Annual Report
and Accounts
2023
Contents
Strategic Report 3
Chair’s Welcome 4
Chief Executive Officer’s Highlights 6
Business Model and Strategy 9
Financial Review 31
Risk Overview 41
Viability Statement 45
Climate-Related Financial Disclosures 47
Non-Financial and Sustainability Information Statement 83
Risk Management Report 84
Approach To Risk Management 85
Principal Risks 89
Governance 112
The Board of Directors 113
The Executive Committee 119
Corporate Governance Report 121
Nominations Committee Report 140
Audit Committee Report 147
Board Risk Committee Report 155
Directors’ Remuneration Report 158
Directors’ Report 172
Financial Statements 175
Independent Auditor’s Report 176
Income Statements 189
Statements of Comprehensive Income 190
Statements of Financial Position 191
Statements of Changes in Members’ Interest 192
Statements of Cash Flows 193
Notes to the Accounts 194
Other Information 245
Annual Business Statement 246
Country by Country Reporting 248
Glossary of Terms 249
2023: How we performed
Gross residential lending
£4.4bn
(2022: £5.0bn)
We helped 34,900 more people
have the home they want,
including 17,700 first time buyers
Total assets
£28.1bn
(2022: £25.5bn)
Savings balances
£20.8bn
(2022: £17.5bn)
We helped 122,300
more people save for
their future
Average savings rate
1
3.05%
Compared to the rest of the
market average of 2.46%
An average benefit to all
our savers of £110.0m
Profit before tax
£181.5m
(2022: £220.5m)
Common Equity Tier 1 Capital
28.2%
(2022: 33.3% )
Reserves available
to protect us from
future problems
Customer satisfaction
2
94%
(2022: 93%)
We have an ongoing
commitment to be customer
focussed in everything we do
Colleague engagement
3
8.3
(out of 10)
We are committed
to being a great
place to work
1 CACI’s Current Account & Savings Database (CSDB), stock, January 2023 to December 2023, latest data available. CACI is an independent company that provides financial
benchmarking data of the retail cash savings market.
2 Overall customer satisfaction in a survey of 3,612 members from January to December 2023.
3 Your Voice colleague survey, 1,602 respondents (91% response rate) in June 2023.
Strategic
Report
Chair’s Welcome
Leeds Building Society’s
purpose is to put home
ownership within reach of
more people - generation
after generation.
Strategic Report
Risk Management
Report
Governance Financial Statements Other Information
4
With this being one of the hardest times to afford a home since our
founding year in 1875, and the number of first time buyers at a 10 year low,
this goal has never been more relevant and important.
Performance over 2023
We measure our performance in terms of how well we are
delivering on our purpose across a number of key areas:
to help people achieve their aspiration of home ownership,
we develop innovative mortgage products and lend to
them on a responsible and sustainable basis; to fund our
lending we provide savings products which are consistently
competitive; and to make sure that we can continue to
do this for generation after generation, we need to make
sufficient profit to maintain our financial strength, while also
being able to invest in our people, in improving our service
and in developing our technology.
The headwinds which we faced in 2023 included a much
smaller mortgage market, house prices on a declining
trajectory, continued pressures on the cost of living,
a sluggish economy and intensified competition.
Notwithstanding this, I am pleased to report that in 2023
we made strong progress in all key areas.
The details are covered in the Chief Executive’s review of the
year, and elsewhere in the Annual Report, however, some of
the most important headlines include:
• Half of all our new mortgages went to helping first time
buyers, up from one in three in 2022.
• The average interest rate on our savings accounts was
0.59% above the average rate for the market as a whole –
a benefit of £110 million for our savings members.
• We won multiple awards for customer service and achieved
a 94% service satisfaction score in a survey of members.
• The Society’s membership reached an all-time high
of 919,000.
• Colleague engagement scores improved to 8.3 out of 10,
which places us in the top 25% against the benchmark for
financial services.
• Pre-tax profit totalled £181.5 million, sufficient to underpin
our financial strength and maintain our investment for
the future.
• Through Society and member contributions of over
£1 million, we supported primarily purpose-linked
community schemes and projects.
Board changes
Two new appointments were made to the board
this year. Farah Buckley joined in April as an independent
non-executive director. She also joined both the Audit
and Board Risk Committees. Farah is a chartered accountant
with extensive experience as an executive in private equity
and corporate finance.
Pam Rowland joined the board in May as an independent
non-executive director. She also joined the Board Risk,
Nominations and Remuneration Committees. Pam is a
chartered banker with over 30 years experience in financial
services principally in chief operating officer and change roles.
David Fisher has agreed to remain on the board as a non-
independent non-executive director. David has an extensive
career in financial services at a senior level and his continued
presence brings valuable continuity.
Outlook
On a personal note, I announced in January my decision to
step down as Chair in 2025. While this will be my last year
with the Society, my commitment and determination to build
a strong Society for future generations remains unchanged.
Looking to the future, we expect many of the headwinds
that existed last year to continue into 2024, albeit that our
expectation is that interest rates will begin to decline, which
will support a moderate increase in activity in the housing
and mortgage markets. Guided by our purpose, we remain
well placed to prosper and are confident in our outlook for
the year ahead and beyond.
The Society is fortunate in having an outstanding and
distinctive culture. Our colleagues feel a keen sense of
engagement and pride in our business and identify with our
purpose. Our consistently strong performance is down to
them and the Society’s leadership team, and I am extremely
grateful for all their efforts.
Iain Cornish
Chair
22 February 2024
Leeds Building Society | Annual Report and Accounts 2023 5
Since 1875, Leeds Building Society has grown from strength
to strength thanks to the care and dedication of those who
came before us. They forged a strong bond between the
Society and its members through good times and bad, a
bond built on trust and a shared sense of purpose.
Remaining mindful of our roots served us well in 2023,
a year of economic turmoil, which brought cost of living
pressures that affected both members and colleagues. Yet
it is at times like these that I see us at our best – delivering
on our purpose, supporting our members through times
of uncertainty, and continuing to build a sustainable and
financially secure Society for future generations.
Our growth in 2023 highlights the effectiveness of our
approach. We welcomed 157,000 new members to the
Society, bringing our total membership to an all-time high of
919,000. It was a record year for net savings inflows with £2.7
billion, resulting in total savings balances of £20.8 billion, and
we achieved £4.4 billion of mortgage lending, with six of the
ten biggest mortgage lending days in our history.
The financial strength of our Society remains robust. I’m
pleased to report pre-tax profits totalled £181.5 million, the
second highest in our history, capital and reserves exceed
£1.6 billion, and liquidity levels are well above regulatory
requirements. Our total assets increased to £28.1 billion,
an all-time high for the Society.
Our commitment to our purpose
We’re committed to making the home ownership dream a
reality through our purpose: putting home ownership within
reach of more people - generation after generation.
In 2022, we became the first national mortgage lender to
stop providing mortgages for residential second homes.
This year we deepened our support with more industry firsts,
including a new partnership with Experian Boost, which
enhances aspiring borrowers’ credit scores by factoring in
regular payments, such as council tax and even Netflix
subscriptions. In December, we launched Reach Mortgages,
a product range designed to help those who meet our
various mortgage affordability and other criteria but have
lower credit scores. In a much smaller mortgage market,
these innovations contributed to us helping 17,700 first
time home buyers onto the housing ladder.
This was recognised externally when we were named ‘Best
Shared Ownership Mortgage Lender’ in the 2023 What
Mortgage Awards, for the eighth consecutive year. We also
won ‘First time Mortgage Buyers’ Choice’ at the Moneyfacts
Consumer Awards.
Chief Executive
Officer’s
Highlights
Strategic Report
Risk Management
Report
Governance Financial Statements Other Information
6
One of the largest challenges facing first time buyers is
saving for a deposit. To help, we launched Home Deposit
Saver, a regular savings account offering a £500 bonus upon
receiving a mortgage offer from us. We also launched a new
savings product tailored to shared ownership borrowers
aiming to purchase a larger share of their homes.
We continue to campaign for real change in the housing
market, believing that solutions lie in building more homes
of all types, increasing affordable routes to home ownership,
and better supporting people to save for their deposit. In
September we published a new report focused on first time
buyers called, ‘A Place to Call Home’. This report forecasted
426,000 would-be first time buyers – 233 per day – will be
priced out of the housing market in England over the next
five years. I presented the findings of this report individually
to MPs and at Labour Party and Conservative Party
conference events, including one with the Housing Minister.
We brought further attention to the frustrations of
first time buyers at Party Conferences by launching an
advertising campaign based on an unseen fictional city called
‘Losthaven’. We will continue to stand alongside the residents
of ‘Losthaven’ to amplify their voices and ensure action is
taken to protect the future of home ownership, generation
after generation.
Improving service for our members
I’m pleased to report that customer service and support for
members improved further with satisfaction levels reaching
94%. It’s clear that our members appreciate the personal
service they receive when they visit us in person – our
network of branches, and the people who work there, are a
great strength of our Society and one that we remain deeply
committed to.
Alongside this, we invested in our colleagues and new
technology solutions to improve customer service and digital
experiences for members. While this led to higher costs in
2023, our cost income ratio remains among the lowest for
banks and building societies and we have set the foundations
for new digital capabilities to be built in years to come,
experiences which will allow members to engage with us in
a way they choose to; be that in branch, via contact centre,
digitally, or all three.
We are already seeing the benefit of this investment.
For example, enhancements to the digital saving maturity
journey has increased the number of members using digital
channels by 41%, and a new savings application process
reduced the time it takes for members to apply by over 80%.
Lastly, mortgage intermediaries can now receive a mortgage
offer in principle from the Society as quickly as within
17 seconds.
We know though that great products and service come
from our skilled and committed colleagues, working in a
diverse and inclusive culture. I’m delighted our colleague
engagement scores, measured in the annual ‘Your Voice’
survey, improved to 8.3 (out of 10) versus 8.0 in 2022.
We reward colleagues fairly at all levels of the business and
support their wellbeing. We have been a Real Living Wage
employer since 2019 and in January we increased minimum
salary levels by 14.6% to £22,000. This year we invested
in developing colleagues to fulfil their true potential and
we made considerable progress in creating a diverse and
inclusive environment where we value our differences,
by promoting Race Equality Week, National Inclusion Week
and Black History Month. Our new digital work experience
programme launched this year. 398 young people joined
us virtually across two cohorts, with 69% of these cohorts
being from an ethnic minority background.
Our purpose is more relevant
than ever and our commitment
to it will remain steadfast.
Leeds Building Society | Annual Report and Accounts 2023 7
Navigating interest rate challenges
A significant aspect of 2023 was the increase in the Bank
of England interest rate to a 15-year high, an issue with
far-reaching effects on savers and borrowers alike.
In a year which saw average savings rates at the highest
levels since 2008, our dedication to providing value led us to
offer savings interest rates 0.59% above the market average,
translating into an additional £110 million for our members.
As a Society established nearly 150 years ago to help
people save and buy their own homes, we have a long
history of standing shoulder to shoulder with our members
during difficult moments. We put financial wellbeing at the
forefront of our decision-making and took action to protect
members from the full impact of the Bank of England’s base
rate increases. Since December 2021, the Bank of England
increased its base rate 14 times, however on six occasions
we chose not to pass on these increases to our standard
variable mortgage rate.
Our purpose means that it is just as important to help our
members stay on the property ladder. In June we were one
of the first mortgage lenders to sign the Government’s
new Mortgage Charter and the first to introduce a simple,
digital application process for borrowers seeking assistance
through the Charter. Indeed, we went well beyond these
requirements and as well as investing in training for customer
service teams to better identify and support members at risk
of financial difficulty and partnering with debt advice charity
Step Change to refer members to free financial support,
we continued to not charge arrears fees to our members
during 2023.
Despite the challenging economic conditions, our arrears
levels remained stable, demonstrating the value of this
support, as well as our responsible lending practices.
Making a difference to each other and to
our members
As a mutual, it is vital that we continue to be a sustainable
business. We recognise our responsibility to consider the
wider impact of our business and we believe in sharing our
success with our colleagues and members, as well as our
communities and the causes our members care about.
We are committed to the orderly transition to a greener, net
zero economy by 2050. This year we continued our journey
to significantly reduce our energy consumption by 2030 and
become net zero in our operational emissions. We worked
with the Energy Savings Trust to launch an online tool that
helps members assess and improve the energy performance
of their properties and we launched a new mortgage which
factors in a property’s Energy Performance Certificate
(EPC) rating to offer preferential rates for the most energy-
efficient homes.
The compassion and generosity of our colleagues was
again clear throughout the year. We are delighted to have
awarded over £1 million to communities in 2023, supporting
247 different organisations through grants, fundraising and
volunteering, with over 670 colleagues donating 5,900 hours
to community groups and raising £267,000 for our charity
partner Dementia UK.
Using funds donated by the Society and our members
through the ‘Your Interest in Theirs’ scheme, the Leeds
Building Society Charitable Foundation awarded just under
£340,000 to 47 charities, providing support to people in need
of a safe and secure home across the UK. Also in line with our
purpose, five community projects supporting people who
experience barriers to home ownership received a share of
£240,000, thanks to nominations from colleagues.
A four-year partnership with Dementia UK draws to a close
in 2024 with fundraising topping over £800,000. Beyond
fundraising, the ‘Closer to Home’ project has seen over 400
specialist face-to-face dementia care clinics in 40 of our
branches and facilitated over 3,300 virtual appointments
with Dementia UK’s Admiral Nurse.
Recognising our roots, we extended our long-standing
sponsorship of Leeds Rhinos rugby league through to
2026, expanding this partnership to include sponsoring the
Leeds Rhinos netball team during the 2024 season. We also
sponsored the Leeds Digital Festival and Leeds Pride, where
hundreds of colleagues joined the parade through the city
in June.
2024 outlook
As we look ahead, it is important to acknowledge the
decision by Iain Cornish to step down as our Chair from 2025.
This year is likely to bring yet more economic uncertainty,
political change and cost of living challenges, but we are in a
strong position to support our members through them as a
result of Iain’s contribution to our growth and strengthening
of our long-term future, his care in safeguarding this
Society’s rich heritage, and his determination to delivering
our purpose. The Board has initiated a process for the
appointment of our new Chair and an update will follow
once that process is complete.
Indeed our purpose is more relevant than ever and our
commitment to it remains steadfast. This, combined with
our financial strength, our successful strategy, and our skilled
colleagues, gives me real confidence about the future.
As always, I thank you, our members, for your ongoing
trust and confidence in our Society.
Richard Fearon
Chief Executive Officer
22 February 2024
Chief Executive Officer’s Highlights continued
Strategic Report
Risk Management
Report
Governance Financial Statements Other Information
8
Business Model and Strategy
Year ended 31 December 2023
we are owned by our members and we act in the best interest of our members and wider stakeholders, over the long-term.
Our purpose
Our purpose is ‘Putting home ownership within reach of more people - generation after generation’. 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 strategic drivers
and behaviours enable us to do so.
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 – making decisions and creating
solutions to barriers.
I have the right conversation – facing into difficult
conversations, and celebrating
great work.
Leeds Building Society | Annual Report and Accounts 2023 9
Our business model
Our purpose is delivered through our simple business model
– providing a safe and rewarding place to save and supporting
The Society provides 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. As a way of helping to put home ownership
within reach of more people, we no longer offer new
mortgages on second homes, which reduce the availability
of homes for local residents.
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 3.05% 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, supporting delivery
of our purpose, generation after generation. 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, modernising our technology
platforms, 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 continued
Strategic Report
Risk Management
Report
Governance Financial Statements Other Information
10
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
The Society lends 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
any shareholder dividends, however we
need to make profit to:
• Maintain financial strength
• Invest in the Society for the benefit
of our membership as a whole (for
example, maintaining our branch
network, improving digital capability
and customer experience, enhancing
our 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 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.
Leeds Building Society | Annual Report and Accounts 2023 11
We deliver social value through the provision of
Members and brokers
A range of mortgages – to enable borrowers to achieve the basic societal need of having a home, supporting
first time buyers and home owners to move onto / up the property ladder and to remain in their home.
Competitive savings rates – on 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, including to buy a home.
A secure home for members’ savings – our financial strength means we are able to generate robust profits
that enable us to remain financially resilient, and allow us to 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 and have a supportive
and inclusive culture, creating career development opportunities for all. Our engagement scores place us
within the top 25% 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, colleague volunteering scheme and
by paying our fair share of tax to support essential services.
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 further actions to reduce our own
emissions footprint.
Third parties
Products and services through partnerships with trusted third parties – who uphold the Society’s values
and align their goals and objectives with our responsible business aims.
Regulators
A strong focus on risk management and customer-centred decision making – with our Mutuality
Statement
1
and ESG Policy
2
setting out how we continually strive to do the right thing for our members,
colleagues, communities and the environment in which we operate.
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, and we always strive to act
responsibly as a business.
1 This can be found on our website at leedsbuildingsociety.co.uk/your-society/about-us/mutuality.
2 This can be found on our website at leedsbuildingsociety.co.uk/your-society/financial-information.
Business Model and Strategy continued
Strategic Report
Risk Management
Report
Governance Financial Statements Other Information
12
Progress on 2023 corporate priorities
We have continued to demonstrate progress towards achieving our purpose. In 2023, one in two of our new mortgages
were provided to first time buyers, supporting 17,700 into their own home. We were one of the first lenders to sign up to the
Mortgage Charter, demonstrating our commitment to supporting members in financial difficulty to remain in their homes.
And we launched our ‘Losthaven’ campaign, raising awareness of the difficulties faced by first time buyers in the current
market and calling for action by the Government and industry. Our progress has been externally recognised through winning
the Leading with Purpose award at the Business Culture Awards in November.
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 and challenging economic and market environment and have pushed
forward on developing our innovation capability for the future, while also improving customer experience, products, and
propositions for our mortgage and saving members. Our progress against our corporate priorities is detailed below.
Corporate priority Progress in 2023
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
• In 2023, our engagement score was 8.3 (out of 10) and sits above the financial services
benchmark. Our score was 8.6 (out of 10) when colleagues were asked if they would
recommend Leeds Building Society as a good place to work. During 2023, we piloted
a pulse survey to give us richer insight throughout the year and to take a more agile
approach to colleague listening.
• To follow on from our Inclusive Leadership work in 2023, we developed and launched
our Empowering Allyship programme for all colleagues at manager level and below, to
support the delivery of our Inclusion Strategy. We took the opportunity to externally
assess our inclusion and diversity work, achieving the highest rating with Inclusive
Employers, at Gold standard.
Build a sustainable
technology platform and
rapid transformation
capability
• We have delivered several foundational steps as we embark on our multi-year
technology transformation. These include the build of enhanced data and cloud
capabilities, that provide us with greater flexibility and scalability and, following a
successful pilot, the full mobilisation of our core banking transformation programme.
• In a rapidly evolving market, we have consistently launched new savings products at
pace, reducing average time to launch by 60%, to ensure members have access to our
most competitive products, as quickly as possible.
Maintain the capital strength
and cost efficiency to support
our differentiated product
mix and thrive though the
economic cycle
• We maintained our strong capital position throughout the year, with all capital ratios
significantly in excess of the regulatory minima. In October 2023, the Society performed
a capital optimisation exercise repurchasing £192 million of its subordinated notes and,
as a result, total regulatory capital has decreased during the financial year by 4%.
• Our costs have increased in the year as we have invested in our multi-year technology
programme and long-term sustainability, but we maintain a strong focus on efficiency
with close control over our costs. Our cost ratios remain among the best in our sector.
Lead the business and
our members through the
transition to net zero
• We’ve continued to take action to reduce our Scope 1 and 2 operational emissions, and
remain carbon neutral for Scope 1 and 2 market-based emissions and selected Scope 3
emissions. We’ve also set a new target to reduce our Scope 3 operational emissions by
25% by 2030, in line with the requirements of the Science-Based Targets initiative (SBTi).
Refer to our climate-related financial disclosures on pages 47-82 for further details.
• We’re working with housebuilder Keepmoat to support the first large scale
development of houses built to the Government’s Future Homes Standard.
• We’ve also launched a tool in conjunction with the Energy Saving Trust, which helps
members to better understand the energy efficiency of their home and actions they can
take to improve this.
Leeds Building Society | Annual Report and Accounts 2023 13
Corporate priority Progress in 2023
Close-the-gap innovation
Develop streamlined lending journeys to
make it easy for members and brokers to do
business with us
• During 2023 we’ve continued to streamline lending journeys, which has
resulted in us reducing our average application to offer time by 24%, with
our fastest mortgage offer being made 17 seconds after submission,
achieving an average broker Net Promoter Score (NPS) of 62%.
• We have also launched a new and improved digital mortgage solution,
making it easier for members who wish to take out a mortgage directly
with us through our website without advice.
• We have responded to the growing demand amongst landlords who are
increasingly opting to purchase property through a limited company by
launching our own limited company buy to let offering. This will support
our financial stability, and enable us to be there for our members,
generation after generation.
Proactively spot opportunities to meet the
needs of our members and intermediaries
through our data and insights
• Member insights and behavioural data have been used to support the
revitalisation of our digital channel. More than 1,500 members were
involved in one-to-one trial sessions to co-develop and then test
updated functionality.
• We also delivered purpose-led product innovation, informed by the
needs of our members and prospective first time buyers.
• We introduced a new data capability to enable Society-wide insights
to support our members. Our data visualisation capability has been
extended to provide insights including complaints, IT performance and
telephony servicing, and we have delivered a new suite of insight to
measure additional customer outcomes.
• Following analysis of our current criteria offering, website behaviour and
broker feedback, we introduced a set of dynamic improvements to the
way we present and manage our acceptance criteria on the intermediary
site, in conjunction with Criteria Brain, helping to improve our broker
interactions and to support our intermediary teams.
