delegated Authorities Manual The Delegated Authorities Manual is designed to facilitate the effective discharge
of responsibilities and continuity of operations within a sound system of financial,
operational and budgetary control. It is reviewed by the Board annually.
1 Annette Barnes was appointed Chair of the Remuneration Committee (subject to regulatory approval) in January 2023.
Approach to Risk Management
Year ended 31 December 2022
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Approach to Risk Management continued
Three lines of defence model and the Risk division
Our approach to risk management appropriately aligns to a three lines of defence model, which is standard practice
within the financial services sector. This ensures a clear delineation of responsibilities between control over day to day
operations, risk oversight and independent assurance activities. The key accountabilities under the three lines of defence
model are detailed below:
First line
(Business lines)
Second line
(Risk division)
Third line
(Internal Audit)
• Executing strategy.
• Identifying and managing risks.
• Adhering to appetite, policies and
standards.
• Implementing and maintaining
regulatory compliance.
• Identifying emerging risks.
• Oversight of day to day activities of
the first line.
• Maintenance of the ERMF.
• Co-ordination and oversight of the
setting of risk appetite.
• Policy co-ordination.
• Identifying emerging risks.
• Enterprise risk reporting.
• Independent risk-based assurance
plans.
• Independent risk-based assurance
of the adequacy and effectiveness
of first and second line risk
management.
The Risk division is independent from operational business divisions and ensures we follow a consistent approach to risk
management. It is led by the CRO, who reports directly to the Deputy Chief Executive Officer, with separate independent
engagement with the Chair of BRC. The Risk division comprises specialist teams, aligned to key risk disciplines, which
provide oversight and independent challenge of first line activities.
Risk culture
Risk culture is an essential element of effective risk management, underpinning how our ERMF is embedded across
the business and into decision making. In order to maintain an appropriate risk culture, the ERMF includes a risk culture
framework, designed around four components:
• Tone from the top and desired behaviours – the Board and Senior Leadership Team are expected to demonstrate our
behaviours to set the tone for all colleagues.
• Accountability – to support the delivery of our strategy and business objectives, individuals at all levels are held
accountable for risk management.
• Effective communication – an environment of open and transparent communication is encouraged around all business
processes and decision making.
• Incentives and performance management – an appropriate incentive scheme and other HR frameworks are operated to
promote and align with the desired risk culture.
Risk appetite and stress testing
Risk appetite framework
A key element of the ERMF is the Strategic Risk Appetite (SRA) framework. This comprises qualitative statements and
quantitative metrics to set the parameters within which we should operate to deliver our strategy. Our SRA framework is
reinforced through policies and standards, to ensure consistency and alignment to the Board defined parameters.
The Board defines SRA across our eight principal risk categories and it is reviewed on an annual basis. Performance against
appetite is monitored continually and we have developed appropriate early warning indicators and escalation procedures
to anticipate and respond to risk profile changes. SRA metrics are used in corporate planning and stress testing to measure
and validate our long term viability, under both plausible and more severe scenarios.
Stress testing
Stress testing is a risk management tool that we use to support an understanding of the vulnerabilities within our business
model. Our approach to stress testing is defined within a stress testing framework and supports:
• A sound understanding of internal and external influences on the Society and the principal risks.
• Assistance to the Board in strategic business planning and the setting of SRA.
• Management of capital and liquidity resources against SRA and regulatory expectations.
We have developed an annual programme of stress testing activity, which informs the planning process and the calibration
of SRA. The key components of the programme are as follows:
Increasing
severity
Activity Description
Corporate and
operational resilience
planning
Sensitivity analysis and a suite of alternative scenarios are used to assess
the corporate plan under a range of plausible stresses. Operational resilience
stressing is an embedded part of corporate planning.
Prudential risk
assessments
ICAAP – an internal assessment of whether we have sufficient capital, given
current risks, as well as future risks from our strategy, under conditions as set out
by the Board and the PRA.
ILAAP – an internal assessment of whether we have sufficient liquidity and stable
funding to withstand a range of severe liquidity stresses.
Climate change Scenario analysis is used to assess the potential financial and non financial
impacts of climate-related risks. Refer to pages 48 to 79 for further details.
Recovery plan Scenario analysis is used to inform the development of a suite of recovery actions
(primarily capital and liquidity) to be used under extreme stress and to set and
validate operational protocols.
Reverse stress testing An assessment of the stress scenarios under which we would potentially become
unviable. This examines potential weaknesses in our business model under
extreme events so that mitigating actions can be identified (where possible).
Risk assessment and management
We operate defined risk assessment and management processes to facilitate the consistent identification, analysis and
evaluation, treatment and monitoring of risks across the organisation. The framework can be applied to both strategic
and operational risk assessments and is set within the context of our business environment, strategy and objectives.
A summary of the four stages of this process is set out below:
Risk identification – we operate Board level and operational level risk identification processes to capture new or emerging
risks, which could impact corporate objectives and the delivery of our strategy.
Risk analysis and evaluation – a range of methodologies is used to identify risks, to understand their severity and
likelihood to impact on the delivery of our strategy and to inform risk evaluation and treatment. We then evaluate and
prioritise risks to inform decision making and to optimise the allocation of resources.
Risk treatment – we select and deploy appropriate risk responses, balancing the potential benefit derived versus cost,
effort and implications for key stakeholders. The principal mechanisms for risk treatment are the deployment of suitable
control actions, governance or assurance oversight, along with management information monitoring to reduce the
Society’s residual risk profile to acceptable levels.
Risk monitoring – we monitor risk assessment and management processes to proactively identify and adjust to changes in
risk profile and to understand the effectiveness of implementing risk treatment strategies.
Risk reporting
We operate an appropriate risk reporting hierarchy to provide the right information, to the right people, at the right
time, to inform and support timely decision making. We use a combination of strategic and business process reporting
to understand the current or potential risk profile of the business, which may impact the delivery of our strategy and
corporate objectives. These reporting processes are conducted at an appropriate frequency and are co-ordinated by the
Risk division.
84 85Leeds Building Society | Annual Report and Accounts 2022
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Governance Financial Statements Other Information
1. Credit risk
Definition
The risk that residential borrowers or wholesale counterparties fail to meet their current or future financial obligations.
Sources of credit risk
The Society’s sources of credit risk arise from loans and advances to customers (retail credit risk) and through treasury
activities from the investment of liquidity and use of derivatives to manage market risks (wholesale credit risk). The table
below presents an overview of the Society’s credit risk profile as at 31 December 2022
1
:
Group 2022 Group 2021
Audited £M % £M %
Cash in hand and balances with the Bank of England 2,958.1 11.5 2,538.7 11.3
Loans and advances to credit institutions 235.9 0.9 159.0 0.7
Investment securities 1,386.7 5.4 949.1 4.2
Derivative financial instruments 679.9 2.6 219.3 1.0
Loans and advances to customers 20,493.2 79.6 18,527.2 79.9
Total 25,753.8 100.0 22,393.3 100.0
Retail credit risk
Retail credit risk primarily arises from the Society’s residential mortgage lending activities. The Society has non material
legacy commercial (2022: £8.6 million; 2021: £10.4 million) and Spanish residential mortgage (2022: £55.7 million;
2021: £58.9 million) portfolios, which are closed portfolios in active run-off. On this basis the following sections primarily
focus upon UK residential lending exposures and practices.
Managing retail credit risk
The key mitigants in relation to retail credit risk are as follows:
• A Board defined appetite, supported by the Credit Risk Policy, limit frameworks and management reporting.
• The Society focuses its lending in areas of specific expertise.
• Continuous review of performance against appetite.
• Forward looking assessments of adherence to appetite and limits.
• The Society’s underwriting processes use a range of tools including use of credit scoring models, affordability stress
testing, automated decisioning and suitably qualified underwriters in assessing mortgage applications. Underwriting
processes are kept under close review to ensure they reflect risks in the prevailing environment.
• Independent appraisal of collateral, such as valuations.
• Dedicated Mortgage Support function engages with members at an early stage to discuss financial difficulties.
• Oversight of the Society’s lending portfolios is provided by a dedicated second line Credit Risk team.
• Stress testing assesses vulnerabilities within credit portfolios and informs pre-emptive actions.
• Benchmarking of credit controls and performance.
Monitoring retail credit risk
The Society operates various first line functions to monitor the retail credit profile on a continuous basis (retail and
wholesale). This is overseen by both the second and third lines of defence, through their monitoring and assurance
activities. The Society’s monitoring processes, including the use of early warning indicators, and governance protocols,
ensure timely escalation to senior management if there is a deterioration in credit quality.
The Society monitors the appropriateness of its lending policy and appetite on a constant basis, with a formal review of the
policy by the Board at least annually. The performance of our retail exposures versus appetite and policy is reviewed by the
Credit Committee at each meeting and is also reported through to BRC.
1 Financial information throughout the Risk Management Report refers to the Group position, as reported on pages 186 to 240.
Retail credit risk profile
The table below is a breakdown of the Society’s retail credit portfolio as at 31 December 2022. The portfolio remains
diversified across a number of segments with no significant change in exposure profile compared to the prior year.
Audited
Group
2022
£M
Group
2021
£M
Mainstream owner-occupied 9,387.8 8,102.0
Buy to let 5,827.7 5,511.0
Shared ownership 2,509.5 2,201.0
Other affordable home ownership 847.9 845.0
Other 1,799.4 1,681.3
Total retail mortgages 20,372.3 18,340.3
Collateral loan which represents a pool of equity release mortgages 155.4 155.1
Total gross exposure (contractual amounts) 20,527.7 18,495.4
Impairment loss provisions (48.0) (37.3)
Fair value adjustments to collateral loan 6.5 60.4
Total net exposure 20,486.2 18,518.5
Geographic concentration
The table below provides a breakdown of the geographic concentration of the Society’s retail credit portfolio as at
31 December 2022. The Society’s mortgage portfolio remains well diversified, reflecting the national coverage of our
distribution channels.
Audited
Group
2022
%
Group
2021
%
Scotland 8.1 8.3
North East 3.9 3.7
Yorkshire and Humberside 8.9 8.8
North West 9.5 8.9
Midlands 14.7 14.0
East of England 9.9 9.9
South West 10.0 10.0
Greater London 13.0 14.0
South East 15.2 15.7
Wales 3.6 3.5
Northern Ireland 2.8 2.8
Spain 0.3 0.3
Other 0.1 0.1
Total 100.0 100.0
Collateral
Retail mortgages are all fully secured on residential property. Collateral values are assessed at the point of origination and
in line with the Society’s lending policy. The Society requires collateral to be valued by an appropriately qualified method,
independent of both the credit decisioning team and the customer, at the time of borrowing. This includes the selected
use of automated valuation models. These are developed on market data and usage is subject to accuracy and criteria
thresholds.
One of the key indicators of the credit risk associated with a mortgage book is the relationship between the amount of the
loan and the value of the underlying security, which is known as the loan to value (LTV) percentage. In general, the lower the
LTV the greater the equity within the property and the lower the losses expected to be realised in the event of default and
subsequent repossession.
Principal Risks
Year ended 31 December 2022
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Principal Risks continued
The Society’s lending policy permits owner-occupier applications with a maximum LTV of 95% and buy to let mortgages
with a maximum LTV of 80%, with scope to tighten these criteria if required. Higher LTV lending is subject to enhanced
underwriting criteria.
The indexed LTV analysis of the Society’s retail mortgage portfolio as at 31 December 2022 is as follows:
Audited
Group
2022
£M
Group
2022
%
Group
2021
£M
Group
2021
%
Less than 10% 225.0 1.1 169.4 0.9
10% to 20% 1,042.9 5.1 802.7 4.4
20% to 30% 2,240.3 11.0 1,704.4 9.3
30% to 40% 3,498.4 17.2 2,787.8 15.2
40% to 50% 4,147.6 20.2 3,737.0 20.4
50% to 60% 3,395.8 16.7 3,580.6 19.5
60% to 70% 2,701.3 13.3 2,459.8 13.4
70% to 80% 1,705.6 8.4 1,879.2 10.2
80% to 90% 1,220.2 6.0 915.0 5.0
90% to 100% 191.5 0.9 295.7 1.6
More than 100% 3.7 0.1 8.7 0.1
Total 20,372.3 100.0 18,340.3 100.0
Overall the Society’s LTV profile has remained broadly stable with higher LTV new lending offset by house price growth in
2022. At 31 December 2022 the average LTV of the portfolio stood at 48.8% (2021: 50.5%).
Retail credit performance
The following table sets out information about the credit quality of the Society’s retail mortgages as at 31 December
2022
2
. Classification into low, medium or high risk bandings is based on internal rating grades, which approximately
translate into the Internal Ratings Based (IRB) probabilities of default (PD) shown in the table. An explanation of the
classification of loans into Stages 1 to 3 can be found in note 1(e) of the accounts.
Underlying retail credit performance has remained stable with an increase in Stage 2 balances reflecting the risk associated
with increased cost of living pressures and the potential rate shock for borrowers reaching fixed term maturity. A post
model adjustment has been applied to increase the level of provisions held, to reflect this increased risk (see note 2(b) of
the accounts).
Audited
Group 2022
Stage 1
£M
Stage 2
£M
Stage 3
£M
Total
£M
Retail mortgages
Low IRB PD < 2.02% 16,154.5 2,270.5 25.9 18,450.9
Medium IRB PD ≥ 2.02% and < 25.97% 800.1 689.9 25.3 1,515.3
High IRB PD ≥ 25.97% 10.7 225.1 170.3 406.1
Total gross exposure 16,965.3 3,185.5 221.5 20,372.3
Impairment loss provision (5.1) (31.6) (11.1) (47.8)
Net exposure 16,960.2 3,153.9 210.4 20,324.5
Loan commitments
Low IRB PD < 2.02% 1,010.6 – – 1,010.6
Medium IRB PD ≥ 2.02% and < 25.97% 37.5 – – 37.5
High IRB PD ≥ 25.97% 3.6 – – 3.6
Total gross exposure 1,051.7 – – 1,051.7
Impairment loss provision (0.2) – – (0.2)
Net exposure 1,051.5 – – 1,051.5
2 Loans measured at amortised cost and loan commitments represent amounts committed.
Audited
Group 2021
Stage 1
£M
Stage 2
£M
Stage 3
£M
Total
£M
Retail mortgages
Low IRB PD < 2.02% 15,327.6 1,106.2 19.2 16,453.0
Medium IRB PD ≥ 2.02% and < 25.97% 863.5 583.1 26.9 1,473.5
High IRB PD ≥ 25.97% 17.5 214.0 182.3 413.8
Total gross exposure 16,208.6 1,903.3 228.4 18,340.3
Impairment loss provision (9.3) (11.6) (16.1) (37.0)
Net exposure 16,199.3 1,891.7 212.3 18,303.3
Loan commitments
Low IRB PD < 2.02% 1,285.6 – –1,285.6
Medium IRB PD ≥ 2.02% and < 25.97% 42.2 – – 42.2
High IRB PD ≥ 25.97% 0.6 – – 0.6
Total gross exposure 1,328.4 – –1,328.4
Impairment loss provision (0.3) – – (0.3)
Net exposure 1,328.1 – –1,328.1
The table below provides further information on the Society’s retail mortgages by payment status as at 31 December
2022
3
. Overall, past due balances as a percentage of the portfolio have remained stable with small increases in past due
balances up to three months being partially offset by a reduction in balances more than three months in arrears, evidencing
a continued resilience in credit quality of the portfolio to date.
The table includes £6.6m (2021: £4.8m) of loans and advances secured on residential property in Spain that are past due.
At 31 December 2022 no Spanish properties were in possession (2021: £1.0m).
Audited
Group
2022
£M
Group
2022
%
Group
2021
£M
Group
2021
%
Not past due 20,122.8 98.8 18,105.8 98.8
Past due up to 3 months 136.3 0.7 115.2 0.6
Past due 3 to 6 months 41.0 0.2 43.2 0.2
Past due 6 to 12 months 36.6 0.2 39.8 0.2
Past due over 12 months 29.8 0.1 31.0 0.2
Possessions 5.8 – 5.3
–
Total gross exposure 20,372.3 100.0 18,340.3 100.0
Forbearance
The Society continues to invest in developing and enhancing its arrears management strategies to minimise credit risk
losses, whilst ensuring that customers are treated fairly. The Society has a wide range of forbearance options, which can
be offered to customers in financial distress. Forbearance is intended to support both the customer and the Society and
the primary aim of forbearance is to enable a complete recovery of the mortgage through the full repayment of arrears
(on sustainable terms) and to minimise the risk of the customer losing their property. Forbearance typically consists of
modifications to previous conditions of a contract or a total or partial refinancing of debt, either of which would not have
been required had the customer not been experiencing financial difficulties.
The table overleaf provides further information on loans existing at 31 December 2022, which have had their terms
renegotiated in the last 24 months, regardless of whether the renegotiation is still in place or whether the loan has reverted
to its original terms.
3 Excludes impairment loss provisions
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Principal Risks continued
The level of loans that are reported as in forbearance has remained largely stable reflecting the relative levels of arrears
seen in 2022. The reduction in balances reported as forborne reflects revised criteria to identify only those term extensions
where the borrower was deemed to be experiencing financial difficulty as in forbearance. Forbearance balances also now
exclude balances where a concession has been agreed. These balances were previously reported within ‘Other payment
arrangements’.
Audited
Group 2022
Capitalisation
£M
Transfer to
interest only
£M
Term
extension
£M
Other
payment
arrangements
£M
Total
forbearance
£M
Not past due 8.4 10.3 22.7 15.1 56.5
Past due up to 3 months 4.4 3.5 4.1 3.8 15.8
Past due over 3 months 8.4 4.1 3.6 10.9 27.0
Total forbearance 21.2 17.9 30.4 29.8 99.3
Audited
Group 2021
Capitalisation
£M
Transfer to
interest only
£M
Term
extension
£M
Other
payment
arrangements
£M
Total
forbearance
£M
Not past due 7.9 8.2 107.1 29.3 152.5
Past due up to 3 months 3.8 1.3 – 21.0 26.1
Past due over 3 months 6.5 1.3 – 37.6 45.4
Total forbearance 18.2 10.8 107.1 87.9 224.0
Retail credit risk outlook
• The deteriorating macroeconomic conditions and affordability challenges are expected to result in a heightened credit
risk profile, due to an increased number of borrowers potentially in financial difficulty and reductions in house prices.
• Management will continue to closely monitor the performance of the Society’s lending portfolios and the
appropriateness of the credit policies and appetite, versus prevailing conditions. In addition, the Society continues to
make appropriate preparations for the expected macroeconomic downturn in its Mortgage Support team.
Wholesale credit risk
Wholesale credit risk arises from the Society’s liquidity portfolio and derivatives used to manage market risk. Overall, the
Society has a low appetite for wholesale credit risk, with exposures restricted to high quality counterparties with a low risk
of failure.
Managing wholesale credit risk
The key mitigants in relation to wholesale credit risk are as follows:
• A Board defined appetite, supported by the Wholesale Credit Risk Policy, including concentration limits.
• Review of performance versus appetite conducted at least monthly and more frequently during times of stress.
• All counterparty credit lines are reviewed at least annually, based on internal analysis, credit default swap spreads,
geographic location, ESG posture and other market intelligence.
• The portfolio is monitored regularly by a dedicated first line team, with oversight provided by the Risk division.
• Daily exchange of collateral and other netting arrangements for derivative exposures.
Monitoring wholesale credit risk
A dedicated first line function monitors the wholesale credit profile of the Society on a daily basis. This is overseen by
both the second and third lines of defence through their monitoring and assurance activities. The Society’s monitoring
processes and governance protocols ensure timely escalation to senior management if there is a deterioration in credit
quality.
Each wholesale credit line is formally reviewed at least annually, with outputs overseen by the Assets and Liabilities
Committee (ALCO). The performance of the wholesale credit portfolio versus appetite and policy is reviewed by ALCO at
each meeting and also reported through to BRC.
Wholesale credit risk profile
Credit ratings
The Society’s liquidity portfolio is comprised of cash reserves at the Bank of England, loans and advances to credit
institutions and debt securities. An assessment of the wholesale credit profile of the liquidity portfolio, based upon
external credit ratings
4
, is outlined in the table below. As at 31 December 2022, circa 100% of the portfolio was rated as
A or above.
Audited
Group 2022
Aaa
£M
Aa1-Aa3
£M
A1-A3
£M
Unrated
£M
Total
£M
Cash in hand and balances with the Bank of England – 2,958.1 – – 2,958.1
Loans and advances to credit institutions – 70.7 165.2 – 235.9
Investment securities
UK Government securities – 396.7 – – 396.7
Government agency debt 133.0 – – – 133.0
Supranational bonds 125.9 – – – 125.9
Covered bonds 461.4 – – – 461.4
Residential mortgage backed securities 144.3 – – – 144.3
Certificates of deposit – 25.0 100.4 – 125.4
Total liquid assets 864.6 3,450.5 265.6 – 4,580.7
18.9% 75.3% 5.8% – 100.0%
Audited
Group 2021
Aaa
£M
Aa1-Aa3
£M
A1-A3
£M
Unrated
£M
Total
£M
Cash in hand and balances with the Bank of England –2,538.7 – –2,538.7
Loans and advances to credit institutions – 62.2 96.8 –159.0
Investment securities
UK Government securities –215.1 – –215.1
Government agency debt 186.6 – – –186.6
Supranational bonds 184.6 – – –184.6
Covered bonds 273.7 – – –273.7
Residential mortgage backed securities 89.1 – – – 89.1
Certificates of deposit – – – –
–
Total liquid assets 734.0 2,816.0 96.8 –3,646.8
20.1% 77.2% 2.7% –100.0%
Geographic concentration
The majority of the Society’s liquidity portfolio continues to be invested within the UK. The geographical domicile of the
portfolio is outlined below:
Audited
Group
2022
£M
Group
2022
%
Group
2021
£M
Group
2021
%
UK 4,221.2 92.3 3,275.4 89.8
Germany 104.4 2.3 136.6 3.7
Canada 79.1 1.7 50.0 1.4
Australia 25.0 0.5 –
–
Netherlands 25.0 0.5 – –
USA – – 0.2 –
Global Supranational 90.4 2.0 119.5 3.3
European Supranational 6.8 0.1 36.0 1.0
Asia Supranational 28.8 0.6 29.1 0.8
Total liquid assets 4,580.7 100.0 3,646.8 100.0
4 The lower of either Fitch or Moody’s.
90 91Leeds Building Society | Annual Report and Accounts 2022
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Governance Financial Statements Other Information
Principal Risks continued
Wholesale credit impairments
The Society’s accounting policy for the calculation of impairment on liquid assets is detailed in note 1(e). All liquid assets
were classified as at Stage 1 throughout the reporting period and, as such, the impairment loss provision for these assets
is immaterial.
Collateral
The nature of a financial instrument determines the level of collateral required. Loans and debt securities are generally
unsecured except for asset backed securities, which are secured by a collection of financial assets.
From a derivatives perspective, the Society centrally clears all eligible derivative classes through indirect membership
with a central counterparty clearing house (CCP) under the terms of a Cleared Derivatives Execution Agreement (CDEA).
Derivatives that cannot be cleared via a CCP are managed bilaterally under the terms of industry-standard International
Swaps and Derivatives Association (ISDA) Master Agreements and Credit Support Annexes (CSA). Under these
arrangements, collateral is exchanged between the counterparties of the transaction to mitigate some of the counterparty
credit risk inherent in outstanding derivative positions.
Derivative transactions are usually settled on a gross basis and therefore there is no netting in the financial statements.
The credit risk associated with a derivative counterparty is reduced through the Society’s legal right to offset, whereby
negative valuation positions are offset by positive positions for a given counterparty.
The table below shows the net exposure after reflecting the impact of netting agreements and collateral:
Audited
Group 2022
Gross amount
5
£M
Master netting
agreements
£M
Cash collateral
£M
Net amount
£M
Financial assets
Derivative financial instruments 679.9 (199.8) (493.6) (13.5)
Financial liabilities
Derivative financial instruments 251.9 (199.8) (26.9) 25.2
The Society also enters into repurchase agreements (repos) with counterparties with whom the Society has both a Global
Master Repurchase Agreement (GMRA) and an active credit line in place. The credit risk that arises from such transactions
is managed under the terms of the GMRA, through the monitoring and appropriate transfer of collateral.
Wholesale credit risk outlook
• Due to the current macroeconomic uncertainties and geopolitical risks, the Society will continue to monitor the
performance of the wholesale portfolio closely and maintain an appropriate investment strategy and wholesale credit
risk profile.
2. Funding and liquidity risk
Definition
The Society defines its funding and liquidity risks as follows:
• Funding risk is the inability to generate sufficient stable funding, or only do so at excessive cost.
• Liquidity risk is the risk that the Society is unable to meet its financial obligations as they fall due.
Sources of funding and liquidity risk
The Society raises funding through two sources: retail savings deposits from our members and investments from
wholesale counterparties. Funding risk primarily arises from a failure to deliver an appropriately diversified funding strategy.
This could result in a loss of customer or investor confidence and inhibit the ability of the Society to refinance or raise new
funding, or only at an excessive cost.
The Society’s main source of liquidity risk relates to the ability of members to withdraw retail deposits at little or no notice.
All potential sources of liquidity risk are assessed under severe but plausible stress scenarios as part of the annual ILAAP
process, with outputs used to inform our liquidity risk appetite and determine a minimum level of on balance sheet liquidity.
5 As reported in the Statement of Financial Position.
Managing funding and liquidity risk
The key mitigants in relation to funding and liquidity risk are as follows:
• A Board defined appetite, supported by the Funding and Liquidity Policy, including concentration limits.
• The Society’s liquidity position is monitored on a daily basis by a dedicated first line team, with oversight provided by the
Risk division.
• An ILAAP assessment is conducted at least annually, to determine the level of liquidity resources required under
stressed conditions.
• A portfolio of high quality liquid assets is maintained and regularly tested.
• Access to central bank funding, through prepositioned collateral.
• Review of performance versus appetite is conducted at least weekly and more frequently during times of stress.
• Stress testing and sensitivity analysis is conducted frequently to understand the impact of severe, but plausible
scenarios and to inform pre-emptive actions.
• Maintenance of a Recovery Plan, including a trigger and alert framework to identify the emergence of a stress and
actions to respond accordingly.
Monitoring funding and liquidity risk
The Society’s Treasury function is responsible for monitoring potential liquidity or funding risks and performance against
appetite and limits on a daily basis. Oversight and assurance of liquidity and funding risks is achieved through the three
lines of defence model.
ALCO is the Society’s primary committee for overseeing the management of potential liquidity or funding risks.
Performance versus appetite is also reported through to BRC.
2022 liquidity position
The Society maintained a strong liquidity position throughout 2022. As at 31 December 2022, the Society’s Liquidity
Coverage Ratio was 195.4% (2021: 187.2%), which was considerably above minimum regulatory requirements (100%).
Our liquidity strategy and limit structure ensures that the liquidity portfolio remains appropriately diversified across
various instruments and durations. At 31 December 2022, the Society’s liquidity portfolio mainly consisted of cash held
at the Bank of England and other high quality assets. Levels of on-balance sheet liquidity have increased during the year,
providing protection and flexibility in light of the uncertain economic environment. The Society also retains access to
significant levels of off-balance sheet liquidity.
Audited
Group
2022
£M
Group
2021
£M
Cash in hand and balances with the Bank of England 2,958.1 2,538.7
UK Government securities 396.7 215.1
Other qualifying securities 712.2 659.0
High Quality Liquid Assets 4,067.0 3,412.8
Other on-balance sheet securities 513.7 234.0
Total 4,580.7 3,646.8
2022 funding risk position
As a mutual organisation, the Society is predominately funded through retail funding, which comprised 77.1% of the
Society’s share and deposit liabilities at 31 December 2022 (2021: 74.9%).
The Society also raises wholesale funding via capital markets through a well-established wholesale franchise. Our
wholesale funding strategy and limit structure ensures that the wholesale portfolio remains appropriately diversified
across various instruments, currencies, duration and investor type.
At 31 December 2022, total wholesale funding was £5.2 billion (2021: £5.1 billion), representing 22.9% of total funding
(2021: 25.1%).
92 93Leeds Building Society | Annual Report and Accounts 2022
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Principal Risks continued
During the year the Society issued two £500 million covered bonds to support our overall funding plan. We also conducted
a tender of our April 2023 covered bond, which has further reduced our refinancing requirement in 2023.
Audited
Group
2022
£M
Group
2022
%
Group
2021
£M
Group
2021
%
Deposits from banks 28.4 1% 18.9 –
Amounts drawn under Term Funding Scheme 2,240.0 43% 2,240.0 44%
Other deposits and amounts owed to other customers 229.7 4% 297.5 6%
Debt securities in issue:
Certificates of deposit 5.0 – 6.0 –
Senior unsecured debt 299.1 6% 768.8 15%
Covered bonds 2,296.5 44% 1,627.6 32%
Residential mortgage backed securities 110.4 2% 152.2 3%
Total 5,209.1 100% 5,111.0 100%
As at 31 December 2022, 92% (2021: 83%) of the Society’s wholesale funding portfolio was denominated in sterling.
All euro denominated issuances are converted to sterling using cross currency swaps.
Audited
Group
Sterling
£M
Group
Euro
£M
Group
Total
£M
Deposits from banks 28.4 – 28.4
Amounts drawn under Term Funding Scheme 2,240.0 – 2,240.0
Other deposits and amounts owed to other customers 229.7 – 229.7
Debt securities in issue:
Certificates of deposit 5.0 – 5.0
Senior unsecured debt 299.1 – 299.1
Covered bonds 1,872.5 424.0 2,296.5
Residential mortgage backed securities 110.4 – 110.4
Total at 31 December 2022 4,785.1 424.0 5,209.1
Total at 31 December 2021 4,258.2 852.8 5,111.0
The expected maturity profile of the Society’s wholesale funding portfolio is outlined below, based on the earlier of the first
call date or the contractual maturity date. The maturity profile of the portfolio remains concentrated between two and five
years.
Audited
Group
2022
£M
Group
2022
%
Group
2021
£M
Group
2021
%
Less than one year 507.7 9.8% 740.8 14.5%
One to two years 1,272.4 24.4% 602.8 11.8%
Two to five years 3,429.0 65.8% 3,268.1 63.9%
More than five years – – 499.3 9.8%
Total 5,209.1 100.0% 5,111.0 100.0%
On 1 January 2022, the Net Stable Funding Ratio (NSFR), which is measurement of stable funding, was implemented as
a binding regulatory requirement in the UK. As at 31 December 2022, the Society’s NSFR ratio stood at 139.9% (2021:
150.6%), which is significantly above the regulatory minimum of 100%.
Maturity profile of financial assets and liabilities
The adjacent table analyses financial assets and liabilities based on the remaining period between 2022 year end and
the contractual maturity date. In practice, the contractual maturity will differ to actual repayments, whereby customers’
behaviours result in liabilities being held for longer than their contractual maturities and assets repaid earlier.
During 2022, near term net liquidity gaps reduced as the Society increased the proportion of its savings balances that are
fixed term.
Audited
Group 2022
Repayable
on demand
£M
Less than
3 months
£M
3 to 12
months
£M
1 to 5
years
£M
More than
5 years
£M
Total
£M
Financial assets
Cash in hand and balances with the Bank of England 2,958.1 – – – – 2,958.1
Loans and advances to credit institutions 235.9 – – – – 235.9
Investment securities – 25.3 739.6 453.8 168.0 1,386.7
Derivative financial instruments – 6.6 44.5 592.6 36.2 679.9
Loans and advances to customers
Loans fully secured on residential property 18.6 9.1 42.9 636.7 19,617.0 20,324.3
Other loans – – – 0.7 168.2 168.9
Fair value adjustment for hedged risk on loans and
advances to customers (0.5) (0.3) (1.2) (18.4) (565.5) (585.9)
Total financial assets 3,212.1 40.7 825.8 1,665.4 19,423.9 25,167.9
Financial liabilities
Shares 5,133.9 142.2 5,223.8 6,970.3 50.2 17,520.4
Fair value adjustment for hedged risk on shares (29.5) (0.8) (30.0) (40.1) (0.3) (100.7)
Derivative financial instruments – – 39.5 151.5 60.9 251.9
Amounts owed to credit institutions – 9.1 3.5 2,255.8 – 2,268.4
Amounts owed to other customers – 140.8 87.5 1.4 – 229.7
Debt securities in issue – – 266.8 2,444.2 – 2,711.0
Subordinated liabilities – – – – 309.1 309.1
Subscribed capital – – – – 197.6 197.6
Total financial liabilities 5,104.4 291.3 5,591.1 11,783.1 617.5 23,387.4
Net liquidity gap (1,892.3) (250.6) (4,765.3) (10,117.7) 18,806.4 1,780.5
Audited
Group 2021
Repayable
on demand
£M
Less than
3 months
£M
3 to 12
months
£M
1 to 5
years
£M
More than
5 years
£M
Total
£M
Financial assets
Cash in hand and balances with the Bank of England 2,538.7 – – – –2,538.7
Loans and advances to credit institutions 159.0 – – – –159.0
Investment securities – 34.8 198.1 591.7 124.5 949.1
Derivative financial instruments – – 75.5 125.2 18.6 219.3
Loans and advances to customers
Loans fully secured on residential property 15.3 9.3 45.8 599.3 17,633.3 18,303.0
Other loans – – 0.9 0.1 223.2 224.2
Fair value adjustment for hedged risk on loans and
advances to customers (0.1) (0.1) (0.4) (5.5) (163.0) (169.1)
Total financial assets 2,712.9 44.0 319.9 1,310.8 17,836.6 22,224.2
Financial liabilities
Shares 6,659.4 1,126.6 3,442.4 4,008.6 21.0 15,258.0
Fair value adjustment for hedged risk on shares (31.8) (5.5) (16.4) (19.1) (0.1) (72.9)
Derivative financial instruments – 0.4 5.1 61.4 99.9 166.8
Amounts owed to credit institutions – 4.0 14.3 2,240.6 –2,258.9
Amounts owed to other customers –205.1 89.7 2.7 –297.5
Debt securities in issue – –427.7 1,627.6 499.3 2,554.6
Subordinated liabilities – – – –339.4 339.4
Subscribed capital – – – –227.3 227.3
Total financial liabilities 6,627.6 1,330.6 3,962.8 7,921.8 1,186.8 21,029.6
Net liquidity gap (3,914.7) (1,286.6) (3,642.9) (6,611.0) 16,649.8 1,194.6
94 95Leeds Building Society | Annual Report and Accounts 2022
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Principal Risks continued
The following tables detail the Society’s remaining undiscounted contractual cash flows for its non derivative financial
liabilities including interest, which will be accrued to those instruments, except where the Society is entitled and intends to
repay the liabilities before their maturity.