Develop capabilities and an innovation
mindset focused on helping more people
onto and up the property ladder
• We launched our First Home Helper tool in July 2023. This helps first
time buyers understand the ways in which they can buy their first home
and how to set a budget when saving for a deposit.
• We were the first UK mortgage provider to work with Experian and
connect to their free Boost service, which allows people to potentially
‘boost’ their credit scores by using open banking to assess the last
12 months of payments such as council tax, and subscriptions to
streaming services.
• We also launched our new range of Reach Mortgages in December,
which are designed for people if their credit score doesn’t qualify for one
of our standard mortgage products (customers still need to meet our
affordability and prime lending criteria).
Business Model and Strategy continued
Strategic Report
Risk Management
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Governance Financial Statements Other Information
14
Corporate priority Progress in 2023
Step-up savings
Cherish our branch network and the service
and loyalty it delivers
• We continued to invest in our branch network in 2023, and we continue
to have some of the most efficient branch networks amongst our
peer group
3
.
• Member satisfaction with our branch network remains extremely high,
at an average of 94% during 2023
4
.
• We have committed to our future Property Strategy (which commences
in 2024), with a phased refurbishment and upgrade programme of our
branch network over the next 10-12 years.
Deliver a multi-channel experience
that meets member needs and drives a
step-change in awareness, accessibility,
and service
• We have started to roll out a new savings application process that has
reduced the time it takes our members to open an account by over 80%.
It has improved access for all members and has resulted in nine times
more applications from mobile devices.
• We have maintained our 50 branches, and have also increased the
capacity to handle an additional 5,000 calls per month in our Contact
Centre, through increasing efficiency of our systems and removing some
manual processes.
• We have audited all digital journeys to understand any potential barriers
and have made enhancements to improve usability for all members.
Define and deliver a savings member
value proposition that creates connection
beyond rate
• Our new Shared Ownership Saver and Home Deposit Saver products,
launched this year, support members in saving for a deposit to purchase
a home of their own, or a bigger share of their current home.
• We have paid 0.59% above the average market savings rate during 2023,
equating to an annual benefit to all our savers of £110 million.
• We’ve also 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.
Across all strategic drivers
Delivery of our purpose is underpinned by
the effective identification and management
of the risks we face
• For information on our identification and management of risks faced
by the Society, please see the Risk Overview, Climate-Related Financial
Disclosures and the Risk Management Report sections.
People
Our approach
Our People Division is focused on unlocking the talent of our colleagues to supercharge our purpose. The progress that we
are making for our members and future customers would not be possible without the fantastic efforts of our colleagues.
Ensuring that they continue to feel a real sense of belonging and have a genuine connection to our purpose is crucial for us.
Listening and engaging with our colleagues
Creating opportunities for our colleagues to have a valued voice is of paramount importance, it enables high performance
through empowerment and removes barriers to colleagues doing their best work. There are several ways that we listen to our
colleagues and create opportunities for two-way dialogue across the Society.
3 eBenchmarkers Savings Report, Spring 2023.
4 Overall customer satisfaction in a survey of 3,612 members from January to December 2023.
Leeds Building Society | Annual Report and Accounts 2023 15
Our colleague survey – in 2023, our engagement score was 8.3 (out of 10) and sits above the financial services benchmark.
Our score was 8.6 (out of 10) when colleagues were asked if they would recommend Leeds Building Society as a good place to
work. During 2023, we piloted a pulse survey to give us richer insight throughout the year and to take a more agile approach to
colleague listening. Additionally, colleagues have been surveyed throughout the year on subjects that are important to them,
e.g. colleague benefits, climate.
Our colleague association – with 1,300 members, our colleague association meets regularly with our Chief Executive Officer,
Richard Fearon and Annette Barnes (our non-executive director who is responsible for representing colleague views with the
board). This provides feedback from our people and ensures that the board is kept informed about what is important to our
colleagues.
Our colleague voice groups – in 2023, to amplify our colleague voice, we have piloted a network of colleague groups who work
within their respective divisions to own actions from our colleague survey and to help to co-create the colleague experience
across the Society.
Our colleague-led forums – working with our Inclusion and Diversity team, our five colleague-led forums meet monthly
around disability, gender, LGBTQ+, race and wellbeing. The forums support the work of our Inclusion and Diversity Strategy,
through helping shape our work, raising awareness and approaching activity in an intersectional way.
Inclusion, diversity and belonging
Through our strategy ‘Being You; Transforming Us’, our ambition is to create a truly collaborative environment where diverse
perspectives are sought to fuel innovation and help deliver our purpose. We will do this by embedding inclusive practices into
everything we do and working towards becoming inclusive by design.
We have continued to work on our gender and race representation on the board and in our leadership team. The five-year view
of our inclusion and diversity metrics can be seen in the table below.
5-year view of inclusion and diversity metrics
2023 2022 2021 2020 2019
Female Male Female Male Female Male Female Male Female Male
Colleague
group
Number 997 725 926 596 838 507 829 499 838 486
Percentage 58% 42% 61% 39% 62% 38% 62% 38% 63% 37%
Leadership
team (1)
Number 23 36 49 90 40 85 33 70 33 66
Percentage 39% 61% 35% 65% 32% 68% 32% 68% 33% 67%
Directors (2) Number 4 8 3 8 3 8 2 8 3 9
Percentage 33% 67% 27% 73% 27% 73% 20% 80% 25% 75%
(1) From 2023 our definition of our leadership has been updated to reflect our senior leadership population only, in line
with industry best practice.
(2) Number includes executive and non-executive directors.
I understand and believe in the
purpose, and I feel I that I can
contribute. I also believe the
Society cares and wants to
make people’s lives better.
Leeds Building Society is such
a great place to work. I’ve had
my confidence in myself built up
through working here and the
job feels rewarding too.
I genuinely feel as though we
are here to do right by people
and that makes me extremely
proud to say I work at Leeds
Building Society.
Business Model and Strategy continued
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In 2023 we launched an internal campaign to understand
more about our colleagues through asking them to share
more of their equality data with us. This data will enable
us to fully understand how representative we are of the
communities we serve, across a variety of areas where we
have not tracked data before, such as caring responsibility,
sexual orientation, disability, and social mobility. As we
gather greater data, we will explore further measures of
representation beyond gender and race.
This year we launched our Empowering Allyship programme
that takes all our colleagues on their own allyship journey.
Our colleagues explore the importance of creating an
inclusive culture and why it matters, how they can raise
awareness of non-inclusive behaviours and how to be an ally
to each other and create an environment of belonging. This
programme will support us in embedding inclusive practices
into everything we do.
To enable our colleagues to perform at their best, by
providing flexibility in where they work, many of our office-
based colleagues continue to work in a hybrid way, with some
of their time spent working in the office and the remaining
time working from home. This has been supported, in 2023,
by further investment in our digital platform to enable
effective hybrid teams. Additionally, we continue to offer
a broad range of flexible working options and patterns,
supporting colleagues to balance their home and work
life effectively.
We undertake regular reviews of our progress and were
delighted, in 2023, to be accredited Gold Standard by
Inclusive Employers, the first building society to achieve a
gold accreditation. We understand that this is a continuous
journey and are committed to reviewing, embedding and
improving our work around inclusion and diversity.
We know that home ownership is neither inclusive nor
diverse and, aligned to our purpose, we are committed
to supporting more people into home ownership. You
can read about our inclusion and diversity efforts in
our Purpose Impact Report, available on our website at
leedsbuildingsociety.co.uk/press/financial-results.
The wellbeing of our colleagues
Our colleagues and their wellbeing are core to our
overall success and overall colleague sentiment on the
Society’s wellbeing approach is positive (+0.3 ahead of
UK Financial Services benchmark).
For 2023, we have moved to a more comprehensive
approach to the wellbeing of our colleagues covering
emotional, physical, social, and financial wellbeing –
this approach received positive feedback from Business
in the Community. To ensure that we keep focus in this
area we have:
• Refreshed the reach of our mental health first aiders;
• Built out our leadership development offer to include
modules around wellbeing and belonging;
• Conducted focused activity during wellbeing month, for
example the launch of a toolkit to support colleagues with
practical ways to improve their resilience;
• Added a women’s pillar to our wellbeing app (it already
includes men’s health, fertility and pregnancy and
menopause support); and
• Introduced a virtual 24-hour GP service for all colleagues.
Growing our people and their careers
We encourage colleagues to continually develop their skills to
support them in reaching their full potential and in 2023 we
put several things in place to help grow our talent pipelines
and our people:
Leadership development – our people leaders in the Society
have a key role to play in creating the right environment
for colleagues to perform at their best and, in 2023, we
developed a new people leader offering, ‘Leading with
Purpose’, which is designed to clarify what we expect from
our leaders, whilst stretching and supporting them to
develop their leadership skills. Leaders can personalise their
learning journey, helping them to enhance their skills both
now and for the future.
Ignite programme – responding to a need identified by
our colleagues, in 2023 we created a new development
programme, Ignite. This programme was developed to
support colleagues looking to move into a people manager
role. Additionally, the programme supports the development
of our diverse talent with 68% of the cohort being female
and 12% being from an ethnic minority background. Data
from the pilot suggests that colleagues are seven times
more likely to be promoted into a people leader role by being
part of Ignite. Based on the success of the programme, it will
continue in 2024.
Leeds Building Society | Annual Report and Accounts 2023 17
Equipping our colleagues to support vulnerable customers
– in 2023, the Society focused on supporting our colleagues
to understand the needs of our customers, with the
creation of a learning solution which was delivered across
our Customer division. To inclusively cater for all learning
styles, these included a digital learning module, virtual and
face to face workshops and a sector-first gamified solution,
which provides colleagues with an immersive experience
to practice having conversations with customers who
might need additional support. The modules also provided
information on the new Consumer Duty requirements,
introduced by the FCA in July 2023.
Our diverse talent pipelines – in 2023, our new apprentices
joined the Society across various departments, with 29% of
this cohort being from an ethnic minority background. We
bring them back together to work on Society-wide initiatives
during their first 12 months and their energy and fresh
thinking is already contributing to the delivery of our
shared purpose.
Also in 2023, we launched our digital work experience
programme, with 398 young people joining us virtually
across two cohorts to experience life at Leeds Building
Society. This enabled students to gain insight into the type
of roles for which they might apply in the future. We were
keen to engage with students from diverse backgrounds and
across the programme saw participant representation at
45% female, 69% from ethnic minority backgrounds, 17%
accessing free school meals, 29% would be first generation
going to university and 5% having caring responsibility.
Rewarding our 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 brought forward our April 2023 pay review to
January 2023, providing support to colleagues, which
included a minimum increase of 6% to eligible colleagues and
14.6% to colleagues on our minimum salary.
In 2023, we have made improvements to our benefits
offering to colleagues including our colleague discount
platform and other benefits to support wellbeing. We have
also created parity for some colleagues through improved
holiday entitlement and matched pension contributions.
In 2023, we also surveyed our colleagues to understand
which benefits are most meaningful to inform our future
Reward Strategy, to offer a compelling suite of options, which
colleagues can identify with.
How the board engages with our colleagues
The board recognises the critical role our colleagues
play in supercharging our purpose to meet the needs of
our members, generation after generation and all board
members play an active role in supporting this.
In 2023, the board has continued meeting with our
colleague-led forums, including members of our inclusion
and diversity forums, who shared their lived experience of
work with them. Iain Cornish, Chair of the Board, met with
each forum during the year.
In 2023, Annette Barnes, Non-Executive Director, and Chair
of the Remuneration Committee, has taken responsibility
for representing colleagues’ views at the board. Annette met
with the Chair of our Colleague Association quarterly and the
whole colleague association once during 2023, taking a keen
interest in the views and opinions of our colleagues.
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Key performance indicators
The Society measures its performance against its strategic drivers using a number of key performance indicators (KPIs),
including both financial measures, as defined under International Financial Reporting Standards (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 249.
KPIs
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.
2023
2022
2021
2020
2019
17,700
18,000
22,000
8,000
10,500
We remain committed to
helping first time buyers get on
to the housing ladder. In 2023,
despite challenging market
conditions reducing the overall
volume, we have increased the
proportion of our lending to
first time buyers.
More responsive model
Profit before tax Profit before tax, as reported
in the income statement,
creating capital to support
future business growth.
2023
2022
2021
2020
2019
£181.5m
£220.5m
£163.7m
£80.7m
£88.0m
Profit before tax remains
elevated compared to historic
levels, reflecting the strong
margins achieved in recent
years, contributing to the long-
term resilience of the society.
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.
2023
2022
2021
2020
2019
1.26%
1.50%
1.31%
0.99%
1.00%
Net interest margin has
fallen reflecting the increase
in interest rates paid to
savers as base rate has risen,
coupled with higher mortgage
market competition exerting
downward pressure.
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.
2023
2022
2021
2020
2019
28.2%
33.3%
38.0%
36.3%
33.6%
The reduction in our CET1
ratio results from an updated
calculation of capital
requirements due to market-
wide regulatory changes. Our
capital levels have increased,
and we remain well above
internal and regulatory
requirements.
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.
2023
2022
2021
2020
2019
6.0%
6.2%
6.1%
5.8%
5.3%
Our UK leverage ratio has
remained broadly stable and
comfortably above internal
limits, through careful
management of our balance
sheet and profitability in a
challenging environment.
Leeds Building Society | Annual Report and Accounts 2023 19
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.
2023
2022
2021
2020
2019
47.3%
37.4%
43.9%
51.0%
53.5%
Increases in costs reflect the
investment made in our multi-
year technology programme
and long-term sustainability,
but we maintain a strong focus
on efficiency with close control
over our costs. Our cost ratios
remain among the best in our
sector.
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.
2023
2022
2021
2020
2019
0.63%
0.59%
0.58%
0.48%
0.50%
We continue to maintain
close control over our costs –
balancing cost efficiency with
the desire to increase member
value through more resilient
systems and improved service.
Colleague
engagement score
Colleague engagement is
measured annually across
all colleagues through our
colleague survey. In October
2023 we piloted an additional
shorter survey to provide
a ‘pulse’ check on critical
questions.
2023
2022
2021
2020
2019
8.3
8.0
Our 2023 engagement score
from our full survey was 8.3
(out of 10), which was a 0.3
increase from our score in
2022. This score places us
in top 25% for UK financial
services sector benchmark
which is an improvement from
2022 (where we placed middle
of the range).
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.
2023
2022
2021
2020
2019
£4.4bn
£5.0bn
£4.4bn
£2.5bn
£3.5bn
Lower application levels in
2023, linked to challenging
economic conditions and a
smaller UK mortgage market,
have reduced new lending,
although we have increased
our market share through our
competitive product offering.
Net residential
lending
Gross residential lending, less
repayments of principal and
redemptions.
2023
2022
2021
2020
2019
£1.5bn
£2.0bn
£1.5bn
£0.0bn
£1.0bn
Our reduced level of new
lending is reflected in the
lower level of net lending
compared to 2022, although
this is considered a strong
performance relative to
the pressure in the wider
mortgage market.
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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.
2023
2022
2021
2020
2019
11
15
18
24
15
Continuous investment in
technology has enabled us
to improve the time it takes
from mortgage application
to offer, a direct result of our
investment in systems and
capabilities.
Broker Net
Promoter Score
(NPS)
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.
2023
2022
2021
2020
2019
62
63
56
46
54
Our broker Net Promoter
Score remains high as we
continue to focus on the
broker experience and a
streamlined process for
issuing offers.
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.
2023
2022
2021
2020
2019
£20.8bn
£17.5bn
£15.3bn
£14.2bn
£14.5bn
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.
2023
2022
2021
2020
2019
£110.0m
£80.5m
£71.5m
£82.8m
£88.5m
We consistently pay above
average market rates to our
savers, paying an average of
3.05% compared to the rest of
market average of 2.46%.
Customer
satisfaction
The percentage of customers
surveyed who described
themselves as quite, very or
extremely satisfied with the
service received from the
Society.
2023
2022
2021
2020
2019
94%
93%
93%
93%
91%
During 2023, we have focused
on delivering consistently
high service levels to our
members and this is reflected
in our customer satisfaction
score which has improved
from last year.
Leeds Building Society | Annual Report and Accounts 2023 21
Responsible business
At the end of the third year of our Responsible Business
Strategy (which runs from 2021 to 2025) we are pleased
to report good progress, with all but three out of our 15
responsible business KPIs on target at the end of 2023,
as illustrated on page 24. These targets will be kept under
review to ensure we continue to stretch our ambition.
We have published our second Purpose Impact Report this
year, as part of our aim to report in a clear and transparent
way, 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 which responsible business issues were
most important to them, and we’re planning to repeat this
research periodically to ensure our strategy remains focused
on the right issues. The report can be found on our website
at leedsbuildingsociety.co.uk/press/financial-results.
Key achievements this year
Supporting home ownership
• We’re proud to say that our purpose-led strategy has
supported 17,700 first time buyers onto the housing
ladder in 2023, which was one in two of our new
mortgages.
• We launched our ‘Losthaven’ campaign – a fictional city
we’ve created to highlight the upcoming generation of
‘lost’ first time buyers (of 426,000 would-be first time
buyers by 2027).
• We’ve introduced a number of new products which
will support people to buy their own home such as our
Home Deposit Saver, Shared Ownership Saver, and our
new range of Reach Mortgages. Our partnership with
Experian Boost may also improve affordability prospects
for some buyers.
• We’ve launched our new First Home Helper tool which
provides first time buyers with guidance on the routes to
home ownership available to them.
• We’ve been awarded What Mortgage’s Best Shared
Ownership Lender for the eighth year in a row, and we’ve
been awarded First Time Mortgage Buyers Choice at the
2023 Moneyfacts Awards.
• We were also among the first lenders to sign up to the
Mortgage Charter and the very first to launch a simple,
digital application for borrowers seeking assistance
through the scheme. We also continue to offer tailored
support to members who struggle with their mortgage
repayments, and will not charge arrears fees
5
, such
as failed direct debit fees, until at least January 2025,
extending the suspension of these fees since the start of
the pandemic.
Sustainable communities
• We awarded over £1 million to communities
during 2023, supporting over 240 charities and
community groups.
• We’re working with community organisation Holbeck
Together to support them in providing services to the
most vulnerable in the community, including offering
use of some of our office space free of charge.
• The Leeds Building Society Charitable Foundation
awarded over £340,000 in new grants to 47 charities,
which align with its purpose of helping people in need
of a safe and secure home.
• £250,000 was awarded to six colleague-nominated
charities supporting people at risk of homelessness,
single mothers, vulnerable people from the LGBTQ+
community and ethnic minorities, and asylum seekers.
• We donated £25,000 to the Disasters Emergency
Committee to provide aid in Turkey and Syria following
two devastating earthquakes in February 2023.
• Six Ukrainian refugee families moved into newly
refurbished accommodation above our Peterborough
branch, and we’ve been working with Oasis Community
Housing to help these families settle into the local
community and access essential services.
• We have raised more than £860,000 for our charity partner
Dementia UK since 2020, exceeding our £500,000 target.
Our new charity partnership launches in April 2024.
• Colleagues volunteered more than 5,900 hours to
support good causes.
Inclusion and diversity
• We have been accredited with the Gold Standard
by Inclusive Employers, the first building society
to achieve this.
• We hosted sessions with external speakers for
colleagues to raise awareness of key inclusion and
diversity-related topics.
• We hired our new apprentices and we launched our new
digital work experience programme, with 398 young
people joining us virtually across two cohorts.
• We sponsored Leeds Pride and Leeds West Indian
Carnival, and attended Northern Pride, with more than
200 colleagues joining the celebrations.
• We provided a virtual sign language interpreter service
for our members in conjunction with Sign Solutions,
and we’re working with them to develop training for
our colleagues on how we can support individuals with
hearing loss.
5 Third party costs, such as solicitor costs, are passed onto the customer.
Business Model and Strategy continued
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• We launched our Empowering Allyship programme,
in which colleagues explore the importance of creating
an inclusive culture and how they can be an ally to
each other.
Climate and environment
• We continue to be certified as a carbon neutral company
by Climate Impact Partners
6
.
• We’ve established a new target to reduce Scope 3
operational emissions by 25% by 2030, in line with the
requirements of the Science-Based Targets initiative
(SBTi) and the Paris Agreement, as well as a new ambition
for our Scope 3 mortgaged emissions.
• We’re working with Keepmoat to support the first large
scale development of houses built to the Future Homes
Standard.
• We’ve continued to reflect energy efficiency savings in
the affordability assessment for new build homes.
• We launched a tool in conjunction with Energy Saving
Trust to support members to better understand the
energy efficiency of their home and actions they can take
to reduce them.
• Our colleagues have continued to support our
environmental charity partners, spending over 1,600
volunteering hours supporting their projects, including
planting over 8,700 trees in partnership with Yorkshire
Dales Millennium Trust, and maintaining a mile of
waterway behind our Leeds head office with the Canal &
River Trust.
Trust and transparency
• We have been reaccredited as a Real Living Wage employer,
a Disability Confident Employer and for the Fair Tax Mark.
We also continue to align ourselves to our Fair Pay Charter.
• We won the Leading With Purpose award at the 2023
Business Culture Awards, demonstrating the way in which
our purpose-led strategy is driving business decisions and
engaging colleagues and other stakeholders, to enable us
to take meaningful steps towards our ambition.
• We have recently been accredited with the Good Business
Charter for the first time following an assessment in
2023, demonstrating our continued commitment to our
members, colleagues, communities, suppliers and the
environment.
• We’ve demonstrated our commitment to provide the
best experience possible for our members and brokers,
for example here are some of the awards we won in 2023:
› Credit Fico Awards Mortgage Lender of the Year 2023.
› MoneyComms Top Performers Awards Best Building
Society of the Year 2023.
› Fairer Finance Gold Ribbon for Savings.
› Institute of Customer Services ServiceMark
accreditation.
• During 2023, we maintained our strong Morningstar
Sustainalytics ESG Risk Rating of 16.1, and our overall risk
rating continues to be Low, placing us within the top 15%
of banks
7
.
• We have produced our second standalone Purpose
Impact Report to clearly outline our Responsible
Business Strategy and progress against our goals and
have continued reporting with reference to the Global
Reporting Initiative standards.
• We have published our ESG Policy
8
on our website to
increase transparency of our responsible business
activities.
Our responsible business goals
We made good progress against our responsible business
targets during 2023, meeting all except three of our KPIs.
An unexpected air conditioning leak in one of our properties
means that we have not hit our 2023 Scope 1 and 2 market-
based carbon emissions target, but we are taking action
to ensure we meet our 2030 climate targets. In 2023, we
set a new target and ambition for our Scope 3 emissions,
which are currently behind, but will become a focus for 2024
and beyond. We have also set new inclusion and diversity
targets in line with industry best practice. As part of our
commitment to transparency we also continue to publish an
annual Purpose Impact Report, which outlines progress in
more detail.
6 For Scope 1 and 2 and Scope 3 business travel emissions.
7 Copyright © 2024 Morningstar Sustainalytics. All rights reserved. Morningstar Sustainalytics is a leading ESG data, research and ratings firm that supports investors
around the world with the development and implementation of responsible investment strategies. This report contains information developed by Sustainalytics
(sustainalytics.com). Such information and data are proprietary of Sustainalytics and/or its third party suppliers (Third Party Data) and are provided for informational
purposes only. They do not constitute an endorsement of any product or project, nor an investment advice and are not warranted to be complete, timely, accurate or
suitable for a particular purpose. Their use is subject to conditions available at sustainalytics.com/legal-disclaimers.
8 This can be found on our website at leedsbuildingsociety.co.uk/your-society/financial-information.
Leeds Building Society | Annual Report and Accounts 2023 23
Supporting home ownership
Help 65,000 first time
buyers into a home of
their own by 2025.
Improve mortgage broker
satisfaction scores by
20% by 2025¹.
Maintain an average savings
rate premium of at least 0.25%
compared to market average.
3
Progress: Ahead
2023 target: 41,000 first time buyers
supported by the end of 2023
2023 actual: 55,700 first time buyers
supported by the end of 2023
Progress: Achieved
2023 target: >0.25%
2023 actual: 0.59%
Progress: Achieved
2023 target: +60 Broker NPS
2
2023 actual: +62 Broker NPS
2
Provide £3 million to charities and
communities through grants,
donations and sponsorship
by 2025.
Progress: Ahead
2023 target: £2.1m by end of 2023
2023 actual: £2.5m by end of 2023
Maintain our share of UK high street
branches at higher than 0.50%.
4
Progress: Achieved
2023 target: >0.50%
2023 actual: 0.65% (as at March 2023)
Achieve 45% female representation
in leadership roles by 2030.
Progress: On track
2023 target: 39%
2023 actual: 39%
Achieve 10% ethnic minority
representation in leadership roles
by 2030.
Progress: Ahead
2023 target: 7.5%
2023 actual: 8.5%
Our inclusion and diversity colleague
sentiment score is in top 25% of UK
financial services by 2030.
Progress: On track
2023 target: Top 25% by 2030
2023 actual: 8.7
(on the cusp of top 25%)
Maintain strong colleague
engagement score which places us
in line with the UK financial services
sector benchmark.
8
Progress: Achieved
2023 target: Top 25%
2023 actual: 8.3
(placing us in the top 25%)
Maintain high member satisfaction
scores of over 90%.
1
Progress: Achieved
2023 target: >90%
2023 actual: 94%
Reduce absolute Scope 1 and 2
market-based emissions by 90%
by 2030.
5
Progress: Behind
2023 target: 20% reduction
2023 actual: 29% increase
Reduce absolute Scope 1 and 2
location-based emissions by 60%
by 2030.
5
Progress: Ahead
2023 target: 13% reduction
2023 actual: 39% reduction
Maintain carbon neutrality for Scope
1 and 2 market-based emissions and
selected Scope 3 emissions, on the
pathway towards net zero.
6
Progress: Achieved
7
2023 target: 0 tCO2e
2023 actual: 0 tCO2e
Reduce absolute Scope 3 emissions
(categories 1-14) by 25% by 2030.
5
Progress: Behind
2022 target: 2.8% reduction
(latest data available)
2022 actual: 2.7% reduction
(latest data available)
Ambition to reduce the intensity
of our Scope 3 financed emissions
(category 15) from our residential
mortgage book by 45% by 2030.
5
Progress: Behind
2022 target: 5.0% reduction
(latest data available)
2022 actual: 0.1% reduction
(latest data available)
Sustainable
communities
Inclusion
and Diversity
Climate and
Environment
Trust and
Transparency
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.
1. Broker satisfaction is captured by independent research of 900 interviews
between January and December 2023 (75 per month). Overall customer
satisfaction is captured from a survey of 3,612 members from January 2023 to
December 2023.
2. 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 the brokers we
work with.
3. CACI’s CSDB, Stock, January 2023 to December 2023, latest data available. CACI
is an independent company that provides financial benchmarking data of the retail
cash savings market.
4. Based on bank and building society UK business count data, Office for National
Statistics, March 2023.
5. Our carbon emission reduction targets begin from a 2021 base year. For more
explanation of the definition of our climate targets please see pages 68 to 80.
6. In accordance with Climate Impact Partner’s CarbonNeutral Protocol, this includes
emissions from our business travel, fuel and energy related activities, waste
generated in operations, and home working.
7. Subject to independent verification which will be completed during 2024.
Any additional carbon offset credits that need to be purchased as a result of
verification / final emissions calculations will be bought during 2024.
8. Our Employee Engagement Survey provider (Peakon) enables us to measure
colleague sentiment and benchmark this against other financial services
organisations in the UK.
Strategic Report
Risk Management
Report
Governance Financial Statements Other Information
24
Stakeholder engagement
Our approach to corporate governance is based on the Principles and Provisions of the 2018 version of the UK Corporate
Governance Code (available at frc.org.uk). In order to meet the requirement for a Section 172 Statement (in so far as it is
relevant to a building society), we include a summary of how the board has carried out its duties in promoting the success
of the organisation. This includes how the board engages with stakeholders and remains cognisant of their needs when
running the business. 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 121 to 139.
The board’s approach
The Society considers 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 the Society’s strategy, specifically 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 29 to 30 – specifically the board’s considerations of the new Consumer Duty regulations and decisions taken to ensure
this would be embedded throughout the Society, and the decision to approve a new climate target for Scope 3 operational
emissions and a new climate ambition for Scope 3 mortgaged emissions.
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 pages 121 to 139.
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 121 to139.
Key performance indicators relevant to members, colleagues and brokers can be seen in the Key Performance Indicators
section on pages 19 to 21.
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.
• Independent external customer and
broker research.
• Gain feedback though our online panel
TalkingPoint.
• Trustpilot.
• Annual General Meeting (AGM).
• Social media.
• Brand perception tracking with our
members and brokers.
• Branches and contact centre.
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. It does so
through consideration of the following
reporting:
• Annual analysis of five year forecast
of member joiners and leavers and
monthly reporting.
• Regular reports on service
performance and complaints.
• Regular reporting of member
experience ensures services and
products meet our members’ needs.
• Consideration of mutual dividend.
• Reporting on savings rate benefit.
• Consideration of member input on
specific topics e.g. development
and shaping of a new purpose-led
product (Home Deposit Saver).
Leeds Building Society | Annual Report and Accounts 2023 25
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 roadshows.
• Board appointed colleague
representative Annette Barnes (Non-
Executive Director) met with the Chair
of our Colleague Association quarterly
and the whole colleague association
once during 2023, the full board met
with the Association once and the Chair
met with the association once.
• Attendance by Iain Cornish (Chair),
Annette Barnes and Anita Tadayon
(Non-Executive Directors) at diversity
forum meetings.
• Colleague development and wellbeing
sessions.
• Communication on matters relevant to
colleagues and the Society.
Further information on engagement
with colleagues can be found within the
Corporate Governance Report on page
121. Our Purpose Impact Report also
includes information on engagement with
colleagues on inclusion and diversity.
• Colleague survey results.
• Colleague update from colleague
representative and ‘Voice of the
colleague’ board sessions.
• Colleague Association topics.
• Pension scheme information.
• Update on diversity and progress
against our targets.
• Annual Speak Up policy review and
approval.
Third party
suppliers
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.
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.
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.
• 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 has received regular
updates on the progress made
against our third-party management
framework 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.
Business Model and Strategy continued
Strategic Report
Risk Management
Report
Governance Financial Statements Other Information
26
Stakeholder
group
Why they are important
to us
How we engage with them Reporting to the board
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.
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.
• Annual General Meeting (AGM) voting
for charity donations.
• Engagement via communication with
charity partners and their beneficiaries.
• Colleagues nominate, volunteer and
raise funds for charities and community
groups.
• Commitment to pay our fair share of
tax as evidenced by our Fair Tax Mark
accreditation.
More detail, as well as further information
on responsible business at Leeds
Building Society, can be found within the
Responsible Business section on pages
22 and 23 and within our Purpose Impact
Report.
• Approval of our updated Responsible
Business Strategy targets and
regular updates of progress against
these.
• Update on the selection of our new
charity partner.
• Update on the selection of colleague-
nominated charities for grants.
• Update on the launch of our new
volunteering and fundraising
platform.
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.
The Society’s Climate 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:
• Discussions held with a wide
range of stakeholders, including
Government bodies, industry bodies
and stakeholders, building society
peers and third-party experts, such
as Climate Impact Partners and
external sustainability and consultancy
specialists Carbon Intelligence.
• Engaging and supporting our members
and colleagues to reduce their carbon
footprint.
• Working collaboratively with third party
experts to understand and reduce the
emissions from our supply chain.
For further information on our carbon
emissions and engagement with
stakeholders on climate issues, please
see our Climate-Related Financial
Disclosures at pages 47 to 82, which are
aligned to the TCFD requirements, and
our Purpose Impact Report.
• Progress reports on our climate data
and insights.
• Approval of new climate targets and
ambitions.
Leeds Building Society | Annual Report and Accounts 2023 27
Stakeholder
group
Why they are important
to us
How we engage with them Reporting to the board
Regulators Our regulators, the Prudential
Regulation Authority (PRA)
and the Financial Conduct
Authority (FCA), 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.
We have an open and transparent
relationship with our regulators, including:
• Regular dialogue and interactions
with our regulators both directly and
through our industry bodies.
• Regular meetings held with the PRA
which are attended by our Chief
Financial Officer and Chief Risk Officer
along with members of the senior
leadership team.
• Relationship meetings with the
FCA, who met the Chief Executive
Officer, Chief Operating Officer, Chief
Customer Officer, Chief Risk Officer
and two directors.
• Monitoring regulatory publications
from the regulators and wider
stakeholder groups.
• Reviewing regulatory publications and
taking action as required.
We adopt a proactive approach with
the regulators and update them of any
material points as they arise.
• 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.
• The PRA engages directly with
directors e.g. 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.
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.
We have an active investor relations
strategy, including:
• 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.
Further information on engagement with
investors and credit ratings agencies can
be seen in the Corporate Governance
Report on pages 121 to 139.
• 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.
Business Model and Strategy continued
Strategic Report
Risk Management
Report
Governance Financial Statements Other Information
28
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 our stakeholders.
Examples of two such key decisions made in 2023 are given below and a summary of board activities during the year can be
found in the Corporate Governance Report on pages 121 to 139.
Consumer Duty (H1 2023)
Stakeholders
impacted
Members Regulators Colleagues
Context
The Society was required to comply with the new Consumer Duty requirements from 31 July 2023. The new
requirements set higher and clearer standards for consumer protection across the financial services sector with a focus
on ensuring consumers receive good outcomes. Whilst these new requirements are well aligned to the Society’s purpose
and its mutual status, a key focus of the board has been to not only ensure compliance, but to also seek assurances that
the new requirements become embedded across the Society.
Considerations, discussion and outcomes
The board has provided governance oversight and challenged the Society’s Consumer Duty implementation plans. As
Consumer Duty champion, Annette Barnes has supported the Chair and the CEO in raising Consumer Duty related
matters regularly in all relevant board and committee meetings and challenging senior management on how Consumer
Duty is being embedded across the Society. Annette and our board have received regular updates from management in
relation to the Society’s compliance with the new requirements throughout 2023. During these updates, Annette and the
board have challenged management on the work conducted to ensure compliance. Key areas of output have included:
• Fair value assessments completed across all on sale products and no foreseeable harm has been identified.
• Key customer journeys mapped with no foreseeable harm identified.
• All high priority communications reviewed with changes made where applicable to ensure good customer outcomes.
• Training and communication rolled out to help further embed a culture of good customer outcomes.
As part of the governance process, management were also able to confirm that all key milestones of the board-approved
project plan had been completed with oversight provided by second- and third-line teams ahead of the 31 July 2023
implementation date for on sale products. In particular, management confirmed the following:
• We can evidence that we have taken action against all requirements: We have considered the impact of all of the
rules set out in Consumer Duty regulations and can demonstrate that we have taken action where necessary to ensure
we can demonstrate compliance through the gap analysis work that has been undertaken and which continues to be
refreshed.
• We can evidence that we’ve addressed the biggest gaps and impacts: Through our project work we have adopted a
risk-based prioritisation of the project deliverables aimed at mitigating foreseeable harm and ensuring good customer
outcomes for the maximum number of customers.
• We can show that we have considered FCA’s priorities (both sector and firm specific): We have given due
consideration to the ‘Dear CEO’ letters, revisiting the gap analysis to ensure our project scope remained robust. We
have also engaged in industry-wide consultations and ensured that our project priorities are aligned to FCA priorities.
Leeds Building Society | Annual Report and Accounts 2023 29
1 Provisional UK greenhouse gas emissions national statistics 2022 (Provisional UK greenhouse gas emissions national statistics 2022 – GOV.UK (www.gov.uk)).
• We can evidence the decisions have been subject to effective governance: The frameworks underpinning our ongoing
and future compliance with the Consumer Duty, along with fair value assessments, have all been subject to our existing
governance processes at board and management committees. In addition, a robust project management structure has
been wrapped around the project supported by a steering group of suitably senior level management.
Responsibility for ongoing compliance post 31 July 2023 is now being monitored at management committee level and a
suite of management information is being used to help oversee ongoing adherence to the Consumer Duty requirements.
Given the important nature and scope of the Consumer Duty requirements, the board will continue to be engaged on this
topic during 2024.
Approval of climate Scope 3 emissions target and ambition (November 2023)
Stakeholders
impacted
Environment Members Colleagues Communities Third parties
Context
The board is aware of the important global issue of climate change, and the impact it is having around the world.
Given that 17% of the UK’s carbon emissions come from homes
1
, we understand that we, along with the rest of the
industry and the Government, have an important role to play in reducing these emissions.
We are committed to supporting the orderly transition to a greener, net zero economy by 2050 or sooner. During 2023,
we turned our attention to the indirect Scope 3 emissions from our full value chain, which make up the majority of our
total carbon footprint. That includes emissions from our operational activities (the goods and services we purchase,
business travel, colleague commuting and home working), as well as our investment activities (emissions from the use
of the mortgaged properties that we finance).
Considerations and discussion
The majority of the actions to reduce our Scope 3 emissions are outside our direct control and there are a number of
barriers that need to be overcome to make net zero a reality. A joined up and collaborative approach will be required across
a number of stakeholders.
In setting the Society’s Climate Strategy and targets, the board remains mindful of the varying and often conflicting
impacts of climate change decisions on our stakeholders. Aligning immediately with requirements of the Science Based
Targets initiative (SBTi) would support the UK’s ambition to become net zero by 2050, and have a meaningful impact on
climate change; however action taken too quickly, and without sufficient support for business and individuals, could lead
to negative unintended consequences, such as climate mortgage prisoners.
As a mutual, we believe that net zero must be delivered in a just and equitable way to ensure nobody is unfairly
disadvantaged or left behind. Our aim is to avoid, where possible, taking any actions to restrict finance for less energy
efficient homes where it is not feasible, cost-effective or affordable to meet increased energy efficiency standards.
Outcomes and actions
• The board approved a new Scope 3 climate target, focused on reductions to our Scope 3 operational emissions in line
with the requirements of the SBTi.
• Alongside this target, a new Scope 3 climate ambition was agreed, focused on supporting the decarbonisation of the
UK’s housing stock. See more detail in our climate-related financial disclosures on pages 47 to 82.
• 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 and ensure there is an orderly transition to net zero.
Business Model and Strategy continued
Strategic Report
Risk Management
Report
Governance Financial Statements Other Information
30
Financial Review
Year ended 31 December 2023
The evolving economic environment in the UK has remained
challenging for our members and the Society throughout
2023. Households continue to be impacted by the cost
of living crisis, inflation remains high and there have
been further increases to the Bank of England base rate.
Throughout this uncertain period we have continued to
serve our members, furthering our purpose of putting home
ownership within reach of more people, generation after
generation and maintaining a sustainable and secure Society.
During 2023, one in two of our new borrowers were first
time buyers, allowing 17,700 new buyers to join the housing
ladder.
The Society has maintained a strong capital base,
a sustainable level of profitability and a robust funding
position. In turn, this has enabled us to continue to balance
the interests of our savings and mortgage members
throughout the uncertainty of this period. We have
moderated the impact of repeated base rate rises by
limiting increases in the rates that our mortgage holders
pay, in order to support our mortgage members in these
challenging times. In fact, while the Bank of England base
rate has increased five times in 2023, we have only passed
on four of these increases to our standard variable mortgage
rate. Alongside this, we have helped our savings members
by consistently paying above the average market rate,
which equates to an extra £110
1
million in their pockets.
Throughout the uncertain and challenging environment,
the Society has continued to focus on providing all the
support we can to borrowers who experience financial
difficulty, in line with our mutual values. This will prove
increasingly important as we move into 2024 with the
depressed financial outlook in the UK.
Investment in our multi-year technology programme
is progressing at pace, with the focus on increasing
functionality, security and resilience of our systems, and
improving the experience for our members, colleagues and
intermediary partners. We remain focused on cost efficiency,
and our cost to income ratio remains among the lowest in
the financial services sector at 47.3%.
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
2
.
Further information on the calculation of APMs and
reconciliation to equivalent statutory measures can
be found on page 249.
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 purpose-led lending initiatives support our borrowers
in vital market areas such as first time buyers and shared
ownership. Putting home ownership within reach of more
people, generation after generation continues to be our
driver as we look to help more people into home ownership
and, during 2023, one in every two of our new mortgages
was to a first time buyer. We have won a number of awards
aligned to our purpose, including First-Time Mortgage
Buyers’ Choice at the Moneyfacts Consumer Awards 2023
and the What Mortgage Best Shared Ownership Mortgage
Lender award for the eighth time.
Mortgage market conditions in 2023 have been challenging
with consumer confidence in the sector at an all-time low
following the pandemic, but we have continued to offer
our members a wide range of products at accessible rates
throughout the year.
During 2023, we launched a number of innovative new
products designed to close the gap to home ownership.
These include products which support members to save
for a deposit on their future home or to purchase additional
shares in their shared ownership property, and our mortgage
range for borrowers who would not be eligible for a standard
product. We supported our members further by re-launching
95% loan to value (LTV) products, as well as increasing our
maximum loan sizes for higher LTVs, which underpin buying
ability for first time buyers and home movers.
Remaining active in the lending market throughout the
uncertainties has enabled us to achieve our busiest ever
day for mortgage applications in April 2023 reflecting the
strength of our product proposition and the service we
provide for our broker partners and our members. The
achievement of record volumes is a testament to the
investment we have made to evolve the capabilities of our
Mortgage Hub, our core mortgage application system.
Better technology has made it easier to deal with us,
resulting in a better experience for members and brokers.
1 We paid an average rate of 3.05% against the rest of the market average of 2.46%. CACI’s CSDB, Stock, January 2023 to December 2023, latest data available.
2 Financial information refers to the performance of the group, as reported on pages 189 to 244.
Leeds Building Society | Annual Report and Accounts 2023 31
We remain conscious of the impact that continuing increases
in living costs have on mortgage affordability and have
proactively supported any members who are struggling to
meet their monthly payments with a suite of forbearance
options, and with our commitment to the Mortgage Charter.
We have renewed our decision to suspend the charging of
arrears fees
3
until at least 1 January 2025, so that we can
continue to support members in financial difficulties.
Gross new lending during the year was £4.4 billion (2022:
£5.0 billion). This reduction in lending was driven by a smaller
mortgage market as confidence in the UK economy was
suppressed by the uncertain rate environment and rising
affordability concerns.
The chart below shows the mix of new lending by product
type in 2023.
2023 new residential lending by type
69%
9%
16%
3%
3%
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. We continue to see buy to let as an
important sector of the market, which we use to support the
delivery of our purpose, but we recognise that it has been
heavily affected by changes in regulation and tax rules.
In July 2023, we entered the buy to let limited company
market as landlords shift towards using company structures
due to the regulatory changes.
Our share of new mortgage lending was 2.0% (2022: 1.6%)
compared to our natural market share of 1.3% (2022: 1.2%)
4
.
Our lending policy has been updated during the year to
reflect an appropriate balance between supporting home
ownership and protecting both existing and future members
through the current challenging economic environment,
with credit criteria tightened in response to the rise in the
cost of living.