Audited
Group 2022
Repayable
on demand
£M
Less than
3 months
£M
3 to 12
months
£M
1 to 5
years
£M
More than
5 years
£M
Total
£M
Shares 5,133.9 142.9 5,300.0 7,163.1 56.4 17,796.3
Amounts owed to credit institutions – 9.1 3.6 2,431.3 – 2,444.0
Amounts owed to other customers – 141.3 88.6 1.4 – 231.3
Debt securities in issue – – 271.2 2,630.4 – 2,901.6
Subordinated liabilities – 2.6 2.6 15.8 352.6 373.6
Subscribed capital – 5.4 5.4 43.4 309.0 363.2
Total financial liabilities 5,133.9 301.3 5,671.4 12,285.4 718.0 24,110.0
Audited
Group 2021
Repayable
on demand
£M
Less than
3 months
£M
3 to 12
months
£M
1 to 5
years
£M
More than
5 years
£M
Total
£M
Shares 6,671.7 1,105.6 3,492.6 4,087.8 20.3 15,378.0
Amounts owed to credit institutions –172.5 11.3 2,147.6 –2,331.4
Amounts owed to other customers –217.7 79.2 3.1 –300.0
Debt securities in issue – 5.0 428.5 1,641.2 501.3 2,576.0
Subordinated liabilities – 2.6 2.6 21.0 352.6 378.8
Subscribed capital – 1.7 5.0 13.4 354.0 374.1
Total financial liabilities 6,671.7 1,505.1 4,019.2 7,914.1 1,228.2 21,338.3
The following table details the Society’s contractual maturity for its derivative financial instruments. The table is based on
the undiscounted gross inflows and outflows. When the amount payable or receivable is not fixed, the amount disclosed
has been determined by reference to the conditions existing at the reporting date.
Audited
Group 2022
Less than
3 months
£M
3 to 12
months
£M
1 to 5
years
£M
More than
5 years
£M
Total
£M
Swap contracts 21.4 89.1 63.1 (71.2) 102.4
Audited
Group 2021
Less than
3 months
£M
3 to 12
months
£M
1 to 5
years
£M
More than
5 years
£M
Total
£M
Swap contracts 4.9 9.6 (34.5) 103.3 83.3
Encumbrance
Asset encumbrance occurs where some of the Society’s mortgages or treasury assets are used as collateral to support
secured funding or central bank operations. The main sources of the Society’s encumbered assets relate to mortgages
used to collateralise our covered bond and securitisation programmes and participation in the Bank of England’s Term
Funding Scheme, with additional incentives for SMEs (TFSME). The Society has established an appropriate limit to ensure
that collateral is available to support current and future funding requirements under normal and stressed conditions.
Asset encumbrance at 31 December 2022 is set out in the table below.
Audited
Encumbered
£M
Unencumbered
£M
Total
£M
Cash in hand and balances with the Bank of England – 2,958.1 2,958.1
Loans and advances to credit institutions 70.7 165.2 235.9
Investment securities 75.3 1,311.4 1,386.7
Derivative financial instruments – 679.9 679.9
Loans and advances to customers 6,917.3 13,575.9 20,493.2
Other assets 389.7 (629.6) (239.9)
Total at 31 December 2022 7,453.0 18,060.9 25,513.9
Total at 31 December 2021 6,684.0 15,829.7 22,513.7
External credit ratings
During 2022, both Fitch and Moody’s affirmed the Society’s long and short term credit ratings as well as the outlook. The
Society’s credit ratings are as follows:
Long term Short term Outlook Date of last credit opinion
Moody’s A3 P-2 Stable March 2022
Fitch A- F1 Stable November 2022
Outlook
• Funding markets in 2023 present a heightened level of uncertainty due to the expected economic downturn and
increased competition for retail savings as firms start to refinance TFSME drawings.
• The Society carries strong levels of on balance sheet liquidity into 2023 and remains well positioned to address any
liquidity or funding uncertainty that may arise through a combination of its retail and wholesale franchises.
3. Market risk
Definition
The risk that movements in interest rates and foreign currency adversely impact our capital and earnings.
Sources of market risk
The primary market risk faced by the Society is interest rate risk, whereby our net interest income and value of assets
and liabilities are exposed to movements in interest rates. The main sources of our interest rate exposures relate to the
duration repricing mismatch between assets and liabilities, basis risk from linkage of assets and liabilities to different
reference rates and product optionality. The Society’s interest exposures all arise from the banking book, as we do not
operate a trading book.
The Society also has foreign currency risk exposures as a result of raising funds, purchasing investment securities in
foreign currencies, as well as a legacy residential mortgage portfolio in Spain. The Society’s policy is not to run any
speculative foreign exchange positions.
Managing market risk
The key mitigants in relation to market risk are as follows:
• A Board defined appetite, supported by the Market Risk Policy, including concentration limits.
• The Society’s market risk exposures are monitored frequently by a dedicated first line team, with oversight provided by
the Risk division.
• Market risk positions are managed by the offsetting of assets and liabilities and use of derivatives. Derivatives are used
to hedge market risk exposures, where a natural hedge is not feasible.
• Stress testing and sensitivity analysis are conducted frequently to understand the impacts of movements in interest and
foreign exchange rates on value and income.
• Monthly review of performance against appetite.
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Principal Risks continued
Monitoring market risk
The Society’s Treasury function is responsible for monitoring market risk and performance against appetite and limits on a
frequent basis. Oversight and assurance of market risk is achieved through the three lines of defence model.
ALCO is the Society’s primary committee for overseeing the management of market risks. Performance against risk
appetite is also reported through to BRC.
2022 market risk position
Key developments in relation to market risk during 2022 were as follows:
• Throughout 2022, the Society continued to manage market risk in a structured and disciplined manner, to ensure
exposures were identified, measured and managed within the boundaries of risk appetite set by the Board.
• Following a material rise in inflation, the Bank of England raised base rate several times during the year and there was a
significant period of volatility in market rates following the Government’s autumn mini budget.
• In light of market conditions, the Society has retained close oversight of its market risk exposures and product offerings,
making tactical adjustments to the balance sheet structure in response to the evolving external environment. This has
also been complemented by stress testing and sensitivity analysis to understand the impacts under various interest rate
paths.
Interest rate exposures
The following table provides a summary of the interest rate repricing profile of the Society’s assets and liabilities as at
31 December 2022. Assets and liabilities have been allocated to time bands by reference to the earlier of the next interest
rate reset date and the contractual maturity date. The table takes account of derivative financial instruments whose effect
is to alter the interest basis of Society assets and liabilities. The non interest bearing balances have been included in a
separate column.
Audited
Group 2022
Less than
3 months
£M
3 to 6
months
£M
6 to 12
months
£M
1 to 5
years
£M
More than
5 years
£M
No specific
reprice
date
£M
Non
interest
bearing
£M
Total
£M
Assets
Liquid assets 4,088.5 225.0 211.8 60.1 – – (4.7) 4,580.7
Loans and advances to
customers 3,813.6 1,224.2 3,260.5 12,213.1 (5.8) – (12.4) 20,493.2
Total interest bearing
assets 7,902.1 1,449.2 3,472.3 12,273.2 (5.8) – (17.1) 25,073.9
Total non interest bearing
assets – – – – – – 440.0 440.0
Total financial assets 7,902.1 1,449.2 3,472.3 12,273.2 (5.8) – 422.9 25,513.9
Liabilities
Shares 5,276.1 1,241.3 3,982.4 6,970.4 50.2 – – 17,520.4
Wholesale funding 4,020.7 45.3 44.5 1,143.7 – – (45.1) 5,209.1
Subordinated liabilities – – – – 349.4 – (40.3) 309.1
Subscribed capital – – – – 200.0 25.0 (27.4) 197.6
Total interest bearing
liabilities 9,296.8 1,286.6 4,026.9 8,114.1 599.6 25.0 (112.8) 23,236.2
Total non interest bearing
liabilities and equity – – – – – – 2,277.7 2,277.7
Total liabilities and equity 9,296.8 1,286.6 4,026.9 8,114.1 599.6 25.0 2,164.9 25,513.9
Effect of derivatives 2,717.9 453.6 469.4 (3,318.9) (322.0) – – –
Interest rate sensitivity
gap 1,323.2 616.2 (85.2) 840.2 (927.4) (25.0) (1,742.0) –
Audited
Group 2021
Less than
3 months
£M
3 to 6
months
£M
3 to 6
months
£M
1 to 5
years
£M
More than
5 years
£M
No specific
reprice
date
£M
Non
interest
bearing
£M
Total
£M
Assets
Liquid assets 3,193.9 8.7 144.2 291.9 – – 8.1 3,646.8
Loans and advances to
customers 3,182.8 1,249.5 2,758.2 11,062.2 231.7 – 42.8 18,527.2
Total interest bearing assets 6,376.7 1,258.2 2,902.4 11,354.1 231.7 – 50.9 22,174.0
Total non interest bearing
assets – – – – – –339.7 339.7
Total financial assets 6,376.7 1,258.2 2,902.4 11,354.1 231.7 –390.6 22,513.7
Liabilities
Shares 7,785.9 1,175.6 2,266.9 4,008.6 21.0 – –15,258.0
Wholesale funding 3,825.9 454.6 50.0 773.0 – – 7.5 5,111.0
Subordinated liabilities – – – –348.9 – (9.5) 339.4
Subscribed capital – – – –200.0 27.3 –227.3
Total interest bearing
liabilities 11,611.8 1,630.2 2,316.9 4,781.6 569.9 27.3 (2.0) 20,935.7
Total non interest bearing
liabilities and equity – – – – – –1,578.0 1,578.0
Total liabilities and equity 11,611.8 1,630.2 2,316.9 4,781.6 569.9 27.3 1,576.0 22,513.7
Effect of derivatives 6,314.4 501.7 (676.4) (5,979.0) (160.7) – –
–
Interest rate sensitivity gap 1,079.3 129.7 (90.9) 593.5 (498.9) (27.3) (1,185.4) –
The Society assesses potential interest rate impacts on its earnings and the value of its assets and liabilities through stress
testing and sensitivity analysis.
From an earnings perspective, the Society measures the potential impact on its net interest income under interest rate
paths. The key assumptions used in this modelling are as follows:
• A constant balance sheet is assumed with all assets and liabilities maturing during the year being reinvested in like for
like products and a constant average spread.
• Managed rate products receive full pass through of changes in market interest rates.
• Scenarios are applied to the prevailing interest rates at the reporting date.
• There are no floors applied to interest rates or to customer rates in any scenario.
• The sensitivities do not take account of any management actions.
In addition, the Society monitors the impact of various parallel and non parallel rate shocks to the value of its assets and
liabilities. The key assumptions used in this modelling are as follows:
• The balance sheet at the report date is run off over its remaining expected duration.
• Downward shocks allow the yield curve to go negative subject to a floor.
• The effect of external hedging is included.
• The Society’s reserves and core stable savings balances are allocated in line with Board approved limits.
The following table outlines the impacts against a range of value and earnings-based assessments
6
. At the year end the
Society’s balance sheet remained positioned so that net interest income would benefit from rising interest rates.
6 Reported sensitivities will vary over time due to several factors, such as the timing of maturing assets and liabilities, product pricing, market conditions and strategic
changes to the balance sheet mix, and should not therefore be considered a guide to future performance.
98 99Leeds Building Society | Annual Report and Accounts 2022
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Principal Risks continued
Audited
Group
+200bps
2022
£M
+200bps
2021
£M
-200bps
2022
£M
-200bps
2021
£M
Annual earnings impact 21.3 48.8 (20.8) (101.6)
Market value sensitivity (27.7) (18.9) 26.7 (4.1)
Foreign exchange exposures
The carrying amount of the Society’s foreign currency denominated monetary assets and monetary liabilities at the
reporting date is outlined in the table below:
Audited
Group
Assets
2022
£M
Assets
2021
£M
Liabilities
2022
£M
Liabilities
2021
£M
Euro 431.8 824.0 430.4 821.9
At the year end, the Society had hedges in place to match 100% of its foreign currency exposures, via the use of cross
currency swaps, which offset the impact of foreign exchange fluctuations. Therefore any movement in foreign currency
through profit or loss and other equity is minimised. At 31 December 2022, a 10% movement in the sterling: euro exchange
rate would result in a movement of £1.3m (2021: £0.2m) in profit or loss or other equity.
Outlook
• Financial markets are expected to remain volatile in 2023 as central banks tighten monetary policy further to address
elevated levels of inflation.
• Management will continue to monitor financial markets and changes in customer behaviours under a volatile interest
rate environment and proactively manage the Society’s balance sheet to ensure that future earnings and value are
protected.
4. Capital risk
Definition
The risk that the Society has insufficient quality or quantity of capital resources to meet current or future business
requirements.
Sources of capital risk
Capital risk arises where the Society has insufficient capital resources to support strategic objectives and plans
or regulatory requirements. This could arise due to a depletion of the Society’s capital resources as a result of risk
crystallisation, through a significant increase in risk-weighted assets as a result of regulatory changes or economic
deterioration or increases in minimum capital requirements, such as the countercyclical capital buffer.
Managing capital risk
The key mitigants in relation to capital risk are as follows:
• A Board defined appetite, supported by the Capital Management Policy and capital strategy.
• Monthly review of performance against appetite.
• An Internal Capital Adequacy Assessment Process (ICAAP) is conducted at least annually, to assess the level of capital
required to support current and future business activities.
• The Society’s capital position is monitored by a dedicated first line team, with oversight provided by the Risk division.
• Stress testing and sensitivity analysis is conducted to understand the impact on the Society’s capital position, under a
range of severe scenarios.
• Maintenance of a Recovery Plan, including actions to generate and/or preserve capital in response to a severe stress.
Monitoring capital risk
The Society has a dedicated first line team responsible for managing and monitoring the Society’s capital position.
Oversight and assurance of capital risk is achieved through the three lines of defence model.
Capital planning is integrated into the Society’s wider strategic and financial planning processes to assess the Society’s
capital position on a forward-looking basis. Capital performance versus appetite is reviewed by ALCO at each meeting and
is also reported through to BRC.
Key developments in 2022
Key developments in relation to capital risk during 2022 were as follows:
• Changes to prudential regulation in the UK, taking effect from January 2022, have necessitated redevelopment of
Internal Rating Based (IRB) model suites across the industry. In common with all UK IRB firms, the Society is redeveloping
its mortgage model suite and is expected to implement a revised set of models during 2023. Under these revised
requirements, the Society’s risk weighted asset percentage is expected to increase and result in a reduction of the
Society’s total capital ratio. Since 1 January 2022 the Society has applied a post model adjustment to its current IRB
rating system as an estimation of the potential impact of transitioning the new model suite. For further details, refer to
the Society’s 2022 Pillar 3 disclosure, located on our website. Notwithstanding this change, the Society expects to retain
significant capital headroom versus risk appetite and minimum regulatory requirements.
• During the fourth quarter of 2022 the PRA published CP16/22 – Implementation of Basel 3.1 Standards. The
consultation paper outlines the residual reforms in relation to Basel 3 not yet implemented, including revision to the
standardised and IRB approaches for residential mortgages, the introduction of an aggregate output floor and revisions
to market risk and operational risk capital requirements. Whilst the detailed impacts of the consultation paper will be
assessed during 2023 ahead of the expected implementation in 2025, initial assessments suggest that the Society will
retain significant headroom over minimum capital requirements.
• During the year the Financial Policy Committee announced an increase in the UK’s countercyclical buffer to 2%. This
buffer requires firms to hold additional capital to prevent a build-up of systemic risk in times of heightened lending,
provide loss absorbing capacity and act as an incentive to reduce lending. The increased buffer requirement applies from
5 July 2023.
Capital position
The following table shows the Society’s capital position as at 31 December 2022. More detailed disclosures can be found in
the Pillar 3 Disclosures available on our website.
Unaudited
Group
2022
£M
Group
2021
£M
Capital resources
Common Equity Tier 1 (CET1) capital 1,388.3 1,228.7
Additional Tier 1 capital – 2.5
Total Tier 1 capital 1,388.3 1,231.2
Tier 2 capital 234.6 227.5
Total regulatory capital resources 1,622.9 1,458.7
Senior non preferred notes 350.0 350.0
Total MREL eligible resources 1,972.9 1,458.7
Risk-weighted assets (RWAs) 4,163.9 3,231.2
CRD V capital ratios (note 1) % %
CET1 ratio 33.3 38.0
Total capital ratio 39.0 45.1
Total MREL ratio 47.4 56.0
UK leverage ratio (note 2) 6.2 6.1
Note 1. The capital ratios are calculated as relevant capital divided by risk-weighted assets and the leverage ratio is calculated as Tier 1 capital divided by total exposure (total
assets per the prudential group consolidated position subject to some regulatory adjustments).
Note 2. The UK leverage ratio represents the UK regulatory regime which excludes deposits with central banks from the leverage exposure measure. The UK regime does not
apply to the Society as the applicable threshold set by the regulator (more than £50 billion of retail deposits) is considerably in excess of the Society’s balance. Despite not being
captured by this regime, the Society continues to exceed the minimum 3.25% regulatory expectation.
100 101Leeds Building Society | Annual Report and Accounts 2022
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Principal Risks continued
During 2022, the Society maintained significant headroom above minimum regulatory requirements under the various
requirements of the UK’s capital regime. Movements in the Society’s key capital ratios during the year are as follows:
• The Society’s total capital ratio has reduced to 39.0% from 45.1% due to the application of the post model adjustment
to risk-weighted assets due to the changes in regulation noted on the previous page, which has been partially offset by
strong profitability.
• The leverage ratio has increased to 6.2% from 6.1% as the level of profitability during the year outpaced balance sheet
growth.
• Similar to the total capital ratio, the Society’s Minimum Requirement for Own Funds and Eligible Liabilities (MREL) ratio
has decreased during the year due to the impact of the post model adjustment to risk-weighted assets (2022: 47.4%,
2021: 56.0%).
Outlook
• The Society plans to submit a final IRB model suite for regulatory approval during 2023, in line with the regulatory IRB
roadmap. Overall, we currently expect the capital impact of the revised IRB model suite to be broadly in line with the
temporary post model adjustment applied to the current IRB rating system. For further information please refer to our
2022 Pillar 3 disclosure on our website.
• Management will assess the potential future capital impacts of the Basel 3.1 Consultation Paper released by the PRA.
• The Society’s end-state Minimum Requirements for Own Funds and Eligible Liabilities (MREL) requirement (two times
our minimum regulatory requirements) will become binding from July 2023. The Society expects to continue to maintain
a significant excess over the end state MREL requirement.
5. Model risk
Definition
The risk of incorrect decision making, based upon the inputs or outputs of models, due to errors in the development,
implementation or use of such models, leading to financial loss, a deterioration in the Society’s capital or liquidity position,
non compliance with relevant regulations and reputational damage.
Sources of model risk
Models are inherently uncertain as they are imperfect representations of the real world, based upon a set of assumptions
and theoretical methodologies, which may not translate into an accurate future outcome.
The Society uses models across a broad range of business activities, including informing business decisions and strategies,
determining capital adequacy, provisioning, retail and wholesale credit decisioning, risk measurement and stress testing.
The level of risk relating to an individual model is assessed through a materiality rating. The Society has developed a
quantitative approach to determine the materiality rating of each model, reflective of the model’s complexity, use and
potential impact assessment. The outputs of the materiality assessment determine the approval path through governance
and the degree, frequency and depth of review and validation requirements. The materiality ratings for each model are
reviewed on a semi-annual basis to ensure they remain representative of the risks associated with each model.
Managing model risk
The key mitigants in relation to model risk are as follows:
• A Model Risk Management Framework consisting of the Model Risk Policy and Standards, which set the Society’s
minimum standards in relation to model documentation, development, implementation, validation and change.
• Board defined appetite, which establishes the Society’s tolerance for model risk.
• A model inventory is maintained, acting as a Society-wide repository of key model artefacts.
• A materiality assessment is conducted semi-annually on all models within the inventory. This defines the appropriate
level of governance, dependent on model materiality rating.
• Model owner reviews are submitted through governance on a cyclical basis, in line with model materiality ratings.
• Models are validated independently from model owners prior to use and on a cyclical basis, in line with model validation
standards and materiality ratings.
• Controls around post model adjustments are defined under the Model Risk Management Framework to ensure they are
appropriately governed and transparent.
• Annual attestations are completed by model owners to confirm that they have complied with the requirements of the
Model Risk Policy.
Monitoring model risk
Model owners represent a first line of defence for monitoring model risk, with oversight provided through independent
model validation and second and third line assurance activity.
The Models and Rating System Committee (MRSC) is the Society’s primary body for overseeing model risk. This forum
assesses whether models are fit for purpose through periodic model reviews and monitors model risk exposure on a
Society-wide aggregated basis. Material model issues are reported to BRC.
Key developments in 2022
Key developments in relation to model risk during 2022 were as follows:
• During 2022, the PRA published a consultation paper (CP06/22 – Model Risk Management Principles for Banks) and
a draft supervisory statement, which aims to support firms in strengthening their policies, procedures and practices
to identify, manage and control the risks associated with the use of models. Based upon an initial self-assessment,
the Society believes it is well placed against the new requirements, but recognises that further work will be necessary
to continue to enhance its risk maturity in line with evolving regulatory expectations. A finalised policy statement is
expected to be published in early 2023 with a twelve month implementation period.
• The Society has continued with the development and validation of its IRB rating system during the year. As part of this
process the Society has held regular engagement with the regulatory authorities to ensure its revised model suite is
aligned with expectations. The Society plans to submit a final IRB model suite for regulatory approval during the first half
of 2023, in line with its regulatory IRB roadmap.
• The changes experienced in the UK economic environment during 2022, such as heightened levels of inflation, the
speed of interest rate rises and market volatility have impacted the performance of some of the Society’s models. This
has meant that the historical data upon which some models were built have become less representative under current
conditions. This is being closely monitored through established governance, and where appropriate, affected models
have been updated or a model adjustment applied in order to reflect the prevailing climate.
Outlook
• The Society plans to further enhance its model risk management framework during 2023, reflective of market risks and
to comply with the finalised regulatory rules following CP06/22.
• We will continue to maintain close oversight of model inputs and outputs under the prevailing external environment to
ensure they remain appropriate or adjusted based on quantitative and qualitative considerations.
6. Operational risk
Definition
Operational risk is the risk of financial or reputational loss, as a result of inadequate or failed processes, people, systems or
external events. This incorporates resilience risk which is the inability to maintain important business services in response
to unexpected or adverse events.
Sources of operational risk
The main drivers of operational risk are classified as follows:
• People risk
• Information security (including cyber) risk
• IT risk
• Operational resilience risk
• Third party management risk
• Financial crime risk
• Data risk
• Legal and regulatory risk
• Financial reporting risk
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Principal Risks continued
Managing operational risk
A summary of the key mitigants for operational risk is as follows:
• A Board defined appetite, supported by an appropriate suite of operational risk related policies.
• Monthly review of performance against appetite.
• Maintenance of an Operational Risk Management Framework, outlining the process for identification, assessment,
mitigation and monitoring of operational risks, incident management protocols and reporting operational losses across
the Society.
• Incident management processes are overseen by the second line Operational Risk and Incident Management team to
ensure timely reporting, response and recovery.
• The control environment is validated by the first line through Risk and Control Self-Assessments (RCSA), control testing
and oversight procedures.
• Oversight of operational risk and controls is provided by the Risk division.
• Maintenance of an operational resilience framework and associated testing programme, incorporating business
continuity, information technology risk, information security and third party management, to ensure the provision of
resilient services to members.
• Maintenance of a financial crime strategy and policy which is overseen by a dedicated Financial Crime Prevention team.
The financial crime risk and control environment is formally assessed through the annual Money Laundering Reporting
Officer report to BRC.
• Stress testing is used as part of the ICAAP to ensure the Society retains sufficient capital for extreme, but plausible,
operational risk events.
Monitoring operational risk
Day to day operational risk is monitored by first line business functions, including regular critical control testing and
quarterly reviews of key divisional risks with senior management and direct reports. Oversight of first line activity is
provided by both the second and third lines of defence through monitoring and assurance activity.
The Conduct and Operational Risk Committee (CORC) and the Operational Resilience Committee (ORC) provide oversight
as to how operational risks are being managed across the organisation. Performance against appetite is reviewed through
these committees and is also reported through to BRC.
2022 operational risk performance
Operational resilience risk
Throughout 2022, the focus has been on the resilience of the Society in light of the extraordinary external conditions, to
ensure continuity of service to members, including additional scenario testing over contingency plans for disruption to the
UK power supply and oversight over third party supplier resilience.
During 2022, the Society’s response to the regulatory requirements for both operational resilience and outsourcing and
third party management was implemented and we continued to build our operational resilience capabilities, including
continuing scenario testing and impact tolerances for important business services.
IT risk
Under the Society’s IT roadmap, we finalised the transfer of our in-house production systems to new and more resilient
data centres during 2022, with minimal impact on live services. Investment has also continued into enhancing the resilience
of internal platforms to provide the foundations of sustainable and responsive digital experiences. Development of agile
methodologies continues to progress to allow the Society to deliver better outcomes at a faster pace.
Information security risk
In response to the increased threats related to the Ukraine conflict in the first half of the year, the Society re-prioritised
security-focused development activity. Ransomware remains a key threat to all companies. In response, the Society’s
cyber strategy has evolved to consider the next level of mitigations needed over the longer term and increased scenario
testing to ensure appropriate response activity are effective.
Data risk
Throughout 2022, the Society has invested in the development of capabilities for understanding and managing data
through an ongoing initiative, including enhanced governance arrangements and trials of new solutions for both storing
and analysing data, which will continue into 2023.
People risk
The challenging recruitment market remains a key area of focus and is being tracked by the appropriate teams and
committees. Oversight of key person risk continues to mature and focuses on four key lenses: operational resilience,
resolution, strategic importance and key individual knowledge and expertise. Mitigation plans have been agreed, where
required.
The Society has also revised its people strategy to support the delivery of its purpose. As part of this strategy, we have
refreshed our approach to inclusion and diversity to ensure that creating an inclusive culture is a core focus.
Change risk
The Society continues to progress an ambitious change agenda for the benefit of its members. Management retains
close oversight of our change portfolio through an Executive Transformation Committee and supporting governance and
delivery structures, which ensure that change capacity and resources are appropriately utilised and prioritised against
strategic goals, that risks to the Society from change activity are understood and managed appropriately, and that the
Society is able to flex the portfolio appropriately in response to external events. During 2022, priorities have flexed in
response to the external environment, ensuring that activity is appropriately focused on key areas of demand.
Financial crime
The financial crime landscape remains challenging, with sophisticated malicious actors continuously testing firms’ controls
and adapting their strategies to identify and exploit vulnerabilities. Authorised push payment fraud remains a key threat
to members, with increasingly complex and sophisticated social engineering techniques being employed. Keeping pace
with changes to sanctions related to the war in Ukraine is also a priority. In response, the Society’s financial crime strategy
continues to focus on enhancing analytic and control capabilities, to enable a more responsive model to mitigate against
evolving threat methodologies.
Third party risk
The Society increasingly relies on key third parties to deliver certain aspects of our services to members. The Society has
continued to evolve its third party management processes to ensure material suppliers are identified and are capable of
maintaining their services to us even in a stressed environment.
Legal and regulatory risk
The Society has a robust process in place for ensuring new regulation is identified and implemented effectively. During
2022, the Society enhanced its processes in response to changes in regulations, including the management of continuity in
resolution and management of material outsourcing.
Outlook
The uncertainty in the external political and economic environment experienced during 2022 is expected to continue in
2023.
The Society will monitor developments to identify and respond to issues as they emerge and adopt resilience frameworks
to ensure that we can maintain our services to members. The Society is well placed to manage these changes effectively.
In addition, we will also look to further develop our people strategy and continue to progress our technology roadmap
which includes a review of potential future banking platform options.
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Principal Risks continued
7. Conduct risk
Definition
The risk that actual or potential customer detriment arises, or may arise, from the way the Society conducts its business.
Sources of conduct risk
Conduct risk can arise from how we behave and how we carry out our business. We assess drivers of conduct risk against
the following categories:
• Product design and development.
• Right products, right people, right way.
• Post sales and servicing.
• Governance, risk and culture.
• Business model and strategy.
Conduct risks can arise at any stage of the customer journey and risk assessments are carried out as part of our normal
business processes so we can understand, mitigate and monitor them. Where we recognise something has gone wrong,
we carry out root cause analysis to reduce the chance of it happening again and ensure any customer detriment is
appropriately redressed in a fair and transparent way.
Monitoring conduct risk
• First line colleagues are responsible for managing potential conduct risks through their day to day activities. Oversight
of first line activity is provided by both the second and third lines of defence through monitoring and assurance.
• CORC and BRC monitor the delivery of good customer outcomes through management information, oversight updates
and outputs from the product governance framework.
Managing conduct risk
The following controls and procedures help to mitigate conduct risk:
• A Board defined appetite, underpinned by the Conduct Risk Policy and Standards.
• The product governance framework ensures products are developed to meet customer needs and their ongoing
suitability for the target market is frequently assessed.
• Customer facing colleagues are suitably trained, with competency regularly assessed. Ongoing coaching and
development are in place for all customer facing colleagues.
• Processes and controls are in place to ensure product literature is clear and transparent and all Society processes are
written in accordance with regulatory expectations.
• The Society’s Complaints Handling Policy and supporting processes ensure that complaints are addressed with
empathy and sensitivity through a fair and transparent process.
• The Society operates appropriate post sales handling to facilitate good customer outcomes, ensuring customers do not
face unreasonable barriers to product changes, to switching providers, or making a complaint.
2022 performance
In 2022 we continued to respond to changing market and customer dynamics, particularly in consideration of rising interest
rates and the cost of living crisis:
• The Society continued its investment in people and systems in the Mortgage Support department, which deals with
customers in financial difficulties. Particular focus was given to the ongoing coaching and development of colleagues,
to support them in dealing with customers likely to exhibit some form of vulnerability or those impacted by the cost
of living crisis. Quality assurance testing continued throughout the year, with corrective actions being taken where
appropriate. The Society continued to not charge arrears fees in 2022.
• Mortgage lending criteria were reviewed to ensure the Society continued to lend responsibly and underwriting resource
was increased to deal with higher than expected volumes. Stress rates and affordability assessments were tightened to
respond to rising interest rates and the cost of living crisis.
• Despite market turmoil in the final quarter of the year, the Society was able to maintain a range of mortgage products on
sale. Additionally, a range of mortgage products was maintained throughout the year for customers wanting to switch
their mortgage at the end of their deal.
• Complaints were handled in line with policy and standards. Complaints data published by the Financial Conduct
Authority (FCA) during 2022 ranked the Society fourth best in banking (retail savings products) and tenth for home
finance. Similarly, the Financial Ombudsman Service (FOS) ranked the Society third best, with 95% of our complaints
being closed within 15 days. Root cause analysis was completed routinely, with corrective action being taken to prevent
recurrence. Complaint results and root causes are reported to CORC, with an annual summary report to the Board.
• In 2022 work commenced to prepare for Consumer Duty, in readiness for July 2023 implementation. The FCA published
the final policy statement and associated guidance in July 2022 and the Society completed a gap analysis against the
requirements. An implementation plan was approved by the Board in October and a project has been mobilised to
deliver the required actions.
Outlook
• We will continue to monitor and respond to any further customer impacts from the cost of living crisis, paying particular
attention to the impact on customers in financial difficulty.
• A Consumer Duty project has key milestones to deliver in the first half of 2023 and these will be closely tracked through
the steering committee, with updates to the Board or non executive director Consumer Duty Champion, as appropriate.
• The Society will continue to deliver its Mortgage Support transformation roadmap, with close oversight from BRC.
• System based changes will continue for savings and mortgages to improve customer outcomes and experience,
including those with vulnerabilities and additional needs.
8. Strategic/business risk
Definition
The risk that the Society fails to formulate or execute an appropriate strategy and business model in response to the
external environment, threatening our longer term viability or inhibiting delivery of our purpose.
Sources of strategic/business risk
The main sources of strategic/business risk arise from the following:
• Over or under diversification in our business model (geography, products, funding or exposures) inhibiting delivery of
strategic objectives.
• Failure to develop and execute an appropriate strategic plan and objectives.
• Failure to adapt to changes in the external environment e.g. macroeconomic, political, technological advances,
competition, and changes in consumer preferences.
Monitoring strategic/business risk
Strategic/business risks are monitored through the Society’s horizon scanning processes, with appropriate escalation
channels in place. These risks are also considered as part of the Society’s strategic and financial planning processes.