The average LTV of new lending in 2023 was 62.3% (2022:
65.1%), reflecting our balanced, risk-managed approach to
lending, with lower risk mortgages enabling the delivery of
more of our most purposeful lending.
Overall net lending increased to £1.5 billion (2022: £2.0
billion). Redemptions have been consistently higher than
forecast throughout 2023, as customers have sought to
lock in lower rates in a competitive mortgage market. This
has put pressure on 2023 net lending targets. Despite this,
the majority of mortgage customers elected to stay at the
Society when their mortgage matured this year, taking a
product transfer.
We support members by offering product transfers to
any customer whose fixed rate deal has ended and who is
up to date on their mortgage repayments. We were also
one of first lenders to sign up to the Mortgage Charter,
demonstrating our commitment to supporting members in
financial difficulty to remain in their homes. The Mortgage
Charter provides customers who are approaching the end of
a fixed rate deal the opportunity to lock into a new deal up to
six months ahead of maturity.
3 Third party costs, such as solicitor costs, are passed onto the customer.
4 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 2023 as a proportion of total UK mortgage market balances.
Financial Review continued
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32
Profitability
The Group Income Statement for the year is summarised
below:
2023
£M
2022
£M
Net interest income 337.6 359.6
Fees, commissions and other income 26.6 2.4
Fair value (losses) / gains (6.7) 14.7
Total income 357.5 376.7
Management expenses (169.0) (141.0)
Impairment on loans and advances
to customers
(6.1) (11.9)
Other impairments and provisions (0.9) (3.3)
Profit before tax 181.5 220.5
Tax expense (47.6) (58.6)
Profit after tax 133.9 161.9
The Group made a profit before tax in 2023 of £181.5 million
(2022: £220.5 million). Despite a decrease from the highest
level in our history in 2022, profit for the year remains above
historic levels, reflecting the continued success and stability
of the Society.
As the level of competition has increased in our core markets
of mortgages and savings, we have continued to follow our
mutual ethos and pass benefits on to our members through
our mortgage and savings rates, resulting in a decrease in net
interest income as described below. Management expenses
have increased this year, as we continue to invest in the
Society’s long term sustainability, but we maintain a strong
focus on efficiency with close control over our costs.
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.
Net interest income
2023
£M
2022
£M
Net interest income 337.6 359.6
Mean total assets 26,829.9 24,013.8
% %
Net interest margin 1.26 1.50
Net interest income is broadly in line with the prior year with
the positive effect of asset growth being offset by tighter net
interest margin. This has been impacted by lower mortgage
returns as a direct result of a more competitive mortgage
market, and our continued support for members as the
central bank rate of interest has increased.
As the Bank of England base rate has risen through the year,
we passed the benefits directly to our savings members
through several rate increases, and our minimum member
variable savings rate increased to 2.45%. During the year
we paid an average rate of 3.05% (2022: 1.15%) to our
savers, compared to the average market rate of 2.46%
(2022: 0.65%)
5
.
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. This year we launched
a new multi-channel offering to provide high quality home
and landlord insurance products. Other income also includes
rental income, foreign exchange movements, and other
ancillary fees and receipts.
During October, the Society successfully repurchased £192
million of externally issued capital at a discounted rate. The
transaction resulted in the recognition of a one off gain which
is reported in other income. Following the repurchase, the
Society continues to hold capital resources considerably in
excess of regulatory requirements.
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 the Income Statement. Changes
in fair value are primarily due to timing differences, which will
trend to zero as the asset or liability reaches maturity.
For the financial year ended 31 December 2023, we have
recognised a net fair value loss of £6.7 million (2022: £14.7
million gain). These losses have largely been recorded on
our collateral loan which represents a pool of equity release
mortgages.
The application of cash flow hedge accounting, introduced
during 2022, enables us to manage volatility and mitigate
some of the impact of fair value movements. Cash flow
hedging enabled us to recognise £32.3 million (2022: £112.9
million) of fair value movements in the period in the cash flow
hedge reserve as opposed to the Income Statement.
5 Source: CACI’s CSDB, Stock, January 2023 to December 2023, latest data available. CACI is an independent company that provides financial benchmarking data of the
retail cash savings market.
Leeds Building Society | Annual Report and Accounts 2023 33
Management expenses
Management expenses for the year are summarised below:
2023
£M
2022
£M
Colleague costs 102.9 83.8
Other administrative expenses 53.1 46.3
Depreciation and amortisation 9.1 10.9
Ongoing management expenses 165.1 141.0
IT transformation spend 3.9 –
Total management expenses 169.0 141.0
% %
Cost to income ratio 47.3 37.4
Cost to mean asset ratio 0.63 0.59
Management expenses £M (left hand scale)
Average number of colleagues (FTE) (right hand scale)
0
20
40
60
80
100
120
140
160
180
20232022202120202019
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1,303
1,313
1,361
1,466
1,662
101.2
100.4
126.0
141.0
169.0
Management expenses £M and colleague numbers
In the year 2023, management expenses have increased by
20%, compared to an increase in total assets of 10%. While
this increase has been necessary to position the Society for
a successful and sustainable long-term future, we continue
to focus on utilising our members’ money wisely and
operating as efficiently as possible, controlling costs so that
our cost ratios remain among the best in our sector. This is
particularly important when faced with the current
economic uncertainties.
During 2023, we have increased our investment in
transformation and systems. A key component of this is the
Society’s multi-year technology transformation programme,
which will create long-term value for the Society through
increased technical resilience and functionality, enabling us
to provide our members with the best possible experience
and interaction with the Society into the future.
We have also maintained our investment into the branch
network as we recognise and cherish the value our members
place on engaging with our colleagues through this channel,
which is demonstrated through our branch customer
experience indicator of 9.26 out of 10. Our enhancements
to the branch network have a particular focus on
environmentally friendly initiatives to align with our purpose.
We continue to invest in our colleagues to ensure we have
the right skills and experience to deliver our purpose and
the service that our members value, and consequently
the average number of colleagues (full time equivalent)
employed by the Society in 2023 has increased to 1,662
(2022: 1,466). We also supported our existing colleagues by
bringing forward our 2023 pay review and making an overall
fair reward investment of over £5 million, including a 14.6%
increase to our minimum salary level.
Although costs have increased in the year, we have
developed a greater degree of flexibility to speed up or slow
down project related spend to manage our overall cost
position through time and therefore allow us to be more agile
when responding to the current uncertainty, so that we can
continue to serve our members in the best way.
Impairments and provisions
The table below summarises the impact of impairments and
provision charges in the year:
2023
£M
2022
£M
Residential loans 6.3 12.0
Commercial loans (0.2) (0.1)
Impairment charge on loans and
advances to customers
6.1 11.9
Other impairments and provisions 0.9 3.3
Total impairments and provisions 7.0 15.2
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 being faced by borrowers, we have
not experienced a significant increase in the number of
borrowers in arrears. At 31 December 2023, 0.68% of
borrowers were in arrears by 1.5% of balance or more
(December 2022: 0.58%).
Although the economy has remained stronger than originally
expected in 2023, downside risk remains due to higher
interest rates, elevated levels of inflation and the potentially
adverse impacts of tighter financial market conditions.
Financial Review continued
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The macroeconomic scenarios used for calculating
impairment have been revised to reflect the current
economic pressures, including high levels of inflation and
the high interest rate environment. The central scenario
has been updated in anticipation of a reduction in consumer
spending during the next two years and also a rise
in unemployment.
The uncertain economic environment is also reflected in
the alternative modelled scenarios, overlays and post model
adjustments. In particular, affordability concerns remain
due to the risk associated with high mortgage rates and the
effect of these on members who are coming to the end of
their current fixed term. The key judgements and estimates
involved in the calculation of impairment loss provisions are
set out in note 2 of the accounts on pages 200 to 208.
The impact for the financial year is a £6.3 million charge
(2022: £12.0 million charge) which equates to a cost of risk
of 0.02% (2022: 0.06%). Total balance sheet impairment
loss provisions against residential mortgages at 31
December 2023 are £53.5 million (2022: £48.0 million),
as summarised below:
2023
£M
2022
£M
UK 44.5 41.8
Overseas 9.0 6.2
Total residential impairment
provisions
53.5 48.0
UK coverage 0.21% 0.21%
Taxation
The income tax expense of £47.6 million (2022: £58.6 million)
represents 27.2% (2022: 26.6%) of profit before tax. We pay
UK corporation tax at the prevailing rate of 23.5% for 2023
(2022: 19%) and also a surcharge on banking profits over the
defined thresholds, averaging 4.25% for the year (2022: 8%).
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 10.2% from £25.5 billion
to £28.1 billion.
2023
£M
2022
£M
Residential loans 21,836.4 20,372.3
Commercial loans 6.1 8.6
Other loans 153.6 164.4
Impairment provision (54.9) (52.1)
Loans and advances to customers 21,941.2 20,493.2
Liquid assets 5,559.3 4,580.7
Derivative financial instruments 443.6 679.9
Fair value adjustments (132.3) (585.9)
Fixed and other assets 334.1 346.0
Total assets 28,145.9 25,513.9
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 small closed book 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 2023
%
2022
%
Proportion of mortgages in arrears
6
0.68 0.58
Balance-weighted average indexed LTV
of mortgage book
51.2 48.8
Balance-weighted average LTV of
new lending
62.3 65.1
UK residential mortgage balances
The Society’s purpose focuses on enabling home ownership,
with a particular emphasis on first time buyers and affordable
home ownership products such as shared ownership.
The composition 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.
6 Arrears of more than 1.5% of the balance or in possession.
Leeds Building Society | Annual Report and Accounts 2023 35
50%
25%
3%
8%
14%
2023 UK residential mortgage balances by type
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, reflecting our balanced approach to lending
and the effects of house price inflation in recent years
reducing loan to values.
2023 UK residential mortgage balances by indexed LTV
Less than 50%
50% to 60%
60% to 70%
70% to 80%
80% to 90%
More than 90%
50%
14%
16%
10%
8%
2%
Liquid assets
Liquidity ratios 2023
%
2022
%
Liquidity Coverage Ratio 227 230
Liquid assets as a percentage of shares
and borrowings 21.77 20.15
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. During 2023, our record breaking savings
performance has meant that we have maintained good
levels of liquidity and the year end position is strong, which
provides protection and flexibility in this uncertain economic
environment.
At 31 December 2023, liquid assets included £5.0 billion of
High Quality Liquid Assets (2022: £4.1 billion), which are
either in cash or are readily realisable as cash when required.
100% of our liquid assets have credit ratings of A or above
(2022: 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 2023 is
shown below.
2023 liquidity portfolio
Cash in hand and balances
with the Bank of England
Loans and advances to credit
institutions
UK Government securities
Government agency debt
Supranational bonds
Covered bonds
Residential mortgage backed
securities
Certificates of deposit
51%
4%
1%
3%
14%
3%
17%
7%
The PRA monitors liquidity under the Capital Requirements
Regulation (CRR) framework. Our Liquidity Coverage
Ratio (LCR) is 227% at 31 December 2023 (2022: 230%),
significantly in excess of the regulatory minimum of 100%.
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Liabilities
A summary of our liabilities is shown below:
2023
£M
2022
£M
Shares 20,793.0 17,520.4
Wholesale funding 4,747.8 5,209.1
Derivative financial instruments 233.0 251.9
Other liabilities 371.8 519.0
Subordinated liabilities 323.9 309.1
Subscribed capital 33.0 197.6
Total liabilities 26,502.5 24,007.1
Equity attributable to members 1,643.4 1,506.8
Total liabilities and equity 28,145.9 25,513.9
Key ratios % %
Wholesale funding as proportion of
total borrowing 18.6 22.9
Shares (retail savings)
Our savings members play a key role in allowing us to achieve
our purpose of helping more people into homeownership
and we remain dedicated to providing them with a secure
place for their money. This year we attracted record savings
inflows and achieved record net retail savings growth of
£3.3 billion (2022: £2.2 billion), while simultaneously
maintaining service levels within appetite following
investment in this area.
We continue to be committed to providing savers with
compelling offerings as well as competitive interest rates
and easy access to their savings accounts. We have made
improvements to our online channel to streamline the
experience for our members when accessing their savings
and we cherish our branch network to give members the
choice of how they save and interact with us. Our branch
network Customer Experience Indicator score increased
further to 9.26 out of 10 in 2023, reflecting the outstanding
service our branch colleagues provide to members.
Our total retail savings balance is now £20.8 billion (2022:
£17.5 billion). Our 2023 growth has been particularly driven
by our popular fixed rate ISA products, which have had
competitive rates during the year.
We aim to support our members through this challenging
period of higher cost of living 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 3.05% (2022: 1.15%) being
0.59% (2022: 0.50%) above the rest of the market average of
2.46% (2022: 0.65%)
7
. This means a benefit to our members
of £110 million in 2023.
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.
2023 retail savings balances by type
Fixed rate bonds
Fixed rate ISAs
Administered
17%
27%
56%
Wholesale funding
Total wholesale funding at 31 December 2023 was £4.7 billion
(31 December 2022: £5.2 billion), representing 18.6% of total
funding. Our Net Stable Funding Ratio (NSFR), a measure of
the stability of our funding sources relative to our assets, was
143.1% (2022: 139.9%) and therefore comfortably above the
regulatory minimum of 100%.
During the year we raised £350 million of external wholesale
funding through a successful Albion No.5 residential
mortgage backed securities (RMBS) issuance. This was to
replace the Albion No.4 issuance, which was repaid in the year.
The overall reduction in wholesale funding in 2023 reflects a
£400 million repayment of TFSME
8
funding and the maturity
of a covered bond.
7 Source: CACI’s CSDB, Stock, January 2023 to December 2023, latest data available. CACI is an independent company that provides financial benchmarking data of the
retail cash savings market.
8 Our final TFSME drawings were made in October 2021 and the scheme is now closed.
Leeds Building Society | Annual Report and Accounts 2023 37
The mix of our wholesale funding portfolio at 31 December
2023 is shown below:
2023 wholesale funding portfolio
Covered bonds
Securitisation
Senior unsecured debt
Time deposits
TFSME
43%
7%
7%
39%
4%
The maturity profile of our wholesale funding is shown below:
2023 wholesale maturity
Less than 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
7%
43%
18%
21%
11%
We maintain good credit ratings from two key agencies,
reflecting our strong capital base, sustainable profitability
and robust funding position.
Credit Rating 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
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.
Swap rates have decreased significantly during the financial
year and, as a net recipient of floating rates on swaps, this
has resulted in a decrease in the net balance sheet position
for derivative financial instruments.
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.
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38
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. Capital disclosures
included in this report are in line with the UK Capital
Requirements Directive V (UK CRD V).
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 decreased by £71.2 million
during 2023 to £1,551.8 million (2022: £1,622.9 million).
In October 2023, the Society performed a capital
optimisation exercise, successfully repurchasing £192.0
million of its subordinated notes at a discount to par.
£8.0 million of notes remain outstanding at 31 December
2023 (2022: £200 million). This one off event was offset by
strong capital resource growth throughout the year.
Risk-weighted assets (RWAs) have grown by £1,191.2 million
during 2023 to £5,355.1 million (2022: £4,163.9 million)
predominately driven by an increase in IRB risk weights. Post
model adjustments (PMAs) relating to changes in IRB capital
requirements have resulted in increased RWAs. While these
PMAs have been in place since January 2022, they have
been subject to further calibration during the year. Further
refinement is ongoing across the industry in relation to the
IRB regulations and this is expected to be finalised in the next
12 months. Until the latest generation of IRB models are
approved by the PRA, the PMA is subject to change and may
lead to further movements in the regulatory capital ratios.
These increased requirements have been partly offset by
strong capital generation through retained profits during
2023. As a result of these movements, the CET 1 ratio,
calculated on a transitional basis, has reduced to 28.2%
from 33.3%.
The following table shows the composition of our regulatory
capital. More detailed disclosures can be found in the Pillar 3
document available on our website at leedsbuildingsociety.
co.uk/press/financial-results.
2023
£M
2022
£M
Capital resources
Total equity attributable to members
(excl cash flow hedge reserve)
1,569.1 1,425.6
Less pension surplus, intangible assets
and other regulatory adjustments (60.2) (37.3)
Common Equity Tier 1 (CET1) capital 1,508.9 1,388.3
Additional Tier 1 capital – –
Total Tier 1 capital 1,508.9 1,388.3
Tier 2 capital 42.9 234.6
Total regulatory capital resources 1,551.8 1,622.9
Senior non preferred notes 350.0 350.0
Total MREL eligible resources 1,901.8 1,972.9
Risk-weighted assets (RWAs) 5,355.1 4,163.9
CRD V capital ratios
8
% %
CET1 ratio 28.2 33.3
Total capital ratio 29.0 39.0
Total MREL ratio 35.5 47.4
UK leverage ratio
9
6.0 6.2
Capital management
We are regulated by the PRA and the FCA and are required to
manage our capital in accordance with the rules and guidance
issued by the PRA under CRD V. The capital requirements
of the group are monitored on an ongoing basis, to ensure
the minimum regulatory requirement is always met and that
the Society has sufficient levels of capital for current and
projected future activities.
Pillar 1
We hold capital to meet Pillar 1 requirements for credit
risk, operational risk and market risk. The IRB approach to
capital modelling is applied, which allows us to calculate
our capital requirements using internally determined risk
parameters that reflect the specific risks of our mortgage
book. The standardised approach is applied to all other
exposures, operational risk, market risk and credit valuation
adjustments.
8 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).
9 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 (>£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.
Leeds Building Society | Annual Report and Accounts 2023 39
Pillar 2A
The PRA requires us to hold additional Pillar 2A capital for the
risks not covered under Pillar 1. At 31 December 2023, the
regulatory requirement was 2.83% of risk weighted assets,
a point in time estimate set by the PRA during the year.
Capital buffers
The PRA requires entities to hold capital buffers that can
be used to absorb the impact of a stress scenario. For the
Society, the buffer framework comprises a sector wide
Capital Conservation Buffer, set at 2.5%, as well as a macro-
prudential Countercyclical Capital Buffer currently set at 2%
of RWAs for exposures to the UK. In addition, the Internal
Capital Adequacy Assessment Process (ICAAP) considers
whether any additional capital is required over and above
the regulatory buffers 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 have performed regular stress tests on our
capital base and these tests have consistently demonstrated
a capital 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.
As the impact has materially reduced, had these
arrangements not been adopted, at 31 December 2023 the
CET1 ratio 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. All banks
and building societies are assigned a preferred resolution
strategy by the Bank of England dependent on their balance
sheet size and quantum of transactional accounts. Due to
the Society having a balance sheet in excess of £15 billion,
the Bank of England has stated a preferred resolution
strategy for the Society of bail-in, requiring us to hold both
recovery and resolution MREL requirements.
The Society became subject to end state requirements on
21 July 2023. End state MREL requirements are two times
minimum regulatory requirements plus any regulatory
buffers. The Society has capital resources considerably in
excess of both end state and transitional requirements and
continues to forecast significant headroom moving forward.
New and emerging regulation
The Society is well prepared to meet the requirements of the
Basel 3.1 regulations, which come into force in July 2025. As
an IRB lender, the predominant impact will be the new capital
floor, to be phased in from July 2025 until January 2030.
Financial outlook
While the outlook for the UK economy remains unclear going
into 2024, it appears as though we may have passed through
the peak of the interest rate rises as inflation has started to
come under control. Despite this, it is expected that interest
rates will remain elevated for some time, at a higher level
than seen in recent years. While 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 fixed rate terms, many face re-mortgaging at
higher rates than they were previously used to; we remain
committed to supporting our members through this.
Although our members continue to face affordability
pressures and global political instability remains prevalent,
we will continue to utilise our expertise in key segments to
drive our purpose of putting home ownership within reach of
more people - generation after generation. We will continue
to manage growth and invest in the business, supported by
strong efficiency ratios, a keen awareness of risk and with our
members’ interests at the heart of every decision.
The strength of our balance sheet, business model and our
high quality assets, position us well 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 sustainable profit.
Financial Review continued
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Risk Overview
Year ended 31 December 2023
The Society’s purpose of ‘putting home ownership within reach of more people - generation after generation’ can only be
achieved if risks are identified, understood and managed effectively. By understanding the nature of our risks, we can make
informed decisions to 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 9).
Inherent within this strategy are eight principal risk categories. These comprise: credit; funding and liquidity; capital; market;
operational; conduct; model and strategic / business risks. We operate an enterprise risk management framework covering
all principal risk types and processes including risk governance, appetite setting, policies and key risk indicator reporting.
In aggregate, this sets 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
Principal risks
Emerging risks
Risk governance
and culture
Risk appetite
and stress testing
Risk assessment
and management
Risk
reporting
Credit Funding and liquidity Capital Market
Operational Conduct
Strategic / business
Model
Enterprise Risk Management Framework (ERMF)
Leeds Building Society | Annual Report and Accounts 2023 41
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 85-88 within the
Risk Management Report.
Risk profile
The risks that the Society is exposed to fall broadly into two 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 2022 Annual
Report and Accounts. Further information can be found on pages 89 to 111 within 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 existing principal risk universe. Refer to pages 47 to 82 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 / political risks
Overview Mitigating actions
• Whilst the economy was more resilient than expected in
2023, the outlook remains finely balanced. A number of
risks remain which may weigh on activity in 2024 including
stubborn levels of inflation; impacts from previous
increases in interest rates; and weakness in labour supply.
• Against this backdrop of economic uncertainty, activity
within the UK housing market has moderated relative to
recent years. Activity is expected to remain subdued in the
near term, with the longer-term outlook dependent on the
performance of the wider economy.
• Domestic UK political risks persist. The forthcoming
general election may result in changes to the UK political
landscape that could have wide ranging impacts on the UK
economy and the Society’s business model.
• Wider geopolitical risks outside the UK remain heightened
with the ongoing conflicts in Ukraine and the Middle East.
While the Society does not have any direct exposure to
these regions, there is a risk tensions will escalate causing
further macroeconomic shocks.
• Macroeconomic risks are regularly assessed under both central
and stressed conditions to understand and manage the impact on
our business model e.g. tightening of lending appetite (volume, risk
premia and mix).
• Horizon scanning and close monitoring of key economic data and
forecasts is regularly undertaken to support timely management
response.
• Robust levels of capital and liquidity are maintained to manage
periods of economic volatility, supported by frequent stress testing
and sensitivity analysis to understand the impacts on the Society’s
balance sheet and business model.
Risk Overview continued
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Governance Financial Statements Other Information
42
Affordability risks
Overview Mitigating actions
• Although household balance sheets have been
more resilient than previously expected, mortgage
affordability challenges remain prominent following
a prolonged period of elevated inflation, driven by
increases in energy and food prices.
• Households also remain under pressure from higher
interest rates, as members transition from their
current (lower) fixed rate mortgage products onto a
higher pay rate.
• The culmination of these factors, along with an
expected increase in unemployment during 2024,
is forecast to result in a higher number of borrowers
falling into arrears.
• Close monitoring of the performance of the Society’s lending
portfolios is performed and the appropriateness of credit policies,
criteria, and affordability assessments are regularly assessed against
prevailing conditions. In particular, during 2023, the Society made
further adjustments to the stressed interest rate used in affordability
assessments to account for the higher interest rate environment.
• Credit provisions are regularly assessed to ensure they remain
appropriate, reflective of prevailing conditions within the UK economy.
• The Society has signed up to the new UK Mortgage Charter to ensure that
borrowers who get into financial difficulty continue to receive the support
they need.
• Continued investment in the Society’s Mortgage Services Department
to ensure adequate systems, processes and resources are in place to
support members who experience financial difficulty.
• Pre-delinquency strategies have been deployed to proactively engage
members who may find themselves struggling financially.
Competition risks
Overview Mitigating actions
• The Society operates in highly competitive markets,
increasing the risk of a loss of market share, reduced
revenue, and lower profitability.
• Competition risks also relate to changes in regulation,
developments in digital technology, new market
entrants (predominantly Fintechs) and changes in
customer behaviour.
• The competitive landscape is regularly reviewed, and our product
proposition updated accordingly.
• Management carefully considers competition risks as part of our strategic
/ business planning activities, which set the future path for strategic
investment and development to ensure that the Society can adapt
accordingly.
• Further investment in the Society’s service and digital capabilities to
support our product offering, customer journeys and future scalability /
flexibility.
Operational resilience risks
Overview Mitigating actions
• A significant operational risk event could result in
disruption to important business services, leading to
customer harm, financial or regulatory impacts, or
reputational damage.
• Such events could include the increasing threat of
cyber-attacks, third / fourth party failure, loss of data
or service outages.
• 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 the market and regulators.
• The Society manages resilience related risks through its Operational
Resilience Framework and regularly tests its response to potential
resilience scenarios.
• Operational resilience processes are in place which aim to ensure that
the Society’s important business services are able to recover in a timely
manner in the event of disruption.
• The Society continues to invest in its IT security and operational controls
to improve overall resilience and combat these evolving threats.
• We frequently monitor both the effectiveness of the services we receive,
and the risks that third party service providers pose to the Society.
Leeds Building Society | Annual Report and Accounts 2023 43
Change risk
Overview Mitigating actions
• The Society’s change portfolio includes the delivery of
a multi-year technology programme, other strategic
initiatives and new regulatory requirements.
• The volume of change transformation could lead to
increases in execution, operational and people risks.
• Failure to appropriately prioritise and deliver change
on time and within agreed budgets may also inhibit
the Society’s ability to achieve its purpose or strategic
objectives.
• The Society continues to prioritise, manage and implement change in
line with its strategic plans while assessing execution risks and taking
appropriate mitigating action.
• The Society continues to invest in its change management processes,
capabilities, capacity, and governance to better control the execution
risks associated with large scale change.
• Board Risk Committee oversight of the key risks associated with the
multi-year technology programme.
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 regard
to the Society’s management and response to climate
risk, which could present heightened reputational risks.
• The Society has developed a Climate Strategy centered upon supporting
the orderly transition to a greener, net zero economy by 2050 or sooner.
• As part of this strategy, the Society has set near-term Scope 1 and 2 and
Scope 3 (categories 1-14 only) targets to underpin its net zero ambitions.
• Our Scope 3 methodologies and practices continue to be developed to
better understand the climate impacts of our wider value chain, including
from our suppliers and mortgage portfolio.
• A Climate Risk Management Framework (CRMF) has been implemented
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 the potential future impacts of
climate change on the Society under various climate pathways.
• Close monitoring of emerging regulation, disclosure standards, and
market practices is performed to ensure the Society management of
climate risks aligns with good practice.
Risk Overview continued
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Governance Financial Statements Other Information
44
Viability Statement
Year ended 31 December 2023
In accordance with provision 31 of the UK Corporate
Governance Code, the board is required to explain how it
has assessed 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 41 to 44.
Assessment of longer term prospects
Our business model, purpose statement and strategic
drivers are set out on pages 9 to 11. The board receives
strategic updates throughout the year, which assess the
business model across multiple dimensions. These include
consideration of 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. Further details are provided on pages 47 to 82
of the Strategic Report.
The strengths of our business model and the Society’s
financial position, capital strength and forecast 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. 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 in the
diagram below:
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 89 to 111. 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 has concluded that,
since such scenarios are unlikely to occur, they do not pose a
risk to the viability of the business.
Operational
sensitivities
Corporate plan
and trading
sensitivities
Alternative
scenarios
ILAAP
ICAAP
Recovery plan
testing
Reverse
stress testing
Leeds Building Society | Annual Report and Accounts 2023 45
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 84 to
111, 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 2026. 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 that 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 cost of living crisis and the economic uncertainty and
disruption observed during 2023.
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 2026.
Viability Statement continued
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46
Andrew Greenwood
Deputy Chief Executive Officer
Climate-Related Financial Disclosures
Year ended 31 December 2023
Urgent action is needed to prevent
catastrophic impacts from climate change and
to make sure every generation has a safe and
sustainable place to call home.
We’re committed to playing our part and we’ve
taken some big steps forward in our net zero
journey during 2023 as we continue to develop
our climate transition plans and ambitions.
Leeds Building Society | Annual Report and Accounts 2023 47
Climate-related disclosures overview
Our climate disclosures are compliant with the requirements of the Companies (Strategic Report) (Climate-Related
Financial Disclosure) Regulations 2022 and we have voluntarily adopted areas of the Task Force on Climate-Related Financial
Disclosures (TCFD) framework. Our climate disclosures are structured around four key pillars to provide consistent
information on the Society’s exposure to, and management of, climate risks and opportunities.
1. Strategy 2. Governance 3. Risk management 4. Metrics and targets
Actual and potential
impacts of climate risks
and opportunities on
the Society’s business,
strategy and financial
planning.
The Society’s
governance
arrangements around
climate-related risks and
opportunities.
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
Pages 51 to 58
See section 2
Pages 59 to 61
See section 3
Pages 61 to 67
See section 4
Pages 68 to 82
In line with the UK Government’s target to reduce greenhouse gas emissions by 100% by 2050, we remain committed to
supporting the orderly transition to a greener, net zero economy. During 2023, we have further developed our climate targets,
plans and disclosures and will continue to update them in future years in line with emerging standards and good practice (for
example, recommendations from the UK’s Transition Plan Taskforce (TPT) and the International Sustainability Standards
Board (ISSB), which were finalised during 2023).
Summary of our climate ambitions and targets
Overall strategic aim
Support the orderly transition to a greener, net zero economy by 2050 or sooner
90%
Targeted reduction in our absolute Scope 1 and 2 market-
based emissions of 90% by 2030 from a 2021 base year.
2023: 29% increase (2022: 34% increase)
60%
Targeted reduction in our absolute Scope 1 and 2 location-
based emissions of 60% by 2030 from a 2021 base year.
2023: 39% decrease (2022: 39% decrease)
Carbon neutral
Maintain carbon neutrality for our Scope 1 and 2 market-based emissions and selected Scope 3 emissions,
on the pathway towards net zero.
2023: Achieved (2022: Achieved)
25%
Targeted reduction in our absolute indirect operational
Scope 3 emissions (categories 1-14) of 25% by 2030 from
a 2021 base year.
2023: New target (2022: 2.7% reduction)
45%
Ambition to reduce the intensity of our Scope 3 financed
emissions (category 15) from our residential mortgage
book 45% by 2030 from a 2021 base year.
2023: New ambition (2022: 0.1% reduction)
Refer to section 4.1 pages 68 to 80 for further details on our ambitions, targets and current progress.
Climate-Related Financial Disclosures continued
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Summary of TCFD requirements
The table below summarises our response to the 11 TCFD recommendations, as well as areas of planned future
development to further enhance our approach. Page references are included to signpost where additional details
can be found within these disclosures:
TCFD recommendation Key progress areas Future priorities Further details
1. 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.
• Actions implemented to
support our Scope 1 and 2
targets.
• Emissions reported and
monitored across our
full value chain (including
Scope 3 emissions).
• Scope 3 targets and
ambitions developed and
approved by the board.
• Stakeholder engagement
across our value chain,
including our material
suppliers.
• Scenario analysis
capabilities further
developed.
• Embedding of actions to
support our near-term
climate targets.
• Development of long-
term transition plans
to support our climate
targets and ambitions.
• Continued 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 1.1 to 1.3
Pages 51 to 55
b) Describe the impact of
climate-related risks
and opportunities
on the organisation’s
businesses, strategy, and
financial planning.
Section 1.4
Page 56
c) Describe the resilience
of the organisation’s
strategy, taking into
consideration different
climate-related
scenarios, including a 2°C
or lower scenario.
Section 1.5
Pages 56 to 58
2 . Governance
a) Describe the board’s
oversight of climate-
related risks and
opportunities.
• Climate objectives defined
and included in 2023
personal objectives for
members of the senior
leadership team, aligned
to the target operating
model.
• Senior leadership team
and board oversight of
our climate targets and
ambitions.
• Climate risk training
delivered to all colleagues.
• 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.
Section 2.1
Pages 59 to60
b) Describe management’s
role in assessing and
managing climate-related
risks and opportunities.
Section 2.2
Pages 60 to 61
Leeds Building Society | Annual Report and Accounts 2023 49
TCFD recommendation Key progress areas Future priorities Further details
3. Risk management
a) Describe how processes
for identifying,
assessing, and managing
climate-related risks
are integrated into the
organisation’s overall risk
management.
• Assessment of 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
changes in Government
net zero policy priorities.
• Development of our
climate data architecture
and reporting capabilities.
Section 3.1
Pages 61 to 62
b) Describe the
organisation’s processes
for identifying and
assessing climate-related
risks.
Section 3.2
Pages 63 to 67
c) Describe the
organisation’s processes
for managing climate-
related risks.
4 . Metrics and targets
a) 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 – 15)
reported and monitored,
including refinement of
methodologies. Target
and ambitions approved
for Scope 3 emissions.
• Decarbonisation plans
implemented to support
our Scope 1 and 2 targets,
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.
• Embedding 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.
• Development of transition
plans for Scope 3
emissions.
Section 4.1
Pages 68 to 80
b) 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
Pages 81 to 82
c) Disclose Scope 1, Scope
2, and, if appropriate,
Scope 3 greenhouse gas
(GHG) emissions and the
related risks.
Section 4.1 to 4.2
Pages 68 to 82
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 an
independent third party.
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.
1 In line with Climate Impact Partners’ framework, The Carbon Neutral 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 – Climate risk strategy
Section 1.1 - Our approach
The board has approved a climate strategy centered around the aim of 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 pages 68-82 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 ambitions and targets
1
Targeted reduction in our
absolute Scope 1 and 2 market-
based emissions of 90% by 2030,
from a 2021 base year.
2
Targeted reduction in our
absolute Scope 1 and 2 location-
based emissions of 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.
4
Targeted reduction in our absolute Scope 3
operational emissions (categories 1-14) of
25% by 2030, from a 2021 base year.
5
Ambition to reduce the Scope 3 emissions intensity
of our residential mortgage book (category 15)
45% by 2030, from a 2021 base year.
Climate capabilities and enablers
Green finance Data Disclosure
Engagement
& education
Governance
Operating
model
Risk
management
Leeds Building Society | Annual Report and Accounts 2023 51
Transition plan roadmap
Develop Capabilities Mobilise Transition Plans Net Zero
Progress to date Near term targets and actions Long term aims
2016 2020 2023 2025 2030 2050
Key achievements:
• Reduced our Scope 1 and 2 market-
based emissions by 92% between
2016 and 2023.
• Verified as carbon neutral since
2021.
• Full carbon footprint baselined in
2022 (including Scope 3 emissions).
• Near term targets agreed to reduce
our own operational emissions
(Scope 1, 2 and 3).
• Ambition agreed in 2023 to reduce
financed emissions from our
residential mortgage portfolio
in line with science-based
requirements.
Deliver targets and ambitions:
• Implement plans to 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, 2 market-based emissions
and selected Scope 3 emissions.
• Work with our suppliers and other
key stakeholders to reduce our
operational Scope 3 emissions
by 25% by 2030.
• Work with the Government,
our members and industry
stakeholders to reduce the
emissions intensity of our
mortgage portfolio 45%
by 2030.
Transition to net zero:
• Accelerate actions and align our
operational and financed emissions
with a pathway to achieve net zero
by 2050 or sooner.
• Neutralise hard to abate residual
emissions through investment
in high quality carbon removal
solutions.
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Climate strategic pillars
Pillar 1- Our own operational emissions
We are 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. We have set ambitious near-
term targets to reduce our absolute Scope 1 and 2 emissions in line with
a science-based pathway. We already purchase all our electricity from
renewable sources and will now focus on removing gas from our remaining
properties and completing an ambitious refurbishment programme across
our branch estate to enhance the efficiency of the buildings and reduce
energy consumption.
On the journey to net zero, we will maintain our carbon neutral status
for our Scope 1 and 2 market-based emissions and selected Scope 3
emissions. This means we will purchase high quality verified carbon
credits to offset our residual emissions to zero while we are taking action
to permanently eliminate them, but offsets will not be used to meet our
reduction targets. Refer to section 4 for further details.
Pillar 2- Supporting the transition to net zero
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 acknowledge the potential size of these emissions
and importance of taking action to reduce them in order to reach net zero,
but many of the levers to do so are outside our direct control and there
are a number of barriers that need to be overcome. During 2023, we have
agreed a new target to reduce our absolute Scope 3 operational emissions
(categories 1-14) 25% by 2030, from a 2021 base year. To achieve this,
we will work with our suppliers to reduce emissions from the goods and
services that we buy and look for opportunities to eliminate operational
waste and emissions from employee business travel, commuting and
homeworking.
We also have ambitions to align the Scope 3 emissions from the residential mortgages that we finance with a near-term
science-based reduction pathway over the next decade. Achieving our ambition will be extremely challenging and we won’t
be able to do it alone. A joined-up and collaborative approach will be required across government, industry, and wider society
to overcome the current barriers to progress. The UK has the oldest and least efficient housing stock in Europe and there
continue to be several key gaps in Government policy required to deliver low-carbon greener homes. As a mutual, we believe
that net zero must be delivered in an equitable way to ensure nobody is unfairly disadvantaged or left behind. Our aim is to
avoid, where possible, taking any actions to restrict finance for less energy efficient homes where it is not feasible,
cost-effective, or affordable to meet increased energy efficiency standards.
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.
We support UK Finance’s
recommendations as part of
their Net Zero Homes report and
call on the Government to:
1. Finalise and implement
remaining elements of the
Future Homes Standard (FHS)
to ensure that all new homes
being built in the UK are net
zero ready.
2. Ensure energy performance
methodologies for buildings
are fit for purpose.
3. Provide certainty for firms
involved in retrofitting homes
with long-term public policies.
4. Provide additional support to
vulnerable people with the
cost of energy efficiency.
Leeds Building Society | Annual Report and Accounts 2023 53
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 that 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 1.2 – Stakeholder considerations
Our climate strategy has been designed to consider the requirements of our key stakeholders:
Section 1.3 – Climate-related risks and opportunities over the short, medium and long term
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 0-3 years Our horizon for assessing business model viability
Medium term 3-5 years Our financial planning horizon
Long term 5-30 years Our climate risk stress testing horizon
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Climate-related risks
Risks to the Society from climate change arise through two primary channels, or risk factors: physical and transition risk.
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 Short /
medium term
Electricity decarbonisation High
Carbon pricing Medium Medium / long
term
Consumer sentiment Medium
Investor sentiment Medium
Technological change Low Long term
Refer to sections 2.2 and 3.2 for further details of our assessment of these risks, potential impacts and current mitigants
in place.
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
2 Reflects our assessment of the relevance of these risks based on our current business model and operating environment.
Leeds Building Society | Annual Report and Accounts 2023 55
Section 1.4 – Climate change impacts on our business, strategy, and financial planning
As a UK-based mutual 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 / underwriting.
• Scenario analysis completed as part of our annual
Internal Capital Adequacy Assessment Process
(ICAAP) to better understand the potential financial
impacts from physical risks. Refer to section 1.5 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.
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 as part of the ICAAP
to assess financial impacts from the transition to
minimum energy ratings.
• Backstop credit controls implemented in line with
minimum requirements for energy ratings.
• Uplifts within affordability models for the highest EPC
rated properties.
• Development of green commercial proposition and
green customer communications.
• Alignment with TCFD for climate-related disclosures
and consideration of emerging disclosure
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 mortgages 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 1.5 – 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 principles of the Bank of England’s 2021 Climate Biennial Exploratory Scenario (CBES) 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 (2023 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).
3 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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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
2023 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 2023 N/A
Nature of transition Late and disorderly. New
climate policy from 2030
Early and orderly. New climate
policy from 2023
Only climate policies in
place pre-2023
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 Co2 £580 / tonne Co2 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 2023 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, 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, 45% of the mortgaged
properties in our portfolio with a valid energy performance certificate (EPC) were rated D or lower at 30 June 2023
and are therefore more exposed to potential changes in Government policy for minimum energy ratings.
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.
Leeds Building Society | Annual Report and Accounts 2023 57
• 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 more
than two 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 and a change in Government policy priorities announced in September 2023, there is an
increased probability of a disorderly scenario materialising in the medium to long term. In this context, the Society is
closely monitoring exposure to climate risks and factoring this into strategic decision making and accounting policies
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.
2050s flood risk profile
6
0
2
4
6
8
10
12
14
16
18
Very highHighModerateLowVery lowNegligible
EPA/LPA scenario
NPA scenario
Mortgage balance (£bn)
0
5
10
15
20
25
Very highModerateLowNegligible
EPA/LPA scenario
NPA scenario
Mortgage balance (£bn)
2050s coastal erosion risk profile
6
2050s subsidence risk profile
6
Current and potential EPC ratings
6
0
2
4
6
8
10
12
Very highHighModerateLowVery lowNegligible
EPA/LPA scenario
NPA scenario
Mortgage balance (£bn)
0
1
2
3
4
5
6
7
8
GFEDCBA
Current EPC rating
Potential EPC rating
Mortgage balance (£bn)
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Impacts on our longer-term strategy
We will continue to use scenario analysis to monitor the potential impacts of climate change on our business model and adapt
our strategy accordingly. Using the scenario insights, we have implemented the following actions to support the development
of our climate strategy and mitigate against the evolving risks from climate change:
• Investment in our climate risk management and modelling capabilities.
• Implementation of lending policy controls to manage exposure to climate risks.
• Consideration of the impacts of climate risks on our expected credit losses and provisions. Refer to note 2 on page 201
for further details.
6 Based on the mortgage portfolio as at 30th June 2023.
Section 2 – 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 specific areas of responsibility and expertise.
Climate
Forum
Responsible
Business Forum
Executive
Committee
Models and
Rating System
Committee
Operational
Resilience
Committee
Conduct and
Operational Risk
Committee
Assets and
Liabilites
Committee
Audit
Committee
Board Risk
Committee
Board
Nominations
Committee
Remuneration
Committee
Board Sub-Committee Executive Committee Working Group
Credit
Committee
Section 2.1 – Board-level oversight of climate-related risks
Committee Role Meetings with
climate-related
items
Activities and areas of focus in 2023
Board The board has ultimate accountability
for overseeing the implementation of
our purpose led strategy, including the
management of climate-related risks.
While the board fulfils some of these duties
directly, other responsibilities are cascaded
through the Society’s committee structure.
See pages 121 to 139 for further details of
the Society’s governance arrangements.
2
• Oversight of implementation of the
Society’s Responsible Business and
climate strategies and associated
targets and objectives.
• Review of the external environment
and competitor benchmarking.
• Review and approval of new climate
targets and ambitions for our Scope
3 emissions.
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 progress with 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 climate risks and
controls.
Leeds Building Society | Annual Report and Accounts 2023 59
Committee Role Meetings with
climate-related
items
Activities and areas of focus in 2023
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.
1
• Consideration of the critical
accounting estimates and
judgements for climate-related risks.
• Annual review and approval of TCFD
climate disclosures.
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
2023 climate-related objectives for
the senior management team, and
assessment of associated impacts
on variable remuneration.
Section 2.2 - Management level oversight of climate-related risks
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
2023 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 / 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 / appetite.
3
• Treasury Policy.
• ICAAP scenario analysis.
• Climate Risk update on financial
risks, including Scope 3
requirements for Sovereign Debt.