The Executive Committee (ExCo) and Management Committee (ManCo) provide oversight as to how strategic risks are
being managed. Performance against appetite is reviewed through these committees and at relevant BRC and Board
meetings.
Managing strategic/business risk
The following controls and procedures help to mitigate strategic/business risk:
• The direction of business and investment activity are set by an annual strategic planning process in the context of the
changing regulatory, technological, and competitive landscape.
• A Board defined appetite, supported by a suite of appropriate policies.
• The corporate planning process assesses the business environment on a regular basis, and the plan is approved by the
Board.
• Competitor and market performance is assessed by regular thematic reviews.
• Maintenance of a responsible business strategy and targets, which ensures that the Society’s purpose and strategy
remain aligned with our stakeholder expectations.
• Stress testing is used to understand performance under a variety of severe, but plausible, scenarios.
• Independent risk reporting, including horizon scanning, assesses the operating environment of the Society and
performance against strategic plans and objectives.
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Principal Risks continued
2022 performance
In 2022 we continued to respond to the changing market and customer dynamics, particularly in consideration of rising
interest rates and the cost of living crisis:
• Conditions within the Society’s operating environment deteriorated during the second half of 2022, as the cost of living
crisis and higher interest rates started to take effect. This has reduced customer affordability and has also started to
reduce activity within the UK housing market.
• Following the mini budget in September, there was a period of heightened volatility within the financial markets, which
resulted in many lenders withdrawing all of their mortgage products from the market. During this time, the Society was
able to retain a presence within its key markets.
• Since the reopening of the mortgage market in October, competition has remained strong. From a savings perspective,
price competition has also started to increase as lenders look to refinance the Bank of England’s Term Funding Scheme
(TFSME). We have continued to carefully monitor the market positioning of our products and responded accordingly.
• Our cost to income ratio decreased during the year to 37.4% versus 43.9% in 2021, supported by higher income. The
Society maintains an efficient business model relative to peers, which supports further investment in operations. In
this regard we have continued to progress an ambitious change agenda, to support member experience and further
strengthen our resilience.
Outlook
• We expect more challenging conditions within our operating environment during 2023 against the backdrop of
heightened macroeconomic uncertainty and strong competition within both mortgage and savings markets.
• We will continue to closely monitor external developments and assess potential impacts under both central and
stressed conditions.
• Progress with our strategic change portfolio will also be closely monitored, to ensure that transformation projects are
appropriately prioritised and effectively delivered to support delivery of our strategic objectives.
Governance
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The biographies of
each member of the
Board demonstrate
the reasons why
the strengths and
experience of each
director contribute
to our long term and
sustainable success.
Iain Cornish Richard Fearon Annette Barnes
Chair and Independent
Non Executive Director
Appointed: Independent Non Executive Director in
January 2019 and Chair of the Board in April 2020
Board committees: Chair of Nominations Committee
Strengths and experience: Iain has more than 30 years’
experience working in financial services. A former CEO of
Yorkshire Building Society (2003-2011) and Chair of the
Building Societies Association (2007-2008), Iain has held a
number of non executive posts. He was a Treasury Select
Committee Special Advisor and Independent Director
for the Prudential Regulatory Authority and chaired the
Financial Services Authority Practitioner Panel. In addition
to significant experience within the sector, Iain has
relevant risk and audit committee experience.
Other roles: Iain is a trustee and treasurer of Macmillan
Cancer Support.
“As Chair, my role is to lead the Board and oversee the
development and delivery of the Society’s strategy.
Over the last year, the Board’s focus has been on testing
and supporting management to make judgements
about how best to balance the interests of savers and
borrowers in an environment of rising living costs and
increasing interest rates, whilst also continuing to
deliver on our purpose and on supporting colleagues.
Over the next year I anticipate a similar set of priorities
in what is forecast to be a period of declining economic
activity with continued cost of living pressures,
however, the Board will also make sure that the Society
remains focused on the successful delivery of essential
long term investments.”
Chief Executive Officer
Appointed: Chief Executive Officer in February 2019 and
Executive Director in 2016
Strengths and experience: Richard started his career
at Oliver Wyman & Company and spent ten years at
Lloyds Banking Group in senior mortgage and savings
roles. Richard has an excellent understanding of product
development to meet customer needs, as well as strong
strategic and commercial skills. As CEO, Richard is
responsible for developing and proposing the Society’s
strategy, objectives and plans, and maintaining our
business model and culture.
Other roles: Richard is Chair of the UK Finance Mortgages
Product and Service Board.
“One of my priorities as CEO is ensuring our members
are at the heart of every decision we make. Our purpose
has supported us in navigating the disruption caused
in the current economic climate and we continue to
effectively serve members and uphold our purpose as
a mutual building society. My role involves leading the
management team so that we can operate in the best
interests of our members.”
Independent Non Executive Director
Appointed: February 2019
Board committees: Member of Board Risk and
Remuneration committees
Strengths and experience: Prior to joining the Society,
Annette was CEO at Lloyds Bank Private Banking Ltd and
Managing Director of Wealth & Mass Affluent for Lloyds
Banking Group. With her background in operations,
technology and customer experience, and recent board
and regulatory positions, Annette brings a wealth of
knowledge to the Board.
Annette is the Society’s Consumer Duty Champion.
Other roles: Annette is a non executive director of
GlobalData plc, Quilter Life & Pensions Limited and Quilter
Investment Platform Limited.
“The world has changed in many ways since I began my
career in financial services more than 30 years ago; with
significant digital advancements and an appropriate
focus on the value of a diverse workforce. In my role as
a Board member, it’s for me to challenge and support
management, so that collectively we can continue to
meet the changing needs of members, colleagues and
other stakeholders. The Board really focuses on the
needs of all of its stakeholders, and for me, that’s a huge
part of the role.”
The Board of Directors
Year ended 31 December 2022
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The Board of Directors continued
Neil Fuller Andrew Conroy Andrew Greenwood David Fisher
Independent Non Executive Director
Appointed: December 2020
Board committees: Chair of Board Risk Committee and
member of Audit Committee
Strengths and experience: Neil joined the Board in
December 2020 with over 35 years’ experience in retail
banking and financial services. Prior to joining the Society,
Neil held senior roles at Bank of Ireland UK plc including
Chief Risk Officer and Executive Board Director, and for
a short time Interim Chief Executive Officer. Before this,
he undertook the role of Chief Risk Officer at GE Capital
Bank Ltd and a variety of roles including Risk Director and
Chief Risk Officer in the UK retail division of Royal Bank of
Scotland and NatWest. Neil’s experience and knowledge
of risk management in the financial services sector
bring value and further strengthen the Board. Neil was
appointed as Chair of Board Risk Committee from January
2022.
“I believe the experience I’ve gained as Chief Risk Officer
at different organisations and my understanding of risk
management and the principal risks facing the financial
services sector bring value to the Board. The ethics of a
mutual resonate strongly with me and I very much enjoy
working with the Society.”
Chief Financial Officer
Appointed: Chief Financial Officer in July 2019 and
Executive Director in January 2020
Strengths and experience: Andrew started his career
at PricewaterhouseCoopers before moving to West
Bromwich Building Society. He has more than 15 years’
experience in financial services, including a number
of senior roles in both building societies and banking
institutions.
Having worked within finance, treasury and corporate
strategy, Andrew has developed strong technical skills in
financial accounting and treasury risk management.
Andrew is Chair of Assets and Liabilities Committee,
Balance Sheet Optimisation Group and Cost Optimisation
Group and has responsibility for the Society’s Finance,
Treasury and Third Party Management functions, along
with oversight of its recovery and resolution plan and
activities.
Other roles: Andrew is a trustee for Saltmine Trust.
“The global economy has been significantly impacted
as a result of the Covid-19 pandemic and more recently
by market volatility, and this, as you would expect, has
impacted many firms in the financial services sector, as
well as many of our members.
My focus is to ensure we support our members and
colleagues by safeguarding the Society’s financial
position. This continues to be my priority, as I lead our
Finance division into 2023.”
Deputy Chief Executive Officer
Appointed: Deputy Chief Executive Officer in May 2021
and Executive Director in January 2015
Strengths and experience: Andrew started his career
as a solicitor in private practice and has worked for the
Society since 1998, in a variety of roles. Having developed
extensive experience of working in a highly regulated
environment, Andrew was the Society’s Chief Risk Officer
from 2011 to 2022 and, during this period, was responsible
for developing and leading the Risk division, which
comprises a number of specialist teams.
Andrew’s current line management responsibilities
comprise the Risk, Human Resources, Learning and
Development and Property and Business Services
functions and, in the latter part of 2022, he took on
responsibility for the Mortgage Services function.
Andrew currently chairs the Models and Rating System
Committee and is a member of a number of risk focused
committees. He also regularly attends the Board Risk
Committee and the Audit Committee.
“Having worked for the Society for more than 20 years,
I have extensive experience of risk management and a
strong knowledge of the organisation, its people and
culture. A key aspect of my role as Chair of the Models
and Rating System Committee is supporting the Board
to fulfil our financial risk management responsibilities
and helping other directors understand the model
framework, which underpins assumptions and decision
making. This role continues to be important as we adapt
to changes in the economy.”
Independent Non Executive Director
Appointed: March 2012
Board committees: Member of Audit, Board Risk and
Remuneration committees
Strengths and experience: With more than 30 years’
experience in financial services, David’s career began
at Halifax Building Society. Since then, he’s developed a
wealth of knowledge in retail financial services and has a
strong understanding of risk management, pensions and
human resources. Prior to joining the Society, David was
CEO of Sainsbury’s Bank. David was Chair of Board Risk
Committee until December 2021.
Other roles: David is a non executive director of Tandem
Bank Ltd and Tandem Money Ltd.
“The Society’s ongoing strength and stability rely
on our ability to identify, manage and mitigate risk.
My role as a member of the Board Risk Committee
and Audit Committee is to ensure we are financially
resilient and have robust systems in place to manage
risks throughout the business, which include our risk
management framework and internal controls. I’m
extremely impressed with how the management team
has responded to the additional risks posed by the
pandemic and my ongoing priority is to ensure risks are
being managed appropriately, so we can remain secure.”
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The Board of Directors continued
Lynn McManusGareth Hoskin Anita TadayonRob Howse
Independent Non Executive Director
Appointed: September 2017
Board committees: Chair of Remuneration and member of
Audit, Board Risk and Nominations committees
Strengths and experience: Lynn joined the Board in
September 2017 bringing more than 20 years’ experience
within financial services. She’s worked within finance,
risk, HR and communications and her most recent role
was at Clydesdale Bank, where she was a member of
the executive team. Lynn is a chartered management
accountant.
Lynn is the designated non executive for colleague
engagement. In her role as Chair of the Remuneration
Committee, she’s responsible for overseeing the
development and implementation of the Society’s
remuneration policies and practices.
Other roles: Lynn is a director of Kane LMMG Ltd and
Beatson Cancer Charity.
Lynn stepped down from the Board in January 2023.
Independent Non Executive Director
Appointed: November 2015
Board committees: Chair of Audit and member of Board
Risk, Nominations and Remuneration committees
Strengths and experience: Gareth has acquired extensive
experience during his 30 years working in financial
services, both in the UK and abroad. Having spent almost
20 years at Legal & General plc, Gareth was a director and
CEO of the International division. Prior to this, Gareth was
a chartered accountant at PricewaterhouseCoopers. In
January 2019, Gareth was appointed Vice Chair and Senior
Independent Director of the Board. His responsibilities as
Chair of the Audit Committee include safeguarding the
independence of the Internal Audit function and acting as
our whistleblowing champion.
Other roles: Gareth is a non executive director and Chair
of Audit Committee of Saga plc and a non executive
director and Chair of Acromas Insurance Company Ltd.
He’s also advisor to the Board of Green Park Partners Ltd.
“As Chair of the Audit Committee, it’s my responsibility
to make sure our financial statements are fair, balanced
and include all the information you, as a member
or stakeholder, need to assess and understand our
performance. It’s my role to provide challenge, where
required, and to use my experience from the past 30
years to oversee the Society’s reporting and audit
processes.”
Independent Non Executive Director
Appointed: October 2021
Board committees: Member of Board Risk Committee
Strengths and experience: Anita joined the Board in
October 2021 with over 25 years’ experience and a
strong track record in transformation. Anita has held a
number of senior roles and has developed a great deal of
expertise in combining technology and change along with
the development and design of customer journeys. Anita
is currently employed by BT Group as Global Portfolio &
Digital Product Roadmap & Lifecycle Director. Previously
she ran a Design Function in BT Consumer and worked
for both Sky and British Gas in Transformation. Anita
also brings FCA regulatory knowledge from her time with
British Gas, where she was responsible for the conduct
team within customer operations. Anita has an MBA from
London Business School.
Other roles: Anita is a director of Tadayon Consulting
Limited and Global Portfolio & Digital Product Roadmap &
Lifecycle Director for the BT Group.
“I’m delighted to be on the Board as a non executive
director and feel strongly about the values associated
with mutuality. I believe that my knowledge and
experience provide different insights and experience
to the Board, thereby adding value and depth to the
decision making process.”
Chief Operating Officer
Appointed: Chief Operating Officer in September 2019
and Executive Director in May 2021
Strengths and experience: Before joining Leeds Building
Society, Rob spent over ten years in a number of senior
executive technology, operations and change roles
mainly at RBS and Lloyds Banking Group, where he was
focused on retail banking. His earlier career included
time in Telecoms, the Royal Navy and as a management
consultant at McKinsey and Company where, as an
associate partner, he specialised in advising multinational
clients on the design and execution of transformation
programmes.
As Chief Operating Officer, Rob’s responsibilities include
transformation, technology and operational resilience, and
he’s Chair of the Executive Transformation Committee and
the Operational Resilience Committee.
Other roles: Rob is Chair of the UK Finance Digital,
Technology and Cyber Product and Service Board.
“My extensive experience of technology, transformation
and operational resilience strengthens the execution of
the Board’s strategic agenda and helps assure day to day
operations. I’ve used this experience to ensure that the
Society continues to operate safely while still investing
in our long term future and improving the way that we
work every day.”
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As executive directors of the Board, Richard Fearon, Andrew Greenwood, Andrew Conroy and Rob Howse, whose
biographies can be found on pages 111 to 114, are also members of the Executive Committee (ExCo). Details of the other
members of the ExCo are set out below:
Caroline Hill
Chief People Officer
An experienced Group Chief People Officer with a particular passion
for change and cultural transformation. Caroline has over 25 years’
experience in HR and operational roles in FTSE groups, mutuals, SMEs and
entrepreneurial businesses across different sectors. Caroline has several
years of financial services experience at C Suite Level – she was Chief
People and Strategy Officer at Wesleyan and a member of the HR executive
team level at Santander UK. Caroline joined the Society in February 2022
from KPMG UK, where she was Head of People for the Audit function.
Caroline leads our People and Property functions and is accountable for
ensuring that we have the right people with the right skills in the right roles
to deliver our purpose.
Parveen Kaur
Chief Customer Officer
Parveen joined the Society in October 2022 from Lloyds of London,
where she was Head of Operations. Prior to Lloyds, Parveen enjoyed a
long and successful career in financial services, having worked for Royal
Bank of Scotland, ABN AMRO Bank and Bank of America, where she had
responsibility for retail banking operations and contact centres across
Everyday Banking, Mortgages, Complaints, Remediation, Customer
Services, Fraud and Webchat. Latterly, at Lloyds, Parveen became the
accountable executive for digital operations and the deployment of artificial
intelligence across the business. Parveen is passionate about people and
has been successful in working and transforming diverse teams. Parveen’s
strong and varied experience will complement our Executive Committee.
Andy Mellor
Chief Risk Officer
Andy has worked in financial services for over 20 years, with experience
of performing a variety of senior roles in building societies, banking
and consultancy. Andy worked in specialised treasury roles prior to risk
management, internal audit and advisory roles. Andy’s recent focus has
been on developing the Risk division, as part of the risk strategy refresh.
Following his appointment as Risk Director, he joined the ExCo in March
2021 and then became Chief Risk Officer in October 2022.
Andy Moody
Chief Commercial Officer
Andy has over 20 years’ experience in financial services, having operated
in various senior risk, commercial and consulting roles. Andy joined the
Society in 2012 and has held the roles of Director of Credit Risk and Deputy
Chief Risk Officer. Since 2019 he has operated as the Chief Commercial
Officer, in which he has overall responsibility for our products, their
distribution and digital channel. More recently, he acquired responsibility for
the brand and marketing teams.
Nick Young
Chief Strategy and Insights Officer
Nick joined the Society in August 2018 and has a background in commercial
management and strategic change delivery. He has hands-on experience of
driving performance improvement initiatives across a range of industries,
gained through his time as a management consultant with Boxwood Group.
Prior to joining the Society, Nick held a number of different product strategy
and commercial roles in the savings and personal current account business
areas at a large UK bank. He is responsible for leading the Strategy and
Insights division, with functional responsibility for strategy, responsible
business, customer insight, data and internal communications. Nick is also
chair of the Responsible Business Forum.
Our ExCo is chaired by the Chief Executive Officer and has the primary purpose of enabling the executive directors and
chief officers to manage the Society in a co-ordinated way, taking a broad view of key issues and priorities. In 2022, ExCo
responded to the volatility in the market and met more frequently, to deal with decisions and any challenges arising as a
result of the changes to the economy and cost of living crisis. ExCo delegates some of its duties to, and is supported by, a
number of committees as set out below:
Committee Key priority
Management Committee
(ManCo)
ManCo comprises the Senior Leadership Team and acts as a sounding board for ExCo. It
monitors performance against our corporate priorities, provides input into our strategy
(with a particular focus on people, culture and ESG) and supports the development and
maintenance of the Society’s culture and values.
Pricing Committee The main role of the Pricing Committee is to approve new product pricing for our
savings and mortgage products.
Executive Transformation
Committee (ETC)
The ETC provides oversight of the Society’s change portfolio to ensure it is aligned to
our overall strategic vision.
Balance Sheet Optimisation
Group (BSOG)
BSOG supports ExCo and the Assets and Liabilities Committee with monitoring of key
financial measures and early warning indicators, along with agreeing tactical decisions
to optimise the current and future balance sheet.
Cost Optimisation Group
(COG)
COG was established in the fourth quarter of 2022 to provide a forum which seeks to
balance cost control with agility and responsiveness ensuring that future growth in the
cost base is driving value and delivering purpose.
The Executive Committee
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Introduction from the Chair
2022 has been another challenging year, with volatility and cost pressures creating a period of uncertainty for many of our
members. Our strong leadership, and the culture in which we operate, has enabled us to keep our members at the forefront
of what we do and has enabled us to continue to support members, manage risks effectively and maintain the Society’s
financial resilience.
The purpose of this report is to provide you with an overview of the way in which the Board has operated over the last
twelve months and to describe to you how we incorporate good governance in all our activities, with particular emphasis on
how we engage with our stakeholders. We also want to share with you how stakeholders’ consideration is embedded in the
decision making process. Some of our key areas of focus are outlined below.
Evaluating Board effectiveness
To ensure our long term success and sustainability, we recognise the importance of assessing our own performance on a
regular basis and the need to continuously evolve and become more agile and innovative in the way we think and operate.
In 2021 an external performance assessment was carried out, followed by an internal assessment in 2022. In 2022, the
Board revisited the themes arising from the 2021 review and assessed the progress made against the agreed actions.
In 2022, the approach for the internal assessment was enhanced to include observations from the wider governance
structure as well as incorporating the results of the Board committees’ effectiveness reviews. Overall, the Board was found
to be operating effectively and a small number of actions and improvement opportunities were agreed. Themes arising
from the review included inclusion and diversity in terms of Board and Board committee composition, the ways to promote
innovation at Board level through disruptive thinking, how presentations made to the Board could be refined to optimise
the impact and ways to promote greater agility in decision making.
More detailed information on the evaluation process is available to read on pages 128 and 129 of this report.
People
In 2022, the Board received an update on the people strategy, with a focus on driving delivery of our purpose and
responding to the dynamic shift in colleagues’ expectations of work. At the heart of this strategy is the enablement
of colleagues to be their best self at work. In 2022, we transitioned how we measure colleague engagement across
the Society by introducing a new supplier and adopting their methodology, an average score across core engagement
questions. This change has provided our leaders and people managers with richer insight on colleagues’ sentiment and
their experience of working at the Society and has also introduced more robust external benchmarking.
In April the Board reviewed and endorsed our revised inclusion and diversity strategy, ‘Being You: Transforming Us’. Our new
strategy is focused on creating an inclusive culture that enables all our colleagues to thrive, whilst continuing to develop
and attract diverse candidates to support us in being representative of the communities we serve. The Board continued
to support this agenda through participating in a ‘This is Me’ campaign, sharing their lived experiences to help create
conversation and grow understanding across the Society. The Board also took time as part of a focused learning session to
explore how to be an upstander, which was facilitated by external experts. The directors also met several of our colleague-
led inclusion and diversity forum members and listened to their own individual lived experiences and what more could be
done to further support our inclusion and diversity strategy. During 2022, our new HR platform was launched, which has
enabled us to expand the data set we collect from our colleagues in relation to diversity, including protected characteristics
and broader fields such as socioeconomic data. In November, it was agreed that the targets set in 2021 for gender and
ethnicity should be revisited in future years to support a clear roadmap through to 2030, as well as widen their focus
beyond gender and race to reflect our inclusion and diversity strategy more fully.
In 2022 we have continued to work towards the targets we had set for both gender and ethnicity at Board and senior
management level to 2025. Whilst the targets for female representation at Board level have not been met (27% at
31 December 2022 versus a target of 33%), we were delighted to have met the target at senior management level
(35.25% versus a target of 35% by 2025). We also achieved our target on ethnic minority representation at senior
management level (7.2% versus a 2025 target of 7%). As we continue to mature our inclusion and diversity strategy we
will consider broadening and evolving our targets beyond gender and ethnicity to ensure that we have a truly diverse
workforce.
Stakeholder dialogue
The Board recognises the importance of listening to and gathering views of each of our stakeholders and how these are
integral to the Board’s decision making processes. This year, we have focused on ways to broaden the channels we use
for engagement and the methods for bringing stakeholder views directly and indirectly into the Boardroom. It is vital
that we listen to our members to understand their needs and provide the right products and support. We have stepped
up our activity to support members through the current economic challenges, by increasing the opening hours of our
contact centre, reviewing our suite of forbearance measures, continuing with the suspension of arrears fees into 2023
and encouraging members to talk to us sooner should they be in financial difficulty. These activities and our approach
to seeking the right outcomes for our members are also aligned with new Consumer Duty rules issued by our regulator
requiring higher and clearer standards of consumer protection across financial services from the middle of 2023 onwards.
Our AGM is a key touch point for engaging with our members and in 2022 we were delighted we were able to invite
members to attend in person for the first time since 2019. We focused on enhancing our engagement with members by
delivering more information to members via our dedicated AGM Hub on the Society’s website and invited members to raise
questions on the day or submit questions in advance. Members of the Board also met with members after the meeting to
discuss individual queries and areas of interest.
Colleague engagement is undertaken by a variety of means. Following a successful trial last year, the ‘voice of the
colleague’ has been established as a regular agenda item at Board meetings, whereby updates have been received directly
from colleagues in person or through video presentations. This has been an extremely useful tool for Board members to
gather insight and hear directly from colleagues on the topics which are important to them. Members of the Board have
also attended meetings of the colleague-led inclusion and diversity forums, Colleague Association meetings as well as
conducting several branch and departmental visits.
More information on the ways in which we engage with our stakeholders is available on pages 133 to 136 of this report and
on pages 26 to 32 in the Strategic Report.
Auditor appointment
Throughout the year, a detailed tender process has been undertaken for the appointment of a new external auditor. The
Audit Committee established a sub committee to conduct the tender and selection process, which included three firms
being invited to the final stage. Regular updates were provided to the Board throughout the process and in November, the
Audit Committee recommended two potential firms to the Board for appointment, with a preference for Ernst and Young
LLP (EY), and the Board agreed with the recommendation. Approval of EY’s appointment will be sought from members at
the 2024 AGM, and subject to that approval, EY will be responsible for the delivery of the external audit for the year ending
31 December 2024.
More information on the appointment of EY is included in the Audit Committee Report on page 150.
Technology and innovation
A regular item for discussion at Board meetings in 2022 has been our continuing plans to invest in technology in response
to the changing needs of our members, as well as an update to the Board on how the underwriting journey had been
optimised for customers and brokers through the use of data.
To reinforce the Board’s commitment to improving our technology and to ensure Board members have the technical
support required, it was agreed in 2022 to appoint an independent Board technical adviser, who would report to the Chair
and support the Board with its oversight of the Society’s technology roadmap. An appointment for this role was made in
March 2022 and the successful candidate provides advice and expert views on key decisions and risks. In addition to this
appointment, the Board has received several externally facilitated training sessions on technology from industry experts.
The Board agreed the appointment has been extremely successful, with valuable insight being shared with the Board and
agreed to extend the appointment into 2023.
Iain Cornish
Chair of the Board
23 February 2023
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Our approach to corporate governance
Our approach to corporate governance is based on the principles and provisions of the UK Corporate Governance Code
(the Code), published by the Financial Reporting Council, in so far as they are relevant to a building society (as set out in the
Building Societies Association Guidance) and I am pleased to confirm that our governance arrangements meet the relevant
requirements of the Code. A copy of the Code is available at frc.org.uk.
This report sets out how the Board has operated throughout 2022 and how it has applied the provisions of the Code.
Our governance structure
Board
Nominations
Committee
Audit
Committee
Board Risk
Committee
Remuneration
Committee
The role and responsibilities of the Board
The primary role of the Board is to lead the Society and to ensure its long term success, whilst meeting the needs of
our current and future members. The Board is responsible for setting and implementing the strategy which will enable
the Society to fulfil its purpose. The Board has formal terms of reference, which incorporate a clear set of roles and
responsibilities and a schedule of matters reserved for its decision, which sets out material items that should be retained
for its own approval.
Examples of matters which fall within the Board’s remit are listed below. Full details of the Board’s role, responsibilities
and matters reserved for its decision can be found within the Matters Reserved for the Board and the Board’s Terms
of Reference, both of which are available on our website: leedsbuildingsociety.co.uk/your-society/about-us/board-
committees/.
Board responsibilities
Annual approval of the Society’s risk appetite
Annual review and appoval of the Society’s annual and interim financial statements
Annual review of the effectiveness of our systems of internal control
Proposals for the appointment, re-appointment or removal of external auditors
Annual approval of our Speak Up Policy
Monitor the performance of the Society and its capital and liquidity requirements
Develop and implement the people strategy
Brand strategy
Set the tone and monitor culture
Approve and oversee technological enhancements to the Society’s operations
Development and oversight of the Society’s purpose and strategy
Board evaluation
Stakeholder engagement including seeking the right outcomes for our members
How does the Board operate?
The Board is led by the Chair and operates through a series of scheduled meetings, as often as is necessary to discharge
its obligations and to ensure the smooth running of the Society. The Board generally holds at least ten meetings per
year, with two additional meetings dedicated to planning and strategy. With the onset of the pandemic in 2020, the Board
scheduled additional interim meetings to review and discuss, amongst other items, the ongoing impact of the pandemic
and the operations of the Society, as well as colleague wellbeing, operational resilience and performance and any changes
or amendments to financial forecasts. A small number of interim meetings continued into early 2022, but these have now
ceased following agreement by the Board that additional meetings would only be convened when necessary.
For each Board meeting, a comprehensive and timely set of papers is provided in advance. The Board receives regular items
at every meeting, such as the minutes of the previous meeting, minutes of any Board committee meetings held since the
previous meeting, an action schedule, schedule of key matters, business performance scorecard and updates on regulatory
matters and business transformation.
Our governance structure enables management and the Board to operate effectively, ensuring appropriate decision
making processes and controls are in place. It also allows the Board to delegate certain duties to its dedicated Board
and management committees, each of which has a detailed terms of reference which documents the level of delegated
authority it has and its areas of focus. Copies of each Board committee’s Terms of Reference can be found on our website:
leedsbuildingsociety.co.uk/your-society/about-us/board-committees/.
Oversight is maintained through regular updates from the Chair of each committee at Board meetings and through
the individual updates from each executive director, including the Chief Executive Officer. Members of the Executive
Committee (ExCo) also attend Board meetings as required to provide updates from each division, any pertinent matters
and market trends. This provides Board members with regular touch points and close visibility of all areas of the business,
as well as the external environment.
Membership of each Board committee is comprised of independent non executive directors, most relevant to their skills
and areas of expertise. The Chair of each committee is responsible for ensuring receipt of accurate, timely and clear
information to assist with their deliberations and decision making. Board committees have been established in line with
the provisions of the Code and membership is limited to non executive directors only, with other Board members and
senior leaders in attendance, as and when required. Details on each committee, the activities undertaken in 2022 and their
membership can be found in each committee’s individual report from pages 137 to 168.
Effective and considered Board decision making
As outlined above and below, the Society has a strong governance framework in place with carefully documented lines of
delegation and authority which underpin how decisions can be made.
Purpose, strategy, and stakeholder impact are at the heart of the Board’s decision making process, which is supported by
the quality and timeliness of the information and the papers it receives.
Good quality reporting is vital for effective and informed decision making. The materials provided to the Board are
reviewed regularly to ensure the information provided is high quality, clear and concise. During meetings in 2022, the
Board also regularly reflected on the quality of papers, behaviours and discussions, which provided real time feedback, to
generate continual improvement.
From a stakeholder perspective, supporting papers are required to include information on the key stakeholder groups
which may be impacted by the outcome of any decisions made and how they have been considered. Members of the Board
are then required to take stakeholder impacts into account when considering and approving recommendations.
Further information and an example of how stakeholders’ interests were considered in some of the key decisions made
during the year can also be found in the Strategic Report on pages 26 to 32.
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Board and Board committee meetings and attendance in 2022
In the period to 31 December 2022, there were 14 scheduled meetings of the Board. Attendance by executive and non
executive directors at all Board and Board committee meetings of which they are members, along with the number of
meetings held is set out below. In accordance with good practice, executive directors do not have membership rights at
Board committee meetings.
Board Audit Board Risk Nominations Remuneration
Number of meetings held in 2022 14 6 8 5 7
Annette Barnes 14 – 8 – 7
Andrew Conroy 14 – – – –
Iain Cornish 14 – – 5 –
Richard Fearon 14 – – – –
David Fisher 13 6 8 – 7
Neil Fuller 14 6 8 – –
Andrew Greenwood 14 – – – –
Gareth Hoskin 12 6 7 4 6
Rob Howse 14 – – – –
Lynn McManus 14 6 8 4 7
Anita Tadayon 13 – 6 – –
The Chair, CEO and other executive and non executive directors were also regular attendees at Board committee meetings
throughout the year as detailed in the committee reports on pages 137 to 168.
Culture
We are proud to have a strong and positive culture which has helped us to create a successful business, ensures our
continued and long term success and provides colleagues with an engaging and rewarding place of work.
The Board recognises that it is important to set the cultural tone from the top and in doing so has role modelled the
adoption of the Society’s behaviours that form part of our purpose. An explanation of our purpose is set out on page 10 in
the Strategic Report. Throughout the year Board members have proactively focused on their behaviours through the Board
effectiveness review and a facilitated session exploring each behaviour in the context of their role.
To ensure every colleague understands the Society’s behaviours and how that pertains to them individually, several
resources and interventions have been made available to all, including the launch of a self-evaluation tool; team activities
to explore each behaviour and online training for each behaviour. In addition, our leaders have been invited to participate
in a 360-degree development feedback process, focused exclusively on the behaviours. To support this further, the annual
appraisal process requires colleagues to demonstrate how they consistently display the expected behaviours throughout
the year.
In 2022 we commissioned an external review of how we measure culture with a specialist provider. An output of this work
has been the development of a culture dashboard, comprising measures of colleague advocacy, belief in our purpose and
customer empathy. The culture dashboard will be introduced in 2023 and will enable the Society to baseline our culture,
benchmark against our sector and track progress. The dashboard approach reflects our belief that there is no single
measure of culture.
A key input into this dashboard will continue to be colleague sentiment, which we measure via the colleague engagement
survey. With the transition to a new provider in 2022, we also took the opportunity to ensure that we are assessing a
comprehensive view of engagement, comprising belief, advocacy, satisfaction and loyalty. The new survey has empowered
our people managers and leaders to respond to key themes in the data in real-time. For example, colleagues can submit
anonymous comments or questions through the survey platform, all of which are reviewed by the senior management
team. The core themes arising from colleague commentary centred around reward, job sustainability and having the tools
required to enable them to work successfully. The Chief Executive Officer addressed these themes directly in an internal
update to colleagues.
An additional element to the culture dashboard is a specific focus on our behaviours and we invited colleagues to describe
what they experience day to day and to also assess the behaviours they see their leaders demonstrating every day. We are
proud to have a strong and positive culture and one which we can continue to build upon. More information on our people
experience is available in the Strategic Report on pages 17 to 19.
In addition to the colleague engagement survey, the Board monitors culture all year round through a variety of means,
including branch and departmental visits, updates from the designated non executive for colleague engagement,
attendance at the Colleague Association meetings, meetings with our inclusion and diversity forum leads and through
presentations from colleagues at Board meetings, an initiative which was introduced in 2021 and continued into 2022.
You can read more about this in the stakeholder section of this report on page 135.
Whistleblowing
Our culture welcomes open and transparent discussions and we encourage colleagues to feel empowered and confident
in raising any concerns which in turn allows us to take appropriate action quickly. All colleagues are encouraged to raise
a concern through our whistleblowing procedures without fear of retribution, victimisation or detriment, should they
encounter or suspect wrongdoing. Through the implementation of further initiatives, such as inclusive leadership, annual
refresher training, the Society’s behaviours and richer data from the engagement survey, it is expected this strong culture
of speaking up will continue to be demonstrated. We will continue to focus on this key indicator of culture by including
a Speak Up metric as part of the culture dashboard from 2023. In 2022, there were no instances of which we are aware,
where events have occurred where a Speak Up could have been raised and an opportunity was missed.