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 / appetite.
2
• Climate risk training.
• 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 / appetite.
1
• Climate resilience update.
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 / 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 2023
2023 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 Risk
Forum
Head of
Prudential
and
Enterprise
Risk
Delivery of climate activities
including compliance with PRA
SS3/19, industry best practice and
operational implementation of the
climate objectives.
5
• Progress against climate
deliverables.
• Climate targets and ambitions
progress and proposals.
• Property refurbishment strategy.
• Climate communications.
• Partnership opportunities.
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 on the Science Based Targets
initiative (SBTi) and considerations for setting Scope 3 targets. Mandatory climate risk training has been introduced for all
colleagues, and colleague engagement has been facilitated through a dedicated internal communications climate week and
Green Champions network of colleagues.
Remuneration
During 2023, climate factors were reflected in the Society’s remuneration scheme for the first time with relevant 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 purpose
blueprint to help put homeownership within reach of more people - generation after generation.
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.
Leeds Building Society | Annual Report and Accounts 2023 61
Climate Risk Management Framework
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
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.
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.
Vision
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
Targets / ambitions:
• Reduce absolute Scope 1 & 2 emissions by 90% by 2030, using a market-based approach.
• Reduce absolute Scope 1 & 2 emissions by 60% by 2030, using a location-based approach.
• Maintain carbon neutrality for Scope 1, 2 market-based emissions and selected Scope 3 emissions,
on the pathway to net zero.
• Reduce absolute operational Scope 3 emissions (Categories 1 – 14) by 25% by 2030.
• Ambition to reduce intensity of our financed Scope 3 emissions from residential mortgages
(Category 15) by 45% by 2030.
Risk exposure:
• Maintain negligible / low exposure to physical climate risks (flooding, ground hazards,
and coastal erosion).
• 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.
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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 / policy and provides direction to relevant functional areas that have accountability
for the management of each aspect of climate risk.
Deputy CEO = Climate Risk SMF Holder
CRO
Chief Risk Officer
CCO
Chief Commercial
Officer
CSIO
Chief Strategy and
Insight Officer
COO
Chief Operating
Officer
CFO
Chief Financial
Officer
CRO
CSIO
Strategy and risk
management
COO CFO
Operational
resilience
CFO CCO
CSIO CCO
Communication
CFO COO
Operational
infrastructure
CRO CSIO
Carbon
footprint
CRO CFO
Reporting and
disclosure
Green
finance
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
1st Line
(Business Lines)
• Development of the Society’s climate strategy and wider responsible business strategy.
• Identification, assessment, and management of climate change risks across the Society.
• Member and colleague engagement campaigns.
2nd Line
(Risk Function)
• Maintenance of the climate risk management framework.
• Climate risk monitoring and reporting.
• Development of climate scenario analysis and stress testing.
3rd 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 the potential impacts against each of our eight principal risks is presented overleaf (based on short and long-
term view of the risk impacts) along with key mitigants and climate risk metrics in place to manage the risks. 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.
Leeds Building Society | Annual Report and Accounts 2023 63
Summary of climate-related risks, potential impacts and mitigants
= High potential impact = Medium potential impact = Low potential impact
Risk factor Risk description
Impact
Key mitigants Climate risk metrics
Present
Long-
term
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.
• Automated flood and
ground risk assessment
as part of the credit
decisioning process.
• Credit policy controls.
• Building insurance required
under mortgage T&Cs.
• Stressed affordability
assessments.
• Postcode concentration
limits.
• LTV limit structure for
lending segments.
• Semi-annual back book
assessment of physical
risks under multiple
climate pathways /
stresses.
• ESG assessments for
wholesale counterparties.
• % mortgage balances
with high / very high
physical risk.
• Stressed credit risk
losses.
Credit risk
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).
• 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
Impact
Key mitigants Climate risk metrics
Present
Long-
term
Strategic / business risk
Physical and
transition
risk
• Failure to manage
exposures to, or
take advantage of
opportunities relating to
climate change, which
inhibits longer-term
business model viability.
• Stakeholder
expectations are
negatively impacted by
the Society’s response
to climate change
resulting in impairment
to reputation, or delivery
of strategic objectives.
• Reputational impact
of carbon footprint of
products and services
leading to lower member
attraction and retention.
• Responsible Business and
Green Strategies, including
the setting of appropriate
appetite and targets for
climate risk.
• Green product proposition
and governance.
• ICAAP stress testing /
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.
• Operational resilience
affected by physical
events preventing
colleagues from
accessing the office or
branches.
• Regulatory breaches /
censure.
• Corporate insurance
policy.
• Business continuity
planning and operational
resilience factored into our
investment strategy (e.g.
additional flood defences
for our 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 / 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.
• % colleagues located
in high physical risk
area.
• Stressed operational
losses.
Leeds Building Society | Annual Report and Accounts 2023 65
Risk factor Risk description
Impact
Key mitigants Climate risk metrics
Present
Long-
term
Transition
risk
• Increased supply chain
costs due to climate-
related inflationary
pressures.
• Reputational damage
from third-party
relationships due to
their climate change
credentials.
• 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.
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.
• 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
SMEs.
• Third party management
arrangements / oversight.
• Under development.
Funding and liquidity risk
Physical and
transition
risk
• Reduction in retail
funding as a result of
climate change (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.
• Annual ILAAP and
Recovery Planning
processes.
• Daily monitoring of
the Society’s liquidity
position and early warning
indicators.
• Weekly cashflow
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.
• External ESG ratings.
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Risk factor Risk description
Impact
Key mitigants Climate risk metrics
Present
Long-
term
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.
• ICAAP stress testing /
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.
• Carbon prices.
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.
• 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 provisions
for mortgages due to
climate events.
• Increase in operational
losses from climate
events.
• Impairment of balance
sheet assets, such as
premises or branches,
due to physical damage
or transitional impacts.
• 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.
Leeds Building Society | Annual Report and Accounts 2023 67
Section 4 – Climate risk metrics and targets
Section 4.1 - Climate risk ambitions, targets, 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.
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 that occur in our upstream and downstream
operational activities i.e. 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 that occur downstream in our value chain
i.e. emissions from our investments (predominantly from use
of the mortgaged properties that we finance).
The Society’s GHG emissions for 2023 are summarised below, with comparison to 2021 (our baseline year for reporting
purposes), in line with reporting requirements under SECR. Our 2022 disclosures for fugitive emissions have been restated
1
following the completion of data quality checks which identified additional unreported emissions from the leakage of an air
conditioning system in one of our offices. Restated prior year disclosures are provided for comparative purposes.
We have calculated a data score of 1.48 for our Scope 1 and 2 market-based emissions and 1.93 for our Scope 1 and 2
location-based emissions using the Partnership for Carbon Accounting Financials (PCAF) methodology (with 1 being the
highest data quality and 5 the lowest quality). This reflects the high proportion of actual versus estimated consumption data
and average emissions factors used in the calculations.
1 The adjustments did not change the net carbon outturn for 2022, with additional voluntary carbon credits purchased during 2023 to offset the difference.
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2023 SECR reporting
2,3
Market-based approach Location-based approach
Emissions (t/CO2e) 2023
2021
(Baseline)
Change 2023
2021
(Baseline)
Change
Scope 1
Diesel 1 0 – 1 0 –
Gas 33 45 (26%) 33 45 (26%)
Fugitive emissions 59 12 370% 59 12 370%
Scope 2
Electricity 4 18 (78%) 490 906 (46%)
Total Scope 1 and 2 97 75 29% 583 963 (39%)
Scope 3
Business travel 175 103 70% 175 103 70%
Total scope 1, 2 and
Scope 3 business travel
272 178 53% 758 1,066 (29%)
Purchased carbon offsets (272) (178) 53% (272) (178) 53%
Net carbon outturn – – – 486 888 (45%)
Other metrics
Emissions per FTE (Scope
1 and 2)
0.06 0.06 6% 0.35 0.71 (50%)
Energy consumption
(Mwh)
2,509 4,512* (44%) 2,509 4,512* (44%)
Energy consumption per
FTE
1.51 3.32* (54%) 1.51 3.32* (54%)
Data score (Scope 1 and 2) 1.48 – – 1.93 – –
* Energy consumption and consumption per FTE for 2021 have been restated following validation checks
(previously 4,491 and 3.30 respectively)
Restated SECR prior year disclosures
Market-based approach Location-based approach
Emissions (t/CO2e) 2022 2022
Scope 1
Diesel 1 1
Gas 34 34
Fugitive emissions 59 59
Scope 2
Electricity 7 493
Total Scope 1 and 2 101 587
Scope 3
Business travel 156 156
Total Scope 1, 2 and Scope 3 business travel 257 743
Purchased carbon offsets (257) (257)
Net carbon outturn – 486
2 t/Co2e stands for tonnes of carbon dioxide equivalent (the recognised measure for GHG emissions).
3 Offsets for our 2023 emissions will be finalised once final energy consumption data is available and has been independently verified.
Leeds Building Society | Annual Report and Accounts 2023 69
Emissions intensity ratios (per employee)
0.0
0.5
1.0
1.5
20232022202120202019201820172016
Location-based tCo2e per FTE
Market-based tCo2e per FTE
Using a market-based approach, our Scope 1 and 2 emissions have increased by 29% since our 2021 base year (overall
92% reduction since 2016 when we first started reporting). This increase was caused by two leakages of fugitive emissions
from the air conditioning system at one of our offices in 2022 and 2023. Using a location-based approach, our Scope 1 and
2 emissions have reduced by 39% since 2021 (overall 65% reduction 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 versus fossil fuel generated electricity on the UK National Grid during 2023.
Section 4.1.1 – Our Scope 1 and 2 emissions
Scope 1 and 2 targets
As part of our strategic aim to support the orderly transition to net zero by 2050 or sooner, we have set two ambitious near-
term targets to reduce our Scope 1 and 2 emissions while we maintain carbon neutrality:
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.
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.
Carbon neutral
Maintain carbon neutrality for our Scope 1, 2 market-based emissions and selected Scope 3 emissions, on the pathway
towards net zero.
Energy consumption (Mwh)
0
2000
4000
6000
20232022202120162019201820172016
Renewable
Non-renewable
Location-based emissions (tCO2e)
0
500
1000
1500
2000
2500
20232022202120162019201820172016
Scope 1
Scope 2
65% reduction
Market-based emissions (tCO2e)
0
500
1000
1500
20232022202120162019201820172016
Scope 1
Scope 2
92% reduction
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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 plan to upgrade all our
branches to the latest net zero standards by 2030. We will continue to only purchase our electricity from renewable sources
that meet requirements of the GHG Protocol Scope 2 Standard, and during 2024 we will explore opportunities to generate
onsite renewable energy. Achieving our location-based target will also be heavily dependent on decarbonisation of the UK
electricity grid in line with the National Grid’s ‘Consumer Transformation’ Future Energy Scenario (FES).
We’re committed to maintaining carbon neutrality for our Scope 1 and 2 market-based emissions and selected Scope 3
emissions
4
. We will purchase only high quality verified carbon credits to offset our residual emissions to zero while 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 high
quality certified nature-based or man-made carbon removal projects.
Progress against Scope 1 and 2 targets
We are currently ahead of our 60% location-based reduction target, having reduced our overall energy consumption following
the opening of our A rated head office building in 2022. As a result of two unexpected leakages of fugitive gas from the air
conditioning system at one of our offices, we exceeded our market-based reduction target in both 2022 and 2023. We have
taken action to minimise the risk of future leakages as far as practical and expect our emissions to trend back down in line with
the target pathway in future years as we implement our emissions reduction plans.
Summary of progress against our Scope 1 and 2 location-based target
Scope 1 and 2 emissions Location-based approach
Absolute emissions - 2021 Base Year (tCo2e) 963
Absolute emissions - 2023 (tCo2e) 583
% change vs base year -39%
Target % reduction vs base year -13%
Status Ahead
0
200
400
600
800
1000
1200
963
385
587
583
2021
base year
2030
target year
2022 2023
current year
2024 2025 2026 2027 2028 2029
60% reduction target
Progress against target
60% reduction
4 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.
Leeds Building Society | Annual Report and Accounts 2023 71
Summary of progress against our Scope 1 and 2 market-based target
Scope 1 and 2 emissions Market-based approach
Absolute emissions - 2021 Base Year (tCo2e) 75
Absolute emissions - 2023 (tCo2e) 97
% change vs base year 29%
Target % reduction vs base year -20%
Status Behind
0
20
40
60
80
100
120
75
8
101
97
90% reduction target Progress against target
2021
base year
2030
target year
2022 2023
current year
2024 2025 2026 2027 2028 2029
90% reduction
Carbon neutral status
To maintain our carbon neutral status, we’re working with Climate
Impact Partners, a specialist in carbon market solutions for
climate action.
During 2023, we maintained our 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 program 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.
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Scope 1 and 2 transition plan milestones, assumptions and dependencies
The key actions that will be taken over the remainder of the next decade to deliver our Scope 1 and 2 emissions reduction
targets are summarised below.
2030
Target year
2021
Base year
2022
Consolidation of
three offices into
our new ‘A rated’
head office.
2023
All sites using
renewable
electricity.
2024-2028
Review options to reduce
reliance on REGO backed
renewable electricity.
C
2024-2030
Complete retrofit of our branches to improve efficiency and
reduce consumption. Maintain carbon neutrality during this period.
UK electricity grid decarbonises in line with National Grid’s
‘Consumer Transformation’ FES scenario.
H H
M
M
L
C
2027
Gas heating
removed from
all sites.
M
H
H
Control: = Low = Medium = High = Complete Confidence: = Low = Medium = High
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Leeds Building Society | Annual Report and Accounts 2023 73
Section 4.1.2 – Scope 3 emissions
Assessment of our Scope 3 emissions is based 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.
Assessment of Scope 3 emission categories
Scope 3 category Description Relevance
5
Influence
6
Data quality
7
Categories 1-14 (upstream activities)
Category 1 -
Purchased goods and
services
Goods and services purchased as part of our
operational activities during the reporting
period.
H M L
Category 2 - Capital
goods
Capital goods purchased during the reporting
period.
M M M
Category 3 - Fuel
and energy related
activities (FERA)
Extraction, production, and transportation of
fuels and energy purchased in the reporting
period.
L M M
Category 4 - Upstream
transportation and
distribution
Transportation and distribution of products
and services purchased in the reporting period. L M M
Category 5 - Waste
generated in
operations
Disposal and treatment of waste generated
from our operations during the year. L H M
Category 6 - Business
travel
Transportation of employees for business-
related activity in the reporting period.
L H M
Category 7 - Employee
commuting and home
working
Transportation of employees between their
homes and worksites and emissions while
working from home in the reporting period.
M H M
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. L H L
Category 14 -
Franchises
Operation of franchise during the reporting
period.
N/A N/A N/A
Category 15 (downstream activities)
Category 15 -
Investments
Emissions from investment activities (including
use of mortgaged properties) during the
reporting period.
H L M
5 Based on our assessment of materiality of the categories, reflective of our business model (high to low).
6 Reflects our ability to influence reductions in the emissions (high to low).
7 Reflects availability and completeness of data used to calculate the emissions (high to low).
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Section 4.1.3 – Scope 3 emissions: categories 1-14
Our Scope 3 operational emissions are set out below (as at 31 December 2022, which is the most recent data point available).
As indicated by the data scores below, our Scope 3 calculations are based on a large proportion of estimated data because
accurate actual data is not currently available. As this data quality improves, we will update our calculations and re-baseline
our disclosures where there are any material changes.
Scope 3 category 1-14 emissions at 31 December 2022
Scope 3 category 2022 2021 baseline
% Change
Data score
8
tCo2e % Total tCo2e % Total 2022 2021
Category 1 Purchased goods and services 17,674 83.7% 17,292 81.8% 2% 5.00 5.00
Category 2 Capital goods 1,243 5.9% 2,544 12.0% -51% 5.00 5.00
Category 3
Fuel and
energy
related
activities
(FERA)
Upstream
emissions of
purchased fuels
6 0.0% 8 0.0% -24%
2.03 2.03
Upstream
emissions of
purchased
electricity
129 0.6% 257 1.2% -50%
Transmission and
distribution losses
(T&D)
9
45 0.2% 80 0.4% -44%
Category 4
Upstream transportation and
distribution
521 2.5% 409 1.9% 28% 5.00 5.00
Category 5 Waste generated in operations
9
3 0.0% 2 0.0% 0% 2.00 2.00
Category 6
Business
travel
Air, public transport,
rented / leased
vehicle, and taxi
9
140 0.7% 85 0.4% 65%
2.27 3.84
Hotel
accomodation
9
16 0.1% 18 0.1% -11%
Category 7
Employee
commuting
and home
working
10
Commuting 879 4.2% 324 1.5% 172%
4.00 5.00
Home working
9
436 2.1% 664 3.1% -34%
Category
13
Downstream leased assets 36 0.2% 40 0.2%
-11% 4.00 4.00
Total Scope 3 category 1-14 21,127 100% 21,723 100% -3% 4.89 4.95
Subject to voluntary offsetting (640) 3% (509) 2% 26%
Net outturn 20,487 – 21,214 – -3%
Scope 3 categories 1, 2 and 4
The goods and services that we purchase continue to account for most of our Scope 3 operational emissions (92%). We have
used a spend-based methodology to calculate these emissions, multiplying our annual spend per supplier by average sectoral
emission factors derived from the Quantis Scope 3 evaluator tool. Most of these emissions (78%) are attributed to goods
and services purchased from our top 50 suppliers by spend. Throughout 2023, we have started the process of engaging with
these suppliers to better understand their emissions footprint and carbon reduction plans. We are utilising the EcoVadis
sustainability platform to support this and enhance our supplier due diligence processes. Activity will continue in 2024 as we
work with our suppliers to meet emissions reduction targets and improve data quality and reporting. We have also embedded
climate factors into procurement processes for new goods and services, including introducing contractual requirements for
suppliers to set and meet near term net zero targets by 2030.
8 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).
9 Emissions categories that are subject to voluntary carbon offsetting. Employee commuting and home working includes home working element only.
10 Values for 2021 have been re-baselined following a change in the calculation methodology.
Leeds Building Society | Annual Report and Accounts 2023 75
Scope 3 operational target
During 2023, we have set a new target to reduce our absolute
Scope 3 operational emissions by 25% by 2030 from a 2021
base-year, which aligns with principles of the SBTi and a well-
below 2°C temperature pathway.
Progress against our Scope 3 operational target
In 2022 (the most recent data point available), our operational emissions reduced 2.7% versus our 2021 base year to
21,127 tCo2e, which is marginally behind the required c2.8% p.a. SBTi reduction pathway. The reduction was predominantly
driven by lower capital expenditure during 2022 and lower supplier emission factors due to inflation adjustments. Emissions
from business travel increased 65% during 2022, due to growth in the number of colleagues and a return to pre-Covid
pandemic working patterns.
Summary of progress against our Scope 3 operational target
Scope 3 emissions Categories 1-14
Absolute emissions - 2021 Base Year (tCo2e) 21,723
Absolute emissions - 2022 (tCo2e) 21,127
2022 % change vs base year -2.7%
2022 target % reduction vs base year -2.8%
Status Behind
14000
16000
18000
20000
22000
24000
26000
21,723
16,292
21,127
2021
base year
2030
target year
2022 2023
current year
2024 2025 2026 2027 2028 2029
25% reduction target
Progress against target
25% reduction
Scope 3 operational emissions transition plan milestones, assumptions and dependencies
The key actions that will be required over the remainder of the next decade to achieve our near-term Scope 3 operational
emissions reduction target by 2030 are summarised overleaf. We expect that emissions will continue to trend close to the
target pathway in the coming years but many of the actions are outside our direct control and will require close collaboration
from several stakeholders, including our suppliers, colleagues, and the Government. Progress will be heavily dependent on our
ability to replace current average supplier emission factors with actual data and more of our suppliers setting and achieving
their own reduction targets. Currently, 48% of our top 50 suppliers have either set or have committed to setting an SBTi
near-term target but we expect this number to increase as focus on climate ambitions increases.
25%
by 2030
Reduce our absolute Scope
3 operational emissions
(categories 1-14) by 25% by
2030, from a 2021 base year.
Climate-Related Financial Disclosures continued
Scope 3 category 7
During 2023, we conducted a survey with our colleagues to more accurately assess our Scope 3 emissions from employee
commuting and homeworking and identify opportunities to reduce them. As a result of this methodology change, we have
re-baselined our 2021 emissions for this category resulting in a 49% reduction versus our previous disclosures.
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Scope 3 operational emissions reduction plan, assumptions and dependencies
2030
Target year
2021
Base year
2022
Measured and
baselined our
Scope 3 emissions.
C
2024-2030
Continue engagement with suppliers leading to top 50 setting and
achieving verified near term SBTi targets by 2030.
Reduce operational waste (including paper, rubbish and IT consumables)
by 2% p.a.
Downstream leased assets decarbonise in line with our branch
refurbishment programme.
Petrol / diesel cars replaced by electric vehicles for 50% of existing business
travel car journeys.
M
L
M
M
H
M
M
M
2023
Engaged with top 50 suppliers
and enhanced calculation of
emissions for business travel
and commuting.
C
2024-2025
Enhance calculation of emissions and data
quality for suppliers and mortgage brokers.
Engagement with colleagues to educate
and encourage green choices.
MM
HH
Control: = Low = Medium = High = Complete Confidence: = Low = Medium = High
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Section 4.1.4 - Scope 3 category 15: residential mortgages
Using the methodology prescribed by Partnership for Carbon Accounting Financials (PCAF), the Society has calculated the
Scope 3 category 15 emissions from the UK residential mortgaged properties that we financed at 31 December 2022.
PCAF methodology for calculating financed emissions
= ∑ X
Financed
emissions
Attribution factor building emissions
Emissions attributed to the Society based on:
outstanding loan amount
property value at origination
Property emissions calculated based on:
energy consumption X
emissions factor (EF)
Leeds Building Society | Annual Report and Accounts 2023 77
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 2022 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.
• 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 (40% 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 2022).
• 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 3.54 (2021: 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 we expect the
score to improve over time as data availability continues to mature.
Scope 3 category 15 ambition
We recognise that emissions from the residential mortgages
that we finance are significant and make up the largest
proportion of our total emissions footprint. As part of our
overall strategic aim to support an orderly and equitable
transition to net zero by 2050 we have agreed an ambition
to align our category 15 emissions with a near term science-
based reduction pathway over the next decade. In line with
the SBTi’s current requirements for financial institutions, a
Sectoral Decarbonisation Approach (SDA) well-below 2°C scenario (IEA ETP B2DS) would require us to reduce the physical
intensity of our attributed residential mortgage emissions 45% by 2030 from a 2021 base year (equivalent to a reduction in
absolute attributed emissions of 33%).
Achieving our ambition will be extremely challenging and we won’t be able to do it alone. There continues to be a number of
key gaps in Government policy required to deliver low-carbon greener homes in an equitable way ensuring nobody is unfairly
disadvantaged or left behind. As a mutual, our aim is to avoid, where possible, taking any actions that may compromise a
fair and orderly net zero transition, including setting targets that may lead to restrictions on finance for less energy efficient
homes where it is not practical, cost-effective, or affordable for borrowers to meet net zero standards.
Our focus in the coming years will be on developing our green financial products and partnerships to support members in
decarbonising their home, enhancing our measurement and reporting of category 15 emissions as data processes mature,
and engaging with Government and industry bodies to ensure remaining net zero policy gaps are addressed.
45%
by 2030
Ambition to reduce the
intensity of our Scope 3
financed emissions (category
15) from our residential
mortgage book 45% by 2030
from a 2021 base year.
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Progress against our Scope 3 category 15 ambition
In 2022 (the most recent data point available), our financed emissions from residential mortgages reduced 0.1% versus our
2021 base year to 20.24 kgCO2e/m2/year, predominantly driven by lower average LTV of lending in 2022 and an improvement
in the proportion of more energy efficient properties on the book (52.8% with an EPC rating of A-C versus 52.3% in 2021).
This is behind the required emissions reduction of approximately 5% in 2022 to align with an SBTi pathway. We expect that
these emissions will continue to trend above this pathway in the coming years until current barriers to greening the UK house
stock are resolved.
Scope 3 financed emissions for our mortgage portfolio
11
at 31 December 2022
Scope 3 category 15 emissions
Current position Base year
31 December 2022 31 December 2021
Total mortgaged properties 181,082 168,731
Total mortgage lending £20.45 bn £18.43 bn
% of properties with a valid EPC 61% 62%
PCAF data score 3.54 3.56
Absolute financed emissions (tCO2e/year) 311,031 290,493
Physical emissions intensity (kgCO2e/m2/year) 20.24 20.26
Economic emissions intensity (tCO2e/£M lent/year) 15.21 15.76
Progress against our 45% Scope 3 category 15 ambition
Scope 3 category 15 Emissions
Physical emissions intensity - 2021 base year (kgCO2e/m2/year) 20.26
Physical emissions intensity - 2022 (kgCO2e/m2/year) 20.24
2022 % change vs base year -0.1%
2022 ambition % reduction vs base year -5.0%
Status Behind
10
12
14
16
18
20
22
20.26
11.24
20.24
2021
Base Year
2030
Target
2022 2023 2024 2025 2026 2027 2028 2029
45% reduction target - ETP B2DS scenario
Progress against ambition
45% reduction
11 Excluding residual commercial loans and Gibraltar and Spanish mortgages. Outstanding balances are de minimis and were therefore excluded from the analysis.
Leeds Building Society | Annual Report and Accounts 2023 79
Scope 3 category 15 transition plan milestones, assumptions and dependencies
The key actions that will be required over the remainder of the next decade to achieve our near-term Scope 3 category 15
ambition by 2030 are summarised below.
2030
Target year
2021
Base year
2022
Measured and
baselined our
Scope 3 emissions.
C
2024-2030
300,000 net-zero ready new homes built every year in the UK from
2025 to 2030.
All BTL properties in the UK reach an EPC rating of A-C by 2028
(where practical / feasible).
60% of owner-occupied homes in the UK reach an EPC rating of A-C
by 2030. 20k properties complete green retrofit financed by LBS.
Heat pumps replace gas central heating in 2.7 million UK
homes by 2030.
UK electricity National Grid decarbonises 80% between 2024 and 2030.
L
L
L
L
M
M
M
L
M
L
2023
Reduced emissions 0.1% and
increased proportion of
mortgaged properties with
an EPC C or better to 52.8%
C
2024-2025
Implementation of the Government’s Future
Homes Standard.
Government reform of the EPC process and
methodology.
Development of our green product range
and partnerships. Member engagement
and education.
ML
ML
HH
Control: = Low = Medium = High = Complete Confidence: = Low = Medium = High
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
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Section 4.2 – climate risk metrics
Physical risk
As at 30 June 2023, the Society’s UK mortgage portfolio
12
demonstrated a low current and future risk posture for flooding,
ground hazards and coastal erosion, under a range of stress scenarios.
Summary of physical risk metrics as at 30 June 2023
Present day Low emissions scenario (2050s) High emissions scenario (2090s)
Properties Exposure
(£M)
% of book Properties Exposure
(£M)
% of book Properties Exposure
(£M)
% of book
Flood risk
Negligible 149,385 16,622.9 81.2% 149,717 16,660.8 84.2% 149,411 16,626.5 84.1%
Very Low 14,047 1,548.6 7.6% 12,833 1,435.2 7.2% 11,572 1,301.6 6.5%
Low 3,478 403.6 1.9% 3,884 435.3 2.2% 3,994 435.3 2.2%
Moderate 2,971 325.5 1.6% 3,451 371.6 1.9% 3,818 410.2 2.1%
High 4,940 545.0 2.7% 4,775 528.4 2.7% 5,083 559.9 2.9%
Very High 2,908 291.4 1.6% 3,069 305.8 1.7% 3,851 384.9 2.2%
Unmatched 6,210 780.5 3.4% 6,210 780.5 3.4% 6,210 780.5 3.4%
Coastal erosion
Negligible 171,521 19,306.8 93.2% 171,502 19,303.4 93.2% 171,435 19,295.7 93.2%
Low 7 1.1 0.0% 5 0.8 0.0% 3 0.4 0.0%
Moderate 11 1.0 0.0% 22 3.2 0.0% 38 4.4 0.0%
Very High 5 1.1 0.0% 15 2.6 0.0% 68 9.5 0.0%
Unmatched 12,395 1,207.6 6.7% 12,395 1,207.6 6.7% 12,395 1,207.6 6.7%
Subsidence risk
Negligible 90,764 10,233.2 49.3% 89,927 10,130.6 49.3% 87,637 8,691.6 43.0%
Very Low 41,994 4,693.4 22.8% 38,359 4,222.9 20.9% 39,997 5,526.6 26.2%
Low 34,630 3,014.9 16.4% 34,630 3,579.5 18.8% 35,161 3,552.3 18.7%
Moderate 8,534 1,363.7 4.6% 8,584 1,370.8 4.7% 8,695 1,526.4 5.3%
High 16 2.2 0.0% 16 2.2 0.0% 16 2.2 0.0%
Very High 18 2.5 0.0% 28 4.1 0.0% 38 11.0 0.0%
Unmatched 12,395 1,207.6 6.7% 12,395 1,207.6 6.7% 12,395 1,207.6 6.7%
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 2090s.
12 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.
Leeds Building Society | Annual Report and Accounts 2023 81
Transition risk metrics
The Society currently uses EPC data as the primary way of assessing the potential impact of transition risk. An EPC shows
how energy efficient a property is based on a traffic light rating from A to G (with A being the most efficient and G the least).
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.
The table below presents the current and potential EPC profile of our UK residential mortgage portfolio as at 30 June 2023.
Summary of EPC ratings for our mortgage portfolio as at 30 June 2023
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 0.5% 0.6% 0.1% 21.6% 30.0% 4.3%
B 29.8% 41.1% 6.7% 54.8% 51.3% 62.0%
C 25.1% 19.7% 36.1% 21.8% 17.1% 31.3%
D 33.0% 27.8% 43.7% 1.6% 1.3% 2.3%
E 9.9% 8.8% 12.4% 0.2% 0.2% 0.2%
F 1.4% 1.7% 0.9% 0.0% 0.0% 0.0%
G 0.3% 0.4% 0.2% 0.0% 0.0% 0.0%
Average C C D B B B
Overall, 60% of the Society’s total UK mortgage portfolio was matched with a valid EPC
13
(2022: 57%). Of those properties,
52.8% had a current EPC rating of A to C (2022: 52.3%). The average rating for the total portfolio with a valid and matched EPC
was C (compared to a UK average of D
14
). Based on potential EPC ratings, 98% could reach C or better and the average for the
total portfolio would increase to B.
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.
13 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.
14 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 10 and key indicators of performance are on pages 19 to 21.
• Our approach to managing our impact on the environment and to managing the risks arising from climate change
is explained on pages 48 to 82. 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 15 to 18.
• 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 function (second line) and Internal Audit (third line), using a risk-based approach.
Approval of the Strategic Report
This Strategic Report (on pages 3 to 83) has been approved by the board of directors and is signed on behalf of the board.
Andrew Conroy
Chief Financial Officer
22 February 2024
Non-Financial and Sustainability
Information Statement
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 83
Risk Management
Report
Approach to Risk Management
Year ended 31 December 2023
Approach to risk management
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.
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…
• 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 main components of the ERMF are outlined below:
Risk governance and culture
Risk governance means 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 sub-committees, each with distinct
mandates in their Terms of Reference (ToR).
BRC provides independent oversight of the effective management of risks, on behalf of the board, which 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 / BRC. Our committee structure as at the year end is set
out overleaf:
Leeds Building Society | Annual Report and Accounts 2023 85
Board
Chair: Iain Cornish
• Safeguarding members’ interests.
• Ensures robust risk management
systems and internal controls are
in place.
• Setting risk appetite.
• Leading, developing and
implementing the Society’s culture.
Remuneration Committee
Chair: Annette Barnes
• Ensures remuneration
policies, principles and
practices support the
long term interests of the
Society.
Models and Rating
System Committee
Chair:
Andrew Greenwood
• Supports BRC in
relation to model
risk matters and
maintenance of the
IRB Rating System.
Assets and
Liabilities
Committee
Chair:
Andrew Conroy
• Supports BRC in
relation to balance
sheet risk matters.
Credit Committee
Chair:
Andy Moody
• Supports BRC in
relation to lending
related matters.
Conduct and
Operational Risk
Committee
Chair:
Parveen Kaur
• Supports BRC in
overseeing the
implementation
of Consumer Duty
operational risk
matters.
Operational
Resilience
Committee
Chair:
Rob Howse
• Supports BRC
in relation to
operational
resilience matters.
Board Risk Committee
Chair: Neil Fuller
• Reviews the Society’s risk
exposures and oversees
the ERMF.
• Reviews strategic
risk appetite and the
Society’s ICAAP, ILAAP
and RRP prior to board
approval.
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.
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.
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.
Approach To Risk Management continued
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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.
• Coordination 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 the 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 (DCEO), with separate
independent engagement with the Chair of the 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 – appropriate incentive schemes 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 risks 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 severe scenarios.
Leeds Building Society | Annual Report and Accounts 2023 87
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 / 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 56 to 58 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 are 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. Management then
evaluates and prioritises risks to inform decision making and to optimise the allocation of resources.
• Risk treatment – management selects and deploys 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. Using 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.
Approach To Risk Management continued
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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 2023:
Group 2023
£M
Group 2023
%
Group 2022
£M
Group 2022
%
Cash in hand and balances with the Bank of England 2,830.0 10.1 2,958.1 11.5
Loans and advances to credit institutions 213.7 0.8 235.9 0.9
Investment securities 2,515.6 9.0 1,386.7 5.4
Derivative financial instruments 443.6 1.6 679.9 2.6
Loans and advances to customers 21,941.2 78.5 20,493.2 79.6
Total 27,944.1 100.0 25,753.8 100.0
The Society has non-material legacy commercial (2023: £6.0 million; 2022: £8.6 million) and Spanish residential mortgage
(2023: £45.3 million; 2022: £55.7 million) portfolios, which are closed portfolios in active run-off. On that basis, the following
sections focus primarily upon UK residential and wholesale credit exposures and practices.
1.1 Retail credit risk
Managing retail credit risk
The key mitigants in relation to retail credit risk are as follows:
• A board defined appetite is approved at least annually, supported by the Credit Risk policy, limit frameworks and
management reporting.
• Performance is continually reviewed against appetite and adherence with policy limits.
• The Society’s underwriting processes use a range of tools including 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 is completed, such as valuations.
• A 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 is completed to assess vulnerabilities within credit portfolios and informs pre-emptive actions.
• Benchmarking of credit controls and performance is regularly completed.
Monitoring retail credit risk
The Society operates various first line functions to monitor the retail credit profile on a continuous basis. 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 frequent 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.
Principal Risks
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 89
Retail credit risk profile
The table below is a breakdown of the Society’s retail credit portfolio as at 31 December 2023. The portfolio remains
diversified across a number of segments with no significant change in the mix compared to the prior year.
Group and
Society 2023
£M
Group and
Society 2022
£M
Residential mortgages
Mainstream owner-occupied 10,960.7 9,387.8
Buy to let 5,454.6 5,827.7
Shared ownership 2,964.0 2,509.5
Other 2,457.1 2,647.3
Collateral loan which represents a pool of equity release mortgages 153.9 155.4
Total gross exposure (contractual amounts) 21,990.3 20,527.7
Impairment loss provisions (53.5) (48.0)
Fair value adjustments (0.3) 6.5
Total net exposure 21,936.5 20,486.2
Geographic concentration
The table below provides a breakdown of the geographic concentration of the Society’s retail credit portfolio as at
31 December 2023. The Society’s mortgage portfolio remains well diversified, reflecting the national coverage of
our distribution channels.
Group and
Society 2023
%
Group and
Society 2022
%
South East 15.7 15.2
Midlands 15.0 14.7
Greater London 12.7 13.0
East of England 10.0 9.9
South West 9.9 10.0
North West 9.7 9.5
Yorkshire and Humberside 8.8 8.9
Scotland 7.8 8.1
North East 3.9 3.9
Wales 3.5 3.6
Northern Ireland 2.8 2.8
Spain 0.2 0.3
Other – 0.1
Total net exposure 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. 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 continued
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The Society’s lending policy permits owner occupier applications with a maximum LTV of 95 per cent and buy to let
mortgages with a maximum LTV of 80 per cent, 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 2023 is as follows:
Group and
Society 2023
£M
Group and
Society 2023
%
Group and
Society 2022
£M
Group and
Society 2022
%
Less than 10% 218.4 1.0 225.0 1.1
10% to 20% 1,016.6 4.7 1,042.9 5.1
20% to 30% 2,264.2 10.4 2,240.3 11.0
30% to 40% 3,379.9 15.5 3,498.4 17.2
40% to 50% 4,104.2 18.8 4,147.6 20.2
50% to 60% 3,460.4 15.8 3,395.8 16.7
60% to 70% 2,993.1 13.7 2,701.3 13.3
70% to 80% 2,138.8 9.8 1,705.6 8.4
80% to 90% 1,820.2 8.3 1,220.2 6.0
90% to 100% 437.7 2.0 191.5 0.9
More than 100% 2.9 – 3.7 0.1
Total 21,836.4 100.0 20,372.3 100.0
As at 31 December, the overall weighted average loan to value of the retail mortgage portfolio was 51.2% (2022: 48.8%).
The weighted average loan to value of new lending in 2023 was 62.3% (2022: 65.1%).
Retail credit performance
The following table sets out information about the credit quality of the Society’s retail mortgages as at 31 December 2023
1
.
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 is detailed
below, with further information provided in note 1(e) of the accounts.
• Stage 1 – assets are allocated to this stage on initial recognition and remain in this stage if there has not been a
significant increase in credit risk since initial recognition.
• Stage 2 – assets where it is determined that there has been a significant increase in credit risk since initial recognition,
but where there is no objective evidence of impairment.
• Stage 3 – assets where there is objective evidence of impairment, meaning they are considered to be in default or in the
cure period following default.
Underlying retail credit performance has seen some level of deterioration with a small 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. An increase in Stage 3 balances is a result of an increase in the level of customers falling into arrears. A post model
adjustment has been applied to increase the level of provisions held to reflect the increased risks associated with cost of living
pressures and rate shocks (see note 2(b) of the accounts).
Retail mortgages Stage 1
£M
Stage 2
£M
Stage 3
£M
Total
£M
Group and Society 2023
Low IRB PD <2.02% 16,911.4 2,843.4 26.9 19,781.7
Medium IRB PD ≥2.02% and <25.97% 735.7 870.1 28.0 1,633.8
High IRB PD ≥25.97% 23.0 188.9 209.0 420.9
Total gross exposure 17,670.1 3,902.4 263.9 21,836.4
Impairment loss provision (4.8) (31.9) (16.5) (53.2)
Net exposure 17,665.3 3,870.5 247.4 21,783.2
1 Loans measured at amortised cost and loan commitments represent amounts committed.
Leeds Building Society | Annual Report and Accounts 2023 91
Loan commitments Stage 1
£M
Stage 2
£M
Stage 3
£M
Total
£M
Group and Society 2023
Low IRB PD <2.02% 1,244.1 – – 1,244.1
Medium IRB PD ≥2.02% and <25.97% 20.4 – – 20.4
High IRB PD ≥25.97% 4.4 – – 4.4
Total gross exposure 1,268.9 – – 1,268.9
Impairment loss provision (0.3) – – (0.3)
Net exposure 1,268.6 – – 1,268.6
Retail mortgages
Stage 1
£M
Stage 2
£M
Stage 3
£M
Total
£M
Group and Society 2022
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
Stage 1
£M
Stage 2
£M
Stage 3
£M
Total
£M
Group and Society 2022
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
The table below provides further information on the Society’s retail mortgages by payment status as at 31 December 2023
2
.
Overall, past due balances as a percentage of the portfolio have remained broadly stable, with modest increases in the level of
balances in arrears evidenced as a result of continued cost of living challenges.
Group and
Society 2023
£M
Group and
Society 2023
%
Group and
Society 2022
£M
Group and
Society 2022
%
Not past due 21,530.9 98.7 20,122.8 98.8
Past due up to 3 months 172.5 0.8 136.3 0.7
Past due 3 to 6 months 50.4 0.2 41.0 0.2
Past due 6 to 12 months 47.8 0.2 36.6 0.2
Past due over 12 months 25.3 0.1 29.8 0.1
Possessions 9.5 – 5.8 –
Total gross exposure 21,836.4 100.0 20,372.3 100.0
The table includes £9.5 million (2022: £6.6 million) of loans and advances secured on residential property in Spain that are past
due. As at 31 December 2023 £0.8 million Spanish properties were in possession (2022: £0.0 million).
Forbearance
The Society continues to invest in developing and enhancing its arrears management strategies to minimise credit risk losses,
while 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.
2 Excludes impairment loss provisions.
Principal Risks continued
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92
The table below provides further information on loans existing at 31 December 2023, 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.
The level of loans that are reported as in forbearance has seen an overall increase reflecting an increase in arrears balances
in 2023. Increases in forbearance balances have largely been seen within ‘Other payment arrangements’ predominantly
through appropriate rate reduction products where customers are experiencing hardship, as the Society continues to support
customers through financial difficulties.
Group and Society 2023
Capitalisation
£M
Transfer to
interest only
£M
Term extension
£M
Other payment
arrangements
£M
Total forbearance
£M
Not past due 6.3 11.4 26.8 18.1 62.6
Past due up to 3 months 4.2 4.3 3.5 6.7 18.7
Past due over 3 months 6.3 3.5 3.6 22.7 36.1
Total forbearance 16.8 19.2 33.9 47.5 117.4
Group and Society 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
Retail credit risk outlook
Uncertain macroeconomic conditions and affordability challenges are expected to result in a heightened credit risk profile,
due to an increasing number of borrowers in financial difficulty. Increases in arrears are currently well within previous
forecasts.
Management will continue to closely monitor the performance of the Society’s lending portfolios and the appropriateness of
credit appetite and policies versus prevailing conditions.
1.2 Wholesale credit 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 is approved, supported by the Wholesale Credit Policy, limit frameworks and management
reporting.
• 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 continuously 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 perceived deterioration in credit quality of a
counterparty.
Each wholesale credit line is formally reviewed at least annually, with outputs overseen by 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.
Leeds Building Society | Annual Report and Accounts 2023 93
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
3
, is outlined in the table below. As at 31 December 2023, circa 100% of the portfolio was rated as A- or above
(2022: 100%).