At least annually, the Board reviews our Speak Up arrangements and any reports arising. The annual approval of our Speak
Up Standard is included on the schedule of key matters reserved for the Board and was last approved in October 2022,
based on the recommendation of the Audit Committee. Gareth Hoskin, Non Executive Director and Vice Chair, continues
to be the Society’s appointed Whistleblowers’ Champion.
We have continued to reinforce the internal arrangements for raising concerns, through providing colleagues with ongoing
communication, training and awareness.
Inclusion and diversity
As referred to earlier in this report, the Board has continued to place great importance on inclusion and diversity and this
has been a priority when reviewing the composition of the Board and succession planning.
We believe a gender balanced workforce is good for business, good for our members and is in line with our commitment as
a signatory to HM Treasury’s Women in Finance Charter and the targets set by the Hampton Alexander Review. The Board
is committed to increasing the representation of women and has agreed a target of 33% for females on the Board and 35%
in our Leadership Team.
As of 31 December 2022, three members of the Board were female, representing 27% of the total Board membership.
Whilst we have not met the target of 33%, we are confident of making material progress against our targets in the near
future, as a result of the actions and measures currently underway. In terms of the Leadership Team (our top three levels of
management), 35.25% were female, a 3% increase since 2021, which also meets our target for 2025 of 35%, set in 2021.
What have we done in 2022?
• Board members participated in our ‘This is Me’ campaign, sharing their lived experiences to help create conversation and
grow understanding across the Society.
• Established menopause champions to further grow our wellbeing agenda.
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• Launched a colleague wellbeing app that provides support on a variety of issues including fertility, male health,
menopause and early parenthood.
• We continue to make progress towards achieving Disability Confident Level 3, with a colleague-led disability forum
established this year to support our activity.
• An inclusive leadership programme was delivered to senior leaders across the Society, with bespoke training delivered to
all colleagues.
• We continue to support the Race at Work Charter and are entering into our second year of ethnic minority reverse
mentoring with an additional programme focused on age reverse mentoring.
• Talent development programmes to support colleagues with meaningful interventions, enhancing the development and
retention of diverse talent.
We have continued to enhance our inclusion and diversity activity through our colleague-led forums – gender, wellbeing,
race equality, LGBTQ+ and disability. The forums work closely together to increase colleague awareness and to promote
an inclusive culture where diversity is celebrated throughout. All forums are represented at the newly formed Inclusion
and Diversity Steering Committee, which is chaired by the Deputy Chief Executive Officer. The Board receives updates on
the activities of each forum and both executive and non executive members of the Board have attended various forum
meetings throughout the year.
Division of responsibilities
The division of principal responsibilities of the Chair, CEO and Senior Independent Director is reviewed against their
distinct job descriptions and is documented for review and approval by the Board each year. The table below demonstrates
how responsibilities are clearly defined for each of these roles which are held by different people, as well as those for the
executive directors, non executive directors and the Secretary.
The Chair’s principal role is to lead the Board and provide support to the executive team without being involved in day to
day management activities. The CEO’s role is to focus on the day to day running of our business and the implementation of
the strategy.
All directors work closely with the Secretary, who provides advice on any Society or governance related matters as well as
having access to independent professional advice, if required, at the Society’s expense.
Role Key accountabilities
Chair:
Iain Cornish
• The effective running of the Board and guardian of the Board’s decision making
processes.
• To support the CEO in the development of strategy and more broadly to provide
oversight and advice.
• To ensure the Board receives accurate, timely and clear information and considers
feedback and views from stakeholders, including members and colleagues.
• To lead the development and monitoring of the Society’s culture and behaviours, in
line with the Society’s purpose, by the governing body as a whole.
• To take the lead in providing a properly constructed induction programme for new
directors and in identifying and seeking to meet the development needs both of
individual directors and the Board as a whole.
• To ensure the effectiveness of the Board, its committees and individual directors
is formally and rigorously evaluated, at least once a year, including an external
evaluation at least every three years.
• To promote the highest standards of integrity, probity and corporate governance.
Role Key accountabilities
Chief Executive Officer:
Richard Fearon
• To propose, develop and implement the Society’s strategy, corporate priorities and
purpose, having regard to promoting our success in the interest of our members and
other stakeholders.
• To ensure we operate an adequate system of control through the application of a
three lines of defence model.
• To deliver a balanced business performance across a wide range of scorecard
measures, to ensure the achievement of short term corporate plan objectives, while
building long term sustainable performance.
• To set the tone in respect of our culture to ensure appropriate behaviours are
demonstrated in line with our purpose.
• To provide information and advice to the Chair, the Nominations Committee and
other members of the Board, on succession planning, particularly in respect of
executive directors.
• Responsible for all executive management matters affecting the Society.
• To promote and conduct the affairs of the Society with the highest standards of
integrity, probity and corporate governance.
• To discharge the allocated PRA/FCA Prescribed Responsibilities and FCA Business
Activities via the Society’s management forums in line with the Society’s Enterprise
Risk Management Framework.
Senior Independent Director/
Vice Chair:
Gareth Hoskin
• To work closely with the Chair, acting as a sounding board and providing support.
• To act as an intermediary for other directors, as and when necessary.
• Be available to key stakeholders to address any concerns or issues they feel have not
been adequately dealt with through the usual channels of communication.
• To lead the performance evaluation of the Chair.
• To deputise for the Chair and chair meetings where the Chair is conflicted.
Non executive directors:
Annette Barnes
David Fisher
Neil Fuller
Lynn McManus
Anita Tadayon
• To help develop and constructively challenge proposals on strategy, ensuring a high
level of conduct and positive outcomes.
• To bring independent judgement and perspective to Board debates and decisions
and to use their own experience to constructively challenge the proposals and
updates from the Senior Leadership Team.
• To set our risk appetite and to ensure that the integrity of financial information and
controls are robust and fit for purpose.
• To approve the corporate plan and monitor performance against agreed corporate
priorities.
• To have oversight of the culture, reward and talent management strategies whilst
ensuring management performance achieves the corporate goals.
• To ensure the Society operates with the highest level of governance as set out in
the Code and to assist in the discharge of PRA/FCA prescribed responsibilities and
FCA business activities via management forums, in line with the Enterprise Risk
Management Framework.
• To promote the fair treatment of all members/customers.
• To be sufficiently and appropriately informed of the matters under discussion and
to represent and have regard to the interests and views of the Society’s stakeholder
groups, including but not limited to members.
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Role Key accountabilities
Executive directors:
Andrew Greenwood
Andrew Conroy
Rob Howse
• To be responsible for and have oversight of the day to day management of the
Society.
• To escalate issues to the rest of the Board on a timely basis.
• To set the strategy of the Society alongside the rest of the Board and ensure the
necessary business activities are undertaken in order to meet strategic objectives
and delivery of strategy overall.
• To ensure that prudential, conduct and operational risks are adequately controlled.
• To ensure the Society operates within the agreed risk appetite and internal risk
framework.
Secretary:
Katherine Tong
• To provide advice and updates to the Board in respect of all governance related
matters and best practice guidance.
• To provide support to the Board to ensure that complete and timely papers are
received in advance of all Board and Board committee meetings.
• To act as a point of contact for all Board members and provide advice as required.
• To provide all necessary support to ensure the Board can function effectively with
the appropriate resources in place.
Composition, succession and evaluation
The composition of the Board remained consistent throughout 2022 with no changes to its membership, however it was
announced in December 2022 that Lynn McManus would be stepping down in January 2023 to pursue a unique opportunity
in an executive role, with another financial institution. Following his nine year tenure, it had been planned for David Fisher
to retire from the Board at the end of 2022. However, to further support succession planning, to allow time for a carefully
planned recruitment process to be followed and to maintain a strong composition, David, together with the Board, agreed
to extend his appointment into 2023. The Board assessed David’s independence earlier in the year and is confident
that it remains unimpaired. David continues to provide challenge, encourages thoughtful discussion at both Board and
Board committee meetings and his contribution as a member of the Board continues to be considered invaluable. He has
extensive ‘through the economic cycle’ banking experience, which the Society will benefit from during 2023.
“It has been a privilege to serve on the Board of the Society over the last five years. The
passion of colleagues to do the right thing for our members has been remarkable. As
the colleague representative on the Board I have had the opportunity to witness this
dedication on many occasions.
As I end my time on the Board I would like to wish the Society, members and colleagues,
every success in the future.” Lynn McManus, January 2023.
The Code requires at least half of the Board, excluding the Chair, to be made up of independent non executive directors.
As at 31 December 2022, the Board comprised eleven directors; four executive directors and seven independent non
executive directors. Succession plans are considered regularly by the Nominations Committee and recruitment is
underway for further Board appointments to be made in 2023.
Executive and non executive composition
(as at 31 December 2022)
Tenure of non executive directors (years)
(as at 31 December 2022)
Executive
Non executive
0 to 3
4 to 6
7 to 9+
Gender diversity of the Board
(as at 31 December 2022)
Female
Male
The Board considers and acts upon recommendations
for appointments from the Nominations Committee.
As required by the Society’s rules, following their initial
appointment by the Board, directors must be elected
to the Board by members in a general meeting. Since
2015, in line with the recommendations of the Code, all
directors have stood for annual re-election at the AGM. In
accordance with the Society’s Rules, the Board elects its
Chair and Vice Chair, annually, at its first meeting following
the AGM. More information on the recruitment process
and the criteria used is included in the Nominations
Committee Report on pages 137 to 142.
In accordance with the Society’s Rules, members are entitled to nominate candidates for election to the Board, subject to
compliance with PRA and FCA requirements.
Time commitment
The expected time commitment of the non executive directors, including the Chair, is set out in writing in their
appointment letter and is usually a minimum of three days per month.
Prior to their appointment, all new candidates are required to provide details of any other external appointments or
positions they hold, to ensure they have sufficient capacity to undertake the role and to assess if there are any potential,
perceived or actual conflicts of interest owing to their other appointments.
Should an existing non executive or executive member of the Board wish to take up a new external appointment, it should
be referred to the Board for consideration and, if appropriate, approval (in terms of any potential conflict of interest and
time commitment).
All directors are then asked, at least annually, to attest that the level of time commitment to their other roles and the
Society’s records of their external appointments remain correct.
During the year, no Board members held more than the prescribed number of directorships under Article 91 of the Capital
Requirements Directive IV, namely appointments should be limited to either: (a) one executive directorship role and two
non executive directorship roles or (b) four non executive directorship roles. A list of all external appointments held by
Board members as at 31 December 2022 is shown in the Annual Business Statement on page 243.
Independence and conflicts of interest
All directors have a duty to disclose and notify the Board of any potential or actual conflicts of interest which should then
be considered and, if appropriate, approved by the Board. The Board has Conflicts of Interest Standards which set out the
procedures for declaring and authorising any conflicts of interest, provides examples of what would constitute a conflict of
interest and refers Board members to the Secretary for advice where required.
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A detailed register of any potential or actual conflicts of interest is maintained by the Secretary and is submitted to the
Nominations Committee and to the Board for review and consideration at least annually, to ensure that all declarations
remain acceptable. The Secretary will also ask Board members to confirm periodically if there have been changes or
updates to the register. In addition, and where relevant, the Chair will also discuss any potential or actual conflicts of
interest with each non executive director in their annual appraisal to ensure there are no changes.
The independence of non executive directors is also considered annually, as part of the conflicts of interest review.
Independence is assessed against the criteria set out in the Code. In 2022, the Board considered all non executive
directors, including the Chair, to remain independent in character and judgement and that there were no circumstances
which were likely to impair their independence.
Criteria for independence
The Board assesses independence according to the following list of circumstances which are likely to impair, or could
appear to impair, a non executive director’s independence:
• Is or has been an employee of the Society or group within the last five years.
• Has, or has had within the last three years, a material business relationship with the Society, either directly, or as a
director or senior employee of a body that has such a relationship with the Society.
• Has received or receives additional remuneration from the Society apart from a director’s fee, participates in a
performance-related pay scheme, or is a member of the pension scheme.
• Has close family ties with any of the Society’s advisers, directors or senior colleagues.
• Holds cross-directorships or has significant links with other directors through involvement in other companies or
bodies.
• Has served on the Board for more than nine years from the date of their first election. To facilitate effective
succession planning and the development of a diverse Board, this period can be extended for a limited time.
As David Fisher exceeded his nine year tenure in March 2021, the Nominations Committee and the Board closely
considered and confirmed that they were satisfied that he remains independent and is likely to do so, for the remaining
period of his extended appointment.
In 2022, the Board did not identify any relationship or conflict which would impair a non executive director’s ability to meet
the independence criteria set out in the Code and considered that all members of the Board had sufficient time to fulfil
their role.
Board evaluation 2022
The Code requires boards to undertake a formal and rigorous annual evaluation of their own performance and that the
evaluation should be externally facilitated at least every three years. The Board was last evaluated externally in November
2021 by Russell Reynolds which concluded that the Board was “performing well – with no urgent action required”. Following
the 2021 evaluation process, a detailed report outlining the outcomes and any actions or suggested areas of improvement
was provided to the Board in January 2022.
In 2022, it was agreed to undertake a revised approach for an internal evaluation which would also incorporate the
effectiveness reviews of the Board committees. The internal evaluation was undertaken in September 2022 and comprised
a questionnaire to be completed by all Board members, ExCo members and the Secretary, as internal stakeholders
and by the independent Board technical adviser and Deloitte, as external stakeholders. The evaluation also included
observation of an Audit Committee meeting and a Board Risk Committee meeting. The results, along with insights from
the annual Board committee effectiveness reviews, were consolidated and presented to the Nominations Committee and
subsequently to the Board, for discussion and agreement of any relevant actions. The review concluded that the Board was
operating effectively and that a continuation of the focus on behaviours would be beneficial. It was also discussed that the
Board should continue to regularly reflect, in real time, on the quality of papers, behaviours and discussions to ensure focus
and drive efficiency. The Chair would continue to encourage open and transparent reflections in this manner.
The overall actions and themes arising out of the 2022 internal evaluation along with details of the progressed actions from
the 2021 external evaluation, are summarised below:
Theme Actions and progress from the 2021 and 2022 Board review
Board composition • The skills matrix has been extended to include the full Board rather than just non
executive directors.
• A specialist diverse search firm was appointed for Board recruitment.
• Succession planning has been elevated to support future planning for both executive
and non executive positions.
• Continue to seek relevant external input.
• Review Board committee succession plans.
Board leadership and Society
purpose
• Hearing directly from stakeholders within the boardroom remained an important
area of focus during 2022 (for example, the ‘voice of the colleague’ featured in a
number of Board meetings via video and in person presentations from colleagues).
• More direct interaction and discussion was invited at the Board Strategy Conference
to disrupt and push thinking.
• Maintain focus on the appropriateness of detailed debate.
Board governance and
performance
• Interim meetings cancelled for the remainder of 2022 with the option to re-introduce
if required in response to internal and/or external factors.
• Governance structure agreed to be appropriate, with the introduction of behavioural
conscience; wherein colleagues provide in the moment feedback on how the
behaviours have been displayed in meetings.
• Board members are requested to provide real time reflection during meetings on the
quality and content of supporting papers.
• Following observations, it was found that meetings were well run, productive
challenge was made and clarification sought where required.
• No material actions required as there was strong agreement that the governance
process works well.
All Board committees also periodically evaluate their own performance and effectiveness, and that of the committee
Chairs, through a series of questions which are sent to all members and regular attendees of the committees. This process
identifies any areas where members may require further training or development to discharge their duties effectively, or
where the overall performance or approach of the committee or Chair could be improved. The evaluation process followed
in 2022 concluded that committees were, overall, meeting their terms of reference.
Directors’ induction, development, and individual performance evaluation
On appointment, all new directors receive a comprehensive induction programme, which is tailored to their individual
requirements and based on their own existing skills and expertise and the specific Board and Board committee roles they
are due to undertake.
The Chair works closely with the Human Resources team to map the induction programme and has regular discussions
with new NEDs on progress. The programme is designed to be reflective of the role the new director will play within the
committee and governance structure and usually takes six to twelve months to complete, depending on the role and
responsibilities of that particular director.
A newly appointed director would typically meet with the Chair on a regular basis to discuss a wide range of topics,
including strategic items, market trends, corporate objectives and performance against these and expectations of the role.
The new appointee also receives the terms of reference for any Board committees of which they would become a member,
attends an introductory meeting with the Chairs and Secretaries of each Board committee and receives detailed guidance
on the Board’s Conflict of Interest Policy from the Society Secretary. They would also be provided with various documents
to familiarise themselves with, such as our director’s information manual, the Corporate Governance Code and the Building
Societies Association’s guidance on the Code. In addition, if any specialist training is required, we engage with appropriate
external providers.
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Example of the key areas of focus in the NED induction programme are outlined below:
Theme Colleague responsible
Board structure, appraisals, role and performance expectations. Chair
Society’s purpose and corporate structure. This includes visits to: branches, Direct
Mortgage Unit, Contact Centre, Savings, Mortgage Lending and Mortgage Services.
Chief Executive Officer
Overall financial priorities, corporate plan and strategy. Chief Financial Officer
Review of priorities including IT roadmap, operational resilience and cyber security
strategy and separate meeting with the independent Board technical adviser.
Chief Operating Officer
People strategy, Board effectiveness reviews and annual performance review process. Chief People Officer
Finance review and to arrange a separate meeting with the external auditors. Director of Finance
Operations
Prudential and enterprise risk key governance issues including second line cyber
security and resilience.
Chief Risk Officer
Review of financial planning and decision support. Director of Financial Planning
Review of change and change management methodology. Director of Mortgage
Transformation
Review of responsible business strategy and transition to net zero. Chief Strategy and Insights
Officer
Overview of product development and pricing. Director of Products
Review of conduct risk.
Provide the expectations of a NED and their fiduciary duties. Provide an overview of
Board procedures and protocols.
Director of Legal and
Compliance and Secretary
Overview of the role and responsibilities of the Internal Audit function. Chief Internal Auditor
Anita Tadayon, Non Executive Director – Reflection on the NED induction programme
Following Anita’s appointment to the Board in 2021, she participated in the Society’s detailed non executive induction
programme. As part of the programme, the induction pack provided Anita with further information on a range of
important areas of focus, including for example, the Society’s business strategy, corporate priorities, people strategy
and culture, key governance processes and director duties.
In order to supplement the detailed induction pack, a schedule of meetings was held with key colleagues from the
executive, the non executive and wider leadership team, alongside regular meetings with the Chair to discuss a range
of topics covering both the internal and external environment. The sessions held with the Chair and the executive
directors are outlined in the table above.
Anita cited the value of the scheduled meetings with Society colleagues which had improved her knowledge of the
business and the financial services industry more generally, given this was a new sector relative to her previous
experience. Anita also found her regular meetings with the Chair to be most helpful particularly in the first months
after her appointment, to gain a deeper understanding of how the Board operates and to highlight the key concerns
and areas of focus for the Board at that time.
Anita also has regular, informal meetings with her senior leadership ‘buddy’ to provide progress updates on the
activities of the management committees and any other pertinent areas. Anita found that having an assigned ‘buddy’
facilitated her induction and learning about the business, and again informed her understanding of the key areas of
focus for the Board.
Anita reflected on her time on the Society’s Board so far and felt the Board continues to be very receptive to the new
perspective she brings to Board discussions in light of her background, together with her current management role at
BT, which in turn demonstrates the value of having a more diverse Board.
Throughout their appointment on the Board, each non executive director is assigned a ‘buddy’, who is either an executive
director or a member of the ExCo. Each buddy holds regular, informal meetings with their assigned non executive director
to provide progress updates on the activities of the management committees they are members of and any other
pertinent areas.
Individual director evaluation and appraisal
Individual director performance and contribution is assessed through regular dialogue with the Chair and an annual
appraisal is held at the end of each calendar year. The appraisal process is led by the Chair and involves a discussion on
each Board member’s personal development, any training requirements and their contribution to Board discussions and
any reflections they may have on pertinent matters. In addition, confirmation is sought that the individual director has
sufficient time to discharge their fiduciary duties and are not conflicted in any way which would mean they are unable to
fully perform their role.
Evaluation of the Chair’s performance
The Chair’s performance is evaluated by Gareth Hoskin as the Senior Independent Director, and incorporates feedback
provided from both the non executive and the executive directors, which is then discussed at the January Board meeting.
In 2022, the Board, without the Chair being present, discussed that the Chair’s overall style is collegiate and engaging and
he is a strong and effective chair.
Board training and development
To maintain continuous professional development, all directors have a clear set of agreed development actions which are
monitored, reviewed, and refreshed during their annual evaluation.
Ongoing professional development is essential to enable directors to be sufficiently and appropriately informed about
our business and objectives, the regulatory framework and the market in which we operate. Having a strong command of
issues relevant to prudential and conduct risk is also essential and informs Board and committee discussions and decisions.
The Board and each committee have an annual training plan, which sets out agreed areas of training to be provided
throughout the year. Members of the Board are invited to suggest topics and themes where training and development is
required, throughout the year. In addition, Board members are encouraged to correspond with industry peers and attend
externally facilitated events and seminars to maintain and develop knowledge and gain insight into matters which impact
the Society.
In 2022, the Board received training on several topics including: climate and related targets, cyber risk, IRB modelling,
directors’ duties, technology roadmap education and the macroeconomic environment. The Board also received several
deep dive sessions from internal colleagues. These provided a more in-depth overview of topics such as i) data strategy,
which looked at new data management tools and how these could be used to enhance the Society’s data related processes;
ii) housing issues, which focused on affordability, mortgage accessibility and the issues of demand versus supply; and iii)
inclusive leadership and the skills required to become an upstander or ally.
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Board activities in 2022
The Board redefined the Society’s purpose in 2021 which consequently formed the basis of the 2022 corporate priorities
(see pages 14 to 16). Alongside the Board’s responsibilities shown on page 120 some of the key areas of Board activity
during 2022 are shown below.
Activity Objective
People strategy update To ensure we have highly engaged and empowered
colleagues.
Review of the Society’s inclusion and diversity strategy To ensure we have a diverse workforce and talent pipeline
to respond to changing needs.
Overview and updates to our IT infrastructure
Technology roadmap education
To ensure we build a sustainable platform and have the
capability for rapid transformation.
Review of the responsible business strategy
Update on the green strategy
ESG strategy and mutuality review
To lead the business through the transition to being net
zero by 2050.
‘Voice of the colleague’ presentations from Contact
Centre, Customer Support, Mortgage Lending and Credit
Risk
To aid understanding and assist with the development
of streamlined lending journeys and make it easy for
members and brokers to do business with us.
Brand foundations and consumer brand strategy review To ensure we attract and retain members and provide a
service that meets their needs.
Branch update Cherish our branch network and the service and loyalty it
delivers.
Data strategy updates
Trading updates
Proactively spot opportunities to meet the needs of
our members and intermediaries through our data and
insights.
Strategic discussion session on housing issues Develop an innovation capability and mindset focused on
helping more people onto and up the property ladder
Strategy conference
Each year the Board holds two conferences, for strategy in May and for planning in October. Each conference has a detailed
agenda and supporting information to provide the basis for a discussion on strategic plans and objectives. The key focus in
2022 was to discuss how the Board proposes to navigate through the current uncertainty and how we can best support our
members through these difficult times.
A number of items were discussed at this year’s Board Strategy Conference, a summary of which is set out below:
Topic Purpose and outcome
Trading in a volatile market
and meeting member needs
Purpose: To outline the uncertain backdrop and approach undertaken this year,
including proposal of a revised planning framework and principles to help management
navigate through this volatile period.
Outcome: The Board understand the context the corporate plan is set within and
agreement of the proposed trading principles.
Indicative scenarios and
outputs
Purpose: To present a credible corridor of macro and market outcomes that will help
define the range of financial performance and provide a platform from which to set
longer term investment plans.
Outcome: Agreed ranges for profit before tax, lending volumes and an
acknowledgment of the key sensitivities and external interventions that could
materially impact results.
Long term balance sheet
quality
Purpose: To provide an overview of the factors that management will be considering
when making choices that support a sustainable level of income and a high quality
balance sheet in the longer term.
Outcome: An understanding of the key factors considered by management.
Cost and investment Purpose: To provide an overview of the Society’s cost profile and associated benefits,
alongside an approach for tracking value from investment in colleagues and systems to
optimise our cost position.
Outcome: An understanding of the investments made and agreement on how cost
optimisation will be achieved moving forwards.
Stakeholder engagement
The Board recognises the diverse range of our stakeholders and the importance of assessing and understanding their
needs. Established engagement channels are in place for each stakeholder group to ensure their views are considered in
the overall decision making process. The Board receives insight from each stakeholder group through a combination of
direct and indirect engagement and through the reports it receives at Board or Board committee level.
The diagram below displays who we consider as our key stakeholder groups and detailed insight is provided overleaf on
how we actively engaged with our members and colleagues during 2022. Further details on our stakeholders and why
they are important to us along with an example of how stakeholders are taken into account as part of the decision making
process can be found on pages 26 to 32 of the Strategic Report.
Who are our stakeholders?
Members Colleagues Third parties Community Investors Regulators Intermediaries
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Members
We regularly engage with our members to understand what is important to them and to gain insight into the products and
services they’d like to receive, particularly in the current economic climate where many members’ needs have changed
significantly.
Engagement channel Activity
TalkingPoint TalkingPoint is our online customer panel which we use to invite members to tell us what
they think and to give feedback on a wide range of subjects, from the Society itself, to
our new products and services.
As at the end of December 2022, the TalkingPoint panel had 2,843 members.
Throughout 2022, a number of research activities were undertaken, including for
example, where we asked members about the following topics:
• Savings maturity – research to understand members’ experience of the savings
maturity process, which provided valuable insight to inform customer journey
planning.
• Insurance letter testing – we asked members to provide feedback on the content
of three home insurance letters along with their understanding of the actions to be
taken on receipt of the letters.
• Digital currency – this research looked to understand our members’ opinions and
use of digital currencies such as Bitcoin and Ethereum. The findings were used by the
Strategy team to provide insight into the potential impact of digital currencies and
central bank digital currencies.
• Regular Saver (purpose product) – research to provide member insight into a
potential new savings product specifically designed to help people save to get on the
property ladder and to inform future product offerings.
AGM In April 2022, we welcomed the opportunity to hold our first physical meeting since
the onset of the pandemic and invited members to attend our AGM in person. We were
delighted to meet with our members face to face.
Our AGM is an important date in our calendar and our single biggest member
engagement event. Over the last two years we have focused on improving our AGM
engagement activity and encouraging members to ask questions and take part by
voting on our resolutions and in the elections and re-elections of our directors.
In 2022 we also invited members to vote on some updates to our Rules to improve the
resilience of the AGM process. Members voted in favour of all resolutions and our Rules
have now been updated and are available to view on our website (leedsbuildingsociety.
co.uk/your-society/about-us/rules/).
Engagement in action
For the 2022 AGM, we enhanced the AGM Hub on our website to provide members with more interactive information
about the Society and to help members choose how to vote on the proposed resolutions. We also provided members
with detailed answers to a number of frequently asked questions and on some key issues. Members were also invited
to submit questions in advance of the AGM, all of which were answered directly in writing, by telephone or at the
meeting itself.
The questions we received were largely centred around several themes, including remuneration, the diversity of the
Board, the Society’s response to climate change and savings interest rates.
Colleagues
The Board maintains a variety of both formal and informal channels by which it engages with and listens to colleagues, to
identify any themes or concerns, and as a means of monitoring our culture.
Engagement channel Activity
Virtual updates are delivered
to each division from the
relevant executive director or
member or ExCo
Sessions are scheduled quarterly and include an update on the Society’s performance
along with updates relevant to their division. Colleagues are also provided with the
opportunity to raise questions they may have.
Annual colleague
engagement survey
A formal engagement survey is undertaken each year to provide insight on colleague
views, emerging issues, themes, and any areas of concern.
Designated non executive for
colleague engagement
The Board considers this an important role which allows colleague views to be heard at
Board level. It allows Board members to obtain a full and rich understanding of colleague
views across the organisation and ensures their views are represented and discussed
and consequently taken into consideration as part of the Board’s overall decision
making process. It also provides an additional means to monitor culture and colleague
opinions more closely.
Regular updates are provided to the Board by the designated non executive for
colleague engagement regarding insights gained through colleague meetings, branch
visits and attendance at the colleague forum meetings.
‘Voice of the colleague’ –
video presentations from
colleagues delivered at Board
meetings, and in person
meetings with colleagues
Colleague views have been heard in the Boardroom through a series of video
presentations from Contact Centre and Mortgage Lending. Furthermore, inclusion
and diversity forum representatives attended a Board meeting and had focused time
sharing their lived experiences of work with the Board directly.
Plans are also in place to develop this further in 2023 by inviting more colleagues to
attend and present papers at both Board and Board committee meetings.
Attendance by Board
members at colleague
inclusion and diversity forums
and colleague association
meetings
Several non executive and executive board members, including the Chair, have attended
colleague forum meetings to listen to the topics being discussed, gain insight into the
activities undertaken by each forum as well as answering any questions on the Society’s
inclusion and diversity agenda.
Virtual insights sessions
delivered by non executive
director
Anita Tadayon, Non Executive Director, led a developing insights session with the
Society’s colleagues on how to unlock future user experience and innovation.
Branch and departmental
visits by non executive
directors
A number of non executive directors have undertaken visits to branches and
departmental visits throughout the year to meet with colleagues and discuss matters
with them directly.
Attendance at meetings of
the Colleague Association
The Colleague Association works on behalf of colleagues to help ensure we provide
a great place to work. The Association’s committee is made up of six volunteer
colleagues. It provides guidance, welfare support and legal assistance for its members
and is a forum for colleagues to provide feedback to senior management and the
Association’s committee has regular meetings with senior managers in respect of
business performance, culture, reward and any other employment matters directly
affecting terms and conditions. In 2022, the Association met with the Chair, Iain
Cornish, CEO, Richard Fearon and had regular meetings with Caroline Hill, Chief People
Officer.
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The designated non executive for colleague engagement role was reviewed in 2022 against best practice and that of our
peers. The review found that the role played by Lynn was operating well and there were no gaps or areas which required
immediate improvement.
When Lynn steps down from the Board in 2023, Annette Barnes has been appointed to fulfil this role.
Engagement in action
In 2022, Lynn McManus, in her capacity as the designated non executive for colleague engagement, attended
meetings with the Colleague Association. The Association also had regular meetings with Caroline Hill, Chief
People Officer, and met with the Chair and the CEO. The Association reported that it felt it was able to have the right
conversations with the senior management team and that feedback from colleagues was very positive throughout
2022.
The Association is confident it has been listened to and supported effectively by the senior management team.
Lynn carried out several branch and departmental visits and took an active role in reviewing colleague feedback
received as part of the Society’s annual colleague engagement surveys.
Lynn also reported that the increases to reward packages in both 2021 and 2022 had been received positively by
colleagues, as had the announcement to move to a hybrid way of working. Lynn also reported the high level of
engagement from colleagues across all divisions with the Society’s new purpose and how colleagues really felt
included and part of the positive work being undertaken by the Society and the objectives it is working towards.
Approved by the board of directors and signed on behalf of the Board.
Iain Cornish
Chair
23 February 2023
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Nominations Committee highlights from 2022
• Neil Fuller appointed as Chair of Board Risk Committee from January 2022
• Annette Barnes appointed as the non executive Consumer Duty Champion
• Revised approach for the internal Board evaluation
Committee membership during 2022
• Iain Cornish (Chair) – since April 2021
• Gareth Hoskin – since January 2019
• Lynn McManus – since April 2020
• Katherine Tong – Committee Secretary
Number of meetings and attendance
• Four scheduled meetings
• One additional meeting held
• Attendance records from each meeting in 2022 are included on page 122 of the Corporate Governance Report.
Introduction from the Chair
Dear member
I am pleased to present our 2022 report on the Nominations Committee, which reviews and summarises our activities over
the past year. The report also provides more detailed information on the role and responsibilities of the Committee.
Focus of the Committee during 2022
Key areas of focus for the Committee in 2022 have included Board succession planning and recruitment, progression of the
2021 external Board evaluation actions, the 2022 internal Board evaluation, as well as a review of the Board’s skills matrix
and the competency and annual appraisal framework for non executive directors.
Throughout the year, inclusion and diversity remained high on the agenda, with detailed discussions taking place, alongside
an in-depth review and refresh of our inclusion and diversity strategy. Our new strategy is focused on creating an inclusive
culture, which enables all our colleagues to thrive, whilst continuing to develop and attract diverse candidates to support
us in being representative of the communities we serve. The Board recognises the lead role it has to play in furthering this
agenda and has supported several events throughout the year. The Chair has joined each of our five colleague-led forums
to hear about their activity and how they support the progression of the inclusion and diversity strategy. More information
is available in our Purpose Impact Report on the Society’s website: leedsbuildingsociety.co.uk/press/financial-results/.
The Committee continued to oversee the Society’s governance arrangements to ensure we operated within a strong
governance framework and in accordance with the recommendations of the UK Corporate Governance Code (the Code).
Board appointments
As I have outlined in the Corporate Governance Report, there were no changes made to the composition of the
Board during 2022. However, Lynn McManus stepped down from her position as a non executive director in January
2023 to pursue an executive role with another financial institution. Consequently, to support succession plans and to
provide resilience whist we recruit, David Fisher has agreed to extend his role into 2023. Several changes to committee
compositions have also been agreed. With effect from January 2023 and subject to regulatory approval, Annette Barnes
has been appointed as Chair of the Remuneration Committee.
The Committee considered Annette’s skill set and her experience on the Remuneration Committee and agreed she was
a strong candidate. It was also discussed that Annette had capacity to fulfil the role requirements given her other time
commitments.
Nominations Committee Report
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Succession planning
Committee role The Committee is responsible for the consideration of the succession planning for
the Board, including non executive directors and executive directors. It also considers
the membership of the Board committees and makes recommendations to the Board
on all these matters, as well as providing oversight of succession plans for the Senior
Leadership Team. The Committee is required to review the leadership needs of the
organisation at regular intervals and ensure the development of a diverse pipeline for
succession to ensure the continued ability of the Society to operate effectively and
ensure its long term success.
Activities in 2022 Throughout the year, the Committee regularly reviewed the composition of the
Board and its supporting committees, to ensure they comprised a sufficient number
of executive and non executive directors, who meet the requirements as set out by
the Code and the Senior Managers Regime (which sets out the expectations of the
Society’s regulators on accountability and governance). As part of this review, the
current mix of directors’ skills, experience, backgrounds and qualifications is reviewed
through the completion of a skills matrix. This was considered alongside the current
composition of the Board and the Board tenure plan, to aid a detailed discussion
with regard to the Board’s succession planning requirements. The Committee
also periodically reviewed the length of tenure of each non executive director and
the potential impact on Board committee membership of those directors who are
nearing the end of their term of appointment. This aids forward planning, promotes
the continual refresh of skills and experience on the Board and, together with the
composition review, provides insight and direction into the search process for new non
executive directors.
Following the departure of Lynn McManus, the Committee reviewed the composition of
each Board committee. Consequently, and following completion of a detailed handover,
it was agreed that Annette Barnes (non executive director) would replace Lynn as Chair
of the Remuneration Committee, in January 2023 (subject to regulatory approval).
Prior to her appointment, Annette had already served as a member of the Committee
since March 2021. Lynn conducted a full handover to Annette, with additional support
provided by the Chief People Officer, Deputy Chief Executive Officer and Chief Risk
Officer. To support the transition to the new role, Annette’s induction was also tailored
to include meetings with members of the Reward team.
Appointment of a Board adviser
As referenced in the Corporate Governance Report, in 2022, the Board agreed to
appoint an independent Board technical adviser. Nominations Committee members
initially reviewed the proposal for this appointment and recommended it to the Board
for approval.
Our NED network
As reported in 2021, to help develop a talent pipeline of future non executive directors,
the Leeds NED Network was set up by the Society, with the objective of establishing
relationships with potential diverse candidates and to provide candid insight on the
role of a non executive and the skills and experience required, both at the Society and
more generally across financial services. Meetings continued to be held in 2022 at
which a wide range of topics were discussed with a number of high calibre individuals in
attendance. These sessions have been received positively and additional meetings are
planned to take place in 2023.
Skills matrix
The NED skills matrix is designed to focus on the skills and experience required by the
Board, to effectively support the business over our strategy horizon. The range of
skills within the matrix reflects the complexity of non executive director roles and the
responsibilities and governance requirements of the regulatory regime. The Committee
conducts a full review of the skills matrix each year, the outputs of which helps to
determine gaps and priorities for succession planning.
Annette has also been elected by the Board to replace Lynn as the designated non executive for colleague engagement as
well as being appointed as the Consumer Duty Champion.
In addition, the Committee was actively involved in overseeing the recruitment of additional members of the Senior
Leadership Team and the recruitment process of new non executive directors which is currently underway.
Iain Cornish
Chair of Nominations Committee
23 February 2023
What is the Nominations Committee responsible for?
A summary of the Committee’s role and the activities undertaken in 2022 is detailed below.
Nominations Committee responsibilities
• Oversight of succession planning for directors and the Senior Leadership Team.
• Succession planning for the Board and its committees.
• Oversight of the appointment process for Board candidates.
• Agreeing the approach for the annual Board evaluation review.
• Review of the Board Conflict of Interest Policy, including monitoring any potential or actual conflicts of interest.
• Development of a diverse pipeline for succession.
• Ongoing assessment of the independence and time commitment of non executive directors.
Board composition
Committee role The Committee is accountable to the Board for ensuring the Board and its committees
consist of directors with the appropriate balance of skills, experience, background and
opinions, to fully discharge their duties in a highly effective manner.
The Committee is also responsible for setting and agreeing the diversity targets at
Board level and approving the Board Diversity Policy on an annual basis.
Activities in 2022 There were no changes to the composition of the Board in 2022, but Lynn McManus
stepped down from the Board in January 2023, following her successful appointment
to an executive role with another financial institution. An additional meeting of the
Committee was convened in November to discuss the impact of this on Board and
committee composition and succession planning, as well as to receive an update on
Board recruitment more generally.
As reported in the Corporate Governance Report, David Fisher reached his nine year
tenure in March 2021. It was originally agreed that his tenure would be extended to the
end of 2022 to support succession plans. However, to help us manage the imminent
departure of Lynn and to provide some resilience and continuity, it has been agreed with
David that he will remain on the Board into 2023. The Committee determined it was
satisfied he remained independent, which is assessed periodically by the Committee
and there was strong evidence of challenge and diverse thinking. As with all of our Board
directors, his appointment is dependent on his re-appointment at the 2023 AGM.
As a result of Lynn’s departure, the Committee considered and agreed a number of
consequential changes to committee composition. More information on this is included
in the succession planning section of this report.
Board recruitment is underway to appoint new non executive directors, with the
assistance of Warren Partners, an executive search firm with which the Society has no
connection or conflict of interest.
Nominations Committee Report continued
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Activities in 2022 continued In 2022, it was agreed that climate change should be added to the matrix as an
additional skill/knowledge area. Alongside this, a new section on behaviours and
mindset (aligned to the Society’s purpose) was added to the matrix. In addition
and arising from a suggestion in the 2021 external Board effectiveness review, the
Committee agreed to extend the skills matrix to include executive directors, providing a
full Board skills matrix.
In line with the updates to the skills matrix, the Committee also reviewed the
competency framework for the non executive directors. This underpins the recruitment
process, performance and coaching and appraisal activity. Updates were made to
the NED competency framework to ensure it is future-focused, aligned to the stated
behavioural shifts that the Board have already recognised and reflects external research
on competencies required for fully effective boards. The Committee considered that
the updates to the NED competency framework rebalanced the focus and introduced
greater simplicity to enable relevant assessment of competence in the annual appraisal.
In addition, the Committee discussed how it will be necessary in future to ensure that
Board induction and ongoing training actively enabled attainment of these competency
expectations and that Board succession planning and recruitment must also align
accordingly.
Board re-appointments
The Committee is responsible for reviewing the re-appointment of all non executive
directors at the end of each three year term. Non executive directors are appointed
for a period of three years and are usually expected to serve two terms. These terms
are subject to ongoing performance evaluations and annual re-election by members
at the AGM. Non executive directors may also be proposed for a third term, up to a
maximum of a further three years (nine years in total, but can be longer in very limited
circumstances), provided they are considered to remain independent from the Society.
On re-appointment, a refresher training programme, informed by their performance
evaluation and the future requirements of the NED role, is provided to each non
executive director as appropriate.
Board effectiveness
Committee role To ensure the Board evaluates its own performance and that of its members (at least
annually). The actions arising from the reviews are overseen by the Committee. At least
once every three years, the Committee is required to commission an external review of
Board effectiveness.
The Committee is also responsible for the ongoing assessment of the independence
and time commitment of non executive directors to ensure everyone can fully
discharge their duties to the Board.
Activities in 2022 Board evaluation
In January 2022, the Committee considered the process followed for the 2021 Board
external evaluation. It was agreed that the overall process had been well executed and
some valuable points had been raised for exploration and action. The approach for the
2022 internal evaluation was reviewed and revised to include observations from two
Board committee meetings to assess behaviours and the contributions from members
and attendees, as well as including insight from the Board committee effectiveness
reviews and the newly appointed independent Board technical adviser.
In addition and in the same way as in previous years, the evaluation comprised a
questionnaire, which was completed by all members of the Board, members of the
Executive Committee, the Secretary and the external auditor. The internal review
concluded that the Board, including its members, are operating effectively. More
information on the process and the outcome of the review is included in the Corporate
Governance Report on pages 128 and 129.
Activities in 2022 continued Board appraisals
In 2022, a review was conducted of the annual appraisal procedure for the non executive
directors and a more streamlined process has been adopted to reflect the new NED
competency framework.
Review of independence and conflicts of interest
During the year, the independence of all non executive directors was assessed
against the criteria set out in the Code and their length of service. The Committee
simultaneously considered potential conflicts of interest by undertaking a review of
the Board Conflicts of Interest Register, alongside the external appointments and time
commitments held by each director.
Detailed discussions have been held to assess David Fisher’s independence, given the
agreement to extend his appointment further into 2023 following his nine year tenure
ending in 2021. Due to his continued scrutiny and challenge at Board and in committee
meetings, it was agreed he continued to demonstrate independence and diverse
thinking and his tenure had not impaired this.
Consequently, the Committee concluded that all directors remain independent and that
all appointments remained appropriate. Further details on the 2022 review process,
conflicts of interest, external directorships and the associated time commitments are
contained within the Corporate Governance Report on pages 118 to 136.
Governance
Committee role The Committee is responsible for ensuring the Board meets the Principles and
Provisions of the UK Corporate Governance Code (the Code) and regulatory
sourcebooks relevant to the remit of the Committee – specifically those regarding
conduct, accountability and management arrangements.
Activities in 2022 In 2022, following a detailed review of compliance against the Code, the Committee
received an update to confirm the Society complies with the Code, insofar as it is
possible for a building society, with no further actions required.
The Committee was also advised of the new FCA requirement, to appoint a non
executive Consumer Duty Champion. The primary role of the appointed Champion is to
support the Chair and CEO in raising Consumer Duty regularly in all relevant discussions
and to challenge the Board and management on how it is embedding Consumer Duty
and focusing on consumer outcomes.
The Committee reviewed the requirements for the role against the current
composition of the Board and due to her skill set, experience and strong knowledge
of conduct-related matters, it was agreed that Annette Barnes would take up the role.
Due to the preparatory work underway in advance of Consumer Duty coming into force
in July 2023, the Chair agreed with Annette that the appointment would be effective
immediately, to ensure the Board had sufficient oversight of the project from an early
stage.
Inclusion and diversity
Inclusion and diversity are considered in many of the discussions we have. The Committee is responsible for ensuring
the composition of the Board and the Senior Leadership Team is inclusive and diverse and reflects the Society’s strategic
ambition – the Society is an organisation where all colleagues should be valued and included for who they are and the
unique perspectives they bring. We see diversity as a very broad and complex area, which includes, for example, seeking
to achieve a balanced mix of skills, experience, backgrounds, and qualifications within the workforce. We recognise that all
differences bring benefits – particularly in decision making, where varying viewpoints can add real value. We take inclusion
and diversity very seriously; we are not complacent, and we understand that we have much more to do. We recognise that
inclusion and diversity go beyond ‘just meeting targets’ and the new strategy is the foundation to engage all colleagues at
the Society, from the Board to the branch network.
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In 2022, the Committee reviewed and approved the updates to the Board inclusion and diversity statement and signed off
a refreshed inclusion and diversity strategy. More information is available in the Corporate Governance Report on page 123
and the Society’s statement on inclusion and diversity is available on the Society’s website at leedsbuildingsociety.co.uk/
your-society/financial-information/diversity/.
The table below sets out the Society’s position against the 2022 targets for gender and ethnicity representation on the
Board and in the leadership team, as at 31 December 2022.
Element Proposed target for 2025 Current position at
31 December 2022
Board gender diversity 33% 27%
Leadership Team gender diversity 35% 35.25%
Ethnic minority representation – Board One Board member One Board member
Ethnic minority representation – Leadership Team 7% 7.2%
Ethnic minority representation – colleagues 12% 11.9%
Gender pay
We continue to make progress in being a Society where difference is embraced, and all colleagues feel included and valued.
We welcome the focus on driving fairness of pay for women, having embedded a fair reward approach over several years.
This helps to reference salaries objectively for all colleagues. We are proud that 59% of our workforce is female.
Our gender pay gap is driven by the make-up of our workforce, as we have fewer women than men in more senior and,
therefore, more highly paid roles. We remain confident our pay approaches are fair and gender neutral. Further information
can be found on our website. More information on the activities undertaken to promote wider diversity within the Society
can be found in the Strategic Report on page 18 and in our Purpose Impact Report.
Key areas of focus in 2023
In 2023, the Committee will focus on succession planning and the recruitment of new non executive directors, being
mindful of the inclusion and diversity targets in place and the skills and experience required on the Board.
Audit Committee highlights from 2022
• Competitive tender for new external auditor completed
• Internal Audit maturity assessment undertaken and roadmap produced for evolution of the function
• Annual Report and Accounts recommended to the Board for approval
• Integrated assurance shows control environment is effective and proportionate
Committee membership during 2022
• Gareth Hoskin (Chair) – member since January 2016
• David Fisher – member since May 2017
• Lynn McManus – member since September 2017
• Neil Fuller – member since January 2021
Number of meetings and attendance
• Six meetings during the year with 100% attendance from Committee members plus a further six meetings of the
external audit tender sub committee
• Meetings regularly attended by other Board members including the Chair, CEO and CFO. The Chief Internal Auditor,
representatives of the Finance and Risk divisions and other relevant business areas, plus senior external audit
personnel also in attendance
• Two private meetings with the external auditor and two with the Chief Internal Auditor, not attended by
management
Introduction from the Chair
Dear member
I am pleased to present my report on the work of the Society’s Audit Committee in relation to the financial year ended
31 December 2022.
The Committee comprises solely non executive directors so that it is independent of executive management. The
Committee acts with authority delegated to it by the Board and reports directly to the Board. All members of the
Committee have recent and relevant financial services experience and competence in accounting, finance or risk
management.
Our core responsibilities relate to the following four areas:
Appropriateness and
integrity of our external
financial reporting
Adequacy and
effectiveness of our
systems of internal
control and risk
management
Effectiveness,
performance and
independence of the
Internal Audit function
Independence,
performance and
objectivity of the
external auditor
In 2022, the difficult economic environment, with rising inflation and volatility in market interest rates, and the knock on
impacts to the mortgage and savings markets, have presented challenges to the Society which are reflected in the work of
the Committee.
In particular, the uncertain economic environment means that greater reliance is placed on management judgement in
certain areas of financial reporting and Committee members have spent considerable time reviewing and challenging these
judgements for both the Interim Financial Report and the Annual Report and Accounts.
Audit Committee Report
Year ended 31 December 2022
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Area of focus How the Committee responded
Residential impairment loss
provisions
Under IFRS 9 – Financial
Instruments, we are required
to hold impairment loss
provisions against our
financial assets, calculated on
an expected credit loss basis.
For residential mortgages,
these provisions are
calculated using complex
statistical models which
incorporate historical
default and loss experience
information.
Significant judgement
and estimation is required
in determining whether
there has been a significant
increase in credit risk, in
setting forward looking
economic scenarios and
the probability weighting of
those scenarios.
Management judgement is
also required on the nature
and size of post model
adjustments where risks
are identified that are not
sufficiently covered by the
modelled provisions and
scenarios.
Further details of the
estimates and judgements
used are set out on pages
197 to 203.
Following substantial redevelopment of the models used for calculating residential
impairment loss provisions in 2021, changes to the models this year have been minor
and primarily focused on addressing model performance limitations previously
requiring post model adjustments.
We were supported in our assessment of residential impairment loss provisions by the
Models and Rating System Committee (MRSC), which reviewed the model changes in
October 2022, and Credit Committee, which approved the tests used to determine
whether a significant increase in credit risk has occurred, the approach to the non UK
loan portfolio and provided preliminary approval of the final provisions, including post
model adjustments.
During 2022 there has been significant economic uncertainty, which has provided
a challenge when selecting appropriate economic scenarios for provisioning.
Management’s proposed scenarios and weightings were initially reviewed and refined
by the Balance Sheet Optimisation Group before being presented to the Committee for
feedback ahead of reporting dates.
To support the Committee’s review of the assumptions, management provided
benchmarking information and comparison to external third party forecasts. We also
noted the challenge to specific assumptions provided by the external auditor and
management’s response to this.
As in the previous year, the potential impacts of inflationary pressures on mortgage
affordability have required additional consideration. This need has been heightened
in the second half of 2022 by actual and forecast increases in base rate driving higher
mortgage payments as customers reach the end of their fixed rate term.
In November, management provided us with details of the multiple considerations,
including internal and external benchmarking, being used to assess the affordability
impacts on provision levels. We provided feedback on management’s approach to be
incorporated into the final calculations.
In January 2023, management reported to us their final proposed provisions, including
post model adjustments. These were supported by key metrics such as coverage rates
and proportions of loans in Stages 2 and 3, benchmarking data and sensitivity analysis.
The Committee assessed the work performed and asked questions on the approach
taken with the main focus on the range and sensitivities of the affordability post model
adjustment due to the level of inherent uncertainty.
Having considered management’s reports, the assurance from other committees
and feedback from the external auditor, we concluded that the impairment models
remain appropriate, the assumptions used are reasonable and that the post model
adjustments at the 2022 year end are appropriate in the circumstances.
Therefore, the Committee concluded that the level of impairment provisions at
31 December 2022 is reasonable.
It is vital that our internal control and risk management systems continue to operate effectively to protect the business
and our members in these uncertain times, and all three lines of defence have focused on maintaining a strong control
environment. I am pleased that the Committee has been able to conclude that the control environment remains effective
and proportionate to our operations.
The Internal Audit function continues to provide an effective and independent third line of defence, with a third party
maturity assessment this year concluding the function is high performing and fit for purpose. However, Internal Audit and
the Committee recognise the need for them to continue to evolve to maintain these high standards and we were interested
to hear the team’s plans for the next few years. Internal Audit’s regular updates to the Committee have generated
significant discussion and challenge, so that committee members could be satisfied that their work was focused on the
most appropriate areas of risk throughout the year.
Another key area of focus for the Committee in the year was the tender for a new external auditor as our current auditor
is approaching the end of their maximum permitted term. Committee members devoted considerable time this year to
the tender, in addition to their usual Committee workload, and I was delighted that we were able to recommend two very
strong candidate firms to the Board, who agreed with our preference to appoint Ernst & Young LLP. They will take over as
our auditor for the financial year ending 31 December 2024, subject to approval from our members at the 2024 AGM.
As a Committee, we recognise the importance of strong corporate governance and the increasing regulatory expectations
in the areas of internal controls and external audit. In the autumn the Financial Reporting Council (FRC) published its draft
minimum standards for audit committees. Although the standards are initially applicable to FTSE350 companies, they
are considered to represent best practice for all businesses of our size and we will review and incorporate changes where
appropriate.
Gareth Hoskin
Chair of Audit Committee
23 February 2023
What the Committee did during 2022
External financial reporting
The Committee reviewed the Society’s Interim Financial Report, published in July, and its Annual Report and Accounts, on
behalf of the Board. Following detailed discussions and challenge of management, we were able to recommend these to
the Board for approval. All Board members either attended the committee meetings where the final financial statements
were reviewed or received an individual briefing from the Audit Committee Chair, so that all directors were aware of the
matters discussed and the challenges raised with management.
The Committee also provides oversight of the Society’s regulatory reporting and our Pillar 3 Disclosures, which were
produced on a half yearly basis for the first time this year. We considered material overarching judgements applied by
management in the preparation of these reports and approved the governance arrangements around their production,
noting the assurance provided by the second line Risk division.
Preparation of the financial statements requires management to adopt certain accounting policies as appropriate for
our business and make judgements, estimates and assumptions. Further details of the work undertaken to examine and
challenge the most significant areas are set out in the table overleaf, with additional information in note 2 of the accounts.
Having considered and challenged management and the external auditor’s reports on the approaches adopted, we were
able to conclude that they were appropriate.
The Board has also asked the Committee to confirm that the Annual Report and Accounts, as a whole, presents a fair,
balanced and understandable view of the Society’s position and prospects. In assessing this, we considered the process for
the production, review and challenge of the report and whether this would result in a balanced and consistent report.
We read the narrative sections of the report, considering whether the content was consistent with our knowledge and
understanding of the business and the wider environment, as well as other information provided to the Board throughout
the year. We also reviewed and approved the inaugural Purpose Impact Report which is to be published at the same time as
the Annual Report and Accounts.
Audit Committee Report continued
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Area of focus How the Committee responded
Fair value of the collateral
loan which represents a pool
of equity release mortgages
We hold a collateral loan to a
third party which represents
a pool of equity release
mortgages acquired from
that third party, which is
measured at fair value
through profit or loss.
Since open market prices are
not readily available, the fair
value of this loan is calculated
using a model which requires
a combination of market data
and unobservable inputs.
The key estimates and
sensitivities are shown on
pages 203 and 204.
The model used by management to calculate the fair value of the collateral loan
was reviewed by our second line Risk division during the year under our model risk
governance overseen by MRSC. The model was assessed as being fit for purpose.
The assumptions used in the model are primarily evidence based, using historic data
on the performance of the underlying mortgages or external market data. However, a
significant level of judgement is required in selecting the discount rate. Volatile market
conditions and rising interest rates have led management to make a minor amendment
to their approach to the discount rate. With markets returning to an interest rate
environment aligned to that when the mortgages were originated, management were
able to remove a previous overlay, which we had challenged in prior periods.
Management explained the assumptions used, the judgements applied in deriving
these for the interim and year end accounts and the sensitivity of the model output
to changes in these assumptions. We probed the approach taken and questioned
management on the magnitude of the changes in assumptions.
We also asked management to set out the rationale to justify the overall movement
in fair value for the year, noting the interaction with the fair values of the associated
derivatives. We received and discussed this information at the January 2023 meeting.
Since there is no directly comparable market data available and a significant level of
judgement is required in the valuation, a wide range of valuations could be considered
reasonable.
Taking into consideration management’s explanations, the sensitivity analysis provided
and the views of the external auditor, the Committee concluded that the fair value
recorded in the financial statements for the collateral loan was within a reasonable
range.
Fair value of the RPI linked
derivative hedging the
collateral loan (equity
release swap)
We hold derivative financial
instruments to mitigate risks
from movements in market
rates.
The valuation of the RPI
linked derivative hedging
the collateral loan requires
management judgement in
the modelling approach and
assumptions used.
The RPI linked derivative is valued using a model developed in 2021. The model is
governed by the Society’s Model Risk Policy.
The majority of the assumptions in the model are derived from market observable data,
with the only significant unobservable input being the profile of the swap balance. Since
this is a ‘balance guaranteed’ swap, this is assumed to match the modelled profile of the
underlying equity release mortgages.
The external auditor has reported to us a simplification observed in the approach to
modelling the contractual cap and floor for RPI. Since the approach is consistent with
the approach to the valuation of the collateral loan, and thus has an offsetting impact
within the Income Statement, both management and the Committee have concluded
that the adopted approach is materially appropriate.
Having considered management’s valuation, the rationale supporting this and the
results of the external auditor’s independent valuation, the Committee concluded that
the valuation of the derivative in the accounts is appropriate.
Area of focus How the Committee responded
Hedge accounting
Changes in the fair value of
derivatives are recognised
in the Income Statement
immediately. However, if
strict accounting criteria are
met, these instruments may
be designated in accounting
hedge relationships.
Management continues to apply the hedge accounting rules of IAS 39 to certain of our
derivative portfolios. During the year the Society adopted cash flow hedge accounting
in order to mitigate the volatility in profits arising from swaps used to economically
hedge mortgage applications and offers where the mortgage has not yet completed.
Management provided the Committee with training on the accounting requirements of
cash flow hedge accounting and also their proposals for the practical implementation
of these requirements. We also noted that management sought assurance from the
external auditor ahead of the end of the year that the early months of implementation
were compliant and appropriate.
The Committee was provided with regular updates through the year on the hedge
relationships in place and the results of effectiveness testing which showed all hedges
remained effective throughout the year.
The nature of hedge accounting means that the external auditor performs detailed
substantive testing of management’s results, including reperformance of hedge
effectiveness testing and derivative valuation. We discussed the results of this testing
with the external auditor and management.
The Committee satisfied itself that hedge accounting has been appropriately applied
in the financial statements and that management’s hedge effectiveness testing
performed throughout the year was materially appropriate.
The Committee concluded that amounts recognised in the financial statements are
fairly stated and that appropriate disclosures have been made.
Going concern assessment
and Viability Statement
The directors are required
to prepare the financial
statements on a going
concern basis, unless
they consider that it is
inappropriate to presume
that the Society will continue
in business for the next 12
months.
The Board is also required to
provide a statement on the
longer term viability of the
Society.
These assessments have
been delegated to the Audit
Committee.
Management provided the Committee with reports to support the going concern
assumption for the Interim Financial Report and Annual Report and Accounts. Those
reports drew on management information used by the business to forecast and
monitor key factors including profitability, liquidity, capital and operations. No matters
were identified that would indicate that the Society would not be able to continue to
operate over the period of assessment, even in the event of an economic downturn or
adverse stress.
In order to support the directors’ conclusions on viability, management provided a
report to the Board Risk Committee reviewing principal and emerging risks. This report
set out details of the stress testing undertaken in respect of those risks, including the
ICAAP, ILAAP, recovery plan and reverse stress testing.
Having considered the outcome of this review and other evidence presented to the
Committee through the year in relation to our risk management processes, including
the annual reports produced by the second and third lines of defence, the Committee
was also satisfied that the Viability Statement is appropriate.
Systems of internal control
Maintaining effective systems of internal control is crucial for the Society to be able to deliver our purpose and to safeguard
our members’ money and our own assets. We operate an Enterprise Risk Management Framework (ERMF), which is
designed to encourage a culture of sound risk management and internal control. This is overseen by the Board Risk
Committee and delivered through established governance mechanisms and a three lines of defence assurance model.
Further details on the ERMF can be found on pages 82 to 85.
The Audit Committee is responsible for reviewing the adequacy and effectiveness of these controls and risk management
systems and we are supported by all three lines of defence, as part of an integrated assurance model, in order to carry out
our duties, as set out overleaf.
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First line management Second line Risk division Third line Internal Audit
• Responsible for design,
documentation, operation and
monitoring of internal controls.
• Six monthly assessment of
design and effectiveness of
controls through Risk Control
Self Assessment (RCSA).
• Regular scheduled testing of
critical controls.
• Report to the Committee on
request where specific matters
of concern raised by second or
third line.
• Regular reviews of specific
processes and functions.
• Oversight and review of risk
registers and RCSA process;
report to Audit Committee on
outcome of RCSA.
• Review results of
management’s critical control
testing.
• Annual report to the
Committee on enterprise wide
view of risks and controls.
• Independent, risk based
assessments of effectiveness
and adequacy of controls in
specific areas of business.
• Cyclical independent testing of
critical controls, aiming to cover
each control at least once every
three years.
• Report to the Committee
summarising findings from each
review and tracking of actions.
• Annual summary to the
Committee of observations and
themes in relation to control
environment.
The Committee reviewed and approved the 2022 work plan for the second line Prudential Risk and Compliance Monitoring
teams and the Internal Audit plan, which is refreshed on a quarterly basis to allow a focus on the most important areas at a
particular time and takes into account reviews undertaken by the second line as part of an integrated assurance model.
The annual report from the Risk division showed that our control environment is substantially effective and proportionate
to our operations while our operational risk culture continues to mature. Where weaknesses in controls had been identified
these were receiving the appropriate level of attention from management, with remedial actions in progress. A particular
focus from Risk during the year has been to challenge management on the impact on risks and controls arising from the
volatile economic environment and cost of living crisis.
Internal Audit’s work during 2022 has been aligned to the Society’s purpose in order to focus on corporate priorities as well
as key areas of the control environment. Internal Audit concluded that the Society’s risk and control framework is mostly
designed appropriately and operating effectively, with some areas for improvement. Overall, it did not find any control
weaknesses likely to be material to the financial statements based on the assurance work delivered.
The external auditor also assesses the design and effectiveness of certain financial reporting, operational and IT controls
as part of its procedures to reach an audit opinion on the Annual Report and Accounts. The auditor reported its findings to
the Committee and no material issues were raised in this report.
Overall, based on the evidence provided by all three lines of defence, the Committee concluded that the Society’s systems
of internal control and risk management were appropriate and operated effectively through 2022.
Internal Audit
Internal Audit plays a vital role in the ERMF because it acts independently of the rest of the business to provide a reliable
third line of defence. The Board has delegated the role of overseeing the effectiveness, performance and independence
of the Internal Audit function to the Audit Committee. The Chief Internal Auditor reports directly to the Chair of the Audit
Committee to maintain their independence from executive management.
We approved the Internal Audit Charter and Terms of Reference which detail the scope, purpose, authority and
responsibilities of the function, noting that these reflect industry best practice. We also reviewed the Chief Internal
Auditor’s objectives for the year.
Internal Audit provides regular reports to the Committee setting out progress against the plan of work and the latest plan
for upcoming reviews, together with updates on resourcing and performance metrics. We assessed the coverage provided
by the audit plan and the effectiveness of delivery and debated any challenges arising with the Chief Internal Auditor.
During the year, Internal Audit engaged a third party to undertake a maturity assessment of the function. This provided a
review of the current position against best practice and guidance on areas of focus as the function evolves. The Committee
was pleased that Internal Audit was assessed as being high performing and fit for purpose.
In response to a recommendation from the third party review, Internal Audit subsequently provided us with a more detailed
‘roadmap’ for changes to the function and approach to the delivery of improvements over the next three to five years
to maximise efficiency and use of resources. Following discussion, the Committee was supportive of the proposals and
approved the resourcing requirements to deliver them.
To further support us with our oversight of the effectiveness and performance of Internal Audit, the Chief Internal Auditor
provides an annual self-assessment of the function’s effectiveness against the Institute of Internal Auditors’ International
Professional Practices Framework and the Financial Services Code. This self-assessment did not highlight any areas of non
compliance.
Internal Audit also provides an annual declaration of independence, which confirmed that there was no impairment of
its independence. Further, since the Chief Internal Auditor has been in role for more than seven years, the Committee
undertook a review of their independence and satisfied itself that they remain independent.
Based on work throughout the year, the Audit Committee is satisfied that Internal Audit had sufficient resources with
the appropriate skills, competencies and qualifications to deliver appropriate coverage of the Society’s risk areas. We are
pleased to note that the Internal Audit function is independent, effective and compliant with applicable standards.
External auditor
The Committee is responsible for overseeing the Society’s relationship with the external auditor so that the auditor
remains independent and effective.
Deloitte LLP’s current tenure as external auditor is 18 years, having first been appointed in 2005 and then re-appointed
following a competitive tender process in 2016. The maximum auditor tenure allowed by regulation is 20 years. The current
audit engagement partner is Matthew Bainbridge who was appointed this year. In advance of Matthew’s appointment he
met with the Committee Chair to discuss his knowledge and experience and how these would enable him to lead a high
quality audit of the Society.
Audit partner and firm rotation are important tools for maintaining objectivity and during 2022 the Committee ran a tender
for the Society’s next external auditor, further details of which are provided overleaf.
The external auditor provided the Committee with an audit planning document for review and challenge, setting out the
scope, materiality, coverage and timing of the audit work and the qualifications and expertise of the audit engagement
partner and key members of the audit team. We evaluated the significant risks identified by the auditor against
management’s assessment of the significant areas of judgement and risks. We also reviewed and approved the auditor’s
engagement letter and fees.
The external auditor provided us with regular reports on the progress of its work throughout the audit cycle and the areas
in which it has challenged management. We discussed these reports during Committee meetings with management
present and in private sessions with the external auditor. We challenged them on the timing of certain aspects of their work
so that potential issues in complex areas of accounting could be identified early and resolved well ahead of the accounts
signing.
To support the Committee’s view of audit quality, the auditor also provided us with an overview of how the firm had
responded to the FRC’s Audit Quality Review report on the firm for 2021/22 (published in July 2022).
The Committee is responsible for the annual review and approval of our policy on non audit services, including the
employment of former partners or staff of the external auditor. The external auditor undertook a number of non audit
assignments during the year, including review of the Interim Financial Report and regular annual review work in connection
with our structured funding vehicles. These assignments were conducted in compliance with the approved policy and
occur typically where it is either mandatory or more efficient for the external auditor to perform the work, in light of the
information previously reviewed during the audit engagement. Total non audit fees for work undertaken in 2022, including
one-off items, represented 18% of the audit fees for the year.
The Committee satisfied itself that the external auditor is effective and independent.
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External audit tender
In February the Committee decided to undertake a competitive tender during 2022 for the appointment of the Society’s
next external auditor, with the intention that they will be in place from the 2024 financial year.
The tender was led by the Chair of the Committee, with a sub committee appointed to run the process, to allow it to
progress outside the normal Audit Committee timetable, with six meetings scheduled at appropriate points in the process.
All Audit Committee members were appointed to the sub committee. Other key stakeholders, including the Chair, CEO
and CFO, were invited to attend certain meetings as guests without voting rights. A register of conflicts of interest was
maintained, with no material concerns recorded.
All six remaining ‘Tier 1’ audit firms, excluding Deloitte, were invited to express an interest in participating in the tender.
Having reviewed the willingness of firms to participate, confirmations that the firms were independent, the firms’ Audit
Quality Review reports for 2020/21 published by the FRC and their relevant industry experience, four firms progressed to
the formal tender proposal stage.
The firms were asked to provide written responses to our tender which we scored based on the following criteria, designed
to demonstrate their ability to provide a high quality audit, including a robust challenge to management:
• The results of the FRC’s 2021/22 Audit Quality Reviews, published in July, and the firms’ responses to these.
• Audit team personnel, in particular the relevant industry experience and technical expertise of the lead audit partner
and other senior team members, and their ability to build constructive working relationships with the Committee and
management.
• An understanding of the Society’s business model, culture, business risks and industry.
• Audit approach, with a focus on the structure and timing of audit work, the involvement of technical specialists and the
balance of decision making between the local audit partner and central teams.
• Innovation, including how the audit process will add value and provide insight to the Audit Committee.
Firms were also asked to complete a technical exercise to provide practical evidence of the audit team’s ability to
understand technical matters, provide robust challenge to management and articulate their opinions clearly.
Three firms submitted written responses and, having reviewed these against the agreed criteria, all three firms were taken
forward to present to the sub committee ahead of the final decision. Presentations covered firms’ approach to quality,
delivery, communication and use of specialists in the audit and also included another technical exercise to bring to life the
firms’ ways of working and provide practical information to enable comparison of their technical competence and ability to
share insight.
We scored the presentations against pre-determined audit quality criteria to inform our final decision. We also obtained
references on the proposed lead audit partners. We considered all the evidence gathered throughout the process,
including interactions between the firms and management, and were unanimous in our recommendation of two potential
audit firms to the Board and our preferred appointee.
The Board considered our proposals at its November meeting and agreed with our recommendation that Ernst & Young
LLP (EY) be appointed as the Society’s external auditor with effect from the financial year beginning on 1 January 2024. The
appointment will be subject to a vote of the Society’s members at the AGM in April 2024.
Other matters
Whistleblowing
The Society’s whistleblowing policy is known internally as the Speak Up Standard. Although whistleblowing is a matter
reserved for the Board, the Chair of the Audit Committee is the Society’s Whistleblowers’ Champion and the Committee
reviews our policy on behalf of the Board and recommends it for approval.
The Committee received an annual report from management on the number and nature of reports submitted and the
extent of training and communication to colleagues. The report noted that our approach is fully compliant with regulatory
requirements and that there is good awareness amongst colleagues, supported by positive responses to internal colleague
survey questions. We have a strong culture where the majority of colleagues feel comfortable to speak up and where
survey results identify this is not the case, action is taken to understand why.
Taxation
The Committee reviewed and approved our Tax Strategy and Tax Risk Management Policy. As part of the approval of the tax
policy, management confirmed to us that the policy had been complied with throughout the year.
Audit Committee effectiveness
Each committee meeting concludes with a review of whether the meeting has been effective and conducted in line with the
Society’s behaviours. This review includes commentary from independent observers wherever possible.
The Committee also undertakes an annual self-assessment of its effectiveness, via anonymous questionnaires to
all members and regular attendees at meetings. The results of the review were very positive and concluded that the
Committee had functioned well and in accordance with its Terms of Reference (ToR) and no significant areas for remedial
action were noted. The review also concluded that the Chair continues to be effective, actively encouraging debate and
seeking input from all committee members.
The ToR are reviewed annually and updated to align them to the latest governance requirements and best practice. The
revised ToR were approved at the meeting in November 2022 and are published on our website.
All committee members are required to keep their knowledge and awareness both recent and relevant. The Committee is
kept up to date with changes to accounting standards and regulatory focus areas for financial reporting through reports
and training from management and the external auditor. Separate training materials are also provided where particular
topics of relevance are identified by members or attendees. In 2022, additional training was provided on cash flow hedge
accounting, climate disclosures and trends in Internal Audit effectiveness.
The year ahead
In 2023, we expect to receive further clarity on regulatory changes to support the Government’s ‘Restoring trust in audit
and corporate governance’ proposals. We will work with management and the external auditor and hold them to account to
make sure that the Society is compliant with regulation and best practice as appropriate for our business.
A key focus for 2023 will be to work with Deloitte and EY to ensure a smooth transition of external auditor ahead of 2024.
We will also continue to support Internal Audit as they evolve their audit approach in line with their ‘roadmap’.
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Board Risk Committee highlights from 2022
• Transition to a new Committee Chair
• Close monitoring of external developments and market volatility to assess and manage the impacts on the Society’s
principal and emerging risk profile
• Enhancement of risk reporting to drive more insightful discussions
Committee membership during 2022
• Neil Fuller (Chair) – Chair since January 2022
• David Fisher – member since March 2014
• Gareth Hoskin – member since November 2015
• Annette Barnes – member since February 2019
• Lynn McManus – member since January 2020
• Anita Tadayon – member since October 2021
Number of meetings and attendance
• Eight meetings held during the year
• 94% attendance from Committee members
Introduction from the Chair
Dear member
I am pleased to report on how the Committee has discharged its responsibilities throughout 2022, my first year as Chair of
the Committee.
This report outlines the operations of the Committee and how the Committee has fulfilled its role overseeing and advising
the Board in relation to current and potential future risk exposures and overseeing the effectiveness of risk management
frameworks.
During the year, the Committee has considered the current and emerging risk profile of the Society, against a backdrop
of heightened geopolitical and economic uncertainty. Focus has been given to understanding the potential affordability
impacts of higher interest rates and the cost of living crisis and to ensuring that the Society is appropriately prepared to
support and respond to an increased number of members who may find themselves in financial difficulty. It is expected that
these will remain areas of focus for the Committee in 2023.
I would like to thank my fellow Committee members for their continued commitment, support and challenge during the
year. In particular, I would like to take the opportunity to thank David Fisher, the former Committee chair, for his ongoing
support throughout 2022, as I took on the role of Committee chair.
Committee operations
The Committee consists of six members, all of whom are independent non executive directors. Full biographies and
experience of Committee members are set out on pages 110 to 115.
At the invitation of the Committee, meetings were also attended by the Chair of the Board and relevant members of the
Executive Committee and Senior Leadership Team, ensuring that the three lines of defence were fully represented.
The key purpose of the Committee is to assist the Board in understanding and managing risk related matters. The
Committee is responsible for:
• Overseeing the development and effective implementation of the Enterprise Risk Management Framework (ERMF).
• Reviewing and recommending risk appetite to the Board and monitoring our risk profile within these parameters.
• Monitoring our current and emerging risk profile and ensuring that these risks are appropriately mitigated.
• Promoting a risk aware culture within the Society.
• Reviewing and recommending to the Board key prudential documents (ILAAP, ICAAP, Recovery Plan and Resolvability
Assessment).
• Ensuring that our remuneration arrangements reflect appropriate risk considerations.
• Overseeing the activities of supporting executive risk committees.
A full set of duties are outlined within the Committee’s Terms of Reference. A copy of this document can be located on our
website: leedsbuildingsociety.co.uk/your-society/about-us/board-committees/.
During the year the Committee held eight meetings. Details of the number of meetings held, membership and attendance
can be found on page 122. At the beginning of each meeting, the Chief Risk Officer provides an update to the Committee
regarding the Society’s current and emerging risk profile. Updates are also provided by the supporting executive risk
committee chairs to ensure effective oversight of their activities.
The Committee is required to conduct a self-assessment of its effectiveness on an annual basis. The 2022 review was
performed using anonymous questionnaires and was completed by Committee members and regular attendees. The
review concluded that the Committee was operating effectively, in accordance with its terms of reference, with a small
number of minor development areas identified, which will be addressed in 2023.
Matters considered by the Committee in 2022
The Committee had a balanced agenda in 2022, combining oversight of our current risk profile with emerging risks and
requirements. A summary of the key matters considered by the Committee during 2022 are set out below.
Enterprise risk (including strategic/business risk)
• Risk appetite – the Committee reviewed a deep dive into the appropriateness of the Society’s risk appetite, to ensure it
remained fit for purpose and reflective of prevailing operating conditions.
• ERMF and risk strategy – the Committee approved recommended changes to the ERMF and risk strategy, which outline
key focus areas to enhance risk management practices within the Society over the medium term.
• Climate risk – the Committee received periodic updates regarding the embedding of the Society’s Climate Risk
Management Framework and associated risk profile.
• Emerging external risks – the Committee received frequent updates regarding the Society’s evolving operating
environment and associated management response.
• Remuneration – the Committee considered potential risk adjustment to senior management variable remuneration,
with recommendations provided to the Remuneration Committee.
Prudential risk (credit, funding and liquidity, market, capital and model risks)
• Financial/credit risk – during the year the Committee closely monitored and discussed the credit and prudential risk
profile of the Society, against a backdrop of the emerging cost of living crisis, higher interest rates and heightened
macroeconomic uncertainty. This included deep dive assessments of the Society’s affordability model and outputs,
emerging credit risk profile and credit risk control environment, capital strategy and management of financial risks in a
volatile market environment.
• Prudential assessments – the Committee conducted an annual review of the Society’s ICAAP, ILAAP, Resolvability
Assessment Framework and Recovery Plan prior to approval by the Board.
• Financial risk policies – the Committee reviewed several key internal policies that govern our management of financial
risk, including lending, funding and liquidity, market risk and model risk.
• Model risk – the Committee received periodic updates during the year regarding progress with the development of the
Society’s revised IRB model suite. In addition, the Committee also reviewed the outputs of a self-assessment against
the PRA’s consultation on model risk management principles, published during 2022.
Board Risk Committee Report
Year ended 31 December 2022
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Operational and conduct risk
• Operational resilience impact tolerances – the Committee reviewed the Society’s inaugural operational resilience
impact tolerances for key business services.
• Operational impacts from the war in Ukraine – the Committee received periodic updates from management regarding
the potential operational impacts from the war in Ukraine. These updates included potential cyber risks, third party
supplier impact assessments, planned recovery testing in the event of power outages and the outputs of increased
financial crime due diligence.
• Cyber risk – the Committee reviewed periodic updates on material cyber risks and approved the updated cyber strategy.
• Financial crime – the Committee received the Money Laundering Reporting Officer’s annual report and other financial
crime updates on a periodic basis.
• Outsourcing – the Committee has received regular updates on emerging outsourcing risks and has reviewed risk
assessment outputs for several new material suppliers.
• Change risk – the Committee reviewed the proposed assurance approach for a future IT migration programme.
• Consumer Duty – the Committee reviewed, challenged and approved management’s recommended response and
implementation plan to the finalised set of Consumer Duty rules, which will be implemented in 2023.
• Members in financial difficulty – the Committee received regular updates on progress with the Society’s Mortgage
Support department transformation programme.
Outlook
Over the next twelve months, the Committee will continue to concentrate its attention on the potential impacts of the
uncertain economic environment as they emerge across our risk universe. Key points of focus for the Committee in 2023
include:
• Close monitoring of customer outcomes for those customers in financial difficulties.
• Assessing potential business model impacts from ongoing monetary policy changes linked to difficult economic
challenges.
• Overseeing the implementation of a Board-approved plan to ensure compliance with the new Consumer Duty rules
within regulatory timescales.
• Overseeing the risks associated with the Society’s change portfolio and, in particular, IT change risks.
• Overseeing management’s response to a finalised policy statement in relation to model risk management and closure of
identified gaps.
• Continuing to embed the Society’s Climate Risk Management Framework across the organisation.
I believe that the Committee remains well positioned to meet these challenges, as well as supporting the Society in the
delivery of our purpose and strategy.
Neil Fuller
Chair of Board Risk Committee
23 February 2023
Remuneration Committee highlights from 2022
• Providing oversight of reward for the broader colleague population, in particular in relation to the cost of living crisis
• Providing additional flexibility in the Remuneration Policy to support the retention of executive directors
• The setting and review of performance against objectives, clearly linked to strategy and purpose
• Continued compliance with the Remuneration Code
Committee membership during 2022
In 2022 the Committee comprised four non executive directors:
• Lynn McManus (Chair) – member since January 2018
• David Fisher – member since May 2012
• Gareth Hoskin – member since January 2018
• Annette Barnes – member since March 2021
Number of meetings and attendance
• Seven meetings were held during the year
• 100% attendance from Committee members, with exception of Gareth Hoskin who missed one meeting
• Chair, Chief Executive Officer, Deputy Chief Executive Officer, Chief People Officer and Reward Lead are regular
attendees at the meetings
Introduction from the Chair
Dear member
I was appointed Chair of the Remuneration Committee (subject to regulatory approval) in January 2023 and, as such, I
am pleased to present this year’s Remuneration Committee report. The report includes a summary of our Remuneration
Policy, together with key decisions made in the year.
I want to thank my predecessor Chair, Lynn McManus, for her unswerving commitment to ensuring that our remuneration
structures support our mutual status and culture, in the long term interests of our members.
The focus of the Committee is to set our Remuneration Policy, including base pay, variable remuneration and other benefits
for executive directors and Material Risk Takers. The Committee also has oversight of reward for the broader colleague
population.
As a mutual, purpose-led business, we took steps to support our colleagues throughout the cost of living crisis in 2022.
We paid a one-off, discretionary, award of £1,200 (full time equivalent) to all colleagues excluding the executive directors
and Senior Leadership Team and we elected to move our 2023 pay review forward from April 2023 to January 2023, for all
colleagues.
Last year members approved a change to the Remuneration Policy to allow additional flexibility to make retention awards,
specifically to executive directors, in exceptional cases where we believe it is in the interests of members and the Society to
retain the service of an executive.
In 2022, the Remuneration Committee approved a retention award, specifically in relation to the successful delivery of the
critical, multi-year core system migration programme for the Chief Operating Officer, Rob Howse. The first instalment of
the retention award will be made in 2023, subject to performance criteria being met. The 2023 Annual Report and Accounts
will provide full details of the retention award.
Directors’ Remuneration Report
Year ended 31 December 2022
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Our Remuneration Policy and principles
The Remuneration Policy is designed to support members by:
• Being clearly linked to business objectives.
• Driving behaviours consistent with our purpose, culture, values and strategy.
• Being structured to attract and retain appropriately skilled colleagues to support the Society’s long term interests and to
promote a healthy culture.
All our remuneration decisions are based on:
• Objectives which are linked to our purpose, business strategy, values and long term interests, environmental, social and
governance (ESG) related objectives and the security of the Society and our members.
• Procedures and practices that are consistent with, and promote, sound and effective risk management. They balance
fixed and variable remuneration, to create an acceptable relationship between risk and reward, whilst not encouraging
risk taking that exceeds the level tolerated by the Society.
• Basic salary and total remuneration which are set at a competitive level to attract, retain and motivate colleagues of the
required calibre.
Components of remuneration structure
Executive directors
The following table summarises the principal components of the executive directors’ total remuneration and the way they
operate. Details which are commercially sensitive have not been provided.
Remuneration element Summary
Fixed remuneration
Basic salary Provides ability to attract and retain executives through market competitive rates
of pay.
The basic salaries of executive directors are reviewed each year, as for any other
colleague, based on the economic environment, the overall financial position of
the Society and in accordance with benchmarking.
The only exception is if there is a material increase in scope or responsibility to the
executive director’s role.
Pension Based on membership of the Society’s defined contribution section of the pension
scheme. In appropriate circumstances, for example, where contributions exceed
the annual or lifetime allowance, there is an option to receive a monthly cash
allowance in lieu of pension contributions.
Executive directors appointed before 1 April 2019 receive a range of relevant
employer contributions, fully aligned with the colleague population who joined
before 1 April 2019, with a maximum contribution of 20% of basic salary, based on
age and pensionable service.
Executive directors appointed on or after 1 April 2019 receive a maximum
contribution, fully aligned with the colleague population who joined after 1 April
2019, of 10% of basic salary.
Benefits The principal benefits executive directors receive are:
• life assurance (up to 4 x basic salary)
• private medical insurance
• group income protection
• health screening
• cash health plan.
Other benefits may be provided based on individual circumstances, for example,
relocation.
Directors’ Remuneration Report continued
Performance and awards 2022
Earlier sections of the Annual Report and Accounts set out how we have delivered an exceptionally strong performance
across all our key metrics which determine our variable pay outturn.
After careful consideration, annual bonuses of between 17% and 18.68% (2021: 16.7% and 18.8%) have been awarded
for 2022 to the executive directors, which represents between 85% and 93.42% (2021: 83.5% and 94%) of the maximum
award available.
In arriving at the decision to award variable remuneration, a full risk assessment process is undertaken, during which
the Committee considers a range of factors and input from the Board Risk Committee. Following full consideration, no
adjustment to variable remuneration was deemed necessary. The Remuneration Policy has operated as intended.
2022 remuneration changes
As reported last year, in April 2022, the base pay of the Chief Executive Officer increased by 8.7%, the base pay of the Chief
Operating Officer increased by 7.7% and the base pay of both the Deputy Chief Executive Officer and the Chief Financial
Officer increased by 5%.
Fees paid to the Chair and non executive directors increased by 3.75%, in line with base pay awards to our colleague
population. The base pay increase for colleagues ranged from 3% to 19%, with an average of 5.22%.
Looking ahead
Looking ahead to 2023, the Committee will continue to ensure we have the right reward structures in place, to foster our
mutual culture and to attract and retain the talent we will need to deliver on our purpose.
All colleagues, including the executive directors, received a base pay increase in January 2023. Having conducted thorough
external benchmarking and having assessed the performance of the Society under the Chief Executive Officer’s leadership,
the Remuneration Committee agreed a 15% base pay increase for the Chief Executive Officer. This increase is in line with
the range of increases received by colleagues. The base pay increases for colleagues ranged from 6% to 25% with an
average of 9.34%. The base pay of all other executive directors increased by 6%. The Chair’s and non executive directors’
basic fees also increased by 6%, in line with the minimum increase for the colleague population.
I trust this report is helpful and informative. The Remuneration Committee recommends that members vote in favour of
the 2022 Directors’ Remuneration Report.
Annette Barnes
Chair of the Remuneration Committee
23 February 2023
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Remuneration element Summary
Variable remuneration
Annual bonus scheme The 20% maximum is split between:
Society performance – 10%
Personal performance – 10%
Society performance objectives are agreed by the Remuneration Committee at
the start of each year and reflect business priorities.
Personal performance objectives, appropriate to the responsibilities of the
director, are set at the start of each year and agreed by the Remuneration
Committee. 30% of the personal performance award is allocated to the
demonstration of behaviours.
The 20% maximum for the executive director in a control function is based
on a range of personal objectives only, with 30% of the award allocated to the
demonstration of behaviours.
Robust risk evaluation measures are independently assessed by the Board Risk
Committee, with measures for the Deputy Chief Executive Officer assessed by
the Chief Executive Officer.
For executive directors designated as ‘Senior Managers’ under the Senior Manager
Regime and over the de-minimis
(1)
, 60% of the bonus will be deferred over a period
of seven years with no vesting until three years after the award is made. 50% of
variable remuneration will be delivered in a share-like instrument
(2)
.
Retention awards Such awards will only be made in exceptional circumstances. The monetary value
of the award will be defined at grant, and vesting of awards will be tied to the
completion of a defined period of service and the satisfactory completion of a
specific project or other multi-task deliverable.
Retention awards can be made up to the maximum permitted (in conjunction with
the annual bonus) without breaching the regulatory cap on variable pay of 100% of
fixed pay per annum.
Retention awards are part of variable pay and may be subject to malus and
clawback, deferral and delivery in instruments as determined by the Remuneration
Committee.
Notes:
(1) The de-minimis limit level is set by regulation, in relation to the level of bonus deferral applied, and impacts colleagues whose variable remuneration is greater than £44,000
per annum or where variable remuneration is more than 33% of their total remuneration.
(2) Where remuneration exceeds the de-minimis, 50% of the variable remuneration award will be paid in an instrument and 50% will be paid in cash. As a mutual organisation,
this means that 50% of the award payable in each year will be held and retained for a further 12 months and which can be written down in value if agreed capital levels are
not maintained. The instrument cannot increase in value or attract interest payments during the deferral and retention periods.
The Remuneration Committee may apply discretion to reduce bonus awards in whole or part using either malus or
clawback. Malus is a reduction factor which is applied to bonus payments which have not yet vested and clawback is applied
to seek recovery of bonus payments already paid.
Bonus deferral and share-like instrument
For executive directors designated as ‘Senior Managers’ under the Senior Manager Regime and over the de-minimis limit,
60% of the bonus will be deferred over a period of seven years with no vesting until three years after the award is made.
50% of variable remuneration will be delivered in a share-like instrument.
The table below illustrates how the 2022 bonus for the Chief Executive Officer, Deputy Chief Executive Officer, Chief
Financial Officer and Chief Operating Officer will be delivered:
Performance
year
April following
the bonus
scheme year
Paid one year
later
Paid two years
later
Paid three
years later
Paid four years
later
Paid five years
later
Paid six years
later
Paid seven
years later
Paid eight
years later
20% cash
Annual
bonus
scheme
20% share-like
instrument
40% of the bonus is awarded in
the April following the scheme
year. 50% of any award will
be delivered in a share-like
instrument
60% of the bonus will be deferred over a period of seven years with no vesting until three years after
the award is made. 50% of any award will be delivered in a share-like instrument.
6% cash 6% cash
6% share-like
instrument
6% cash
6% share-like
instrument
6% cash
6% share-like
instrument
6% cash
6% share-like
instrument
6% share-like
instrument
Non executive directors
Non executive directors receive fees which reflect the level of responsibilities and time commitment required for Board and
Board committee meetings. Non executive directors receive a basic fee and an additional fee for chairing a committee.
Fees are reviewed annually with recommendations made to the Board by the Executive Committee. The Chair’s fee is
reviewed by the Remuneration Committee. Fee levels are benchmarked against other financial services organisations.
Non executive directors are reimbursed for travel expenses for attending meetings and, where tax liability arises for these
travel expenses, this will be covered by the Society.
Report on remuneration 2022
Executive director remuneration summary for 2022
The total remuneration received by executive directors for 2022 is detailed below, compared with 2021. The total
remuneration for executive directors equates to 1.0% of profit before tax (2021: 1.2%). This information has been audited
and shows remuneration for the years ended 31 December 2021 and 31 December 2022, as required to be reported under
the Building Societies (Accounts and Related Provisions) Regulations 1998. The awards made in respect of performance in
2022 are in line with the 2022 Remuneration Policy, with a maximum variable pay of 20% for executive directors.
The Chief Executive Officer is the Society’s highest paid colleague. As we are a mutual organisation, we have no share
capital and, therefore, do not offer share-based remuneration to executive directors or colleagues.
2022 audited
Executive directors Salary Annual
bonus
Pension Loss of
office
Total fixed
remuneration
Total variable
remuneration
Total
remuneration
£’000 £’000 £’000 £’000 £’000 £’000 £’000
R G Fearon 578 110 64
(1)
– 642 110 752
A P Conroy 355 64 35
(1)
– 390 64 454
A J Greenwood 375 64 52
(1)
– 427 64 491
R J Howse 363 66 36
(1)
– 399 66 465
Total remuneration
(2)
1,671 304 187 – 1,858 304 2,162
Notes:
(1) These directors elected to receive part or all of the Society’s pension contribution as a cash allowance.
(2) No director received other taxable benefits of £1,000 or above.
158 159Leeds Building Society | Annual Report and Accounts 2022
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Directors’ Remuneration Report continued
2021 audited
Executive directors Salary Annual
bonus
Pension Loss of
office
Total fixed
remuneration
Total variable
remuneration
Total
remuneration
£’000 £’000 £’000 £’000 £’000 £’000 £’000
R G Fearon 543 102 50
(1)
– 593 102 695
A P Conroy 342 60 34
(1)
– 376 60 436
A J Greenwood 361 62 51
(1)
– 412 62 474
R J Howse
(2)
229 63 23
(1)
– 252 63 315
Total remuneration
(3)
1,475 287 158 – 1,633 287 1,920
Notes:
(1) These directors elected to receive part or all of the Society’s pension contribution as a cash allowance.
(2) R J Howse was appointed to the Board on 1 May 2021.
(3) No director received other taxable benefits of £1,000 or above.
Annual incentive
For 2022, corporate performance incentive opportunities were based on the performance measures in the following table.
The table also illustrates performance against each of the measures.
Performance measure Weightings for maximum (as % of salary) Pay out %
The number of members supported with their home
ownership ambitions through our lending against owner-
occupied properties in the UK.
2.5% 2.5%
Maintain capital strength and cost efficiency to support our
differentiated product mix and thrive through the cycle.
2.5% 2.5%
Keep our members and brokers informed and maintain trust
and customer satisfaction across all channels.
Provide robust service to our intermediary partners.
2.5% 2.19%
Ensure we have highly engaged and empowered colleagues,
a diverse workforce and talent pipeline to respond to our
changing context and needs.
2.5% 2.19%
Notes:
The corporate measures only apply to the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer. The Deputy Chief Executive Officer is responsible for a
control function, and, therefore, is remunerated on personal objectives only with a maximum of 20%.
Personal performance achievement for executive directors was in the range of 8.35% to 17% (17% in respect of the
Deputy CEO). Personal performance for executive directors not in a control function is based on a maximum of 10% and is
assessed on personal objectives relating to each executive director specific role and behaviours.
Risk assessment
The risk assessment process is independently managed by the Risk division. Following completion of the risk assessment
process, the Chief Risk Officer provides an annual report on areas the Remuneration Committee should consider, in respect
of whether performance or risk adjustment is necessary to remuneration outcomes. The report is initially reviewed by the
Board Risk Committee, which then highlights any specific areas for further consideration to the Remuneration Committee.
In addition, the Risk division considers the corporate priorities and personal objectives for executive directors’ future year
remuneration, to ensure they are aligned with our risk appetite.
The report from the Chief Risk Officer includes an assessment of the current year’s performance in the context of
objectives for each prior year for which variable remuneration has been deferred.
The individual performance of Material Risk Takers and their teams is risk assessed by reference to a range of dimensions
including audit findings, compliance with regulatory policies, compliance with our risk appetite and general control and
governance matters.
The Remuneration Committee, after consultation with the Board Risk Committee and consideration of performance
against risk appetites, did not make any risk adjustment for 2022.
Unpaid deferred elements of the annual bonus scheme
Executive
directors
Performance
year
Due
2023
Due
2024
Due
2025
Due
2026
Due
2027
Due
2028
Due
2029
Due
2030
Due
2031
Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
R G Fearon 2019 10 20 20 20 20 11 – – 101
2020 28 3 14 23 23 23 20 8 142
2021 20 – 6 12 12 12 12 8 82
2022 22 22 – 7 13 13 13 13 7 110
Total 80 45 40 62 68 59 45 29 7 435
A P Conroy 2020 16 16 11 – – – – – 43
2021 12 – 4 7 7 7 7 4 48
2022 13 13 – 3 8 8 8 8 3 64
Total 41 29 15 10 15 15 15 12 3 155
A J Greenwood 2019 16 – – – – – – 16
2020 17 16 13 – – – – 46
2021 13 – 4 7 7 7 7 4 49
2022 13 13 – 5 7 7 7 7 5 64
Total 59 29 17 12 14 14 14 11 5 175
R J Howse 2021 13 – 4 7 7 7 7 5 50
2022 13 13 – 4 8 8 8 8 4 66
Total 26 13 4 11 15 15 15 13 4 116
P A Hill 2018 25 25 25 25 14 – – – 114
Total 25 25 25 25 14 – – – 114
R S P Litten 2018 17 17 17 17 9 – – – 77
2019 2 3 3 4 4 2 – – 18
Total 19 20 20 21 13 2 – – 95
K R Wint 2019 12 – – – – – – – 12
Total 12 – – – – – – – 12
Total 262 161 121 141 139 105 89 65 19 1,102
The payment of deferred elements is subject to future performance, for example, the application of malus. Clawback will
be applied as required by regulation.
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Pensions and other benefits
A J Greenwood is a deferred member of the defined contribution section of the pension scheme and has opted for a cash
allowance in lieu of the Society’s pension contribution. R G Fearon and A P Conroy opted to receive pension benefits as part
contributions to the defined contribution section of the pension scheme and part cash allowance, in lieu of the Society’s
pension contribution. R J Howse has opted for a cash allowance in lieu of the Society’s pension contribution.
No executive director has the right or opportunity to receive enhanced benefits beyond those already disclosed, and the
Committee has not exercised its discretion during the year to enhance benefits.
Executive directors may be entitled to receive compensation for loss of office. Such payments will be based on the monthly
salary and pension contributions that the director would have received if still in our employment.
Long term incentive awards made in the financial year
There were no long term incentive awards made in the financial year.
Payments for loss of office
There were no payments for loss of office made in the financial year.
Remuneration for Material Risk Takers in 2022
Material Risk Takers are senior managers who include executive and non executive directors, chief officers and directors
whose actions have a material impact on the risk profile of the Society.
The basic salary or fees of Material Risk Takers is determined to reflect the responsibilities of the role. Salaries are reviewed
annually, as for all colleagues. Material Risk Takers, other than non executive directors, are eligible for an annual bonus
scheme. The bonus scheme for Material Risk Takers in control functions is based on the achievement of non financial
objectives. In 2022, there were 32 Material Risk Takers during the year.
Aggregate remuneration for Material Risk Takers is reported in the table below.
Number of
beneficiaries
Fixed pay
(1)
Current year
variable pay
(2)
Total
2022 2021 2022 2021 2022 2021 2022 2021
£’000 £’000 £’000 £’000 £’000 £’000
Senior management 32 27 6,500 5,428 1,299 497 7,799 5,925
Other Material Risk Takers – – – – – – – –
Total 32
(3)
27
(3)
6,500 5,428 1,299
(4)
497 7,799 5,925
Notes:
(1) Fixed pay includes basic salary, benefits, pension, loss of office payments and fees for non executive directors.
(2) £843,000 of variable pay is deferred for three, five or seven years (2021: £933,000).
(3) Material Risk Takers who left the Society during the calendar year are included in the table above.
(4) 2022 variable pay includes elements of the award from 2020 that were deferred for an additional year, to allow the Remuneration Committee to fully take account of the
longer term impact of Covid-19.
Remuneration for non executive directors
The fees for non executive directors are made up of a basic fee, plus a committee chair fee, as appropriate. The Chair does
not receive additional fees for roles carried out other than that of Chair.
Non executive directors Basic fees Benefits
(1)
Committee chair
fees
Total
2022 2021 2022 2021 2022 2021 2022 2021
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
I C A Cornish (Chair) 158 154 6 1 – – 164 155
G J Hoskin (Vice Chair) 52 51 3 0 24 24 79 75
A M Barnes 52 51 3 1 – – 55 52
D Fisher 52 51 0 0 – 17 52 68
N A Fuller 52 51 4 1 18 – 74 52
J A Hunt
(2)
– 15 – 0 – – – 15
L R McManus 52 51 5 1 12 11 69 63
A Tadayon
(3)
52 13 5 2 – – 57 15
Total 470 437 26 6 54 52 550 495
Notes:
(1) In addition to the payment of fees, non executive directors are reimbursed for travel expenses for attending meetings and, where tax liability arises, this will be covered by
the Society.
(2) This director retired on 15 April 2021.
(3) This director was appointed on 22 October 2021.
Non executive directors (including the Chair) received an annual basic fee increase of 3.75% in April 2022. The
Remuneration Committee Chair fee also increased by 3.75%.
In line with the approach taken across the Society the annual pay review was brought forward from 1 April 2023
to 1 January 2023 for all colleagues including the non executive directors. Following a market review and external
benchmarking, the Remuneration Committee Chair fee increased by 24.4% along with the introduction of an additional
fee for the non executive director with responsibility for the Colleague Voice and Consumer Duty of £3,000. Fees from
1 January 2023 will be as follows:
Non executive directors Basic fees Committee chair fees Total
2023 2023 2023
£ £ £
I C A Cornish (Chair) 169,350 – 169,350
G J Hoskin (Vice Chair) 56,100 24,355 80,455
A M Barnes 56,100 17,675 73,775
D Fisher 56,100 – 56,100
N A Fuller 56,100 17,675 73,775
A Tadayon 56,100 – 56,100
Total 449,850 59,705 509,555
Payments to former directors
A payment of £25,307 has been made in 2022 to P A Hill, the former Chief Executive Officer, who retired on 30 June 2019. A
payment of £18,862 has been made in 2022 to R S P Litten, the former Chief Financial Officer, who left the Society on 18 April
2019. A payment of £11,984 has been made in 2022 to K R Wint, the former Chief of Staff, who left the Society on 31 January
2020. The bonus payments consisted of deferred incentive awards, which are assessed in full when they are awarded. All
these payments were subject to risk assessment and the Committee determined no risk adjustment was required.
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Policy review
The Remuneration Policy is subject to an annual review of both its content and implementation and is approved by the
Remuneration Committee. The Board Risk Committee also contributes to the policy review to ensure it takes sufficient
account of risk considerations.
Remuneration arrangements meet regulatory requirements, including the FCA Dual–Regulated Firms Remuneration Code,
PRA Rulebook and good corporate governance practice.
Vote
Members are asked to vote on the Remuneration Policy at least every three years, or earlier if the policy changes. The
current Remuneration Policy took effect from the date of the 2022 AGM.
Annual General Meeting 2022 results – Directors’ Remuneration Report
Resolution % votes for % votes against
Directors’ Remuneration Report 92.16% 7.84%
Resolution % votes for % votes against
Directors’ Remuneration Policy 92.24% 7.76%
Awards under different scenarios
The charts below show the awards split between fixed pay and variable pay, under the variable pay arrangements, for each
current executive director under different scenarios:
Chief Executive Officer Deputy Chief Executive Officer
MaximumTa rgetFixed
753
855
12%
889
15%
100%
88% 85%
MaximumTa rgetFixed
470
530
12%
550
15%
100%
88% 85%
Chief Financial Officer Chief Operating Officer
MaximumTa rgetFixed
419
476
12%
495
15%
100%
88% 85%
MaximumTa rgetFixed
431
490
12%
510
15%
100%
88% 85%
Fixed
Consists of basic salary and pension
Basic salary is as at 1 January 2023
Executive director Basic salary Pension Total fixed
Chief Executive Officer 678,500 74,635 753,135
Deputy Chief Executive Officer 401,775 68,301 470,076
Chief Financial Officer 380,670 38,067 418,737
Chief Operating Officer 392,200 39,022 431,222
Target
Based on what an executive director would receive if the target level of performance
was achieved, based on a 20% variable remuneration scheme:
annual variable element pays out at 75% of the maximum available.
Maximum
Based on what an executive director would receive if the maximum level of performance
was achieved:
annual variable element pays out at 100% of maximum available.
Approach to recruitment remuneration for executive directors
Remuneration element Summary
Fixed remuneration
Basic salary and benefits The salary level will be set taking into account the responsibilities of the individual
and by comparison with roles carrying similar responsibilities, in organisations of
a comparable size, complexity and diversity to the Society. The executive director
will be eligible to receive benefits as set out in the Remuneration Policy table.
Pension The executive director will be able to participate in the defined contribution
section of the pension scheme or to receive a cash allowance of up to a maximum
of 10% of basic salary, in line with the colleague population.
Variable remuneration
Annual bonus The executive director will be eligible to participate in the annual bonus scheme as
set out in the Remuneration Policy table. The bonus award will be pro-rated to the
number of complete months worked during that year.
Replacement award When replacement awards cannot be avoided, the Committee will structure any
such awards so that, overall, they are no more generous in terms of quantum or
vesting period than the awards due to be forfeited. In determining the quantum
and structure of these commitments, the Committee will seek to replicate the
fair value and, as far as practicable, the timing and performance requirements of
remuneration forgone.
Recruitment remuneration Any payments made to executive directors on joining the Society to compensate
them for forfeited remuneration from their previous employer will be compliant
with the provisions of the PRA Rulebook and the FCA Dual-Regulated Firms
Remuneration Code.
Retention awards Such awards will only be made in exceptional circumstances. The monetary value
of the award will be defined at grant and vesting of awards will be tied to the
completion of a defined period of service and the satisfactory completion of a
specific project or other multi-task deliverable.
Retention awards can be made up to the maximum permitted (in conjunction with
the annual bonus) without breaching the regulatory cap on variable pay, of 100%
of fixed pay per annum.
Retention awards are part of variable pay and may be subject to malus and
clawback, deferral and delivery in instruments as determined by the Remuneration
Committee.
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Directors’ Remuneration Report continued
Service contracts
Executive directors’ terms and conditions of employment, including details of remuneration, are detailed in their individual
service agreements, which include a notice period of twelve months. The standard contract is available to view at the
Society’s head office.
None of the executive directors currently holds any paid external directorships.
The non executive directors do not have service contracts with the Society.
Policy on payment for loss of office
When determining any loss of office payment for a departing individual, the Committee will seek to minimise costs to the
Society, whilst seeking to reflect the circumstances in place at the time. Accordingly, the Committee retains overriding
judgement to make loss of office payments appropriate to the circumstances and applying the overriding principle that
there should be no element of reward for failure.
Remuneration element Summary
Fixed remuneration
Basic salary and benefits In the event of termination by the Society, there will be no compensation for
loss of office due to misconduct or poor performance. In other circumstances,
executive directors may be entitled to receive compensation for loss of office.
Such payments will be based on the monthly salary and pension contributions
that the executive would have received if still in employment with the Society.
Executive directors are expected to mitigate compensation for loss of office, in
appropriate circumstances.
Variable remuneration
Annual bonus Where an executive director’s employment is terminated during or after the end
of a performance year, but before the payment is made, they may be eligible for
a pro-rated annual bonus for that performance year, subject to an assessment
based on performance achieved over the period and subject to risk adjustment.
No award will be made in the event of misconduct.
Where an executive director leaves the Society after an award is made, deferred
payments will remain payable, subject to the normal rules of the scheme, including
risk adjustment.
The Remuneration Committee, in determining the final awards, may apply
judgement to assess performance in the round. When assessing performance in
the round, the Remuneration Committee may take into account (inter alia) wider
market, regulatory and stakeholder considerations.
Statement of consideration of conditions elsewhere in the Society
The Remuneration Committee considers the increase in general basic salary for the wider colleague population when
determining the annual salary increases for the executive directors.
All colleagues received a pay review in April 2022.
The table below illustrates the comparison of average basic salary increase made in April 2022 to the Chief Executive
Officer, executive directors and all other colleagues.
All other colleagues
Executive directors
Chief Ex
ecutive Officer
8.72%
6.59%
5.22%
Statement of implementation of Remuneration Policy in the following year
The Remuneration Policy is implemented by management. A formal review of the implementation of the Policy is
conducted by the Remuneration Committee on an annual basis.
The executive directors’ salaries from 1 January 2023 are as follows, compared with 1 April 2022:
1 January 2023 1 April 2022
R G Fearon £678,500 £590,000
A J Greenwood £401,775 £379,030
A P Conroy £380,670 £359,120
R J Howse £392,200 £370,000
The base pay review date for all the executive directors, Senior Leadership Team and colleagues has been brought forward
from 1 April 2023 to 1 January 2023. We believe this will have a positive impact on colleagues and the Society. Following
external benchmarking, the performance of the Society under the Chief Executive Officer’s leadership, in line with the
range received by colleagues, and to ensure that remuneration keeps pace with the local market, the Remuneration
Committee agreed a base pay increase of 15% for the Chief Executive Officer. The base pay of all the other executive
directors increased by 6%, in line with the colleague population. The base pay from 1 January 2023 for the executive
directors will be as follows:
1 January 2023 Increase
R G Fearon £678,500 15%
A J Greenwood £401,775 6%
A P Conroy £380,670 6%
R J Howse £392,200 6%
Chief Executive Officer (CEO) pay ratio
The Companies (Miscellaneous Reporting) Regulations 2018 came into force for accounting periods starting from
1 January 2019 and require the publication of the ratio of the CEO’s single figure total remuneration. We have chosen
to use the Government’s preferred methodology (option A), which determines the total full time equivalent total
remuneration for all colleagues for the relevant financial year, and compares the median, 25th and 75th percentiles against
the CEO single figure.
Year Method 25th percentile Median 75th percentile
2022 Option A 30:1 20:1 13:1
2021 Option A 30:1 20:1 13:1
2020 Option A 32:1 21:1 14:1
2019 Option A 32:1 22:1 15:1
The remuneration below is calculated in respect of the year ended 31 December 2022:
Remuneration element 25th percentile (£) Median (£) 75th percentile (£)
Total pay and benefits 24,711 37,170 56,011
Salary 19,742 31,797 49,299
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Directors’ loans, transactions and related business activity
The aggregate amount outstanding at 31 December 2022 in respect of loans from the Society or a subsidiary undertaking
to directors of the Society or persons associated with directors was nil (2021: nil), being nil mortgages (2021: nil) to
directors and persons connected to directors. A register of loans and transactions with directors and their connected
persons is maintained at the head office of the Society and may be inspected by members. There were no significant
contracts between the Society or our subsidiaries and any director of the Society during the year.
History of remuneration of Chief Executive Officer
The table below shows the total remuneration of the Chief Executive Officer over the last five years, together with the
performance pay awarded as a percentage of the maximum possible. R G Fearon was appointed Chief Executive Officer on
27 February 2019; the figures prior to 2019 relate to P A Hill, the former Chief Executive Officer.
Total remuneration
£’000
Performance pay as % of maximum
2022 752 93.4
2021 695 94.0
2020 684 82.9
2019 659 75.0
2018 785 89.7
Percentage change in salary for Chief Executive Officer
The basic salary of the Chief Executive Officer increased by 8.72% during 2022. An average annual increase of 5.22% in
basic pay was awarded to all colleagues. The annual change of each individual executive director’s pay, compared to the
annual change in average colleague pay, is detailed below.
Annual increase
Chief Executive Officer 8.72%
Deputy Chief Executive Officer 5.0%
Chief Financial Officer 5.0%
Chief Operating Officer 7.68%
Colleague average 5.22%
Relative importance of spend on pay
The following table sets out the percentage change in profit and overall spend on remuneration in the year ending
31 December 2022, compared to the previous year.
2022 2021 Percentage change
Profit after tax £161.9 million £120.2 million 34.7%
Colleague remuneration costs £64.8 million £56.0 million 15.7%
Headcount 1,538 1,474 4.3%
External advisers to the Remuneration Committee
The Remuneration Committee seeks the advice of independent external consultants, as required. The external advisers
to the Remuneration Committee in 2022 were PwC LLP, who provided professional advice, guidance and training to the
Committee. The appointment of advisers is carried out on a basis of careful evaluation of potential providers against
agreed criteria. PwC LLP confirmed they do not have any conflict of interest in advising the Remuneration Committee.
The directors are pleased to present their Annual Report
and Accounts and Annual Business Statement, for the
year ended 31 December 2022.
Our business model and purpose-led strategy are
described in the Business Model and Strategy section
of the Strategic Report on pages 10 to 32, where key
performance indicators are also presented.
Profits and capital
Profit before tax for the year was £220.5 million (2021:
£163.7 million). The profit after tax transferred to the
general reserve was £161.9 million (2021: £120.2 million).
Total equity attributable to members at 31 December
2022 was £1,506.8 million (2021: £1,274.6 million).
Gross capital at 31 December 2022 was £2,013.5 million
(2021: £1,840.5 million) including £309.1 million (2021:
£339.4 million) of subordinated liabilities and £197.6
million (2021: £227.3 million) of subscribed capital. The
ratio of gross capital as a percentage of shares and
borrowings was 8.86% at 31 December 2022 (2021:
9.04%) and the free capital ratio was 8.47% (2021: 8.51%).
Further explanation of these ratios is provided in the
Annual Business Statement on page 242.
Mortgage arrears
At 31 December 2022, there were 349 (2021: 360)
mortgage accounts 12 months or more in arrears.
The total mortgage arrears, for these cases, was £4.0
million (2021: £3.9 million) and the total principal balance
outstanding was £34.2 million (2021: £36.2 million).
Charitable and political donations
In 2022, the Group made donations of £190,200 (2021:
£90,000) to the Leeds Building Society Charitable
Foundation. Our other donations to charities and good
causes (including colleague fund matching) during the year
amounted to £545,700 (2021: £141,250).
The Caring Saver Account and the Your Interest In Theirs
scheme provided further donations of £13,200 (2021:
£12,750) and £79,600 (2021: £79,600) respectively to
specified charities. Additionally, the Society has a number
of savings products which support Dementia UK resulting
in a donation of £29,100 (2021: £24,000).
Other charitable contributions from colleagues and
members totalled £116,200 (2021: £80,700) taking total
donations to charity and good causes to £974,000 (2021:
£428,300).
No political donations were made during the year (2021:
none).
Principal risks and uncertainties
Our approach to managing risks and the principal risks and
uncertainties we face are set out in the Risk Management
Report on pages 82 to 108, which also contains
information on our financial risks and the approach to
management of those risks.
Colleagues
Information on key colleague policies and associated
key performance indicators, including processes for
communicating and consulting with colleagues, are
included in the Strategic Report on pages 17 to 19 and the
Corporate Governance Report on pages 135 to 136.
We are committed to ensuring every colleague feels
valued and included for who they are and the unique
perspectives they bring. We are a Disability Confident
accredited employer and give full and fair consideration
to applications for employment from disabled persons,
having regard to their particular aptitudes and abilities.
Where a colleague becomes disabled during the course
of their employment, every effort is made to continue
their employment, making reasonable and proportionate
adjustments as necessary.
Business relationships
We are committed to developing strong business
relationships with our partners, notably our mortgage
brokers, suppliers and investors. Further details of how
the Board has regard to the interests of these and other
stakeholders can be found on pages 26 to 32.
Creditor payment policy
We aim to agree terms and conditions with suppliers that
outline the way in which business is to be transacted,
including the terms of payment, and to pay in accordance
with contractual and other legal obligations.
Creditor days stood at 27 days at 31 December 2022
(2021: 10 days).
Environmental policy
The Board recognises that climate change is a significant
global issue which impacts on and requires action from
multiple bodies, including governments, businesses and
individuals. We are committed to playing our part as a
responsible business.
During the year, we have continued to enhance our
understanding of the risks and opportunities for the
business from climate change and agree targets to reduce
our environmental impact. In this Annual Report we have
included disclosures in line with the recommendations of
the Task Force on Climate-related Financial Disclosures
and these can be found on pages 48 to 79 of the Strategic
Report.
Directors’ Report
Year ended 31 December 2022
168 169Leeds Building Society | Annual Report and Accounts 2022
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Based on the assessments performed, the directors have
concluded that:
• The Group has proven access to liquidity resources,
including access to central bank funding facilities if
required, sufficient to meet both the normal demands
of the business and the requirements which might arise
in modelled stressed circumstances. The availability
and quality of liquid assets are structured so that funds
are available to repay any maturing wholesale funds and
cover exceptional demand from retail investors.
• The Group’s other assets consist primarily of
mortgages secured on residential property. The
recoverability of all mortgage assets is reviewed
regularly and provisions are made, incorporating a
forward looking view of expected losses under a range
of macroeconomic scenarios, so that the Group is not
exposed to losses on these assets which would impact
its decision to adopt the going concern basis.
• The Group’s current capital resources are sufficient to
meet regulatory requirements. Having reviewed future
plans and forecasts, the directors consider plans for
future capital generation are sufficient to maintain
capital in excess of regulatory requirements, under both
central and modelled stressed scenarios.
The directors have therefore concluded that there is no
material uncertainty in relation to the Society and the
Group’s continuation as a going concern and therefore it is
appropriate to continue to adopt the going concern basis
in preparing the financial statements.
Directors
The names of the directors of the Society at 31 December
2022, their roles and membership of Board committees
are detailed on pages 110 to 115.
In line with best practice, all executive and non executive
directors offer themselves for re-election by the members
at the AGM. Lynn McManus will not be standing for
re-election at the 2023 AGM, having stepped down from
her role on the Board in January 2023.
None of the directors holds any beneficial interest in
shares in, or debentures of, any subsidiary undertaking of
the Society.
Auditor
In accordance with Section 77 of the Building Societies Act
1986, a resolution for Deloitte LLP’s re-appointment as
auditor will be proposed at the AGM. Details of the tender
process undertaken during 2022 for the Society’s next
auditor, to be proposed for appointment in 2024, are given
in the Audit Committee Report on page 150.
Post balance sheet events
The directors consider that no events have occurred since
the year end to the date of this Annual Report that are
likely to have a material effect on the financial position of
the Group, as disclosed in the Annual Accounts.
Katherine Tong
Director of Legal and Compliance and Secretary
23 February 2023
Pillar 3 disclosures
The disclosures required under Pillar 3 of CRD V are
published on our website at leedsbuildingsociety.co.uk/
press/financial-results/.
Corporate governance
We have provided statements on corporate governance
and directors’ roles and responsibilities in the Corporate
Governance Report on pages 118 to 136.
Directors’ responsibilities in respect
of the preparation of the Annual Accounts
This statement is made by the directors to explain
their responsibilities in relation to the preparation of
the Annual Accounts, Annual Business Statement and
Directors’ Report. It should be read in conjunction with the
statements on the respective responsibilities of directors
and the auditor on page 182.
For each financial year, the directors are required by the
Building Societies Act 1986 (the Act) to prepare annual
accounts which give a true and fair view of the income
and expenditure of the Society and the Group, and of
the state of affairs of both, as at the end of the financial
year. Additionally, they must provide details of directors’
emoluments in accordance with Part VIII of the Act and
regulations made under it. The Act states that references
to IFRS accounts giving a true and fair view are references
to their achieving a fair presentation.
In preparing the Annual Accounts, directors are required
to:
• Select appropriate accounting policies and apply them
consistently.
• Make judgements and estimates that are reasonable
and prudent.
• State whether the Annual Accounts have been prepared
in accordance with IFRS.
• Prepare the Annual Accounts on the going concern
basis, unless it is inappropriate to presume that the
Group will continue in business.
The directors consider that the Annual Report and
Accounts are fair, balanced and understandable, when
taken as a whole, and that they provide the information
necessary for members to assess the Society’s and
Group’s performance, business model and strategy.
In addition to the Annual Accounts, the Act requires the
directors to prepare an Annual Business Statement and
a Directors’ Report for each financial year. Each contains
prescribed information relating to our business and
subsidiary undertakings.
Directors’ responsibilities for accounting
records and internal control
The directors are responsible for ensuring that the Society
and our subsidiary undertakings:
• Keep accounting records in accordance with the
Building Societies Act 1986.
• Take reasonable care to establish, maintain, document
and review such systems and controls as are
appropriate to our business.
The directors have general responsibility for safeguarding
the Society’s assets and for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
The directors are responsible for the maintenance of
the corporate and financial information included on the
Society’s website. Legislation in the United Kingdom
governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
The directors who held office at the date of approval of this
report confirm that, as far as they are aware, there is no
relevant information of which our auditor is unaware and
that each director has taken all steps necessary to make
themselves aware of any relevant audit information and
establish that the auditor is aware of that information.
Going concern
The directors are required to prepare financial statements
on a going concern basis, unless it is inappropriate to
presume that the Society and the Group will continue in
business for the next 12 months.
The directors review the results of regular forecasts and
stress tests to understand the potential financial and
operational performance of the business under a range
of economic and market conditions. This informs their
assessment of whether the Society and the Group are
going concerns. These assessments reflect the potential
impacts of the principal and emerging risks set out on
pages 42 to 45.
The directors have also reviewed the Society’s and Group’s
position over a longer period than the 12 months required
by the going concern assessment. This is explained in the
Viability Statement on pages 46 to 47 of the Strategic
Report.
Directors’ Report continued
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Financial
Statements
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Year ended 31 December 2022
Independent Auditor’s Report to the
Members of Leeds Building Society
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Leeds Building Society (the ‘Society’) and its subsidiaries (the ‘Group’):
• give a true and fair view of the state of the Group’s and of the Society’s affairs as at 31 December 2022 and of the
Group’s and the Society’s income and expenditure for the year then ended;
• have been properly prepared in accordance with United Kingdom adopted international accounting standards; and
• have been prepared in accordance with the requirements of the Building Societies Act 1986.
We have audited the financial statements which comprise:
• the Group and Society Income Statements;
• the Group and Society Statements of Comprehensive Income;
• the Group and Society Statements of Financial Position;
• the Group and Society Statements of Changes in Members’ Interest;
• the Group and Society Statements of Cash Flows; and
• the related notes 1 to 34.
The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom
international accounting standards.
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the Group and the Society in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to
listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
The non-audit services provided to the Group and the Society for the year are disclosed in note 6 to the financial
statements. We confirm that we have not provided any non-audit services prohibited by the FRC’s Ethical Standard to the
Group or the Society.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters The key audit matters that we identified in the current year were:
• IFRS 9 Financial instruments – UK Residential expected credit loss (“ECL”)
provisioning;
• Hedge accounting;
• Fair value of collateral loan; and
• Fair value of complex derivative instruments.
Within this report, key audit matters are identified as follows:
Similar level of risk as the prior year.
Materiality The materiality that we used for the Group financial statements was £8.7 million which
was determined on the basis of 0.5% of net assets.
Scoping All material entities in the Group are within our audit scope and audited to a lower
materiality for the purpose of individual entity reporting. Audit work to respond to the
risks of material misstatement was performed directly by the Group audit engagement
team.
Significant changes in our
approach
Our risk assessment process has resulted in the key audit matters reported upon
remaining broadly consistent with the previous year.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s and Society’s ability to continue to adopt the going concern
basis of accounting included:
• obtaining an understanding of relevant controls around management’s going concern assessment;
• assessing the Group’s and Society’s compliance with regulations, including capital and liquidity requirements;
• involving prudential risk specialists in assessing the information supporting the liquidity and capital forecasts, including
the stress testing and reverse stress testing performed by management;
• assessing the assumptions such as cashflows, capital and liquidity, used in the forecasts;
• assessing historical accuracy of forecasts prepared by management; and
• assessing the appropriateness of the going concern disclosures.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the Group’s and Society’s ability to continue as a going
concern for a period of at least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material
to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors
considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall
audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
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5.1. IFRS 9 Financial Instruments – UK Residential Expected Credit Loss (ECL) provisioning
Key audit matter description Under IFRS 9 provision is required for the expected credit loss (ECL) on loans measured
at amortised cost. Estimating these expected losses requires the use of complex
models and application of judgement and estimation relating to assumptions about
customer default rates, likelihood of repossession, future property values, forced sale
discounts and indicators of significant increases in credit risk. These assumptions are
informed using historical behaviour and experience through different economic cycles
as well as credit bureau data.
The Group applies four macroeconomic scenarios when determining the ECL
calculation: a central outlook, a downside, an alternative downside scenario, and a
growth scenario. The selection and probability weighting of relevant macroeconomic
scenarios is judgemental and has a significant impact on the ECL calculation.
The Group held £41.8 million (2021: £30.4 million) of UK residential impairment
provisions at year-end, in accordance with IFRS 9, against total UK retail mortgages of
£20,316.6 million (2021: £18,281.5 million). In the current year the directors recognised
post model adjustments of £25.1 million (2021: £9.4 million) due to the potential
increased risk of default arising from the challenges facing borrowers in the current
economic environment.
Our key audit matters in relation to ECL provisioning have been identified as:
• the selection and probability weighting of relevant macroeconomic scenarios and
assumptions. There exists a risk of management bias in selecting the weightings
and assumptions applied in the ECL model and a potential lack of consistency in
approach when determining the weightings period on period. As the downside
scenarios are the most sensitive within the model and have the largest impact
on the overall ECL, there is a risk of bias in selecting the probability weightings
of macroeconomic assumptions and the level of consistency in approach when
determining the probability weightings for each scenario period on period; and
• the completeness and accuracy of post model adjustments to address risks that may
not be reflected in the current ECL models. The Group has recognised post model
adjustments that increase the provision in order to capture emerging risks not fully
embedded within the ECL models.
The Group’s loan loss provision balances are detailed within note 8. The Group’s
associated accounting policies are detailed on pages 193 to 194 with detail about
judgements in applying accounting policies and key sources of estimation uncertainty
on pages 197 to 203. The directors’ consideration of the effect of the future economic
environment is disclosed on pages 198 to 202. The Audit Committee’s consideration of
the matter is described on page 145.
How the scope of our audit
responded to the key audit
matter
We obtained an understanding of the relevant controls over the loan loss provisioning
process. This included assessment of the level of challenge at key management review
forums that formed part of these controls.
With the involvement of our credit risk and accounting specialists, we assessed the
compliance of the modelling approach and methodology with the requirements of
IFRS 9 – Financial instruments, including updates to the models that were made during
the year. With the involvement of our credit risk specialists we assessed whether
the documented modelled approach was compliant with IFRS 9 and implemented in
practice.
We challenged the directors’ consideration of the future economic environment
by engaging our economic specialists to review the directors’ approach as well as
comparing modelled assumptions to publicly available data from peer organisations,
regulators and economic commentators.
We evaluated the completeness and accuracy of post model adjustments in light of
relevant macroeconomic factors, to assess whether all relevant risks were represented
by these adjustments. We did this through involvement of economic and modelling
specialists, and benchmarking against peer entities.
We reconciled each book to the general ledger and substantively tested a sample of
loans to assess whether the data used in the provision calculation was complete and
accurate.
We also tested the accuracy and completeness of forecast data collated from third
party sources.
We validated that the underlying data feeding into management’s calculations for post
model adjustments was complete and accurate and challenged the key judgements
and assumptions within the calculations using our credit modelling specialists where
appropriate.
Key observations Based on the work performed, we concluded that the Group’s ECL applied to the UK
residential mortgage book was within a reasonable range.
5.2. Hedge Accounting
Key audit matter description The Group has designated a number of fair value macro hedges in order to minimise
fair value volatility through the income statement. Over the life of the hedge, hedged
items (mortgages and savings accounts) and instruments (derivatives) incept and
de-designate from the hedge relationship. In the second half of the year, the Group
implemented a cashflow hedge for the new mortgage pipeline.
The Group has taken the IFRS 9 accounting policy choice to continue to apply IAS 39
accounting with respect to all designated hedge relationships. Management’s chosen
accounting policies are detailed on page 193. The Audit Committee’s consideration of
this risk is included on page 147.
In line with the requirements of IAS 39 management carries out prospective and
retrospective effectiveness testing on a monthly basis.
We have identified a key audit matter around the appropriateness of fair value
adjustments for items designated and de-designated in the hedging relationship,
including the subsequent amortisation of the adjustments. We have also identified a
new key audit matter in the period relating to the accounting for the mortgage pipeline
cashflow hedge.
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How the scope of our audit
responded to the key audit
matter
We have obtained an understanding of and tested the relevant controls over the hedge
accounting process, including the Group’s controls over the identification and recording
of the designation and de-designation adjustments.
We obtained management’s master document where the designation and de-
designation adjustments are calculated on a monthly basis and reviewed the
methodology for assessing items that have de-designated from the hedge relationship.
We then tested the accuracy of the amortisation adjustments through a full
recalculation of the expected remaining amortisation as of 31 December 2022.
We tested the valuation of the items which had been designated or de-designated from
the macro hedge in the year through independent recalculation of the fair value of a
sample of items as at their designation/de-designation date.
We assessed management’s prospective and retrospective effectiveness testing.
We tested the completeness of the population of items within the master document
through reperformance of management’s monthly designation and de-designation
process.
We assessed the accounting treatment for the mortgage pipeline cashflow hedge and
its subsequent implementation and valuation as at 31 December.
Key observations Based on the work performed, we concluded that the overall hedge accounting
treatment, and valuations, was appropriate.
5.3. Fair value of collateral loan
Key audit matter description The Group holds a collateral loan to a third party secured on a portfolio of equity release
mortgages.
The collateral loan represents a complex financial instrument held at fair value and is
classified within level 3 in the fair value hierarchy (see page 236 for a definition of level
3 measurements). The collateral loan had a carrying value at 31 December 2022 of
£161.9 million (2021: £215.5 million). The fair value of the collateral loan is determined
using a discounted cash flow model and is reliant upon a number of unobservable and
judgemental inputs.
Our key audit matter relates to the risk of management bias in determining the
effective discount rate used within the fair value model. This rate is derived from
both top-down and bottom-up discount rates and has significant impact on the
modelling of the value of the “no negative equity guarantee” provided by the Society
to the originator. This includes consideration of repayment profiles and the credit risk
associated with the assets.
The Group’s disclosure of the collateral loan is detailed within note 13 and note 33.
Management’s associated accounting policies are detailed on page 192 with detail
about judgements in applying accounting policies and critical accounting estimates on
pages 203 to 204. The Audit Committee’s consideration of the matter is described on
page 146.
How the scope of our audit
responded to the key audit
matter
We obtained an understanding of the relevant controls over the fair valuation of the
collateral loan.
We challenged the directors’ valuation methodology over the fair valuation of the
collateral loan, with assistance from our valuation specialists.
We reviewed the model mechanics to check whether they were working appropriately
and in line with contracts with the originator. This was performed with the help of our
internal financial instrument modelling specialists.
We performed an independent assessment of the effective discount rate used to
discount the future cash flows to present value, including independently applying
alternative approaches to its calculation. We utilised both internal and external data and
taking account of the repayment profiles and credit risks associated with the assets,
assessed the impact on the valuation from a reasonable range of outcomes.
We performed testing over the appropriateness of the other elements inherent in the
valuation of the underlying loan assets, such as the “no negative equity guarantee”
and evaluated the appropriateness of the assumptions in light of the current economic
environment.
Key observations Based on the work performed, we concluded that the Group’s valuation of the collateral
loan was within a reasonable range.
5.4. Fair value of complex derivative instruments
Key audit matter description In addition to the collateral loan detailed in the key audit matter above, there are a
number of other complex financial instruments held at fair value by the Group which
are classified as level 3 within the fair value hierarchy due to unobservable prepayment
assumptions used within the calculation methodology.
These financial instrument liabilities have a net carrying value of £26.9 million (2021:
£77.6 million) and comprise the following:
• the Retail Prices Index (RPI) linked derivative hedging the equity release portfolio; and
• the intragroup derivative hedging the Residential Mortgage-Backed Securities
(RMBS) securitisation vehicle.
The following are the unobservable inputs:
• the mortality and prepayment rate assumptions applied to the RPI linked derivative;
and
• the prepayment rate of mortgages within the RMBS securitisation vehicle.
Our key audit matter relates to the risk of bias in determining the assumptions applied
to the Society’s in-house valuation for the RPI derivative.
The directors’ chosen accounting policies are detailed on page 193 with details about
valuation techniques and key inputs on page 204. The Audit Committee’s consideration
of this risk is included on page 146.
How the scope of our audit
responded to the key audit
matter
We obtained an understanding of the relevant controls over the fair valuation of
complex derivative instruments.
We performed testing over complex derivatives outlined above, and with the
involvement of our pricing specialists we valued these instruments using our own
independently developed models.
We independently sourced data for the assumptions and other inputs used in our
valuation model for the RPI linked derivative.
Key observations Based on the work performed, we have concluded that the Group’s valuation of
complex derivative instruments was within a reasonable range.
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6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in
planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Society financial statements
Materiality £8.7 million (2021: £7.5 million) £8.2 million (2021: £7.2 million)
Basis for determining materiality 0.5% of net assets excluding
subscribed capital (2021: 0.5% of net
assets excluding subscribed capital)
0.5% of net assets excluding
subscribed capital capped at 95% of
Group materiality (2021: 0.5% of net
assets excluding subscribed capital
capped at 95% of Group materiality)
Rationale for the benchmark applied The overall capital base is a key focus area for the Society’s members and
regulators. Net assets are also a more stable metric in comparison to profit
before tax. Therefore, net assets have been considered the most appropriate
base on which to determine materiality.
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected
and undetected misstatements exceed the materiality for the financial statements as a whole.
Group financial statements Society financial statements
Performance materiality 70% (2021: 62%) of Group materiality 70% (2021: 62%) of Society materiality
Basis and rationale for determining
performance materiality
In determining performance materiality, we considered the following factors:
a. the quality of the control environment and that we consider it appropriate to
rely on controls over a number of business processes;
and
b. the reduced volume of corrected and uncorrected errors identified in the prior
year audit.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.43 million
(2021: £0.38 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative
grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall
presentation of the financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide
controls, and assessing the risks of material misstatement at the Group level. Based on that assessment, we performed an
audit of the Society and its material subsidiaries. This provided 100% coverage of revenue, profit before tax and net assets
of the Group, executed at levels of materiality applicable to each individual entity which were lower than Group materiality
and in the range of £1.7 million to £8.2 million (2021: £3.6 million to £7.2 million).
We, as the Group auditor, were responsible for performing the audit of each subsidiary. At the Group level we also tested
the consolidation process.
7.2. Our consideration of the control environment
Our approach in relation to the Group’s IT systems
We relied on controls over the following IT systems as being key to the financial reporting processes in the Group:
• Core mortgage system
• Core savings system
• Treasury system
• Underlying servers and databases for the above systems where applicable
We obtained an understanding of the relevant IT controls associated with the above mentioned systems. We tested the
relevant IT controls by selecting a representative sample based on the frequency of the operation of the control and
assessing its effectiveness against supporting evidence. Additionally, for systems managed or hosted by third party
service organisations, we reviewed assurance reports over controls at those organisations.
Our approach in relation to the Group’s business cycles
We tested and relied on controls over the following business cycles for the Group:
• Residential mortgage lending
• Customer deposits
• Valuation of vanilla derivatives
We obtained an understanding of these business cycles within the Group. We tested the relevant controls, including
automated ones, by selecting a representative sample based on the frequency of the operation of the control and
assessing the effectiveness against supporting evidence.
7.3. Our consideration of climate-related risks
In planning our audit, we have considered the potential impact of climate change on the Group’s business and its financial
statements. The Group continues to develop its assessment of the potential impacts of environmental, social and
governance (“ESG”) related risks, including climate change, as outlined on pages 48 to 79. As a part of our audit, we have
obtained management’s climate-related risk assessment and held discussions with the Group Chief Risk Officer to
understand the process of identifying climate-related risks, the determination of mitigating actions and the impact on
the Group’s financial statements. We performed our own qualitative risk assessment of the potential impact of climate
change on the Group’s account balances and classes of transactions and did not identify any additional risks of material
misstatement. We have considered whether information included in climate related disclosures in the Annual Report were
consistent with our understanding of the business and financial statements.
8. Other information
The other information comprises the information included in the annual report, other than the financial statements and
our auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements, or our knowledge obtained in the course of the audit, or otherwise appears to
be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
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9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Society’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Group or the Society or to cease operations or have no
realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The
extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance
with laws and regulations, we considered the following:
• The nature of the industry and sector, control environment and business performance including the design of the
Group’s remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets.
• The results of our enquiries of management, Internal Audit and the Audit Committee about their own identification and
assessment of the risks of irregularities.
• Any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures
relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of
non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged
fraud; and
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations.
• The matters discussed among the audit engagement team and involving relevant internal specialists, including tax,
financial instruments, pensions, IT, economic, credit risk, pricing, and industry specialists regarding how and where fraud
might occur in the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation
for fraud and identified the greatest potential for fraud in the following areas: IFRS 9 Financial instruments – UK residential
expected credit loss provisioning and the fair value of the collateral loan. In common with all audits under ISAs (UK), we are
also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Society operates in, focusing on
provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures
in the financial statements. The key laws and regulations we considered in this context included the Building Society Act
1986 for the Society and the UK Companies Act for the subsidiaries.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the Society’s ability to operate or to avoid a material penalty.
These included the regulations set by the Prudential Regulation Authority relating to regulatory capital and liquidity
requirements.
11.2. Audit response to risks identified
As a result of performing the above, we identified IFRS 9 Financial instruments – UK residential expected credit loss
provisioning, fair value of collateral loan and fair value of complex derivative instruments as key audit matters related to the
potential risk of fraud. The key audit matters section of our report explains the matters in more detail and also describes
the specific procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with
provisions of relevant laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the Audit Committee and external legal counsel concerning actual and potential litigation and
claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing Internal Audit reports, and reviewing
correspondence with the Prudential Regulation Authority and the Financial Conduct Authority; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries
and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of
a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the
normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Building Societies Act 1986
In our opinion, based on the work undertaken in the course of the audit:
• the Annual Business Statement and the Directors’ Report have been prepared in accordance with the requirements
of the Building Societies Act 1986;
• the information given in the Directors’ Report for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
• the information given in the Annual Business Statement (other than the information upon which we are not required
to report) gives a true representation of the matters in respect of which it is given.
In the light of the knowledge and understanding of the Group and the Society and their environment obtained in the
course of the audit, we have not identified any material misstatements in the Directors’ Report.
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13. Opinion on other matter prescribed by the Capital Requirements (Country by
Country Reporting) Regulations 2013
In our opinion the information given on page 244 of the financial statements for the financial year ended 31 December
2022 has been properly prepared, in all material respects, in accordance with the Capital Requirements (Country by
Country Reporting) Regulations 2013.
14. Corporate Governance Statement
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained
during the audit:
• the directors’ statement with regards the appropriateness of adopting the going concern basis of accounting and
any material uncertainties identified on pages 170 to171;
• the directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why
the period is appropriate on pages 46 to 47;
• the directors’ statement on fair, balanced and understandable set out on page 170;
• the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on
pages 42 to 45;
• the section of the annual report that describes the review of effectiveness of risk management and internal control
systems set out on pages 147 to 148; and
• the section describing the work of the Audit Committee set out on pages 143 to 151.
15. Matters on which we are required to report by exception
15.1. Adequacy of explanations received and accounting records
Under the Building Societies Act 1986 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the Society; or
• the Society’s financial statements are not in agreement with the accounting records and returns; or
• we have not received all the information and explanations and access to documents we require for our audit.
We have nothing to report in respect of these matters.
16. Other matters which we are required to address
16.1. Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the Society’s members at the Annual
General Meeting on 15 June 2005 to audit the financial statements for the year ending 31 December 2005 and subsequent
financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the
firm is 18 years, covering the years ended 31 December 2005 to 31 December 2022.
16.2. Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance
with ISAs (UK).
17. Use of our report
This report is made solely to the Society’s members, as a body, in accordance with section 78 of the Building Societies Act
1986. Our audit work has been undertaken so that we might state to the Society’s members those matters we are required
to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Society and the Society’s members as a body, for our audit work, for this
report or for the opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these
financial statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on
the National Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’).
This auditor’s report provides no assurance over whether the annual financial report has been prepared using the single
electronic format specified in the ESEF RTS.
Matthew Bainbridge (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Leeds, United Kingdom
23 February 2023
Year ended 31 December 2022
Independent Auditor’s Report continued
184 185Leeds Building Society | Annual Report and Accounts 2022
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Notes
Group
2022
£M
Group
2021
£M
Society
2022
£M
Society
2021
£M
Interest receivable and similar income 3 675.9 424.7 676.1 423.2
Interest payable and similar charges 4 (316.3 ) (142.5 ) (316.7) (141.4)
Net interest receivable 359.6 282.2 359.4 281.8
Fees and commissions receivable 6.1 6.8 6.1 6.8
Fees and commissions payable (0.7 ) (0.4 ) (0.5) (0.1)
Fair value gains / (losses) from financial instruments 5 14.7 (0.5 ) 8.1 (4.6)
Other operating (expense) / income (3.0 ) (1.1 ) (4.0) 0.1
Total income 376.7 287.0 369.1 284.0
Administrative expenses 6 (130.1 ) (116.9 ) (130.1) (116.9)
Depreciation and amortisation 16, 17 (10.9 ) (9.1 ) (10.9) (9.1)
Impairment (charge) / credit on loans and advances to customers 8 (11.9 ) 4.1 (11.9) 4.1
Impairment of property, plant and equipment 17 (3.8 )
(3.8) –
Provisions release / (charge) 22 0.5 (1.4 ) 0.5 (1.4)
Operating profit and profit before tax 220.5 163.7 212.9 160.7
Tax expense 9 (58.6 ) (43.5 ) (57.3) (43.5)
Profit for the financial year 161.9 120.2 155.6 117.2
All amounts relate to continuing operations.
The notes on pages 191 to 240 form part of these accounts.
Notes
Group
2022
£M
Group
2021
£M
Society
2022
£M
Society
2021
£M
Profit for the financial year 161.9 120.2 155.6 117.2
Items that may subsequently be reclassified to profit and loss:
Fair value gains recorded in cash flow hedge reserve 118.1
118.1
–
Gains previously recorded in cash flow hedge reserve amortised through
profit or loss (5.2 )
(5.2) –
Fair value losses on investment securities measured at fair value through
other comprehensive income (10.8 ) (4.6 ) (10.8) (4.6)
Losses / (gains) on investment securities measured through other
comprehensive income reclassified to profit or loss on diposal 1.7 (1.9 ) 1.7 (1.9)
Tax relating to items that may subsequently be reclassified (19.7 ) 1.3 (19.7) 1.3
Effect of change in corporation tax rate (9.4 ) 0.5 (9.4) 0.5
Items that may not subsequently be reclassified to profit and loss:
Actuarial (loss) / gain on retirement benefit surplus 25 (4.9 ) 7.1 (4.9) 7.1
Revaluation loss on properties 17 (1.9 ) (1.0 ) (1.9) (1.0)
Tax relating to items that may not be reclassified 1.9 (1.0 ) 1.9 (1.0)
Effect of change in corporation tax rate 0.5 (0.7 ) 0.5 (0.7)
Total comprehensive income for the year 232.2 119.9 225.9 116.9
For the year ended 31 December 2022 For the year ended 31 December 2022
Income Statements
For the year ended 31 December 2022
Statements of Comprehensive Income
For the year ended 31 December 2022
186 187Leeds Building Society | Annual Report and Accounts 2022
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188 189Leeds Building Society | Annual Report and Accounts 2022
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–
Notes
Group
2022
£M
Group
2021
£M
Society
2022
£M
Society
2021
£M
Assets
Liquid assets
11, 29 2,958.1 2,538.7 2,958.1 2,538.7
29 235.9 159.0 83.3 96.5
Cash in hand and balances with the Bank of England
Loans and advances to credit institutions
Investment securities 12 1,386.7 949.1 1,452.8 1,040.4
32 679.9 219.3 679.5 210.4
13
(585.9 ) (169.1 ) (585.9) (169.1)
14 248.3 166.5 447.8 205.2
26 0.3 4.5 0.3 4.5
15
16 22.5 25.0 22.5
17 66.7 82.4 66.7
Derivative financial instruments
Loans and advances to customers
Loans fully secured on residential property
Other loans
Fair value adjustment for hedged risk on loans and advances to customers
Other assets, prepayments and accrued income
Current tax assets
Deferred tax assets
Investments in subsidiary undertakings
Intangible assets
Property, plant and equipment
Retirement benefit surplus 25 3.6 8.3 3.6
– 1.9
25.0
82.4
8.3
18 17,520.4 15,258.0 17,520.4 15,258.0
(100.7 ) (72.9 ) (100.7) (72.9)
32 251.9 166.8 237.2 141.2
19 229.7 297.5 404.7 540.9
20 2,711.0 2,554.6 2,620.2 2,395.2
21 586.1 201.4 631.0 197.7
26 33.0 6.2 32.1 6.6
22 0.6 1.9 0.6 1.9
23 309.1 339.4 309.1 339.4
Total assets
Liabilities
Shares
Fair value adjustment for hedged risk on shares
Derivative financial instruments
Amounts owed to credit institutions
Amounts owed to other customers
Debt securities in issue
Other liabilities and accruals
Deferred tax liabilities
Provisions for liabilities and charges
Subordinated liabilities
Subscribed capital 24 197.6 227.3 197.6 227.3
81.3
–
(5.9 ) 0.7 (5.9) 0.7
Total liabilities
General reserve
Cash flow hedge reserve
Fair value reserve
Revaluation reserve
Other reserve 14.3 14.3 14.3 14.3
Total liabilities and equity 25,513.9 22,513.7 25,626.5 22,574.2
The accounts on pages 186 to 240 were approved by the board of directors on 23 February 2023.
Signed on behalf of the board of directors by:
Iain Cornish
Chair
Richard Fearon
Chief Executive Officer
Andrew Conroy
Chief Financial Officer
Group 2022
General
reserve
£M
Cash flow
hedge
reserve
£M
Fair value
reserve
£M
Revaluation
reserve
£M
Other
reserve
£M
Total equity
attributable
to members
£M
At 1 January 2022
Comprehensive income for the year
Revaluation gains transferred on disposal of assets 7.9 – – (7.9 )
At 31 December 2022 1,415.3 81.3 (5.9 ) 1.8 14.3 1,506.8
Group 2021
General
reserve
£M
Cash flow
hedge
reserve
£M
Fair value
reserve
£M
Revaluation
reserve
£M
Other
reserve
£M
Total equity
attributable
to members
£M
At 1 January 2021
Comprehensive income for the year
Revaluation gains transferred on disposal of assets 0.2
(4.7 )
(0.2 )
At 31 December 2021 1,251.3
Society 2022
General
reserve
£M
Cash flow
hedge
reserve
£M
Fair value
reserve
£M
Revaluation
reserve
£M
Other
reserve
£M
Total equity
attributable
to members
£M
1,256.7 – 0.7 8.3 14.3 1,280.0
149.8 81.3 (6.6) 1.4
At 1 January 2022
Comprehensive income for the year
Revaluation gains transferred on disposal of assets 7.9 – – (7.9)
– 225.9
– –
At 31 December 2022 1,414.4 81.3 (5.9) 1.8 14.3 1,505.9
Society 2021
General
reserve
£M
Cash flow
hedge
reserve
£M
Fair value
reserve
£M
Revaluation
reserve
£M
Other
reserve
£M
Total equity
attributable
to members
£M
1,133.5 9.9 14.3 1,163.1
123.0
– 5.4
– (4.7) (1.4) –116.9
At 1 January 2021
Comprehensive income for the year
Revaluation gains transferred on disposal of assets 0.2 – – (0.2) – –
At 31 December 2021 1,256.7 – 0.7 8.3 14.3 1,280.0
Statements of Financial Position
As at 31 December 2022
Statements of Changes in
Members’ Interest
For the year ended 31 December 2022
Notes
Group
2022
£M
Group
2021
£M
Society
2022
£M
Society
2021
£M
Profit before tax 220.5 163.7 212.9 160.7
Adjusted for:
Impairment charge / (credit) 11.9 (3.8 ) 11.9 (3.8)
Provisions (release) / charge (0.5 ) 1.4 (0.5) 1.4
Depreciation and amortisation 10.9 9.1 10.9 9.1
Impairment of property, plant and equipment 3.8 3.8 –
Fair value of collateral loan which represents a pool of equity release
mortgages 53.9 (0.6 ) 53.9 (0.6)
Non cash and other items 25.9 (30.3 ) 27.0 (30.1)
Cash generated from operations 326.4 139.5 319.9 136.7
Changes in operating assets and liabilities
Derivative financial instruments (7.4 ) 68.5 (21.8) 46.4
Loans and advances to customers (2,031.8 ) (1,533.9 ) (2,031.8) (1,533.9)
Other operating assets (76.9 ) 102.8 (235.8) 154.7
Shares 2,262.4 1,095.3 2,262.4 1,095.3
Amounts owed to credit institutions and other customers (58.3 ) 802.4 (126.7) 722.0
Other operating liabilities 380.7 9.2 428.0 35.8
Taxation paid (56.0 ) (45.9 ) (56.0) (45.9)
Net cash flows from operating activities 739.1 637.9 581.8 611.1
Cash flows from investing activities
Purchase of investment securities (1,292.5 ) (511.8 ) (1,292.5) (511.8)
Proceeds from sale and redemption of investment securities 847.9 504.7 873.0 534.7
Purchase of intangible assets (3.9 ) (1.7 ) (3.9) (1.7)
Purchase of property, plant and equipment (3.7 ) (5.5 ) (3.7) (5.5)
Proceeds from sale of property, plant and equipment 8.9 0.2 8.9 0.2
Net cash flows from investing activities (443.3 ) (14.1 ) (418.2) 15.9
Cash flows from financing activities 28
Net proceeds from issue of debt securities 665.1 508.7 665.1 508.7
Repayments of debt securities in issue (463.0 ) (804.8 ) (420.9) (754.8)
Net proceeds from issue of subordinated liabilities – 346.9 – 346.9
Principal lease payments (1.6 ) (2.0 ) (1.6) (2.0)
Net cash flows from financing activities 200.5 48.8 242.6 98.8
Net increase in cash and cash equivalents 496.3 672.6 406.2 725.8
Cash and cash equivalents at the beginning of the year 2,697.7 2,025.1 2,635.2 1,909.4
Cash and cash equivalents at the end of the year 29 3,194.0 2,697.7 3,041.4 2,635.2
Statements of Cash Flows
For the year ended 31 December 2022
190 191Leeds Building Society | Annual Report and Accounts 2022
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Other
Information
240
Strategic Report
Risk Management
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Governance Financial Statements Other Information
1. Statutory percentages
31 December
2022
Statutory
Limit
Lending limit 2.5% 25%
Funding limit 22.9% 50%
The above percentages have been calculated in accordance with the provisions of the Building Societies Act 1986 (as amended by the
Building Societies Act 1997).
The lending limit measures the proportion of business assets not in the form of loans fully secured on residential property. Business
assets are the total assets of the Group as shown in the Statement of Financial Position, plus impairment provisions for loans and
advances to customers, less liquid assets, intangible assets and property, plant and equipment.
The funding limit measures the proportion of shares and borrowings (excluding fair value adjustment for hedged risk) not in the form of
shares held by individuals.
2. Other percentages
31 December
2022
31 December
2021
As a percentage of shares and borrowings:
Gross capital 8.86% 9.04%
Free capital 8.47% 8.51%
Liquid assets 20.15% 17.90%
Profit for the financial year as a percentage of mean total assets 0.67% 0.56%
Management expenses as a percentage of mean total assets 0.59% 0.58%
The above percentages have been prepared from the Group’s consolidated accounts and in particular:
• ‘shares and borrowings’ represent the total of shares, amounts owed to credit institutions, amounts owed to other customers and
debt securities in issue;
• ‘gross capital’ represents the aggregate of general reserve, cash flow hedge reserve, fair value reserve, other reserve, revaluation
reserve, subordinated liabilities and subscribed capital;
• ‘free capital’ represents the aggregate of gross capital less intangible assets and property, plant and equipment;
• ‘liquid assets’ represent the total of cash in hand and balances with the Bank of England, loans and advances to credit institutions and
investment securities;
• ‘mean total assets’ represent the amount produced by halving the aggregate of total assets at the beginning and end of the financial
year; and
• ‘management expenses’ represent the aggregate of administrative expenses, depreciation and amortisation.
3. Information relating to the directors and other officers at 31 December 2022
Name Occupation
Date of
Birth
Date first
appointed Other directorships
Chair
I.C.A. Cornish
Chair from 3 April 2020
Chair 11.11.60 01.01.19 Macmillan Cancer Support
Vice Chair
G.J. Hoskin
Vice Chair and Senior Independent
Director from 1 January 2019
Non Executive Director 18.09.60 16.11.15 Saga plc
Acromas Insurance Company Ltd
Chief Executive
*R.G. Fearon
Chief Executive from 27 February 2019
Chief Executive Officer 16.07.78 19.02.16 None
Directors
A.M. Barnes Non Executive Director 10.11.68 01.02.19 Globaldata plc
Quilter Life & Pensions Limited
Quilter Investment Platform Limited
*A.P. Conroy Chief Financial Officer 11.12.75 06.01.20 Saltmine Trust (Trustee)
**Leeds Mortgage Funding Ltd
Arkose Funding Ltd
D. Fisher Non Executive Director 02.08.58 27.03.12 Tandem Bank Ltd
Tandem Money Ltd
N.A. Fuller Non Executive Director 17.12.66 01.12.20 None
*A.J. Greenwood Deputy Chief Executive Officer 11.12.69 08.01.15 None
*R.J. Howse Chief Operating Officer 03.12.70 01.05.21 None
L.R. McManus
Resigned on 13 January 2023
Non Executive Director 17.06.68 01.09.17 Beatson Cancer Charity
Kane LMMG Ltd
A. Tadayon Non Executive Director 10.06.66 22.10.21 Tadayon Consulting Ltd
(*executive directors)
(**Society subsidiary)
The Society’s executive director service contracts can be terminated on twelve months’ notice by either the Society or the director.
Documents may be served on the above named directors at: c/o Deloitte LLP (Ref MB), 1 City Square, Leeds, LS1 2AL.
Year ended 31 December 2022
Annual Business Statement
242 243Leeds Building Society | Annual Report and Accounts 2022
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Leeds Building Society provides disclosures below in accordance
with the Capital Requirements (Country by Country Reporting)
Regulations 2013. The information below has been audited in
accordance with the standards required by Directive 2006/43/EC.
Nature and location of the Group’s activities
Leeds Building Society is the UK’s fifth largest building society with
50 branches (2021: 50), total assets of £25.5bn (2021: £22.5bn) and
839,000 members (2021: 788,000). The Society’s mortgage book
primarily relates to properties in the United Kingdom, with a small
proportion of historic balances, but no new lending, in Spain and
Gibraltar.
The Society’s subsidiary undertakings, their country of
incorporation and their principal activities are detailed in note 15
on page 215. The Society and its subsidiaries are all tax resident in
the United Kingdom.
The Society has no physical presence or regulatory branch in
Spain, with all mortgages administered from the UK. The results of
the Society’s activity in Spain are included in the results of Leeds
Building Society and subject to taxation in the UK.
The Society has no permanent establishment in Gibraltar, with all
mortgages administered from the UK. The results of the Society’s
activity in Gibraltar are included in the results of Leeds Building
Society and subject to taxation in the UK.
Results by country
The information for the year ended 31 December 2022 presented
below is at a full Group level of consolidation, which has been
prepared under IFRS.
Total income is defined as net interest income plus fees and
commissions receivable (net of fees and commissions payable),
fair value gains less losses from financial instruments, together
with all other components of operating income. Total income,
profit before tax and corporation tax charge are as disclosed in the
Group’s Income Statement on page 186.
Average monthly number of employees is shown on a full time
equivalent basis. Colleague costs comprise wages and salaries,
social security costs and pension costs as disclosed in note 6 on
page 206.
Corporation tax paid represents the total payments as reported in
the Statement of Cash Flows on page 190.
2022 UK * Spain Total
* UK
includes
Gibraltar
Total income
(£m) 376.5 0.2 376.7 0.6
Profit before
tax (£m) 220.5 –220.5 0.7
Total assets
(£m) 25,458.2 55.7 25,513.9 8.2
Total assets
less liabilities
(£m) 1,451.1 55.7 1,506.8 8.2
Average
number of
FTEs 1,466 –
1,466
–
Colleague
costs (£m) 79.9 – 79.9 –
Corporation
tax charge
(£m) 58.6 – 58.6 –
Corporation
tax paid (£m) 56.0 – 56.0 –
Return on assets
The return on assets, calculated as profit before tax divided by
mean total assets, was 0.92% (2021: 0.76%) for the year ended
31 December 2022.
Public subsidies received
The Group received no public subsidies in the year ended
31 December 2022.
Alternative Performance Measures
The table below sets out the Alternative Performance Measures (APM) used within the Annual Report and Accounts. These are financial
measures of the Group’s performance or position which are not defined or specified under IFRS but which are useful in understanding
how the Group has performed. The measures used are common practice across the financial services industry and facilitate
comparisons with other institutions.
The table explains how the APM is calculated and provides a reconciliation to the closest equivalent statutory measure, as defined or
specified under IFRS.
Measure Definition and purpose How the measure is calculated
Reconciliation to statutory
measure under IFRS
Cost of risk A measure of the level of impairment
charges relative to the size of the
asset.
Impairment losses on loans and
advances to customers divided by
mean gross balance of loans and
advances to customers.
No equivalent statutory measure
but is calculated using amounts
disclosed in the Notes to the
Accounts.
Cost to income ratio A measure of the efficiency of the
Group in generating its income by
showing the level of costs incurred
relative to the level of income
generated. This measure is used by
the Group to monitor and manage its
cost base.
Management expenses
(administrative expenses plus
depreciation and amortisation)
divided by total income, as recorded
in the Income Statement.
No equivalent statutory measure but
all elements of the calculation are
separately disclosed in the Income
Statement.
Cost to mean asset ratio A measure of the efficiency of the
Group in maintaining its asset base,
showing the level of costs incurred
relative to the size of the Group’s
balance sheet. This measure is used
by the Group to monitor and manage
its cost base.
Management expenses
(administrative expenses plus
depreciation and amortisation) for
the period divided by the mean of
the opening and closing total assets
for the period, as recorded in the
Statement of Financial Position.
No equivalent statutory measure,
but all elements of the calculation are
separately disclosed in the Income
Statement or Statement of Financial
Position.
Net interest margin Net interest income (the difference
between interest receivable and
interest payable) is the primary
source of income for the Group.
This is a key measure for monitoring
and managing the level of income
generated by the Group’s balance
sheet.
Net interest receivable, as recorded
in the Income Statement, divided
by the mean of the opening and
closing total assets for the period,
as recorded in the Statement of
Financial Position.
No equivalent statutory measure,
but all elements of the calculation are
separately disclosed in the Income
Statement or Statement of Financial
Position.
Net residential lending The increase in the size of the
Group’s residential mortgage book
during the year. Used by the Group to
monitor and manage the growth of
the business.
Gross residential lending less
redemptions, contractual
repayments and other capital
repayments.
This is approximately equal to the
difference between the opening
and closing balance of loans and
advances fully secured on residential
property in the Statement of
Financial Position, adjusted for
movements in impairment loss
provisions and other accounting
adjustments.
New (gross) residential
lending
The total amount of new loans and
advances to customers secured on
residential property advanced by the
Group during the year.
No calculation required. No equivalent statutory measure.
Year ended 31 December 2022
Country by Country Reporting
Year ended 31 December 2022
Glossary of Terms
244 245Leeds Building Society | Annual Report and Accounts 2022
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Year ended 31 December 2022
Glossary of Terms continued
Glossary
Set out below are the definitions of terms used within the Annual Report and Accounts to assist the reader and to facilitate comparison
with other financial institutions.
Arrears
A mortgage customer is in arrears when they are behind in fulfilling
their payment obligations with the result that an outstanding loan
commitment is overdue. Such a customer can also be said to be in
a state of delinquency.
Basel 3
Basel 3 is the third capital adequacy framework issued by the Basel
Committee on Banking Supervision, which defines the capital and
liquidity rules for banks and building societies. The framework
has been embedded into UK law through the European Capital
Requirements Directive V (CRD V).
Basis point
One hundredth of one per cent (0.01%), so 100 basis points is
1%. Used in quoting movements in interest rates or yields on
securities.
Commercial loans
Loans secured on commercial property.
Common Equity Tier 1 (CET1) ratio
This is a regulatory ratio, calculated as the total of CET1 capital
divided by Risk-weighted assets (RWAs). CET1 capital is the
highest quality form of capital and comprises general reserves
from retained profits, less the book values of any pension surplus,
goodwill and intangible assets and other regulatory adjustments as
defined under CRD V.
Contractual maturity
The final payment date of a loan or other financial instrument, at
which point all the remaining outstanding principal and interest is
due to be repaid.
Covered bonds
Debt securities which are backed by a portfolio of mortgages that
is segregated from the issuer’s other assets solely for the benefit
of the holders of the covered bonds. The Group issues covered
bonds as part of its funding activities.
Credit risk
This is the risk that a customer or counterparty is unable to pay the
interest or to repay the capital on a loan when required.
Debt securities in issue
Transferable certificates of indebtedness of the Group to the
bearer of the certificates. These are liabilities of the Group and
include certificates of deposit.
Default
Default occurs when a borrower is deemed unlikely to repay their
loan or other amount due to the Group.
Derivative financial instruments
A derivative financial instrument is a type of financial instrument
(or an agreement between two parties) whose value is based
on the underlying asset, index or reference rate to which it is
linked. The Group uses derivative financial instruments to hedge
its exposures to market risks, such as interest rate and foreign
currency risk.
Effective interest rate method
The method used to measure the carrying value of a financial asset
or a liability and to allocate associated interest income or expense
to produce a level yield over the relevant period.
Expected credit loss (ECL)
A calculation to estimate potential losses on current exposures
due to potential defaults; the term is used in relation to
impairment loss provisioning under IFRS 9 and is derived from the
multiplication of the PD, LGD and EAD.
Exposure at default (EAD)
An estimate of the maximum loss that an entity might suffer if a
borrower or other counterparty fails to meet their obligations at
default.
Fair value
Fair value is the amount for which an asset could be exchanged,
or a liability settled, between willing parties in an arm’s length
transaction.
Financial Services Compensation Scheme (FSCS)
The UK’s compensation fund of last resort for customers
of authorised financial services firms. The FSCS may pay
compensation to customers if a firm is unable, or likely to be
unable, to pay claims against it, usually because it has stopped
trading or has been declared in default. The FSCS is funded by the
financial services industry. Every firm authorised by the FCA and
PRA is obliged to pay an annual levy, which goes towards its running
costs and compensation payments.
Forbearance strategies
Strategies to assist borrowers in financial difficulty, such as
agreeing a temporary reduction in payments, extending loan
terms and temporarily converting loans to an interest only basis.
Forbearance strategies aim to avoid repossession where it is in the
interest of the borrower.
Free capital
The aggregate of gross capital less intangible assets and property,
plant and equipment.
Funding limit
Measures the proportion of shares and borrowings (excluding the
fair value adjustment for hedged risk) not in the form of shares held
by individuals.
General reserves
The accumulation of the Group’s profit after tax since inception. It
is the Group’s main component of Common Equity Tier 1 capital
which is a measure of strength and stability.
Gross capital
The aggregate of the general reserve, cash flow hedge reserve,
fair value reserve, other reserve, revaluation reserve, subordinated
liabilities and subscribed capital.
Impaired loans
Loans where there is objective evidence that an impairment event
has occurred, meaning that the Group does not expect to collect
all the contractual cash flows or expect to collect them when they
are contractually due.
Internal Capital Adequacy Assessment Process (ICAAP)
The Group’s own assessment, as part of CRD V requirements, of
the levels of capital that it needs to hold in respect of regulatory
capital requirements for risks it faces under a business-as-usual
scenario and a number of stressed scenarios.
Internal Liquidity Adequacy Assessment Process (ILAAP)
The Group’s own internal assessment of the level of liquidity that
it needs to hold in respect of regulatory liquidity requirements in
relation to a number of stressed scenarios.
Internal Ratings Based (IRB) Approach
An approach for measuring exposure to credit risk which is
more sophisticated than the Standardised Approach, where an
entity can calculate its own risk weights for certain assets. IRB
approaches can only be used with the permission of the Prudential
Regulation Authority.
International Swaps and Derivatives Association (ISDA)
master agreement
A standardised contract developed by ISDA and used to enter into
bilateral derivative transactions granting legal rights of offsetting
for derivative transactions with the same counterparty.
Investment securities/debt securities
Assets held by the Group representing certificates of indebtedness
of credit institutions, public bodies or other undertakings excluding
those issued by central banks.
Lending limit
Measures the proportion of business assets not in the form of
loans fully secured on residential property.
Leverage ratio
A regulatory ratio which measures the value of the Society’s Tier 1
capital as a proportion of total relevant non-risk weighted assets.
The CRR leverage ratio is defined by the EU’s Capital Requirements
Regulation, while the UK leverage ratio modifies this ratio to
exclude central bank reserves. The UK regime does not apply to
the Society due to its size (less than £50 billion of retail deposits).
Liquid assets
Assets which are either in the form of cash or are readily
convertible into cash. Total of cash in hand and balances with the
Bank of England, loans and advances to credit institutions, and
investment securities.
Liquidity Coverage Ratio (LCR)
A regulatory standard ratio implemented by the Basel 3 Reforms.
It is calculated as the stock of high quality liquid assets divided by
the total net stressed cash outflows over the next 30 calendar days
expressed as a percentage.
Liquidity risk
The risk that the Group is not able to meet its financial obligations
as they fall due, or will only be able to do so at an excessive cost.
This risk arises from timing mismatches of cash inflows and
outflows.
Loan to value ratio (LTV)
A ratio which expresses the amount of a mortgage as a percentage
of the value of the property. The Group calculates residential
mortgage LTV on an indexed basis (the value of the property is
updated on a quarterly basis to reflect changes in the house price
index).
Loans past due/past due loans
Loans are past due when a counterparty has failed to make a
payment when contractually due.
Loss given default (LGD)
A parameter used in relation to credit risk exposures modelled
under IFRS 9; an estimate of the difference between the EAD and
the net amount recovered, expressed as a percentage of the EAD.
Management expenses
Management expenses represent the aggregate of administrative
expenses, depreciation and amortisation as recorded in the
Income Statement.
Market risk
The risk that movements in market risk factors, including foreign
exchange rates, interest rates and customer-driven factors will
create losses or decrease portfolio values.
Mean total assets
Represents the amount produced by halving the aggregate of total
assets at the beginning and end of the financial year.
Member
A person who has a share investment or a mortgage loan with the
Society which satisfies the Society’s rules for membership.
Minimum Requirements for Own Funds
and Eligible Liabilities (MREL)
MREL is the total loss absorbing capital a financial institution must
hold to facilitate the recapitalisation of the institution in resolution.
Net interest income
The difference between interest receivable and similar income
and interest payable and similar charges. This is the same as net
interest receivable in the Income Statement.
Net Promoter Score®
The Net Promoter Score® (NPS) is a measure of satisfaction and
loyalty to the Group based on survey responses. It measures the
proportion of promoters (positive responses) less the proportion
of detractors (negative responses). We use the NPS methodology
to measure satisfaction among our broker partners.
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Net Stable Funding Ratio (NSFR)
A regulatory standard ratio implemented by the Basel 3 reforms
which is the total amount of stable funding divided by the total
amount of required stable funding, expressed as a percentage.
Notional principal amount
The notional principal amount indicates the amount on which cash
flows on derivative financial instruments are calculated and does
not represent amounts at risk.
Operational risk
The risk of loss arising from inadequate or failed internal processes,
people and systems or from external events.
Probability of default (PD)
An estimate of the likelihood a borrower will not be able to meet
their debt obligations as they fall due.
Permanent interest bearing shares (PIBS)
Unsecured deferred shares that are a form of capital. PIBS rank
behind the claims of all subordinated debt holders, depositors,
payables and investing members of the Group.
Replacement cost
The amount the Group would need to pay to replace derivative
contracts that are favourable to the Group if the counterparty
with whom the contract was held were unable to honour their
obligation.
Repurchase agreements (Repo)
A repurchase agreement allows a borrower to use a financial
security as collateral for a cash loan at a fixed rate of interest. In
a repo, the borrower agrees to sell a commitment to repurchase
the asset at a specified price on a given future date. For the party
selling the security and agreeing to repurchase the asset in the
future, it is a repo, for the party purchasing the security and
agreeing to resell, it is a reverse repo.
Residential loans
Loans which are secured against residential property.
Residential mortgage backed securities (RMBS)
A category of asset backed security that represents interests in
a group of residential mortgages. Investors in these securities
have the right to cash received from future mortgage payments
(interest and/or principal).
Risk appetite
The articulation of the level of risk that the Group is willing to take
(or not take) in order to safeguard the interests of the Society’s
members whilst achieving business objectives.
Risk-weighted assets (RWAs)
A regulatory measure which adjusts the value of assets as recorded
in the Statement of Financial Position to reflect the relative level
of risk. This measure is used in calculating regulatory capital
requirements.
Securitisation
The process by which a group of assets (usually loans) is
aggregated into a pool which is used to back the issuance of new
securities. A company transfers assets to a special purpose entity
which issues securities backed by those assets. The Society has
established securitisation structures (using residential mortgages)
as part of its funding activities.
Shares
Money deposited by a person in a retail savings account with the
Group. Such funds are recorded as liabilities for the Group.
Shares and borrowings
The total of shares, amounts owed to credit institutions, amounts
owed to other customers and debt securities in issue.
SONIA
The Sterling Over Night Index Average rate. The risk free rate
calculated as the weighted average overnight sterling deposit rate
for each business day.
Subordinated liabilities
Debt securities issued by the Group which have certain terms
and conditions attached relating to the payment of interest and
principal such that they are ranked behind the claims of all other
creditors and members of the Society, other than subscribed
capital.
Subscribed capital
Debt securities issued by the Group which have certain terms
and conditions attached relating to the payment of interest and
principal such that they are treated as capital.
Tier 1 capital
A measure of financial strength as defined by the PRA. Tier 1
capital is divided into Common Equity Tier 1 and other Tier 1
capital. Common Equity Tier 1 capital is defined above, while other
Tier 1 capital includes qualifying capital instruments such as PIBS.
Tier 2 capital
A further component of regulatory and financial capital as defined
by CRD V.
Wholesale funding
The total of amounts owed to credit institutions, amounts owed to
other customers and debt securities in issue.
Year ended 31 December 2022
Glossary of Terms continued
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Leeds Building Society Annual Report and Accounts 2022
Annual
Report
and
Accounts
2022