Group 2023
Aaa
£M
Aa1–Aa3
£M
A1–A3
£M
Unrated
£M
Total
£M
Cash in hand and balances with the Bank of England – 2,830.0 – – 2,830.0
Loans and advances to credit institutions – 77.8 135.9 – 213.7
Investment securities
UK Government securities – 965.3 – – 965.3
Government agency debt 82.0 – – – 82.0
Supranational bonds 180.6 – – – 180.6
Covered bonds 749.4 – – – 749.4
Residential mortgage backed securities 362.9 – – – 362.9
Certificates of deposit – 24.9 150.5 – 175.4
Total liquid assets 1,374.9 3,898.0 286.4 – 5,559.3
24.7% 70.1% 5.2% – 100.0%
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%
Geographic concentration
The Society’s liquidity portfolio continues to be invested predominately within the UK. The geographical domicile of the
portfolio is outlined below:
Group 2023
£M
Group 2023
%
Group 2022
£M
Group 2022
%
United Kingdom 5,020.9 90.4 4,221.2 92.3
Canada 161.7 2.9 79.1 1.7
Australia 99.3 1.9 25.0 0.5
Germany 47.1 0.8 104.4 2.3
Finland 24.9 0.4 – –
Netherlands 24.8 0.4 25.0 0.5
United States 19.1 0.3 – –
Global Supranational 131.8 2.4 90.4 2.0
European Supranational – – 6.8 0.1
Asian Supranational 29.7 0.5 28.8 0.6
Total liquid assets 5,559.3 100.0 4,580.7 100.0
Principal Risks continued
3 The lower of either Fitch or Moody’s.
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94
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, no impairment loss provision is considered necessary
for these assets.
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.
The Society centrally clears all eligible derivatives classes through indirect membership with a central counterparty clearing
house (CCP). Cleared derivative instruments will only be transacted with counterparties with which a Cleared Derivative
Execution Agreement (CDEA) or Accession Agreement (AA) have been put in place. 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.
The table below shows the net exposure after reflecting the impact of netting arrangements and collateral:
Group 2023
Gross
amounts
4
£M
Master netting
agreements
£M
Cash
collateral
£M
Net
amount
£M
Financial assets
Derivative financial instruments 443.6 (200.7) (267.7) (24.8)
Financial liabilities
Derivative financial instruments 233.0 (200.7) (32.7) (0.4)
Society 2023
Gross
amounts
4
£M
Master netting
agreements
£M
Cash
collateral
£M
Net
amount
£M
Financial assets
Derivative financial instruments 443.6 (200.7) (267.7) (24.8)
Financial liabilities
Derivative financial instruments 232.8 (200.7) (15.9) 16.2
Group 2022
Gross
amounts
4
£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
Society 2022
Gross
amounts
4
£M
Master netting
agreements
£M
Cash
collateral
£M
Net
amount
£M
Financial assets
Derivative financial instruments 679.5 (199.8) (493.6) (13.9)
Financial liabilities
Derivative financial instruments 237.2 (199.8) (26.9) 10.5
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.
4 As reported in the Statement of Financial Position on page 191.
Leeds Building Society | Annual Report and Accounts 2023 95
Wholesale credit risk outlook
Due to the ongoing 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.
Managing funding and liquidity risk
The key mitigants in relation to funding and liquidity risk are as follows:
• A board defined appetite is approved, supported by the Funding and Liquidity Policy, limit frameworks and
management reporting.
• 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 is maintained and regularly tested, through prepositioned collateral.
• Performance versus appetite is reviewed 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.
• A recovery plan, including a trigger and alert framework, is maintained to identify the emergence of a stress and actions
to respond accordingly.
Monitoring funding and liquidity risk
Our treasury function is responsible for monitoring potential liquidity or funding risks and performance against appetite /
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.
2023 liquidity position
The Society maintained a strong liquidity position throughout 2023. As at 31 December 2023, the Society’s Liquidity
Coverage Ratio was 227% (2022: 230%), which was considerably above minimum regulatory requirements (100%).
Principal Risks continued
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96
The table below provides an overview of the Society’s liquidity portfolio. Our Liquidity Strategy and limit structure ensures
that the liquidity portfolio remains appropriately diversified across various instruments and durations. As at 31 December
2023, 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 continues to retain significant levels of off-balance sheet liquidity capacity.
Group and
Society 2023
£M
Group and
Society 2022
£M
Cash in hand and balances with the Bank of England 2,830.0 2,958.1
UK Government securities 965.3 396.7
Other qualifying securities 1,157.7 712.2
High quality liquid assets 4,953.0 4,067.0
Other on balance sheet securities 606.2 513.7
Total 5,559.2 4,580.7
2023 funding risk position
As a mutual organisation the Society is predominately funded through retail funding which was 81.4% of the Society’s SDLs
(shares, deposits and liabilities).
The Society also raises funding via capital markets, through a well-established wholesale franchise, and through access
to central bank funding facilities. Our funding strategy and limit structure ensure that the wholesale portfolio remains
appropriately diversified across various instruments, currencies, duration and investor types.
The tables below detail the sources of the Society’s wholesale funding and their currency. As at 31 December 2023, total
wholesale funding stood at £4.7 billion (2022: £5.2 billion), representing 18.6% of total funding. During the year, the Society
issued a £350 million securitisation to support our overall funding plan. We also started to repay drawings from the BoE’s Term
Funding Scheme with additional incentives for SMEs (TFSME).
Group 2023
£M
Group 2023
%
Group 2022
£M
Group 2022
%
Deposits from banks 24.3 1% 28.4 1%
Amounts drawn under TFSME 1,845.0 39% 2,240.0 43%
Other deposits and amounts owed to other customers 169.9 4% 229.7 4%
Debt securities in issue:
Certificates of deposit – – 5.0 0%
Senior unsecured debts 315.9 7% 299.1 6%
Covered bonds 2,037.3 42% 2,296.5 44%
Residential mortgage backed securities 355.4 7% 110.4 2%
Total 4,785.1 100% 5,209.1 100%
As at 31 December 2023, 91% of the Society wholesale funding portfolio was denominated in sterling. All euro denominated
issuances are converted to sterling using cross currency swaps.
Group
Sterling
£M
Group
Euro
£M
Group
Total
£M
Deposits from banks 24.3 – 24.3
Amounts drawn under TFSME 1,845.0 – 1,845.0
Other deposits and amounts owed to other customers 169.9 – 169.9
Debt securities in issue:
Certificates of deposit – – –
Senior unsecured debts 315.9 – 315.9
Covered bonds 1,610.6 426.7 2,037.3
Residential mortgage backed securities 355.4 – 355.4
Total as at 31 December 2023 4,321.1 426.7 4,747.8
Total as at 31 December 2022 4,785.1 424.0 5,209.1
Leeds Building Society | Annual Report and Accounts 2023 97
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 is now concentrated between one and two
years, reflective of the Society’s outstanding TFSME drawings.
Group 2023
£M
Group 2023
%
Group 2022
£M
Group 2022
%
Less than one year 1,009.5 21.3% 507.7 9.8%
One to two years 2,062.1 43.4% 1,272.4 24.4%
Two to five years 1,676.2 35.3% 3,429.0 65.8%
More than five years – – – –
Total 4,747.8 100.0% 5,209.1 100.0%
The stability of the Society’s overall funding position is assessed through its Net Stable Funding Ratio (NSFR). As at
31 December 2023, the Society’s NSFR ratio stood at 143.1% (2022: 139.9%), which is significantly above the regulatory
minimum of 100%.
Maturity profile of financial assets and liabilities
The table below analyses the financial assets and liabilities based on the remaining period between 2023 year end and the
contractual maturity date. In practice, the contractual maturity can differ to actual repayments, whereby customer behaviours
result in liabilities being held for longer than their contractual maturities and assets repaid earlier or vice versa.
During 2023, contractual liquidity gap mismatches have generally increased in line with balance sheet growth.
Group 2023
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 2,830.0 – – – – 2,830.0
Loans and advances to credit institutions 213.7 – – – – 213.7
Investment securities – 403.8 709.5 947.1 455.2 2,515.6
Derivative financial instruments – 5.7 38.2 381.5 18.2 443.6
Loans and advances to customers
Loans fully secured on residential property 6.9 23.1 43.1 684.8 21,025.0 21,782.9
Other loans – 0.5 – – 157.8 158.3
Fair value adjustments for hedged risk on loans and
advances to customers
– (0.1) (0.3) (4.2) (127.7) (132.3)
Total financial assets 3,050.6 433.0 790.5 2,009.2 21,528.5 27,811.8
Financial liabilities
Shares 5,390.8 1,785.2 6,694.2 6,913.9 8.9 20,793.0
Fair value adjustment for hedged risk on shares 8.3 2.7 10.3 10.6 – 31.9
Derivative financial instruments – 4.0 27.5 158.9 42.6 233.0
Amounts owed to credit institutions – 2.0 418.5 1,448.8 – 1,869.3
Amounts owed to other customers – 119.7 42.6 7.6 – 169.9
Debt securities in issue – – 426.7 2,281.9 – 2,708.6
Subordinated liabilities – – – 323.9 – 323.9
Subscribed capital – – – – 33.0 33.0
Total financial liabilities 5,399.1 1,913.6 7,619.8 11,145.6 84.5 26,162.6
Net liquidity gap (2,348.5) (1,480.6) (6,829.3) (9,136.4) 21,444.0 1,649.2
Principal Risks continued
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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 adjustments 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
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.
Group 2023
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 5,390.8 1,788.1 6,779.0 7,300.5 9.0 21,267.4
Amounts owed to credit institutions – 2.1 436.9 1,562.0 – 2,001.0
Amounts owed to other customers – 120.5 43.9 7.9 – 172.3
Debt securities in issue – - 428.2 2,476.4 – 2,904.6
Subordinated liabilities – 2.6 2.6 337.1 342.3
Subscribed capital – 1.7 2.0 14.6 102.5 120.8
Total financial liabilities 5,390.8 1,915.0 7,692.6 11,698.5 111.5 26,808.4
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
Leeds Building Society | Annual Report and Accounts 2023 99
The following table details the Society’s contractual maturity for its derivative financial instruments. The table is based on the
undiscounted net cash inflows/(outflows) on the derivative instruments, which settle on a net basis and the undiscounted
gross inflows/(outflows) on those derivatives that require gross settlement. 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.
Group 2023
Less than
3 months
£M
3 to 12
months
£M
1 to 5
years
£M
More than
5 years
£M
Total
£M
Swap contracts 58.2 174.3 275.5 2.4 510.4
Group 2022
Less than
3 months
£M
3 to 12
months
£M
1 to five
years
£M
More than
5 years
£M
Total
£M
Swap contracts 21.4 89.1 63.1 (71.2) 102.4
Encumbrance
Asset encumbrance occurs where some of the Society’s 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 BoE’s central funding schemes. 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 as at 31 December 2023 is set out in the table below:
Encumbered
£M
Unencumbered
£M
Total
£M
Cash and balances with the Bank of England – 2,830.0 2,830.0
Loans and advances to credit institutions 77.8 135.9 213.7
Investment securities 189.8 2,325.8 2,515.6
Loans and advances to customers 6,739.4 15,201.8 21,941.2
Derivative financial instruments – 443.6 443.6
Other assets 335.0 (133.2) 201.8
Total as at 31 December 2023 7,342.0 20,803.9 28,145.9
Total as at 31 December 2022 7,453.0 18,060.9 25,513.9
External credit ratings
During 2023, 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 June 2023
Fitch A- F1 Stable October 2023
Outlook
• Funding markets in 2024 present a heightened level of uncertainty due to the expected economic downturn, geopolitical
risks and increased competition for retail savings as firms refinance TFSME drawings.
• The Society carries strong levels of on balance sheet liquidity into 2024 and remains well positioned to address any
funding and liquidity uncertainty that may arise through a combination of its retail and wholesale franchises.
Principal Risks continued
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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 wholesale 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 is approved, supported by the Market Risk Policy, limit frameworks and management reporting.
• 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 is conducted frequently to understand the impacts of movements in interest and
foreign exchange rates on value and income.
• Monthly review of performance against appetite is completed.
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.
2023 market risk position
Key developments in relation to market risk during 2023 were as follows:
• Throughout 2023, 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.
• The Bank of England further increased interest rates during 2023 from 3.5% to 5.25% in order to address a period of
heightened inflation within the UK. The future direction of interest rates and timing of changes remains uncertain.
• The failure of several US banks and Credit Suisse during the first half of 2023 resulted in a period of heightened financial
market volatility following concerns of the wider financial stability of the global banking sector.
• In light of market conditions, the Society has retained close oversight of its market risk exposures and product offerings,
making 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.
Leeds Building Society | Annual Report and Accounts 2023 101
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 2023. 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.
Group 2023
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 4,536.2 713.5 – 238.6 70.0 – 1.0 5,559.3
Loans and advances to
customers
3,903.0 1,129.4 3,216.9 13,462.1 230.0 – (0.2) 21,941.2
Total interest bearing assets 8,439.2 1,842.9 3,216.9 13,700.7 300.0 – 0.8 27,500.5
Total non–interest bearing
assets
– – – – – – 645.4 645.4
Total assets 8,439.2 1,842.9 3,216.9 13,700.7 300.0 – 646.2 28,145.9
Liabilities
Shares 7,176.0 1,866.5 4,827.7 6,913.9 8.9 – – 20,793.0
Wholesale funding 3,528.9 43.5 466.9 707.4 – – 1.1 4,747.8
Subordinated liabilities – – – – 349.9 – (26.0) 323.9
Subscribed capital – – – 9.0 – 25.0 (1.0) 33.0
Total interest bearing liabilities 10,704.9 1,910.0 5,294.6 7,630.3 358.8 25.0 (25.9) 25,897.7
Total non–interest bearing
liabilities and equity
– – – – – – 2,248.2 2,248.2
Total liabilities and equity 10,704.9 1,910.0 5,294.6 7,630.3 358.8 25.0 2,222.3 28,145.9
Effect of derivatives 2,988.9 1,804.8 2,066.2 (6,319.0) (540.9) – – –
Interest rate sensitivity gap 723.2 1,737.7 (11.5) (248.6) (599.7) (25.0) (1,576.1) –
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 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) –
Principal Risks continued
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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
5
. At the year end the
Society’s balance sheet remained positioned so that net interest income would benefit from rising interest rates.
Group
+200bps
2023
£M
+200bps
2022
£M
-200bps
2023
£M
-200bps
2022
£M
Annual earnings impact 7.5 21.3 (5.0) (20.8)
Market value economic value (including capital) 30.1 (27.7) (33.3) 26.7
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:
Group
Assets
2023
£M
Assets
2022
£M
Liabilities
2023
£M
Liabilities
2022
£M
Euro 420.2 431.8 422.6 430.4
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 are minimised. As at 31 December 2023, a 10% movement in the sterling: euro
exchange rate would result in a movement of £0.2 million (2022: £1.3 million) in profit or loss or other equity.
Outlook
• Financial markets are expected to remain volatile in 2024 reflective of the ongoing macroeconomic uncertainty, the
forthcoming general election and wider geopolitical risks.
• Management will continue to monitor financial markets and changes in customer behaviour under the prevailing
environment and proactively manage the Society’s balance sheet to ensure that future earnings and value are protected.
5 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.
Leeds Building Society | Annual Report and Accounts 2023 103
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 is approved, supported by the capital policy and capital strategy, limit frameworks and
management reporting.
• Monthly review of performance against appetite is completed.
• 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.
• A recovery plan is maintained, including actions to generate 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.
2023 performance
Key developments in relation to capital risk during 2023 were as follows:
• Similar to other UK IRB firms, the Society has redeveloped its mortgage IRB model suite to meet new requirements,
which has been submitted for regulatory approval. To account for the potential increase in risk weighted assets from
transitioning to a new model suite, the Society has applied a post model adjustment to its current IRB rating system. For
further details, refer to the Society’s 2023 Pillar 3 disclosure, located on our website. Notwithstanding this change, the
Society is expected to retain significant headroom over minimum regulatory requirements.
• In July 2023, the Society became subject to MREL end state requirements, which are two times minimum regulatory
requirements plus any regulatory buffers. The Society has capital resources in excess of both end-state and transitional
requirements and continues to forecast significant headroom moving forward.
• In October 2023, the Society performed a capital optimisation exercise repurchasing £192 million of its outstanding
subordinated notes.
• During the second half of 2023, the PRA provided further clarity regarding implementation of the final Basel 3.1 capital
rules. The implementation date has been extended by six months to July 2025, with a reduced transition period of four
and a half years to ensure full implementation by 1 January 2030. Finalised rules are expected to be published during the
first half of 2024. Whilst the detailed impacts will be assessed during 2024, initial assessments suggest that the Society
will continue to retain significant headroom over minimum capital requirements.
Principal Risks continued
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Capital position
The following table provides a summary of the Group’s capital position as at 31 December 2023. More detailed disclosures
can be found in the Pillar 3 disclosures available on our website.
Unaudited
2023
£M
2022
£M
Capital resources
Common Equity Tier 1 (CET1) capital 1,508.9 1,388.3
Additional Tier 1 capital – –
Total Tier 1 capital 1,508.9 1,388.3
Tier 2 capital 42.9 234.6
Total regulatory capital resources 1,551.8 1,622.9
Senior non preferred notes 350.0 350.0
Total MREL eligible resources 1,901.8 1,972.9
Risk–weighted assets (RWAs) 5,355.1 4,163.9
CRD V capital ratios
6
% %
CET1 ratio 28.2 33.3
Total capital ratio 29.0 39.0
Total MREL ratio 35.5 47.4
UK leverage ratio
7
6.0 6.2
During 2023, 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 29.0% from 39.0% mainly due to the application of a post model
adjustment to risk weighted assets, which reflects the latest regulatory expectations for IRB capital requirements and
the impact of the capital optimisation exercise, as detailed on page 13.
• The leverage ratio has decreased to 6.0% from 6.2% as balance sheet growth outpaced the generation of capital
resources.
• 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 and the capital
optimisation exercise (2023: 35.5%, 2022: 47.4%).
Outlook
• The Society is awaiting feedback from the regulator regarding its IRB model submission. Overall, we 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.
• The Society will continue to progress its response to the remaining Basel 3.1 reforms in 2024.
• A sustained period of heightened competition within the Society’s key markets may result in reduced levels of net
interest margin and capital generation. Management will continue to monitor developments closely and adapt the
Society’s capital strategy, as appropriate.
5. Model risk
Definition
The risk of incorrect decision making from model errors or the inappropriate use of modelled outputs, leading to financial loss,
deterioration in the Society’s prudential position, non–compliance with relevant regulations or reputational damage.
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.
Leeds Building Society | Annual Report and Accounts 2023 105
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 regular 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:
• Board defined appetite is approved, supported by a model risk policy and standards, which set the Society’s minimum
requirements in relation to model documentation, development, implementation, validation and change.
• A model inventory is maintained, acting as a Society–wide repository of key model artefacts.
• A materiality assessment is conducted 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 prior to implementation 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 the first line of defence for monitoring and managing 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 through to BRC.
2023 performance
Key developments in relation to model risk during 2023 were as follows:
• During 2023, the PRA published finalised policy rules (SS1/23 – model risk management principles for banks), which are
designed to support firms in strengthening their policies, procedures and practices to identify, manage and control the risks
associated with the use of models. Following publication, the Society conducted a self–assessment against the new rules,
with the board approving a plan to effectively address gaps identified ahead of the implementation deadline in May 2024.
• To ensure there is appropriate accountability for model risk management within firms, the new regulations require the
appointment of a relevant SMF. The board has appointed the CRO as the Society’s SMF holder for model risk management.
• The Society has continued with the development and validation of its IRB rating systems 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 evolving expectations.
• The changes experienced in the UK economic environment during 2023, such as heightened levels of inflation, the speed
and volume of interest rate rises and the implementation of the Mortgage Charter 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
environment.
Principal Risks continued
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Outlook
The Society will continue to enhance its policies and practices to ensure compliance with the finalised regulatory rules
ahead of the May 2024 deadline.
We will continue to maintain close oversight of model inputs and outputs under the prevailing external environment to
ensure they remain appropriate or are 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
• Financial crime risk
• Data risk
• Change risk
• Legal and regulatory risk
• Financial reporting risk
Managing operational risk
The key mitigants for operational risk are as follows:
• A board defined appetite is approved, supported by an appropriate suite of operational risk related policies.
• Monthly review of performance against appetite is completed.
• An Operational Risk Management framework is maintained, outlining the process for identification, assessment,
mitigation and monitoring of operational risks, incident management protocols and reporting operational losses across
the Society.
• 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, controls and incidents is provided by specialist teams within the risk division.
• An operational resilience framework and testing programme is maintained, incorporating business continuity,
information technology risk, information security and third party management, to ensure the provision of resilient
services to our members.
• A financial crime strategy and policy are maintained which are overseen by a dedicated financial crime prevention team.
The financial crime risk and control environment is formally assessed through the annual MLRO 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.
• Deployment of control frameworks to support the appropriate implementation of Consumer Duty.
Monitoring operational risk
Day to day operational risk is monitored by first line business functions, including regular critical control testing. 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.
Leeds Building Society | Annual Report and Accounts 2023 107
2023 performance
Operational resilience risk
Throughout 2023 we have continued to evolve the Society’s response to the regulatory requirements for both operational
resilience and outsourcing and third party management, enhancing the way we assess the resilience of our third party
suppliers and ensuring that we can recover our important business services within a timescale which would not cause our
members intolerable harm.
IT risk
The Society continues to invest in its multi–year technology programme to enhance the resilience of systems and
increase the ability to deliver better outcomes at a faster pace while being more responsive to external events. Technology
improvements through 2023 have supported increases in capacity and tools to support members through our branch and call
centre channels, continued to build more sustainable and responsive digital experiences, and enhanced operational efficiency.
Information security risk
The Society continues to undertake threat assessments to ensure we address the most pertinent information security risks.
Delivery of our multi–year security strategy is advancing and strengthening defences around our online and cloud services.
This direction is the foundation on which our new systems and growth is being built. Our security focus remains aligned to
protecting our information assets against key threats from data breaches through third parties and Ransomware.
Data risk
Throughout 2023, the Society has continued its investments in the development of capabilities for understanding and
managing data. New solutions have been introduced for storing and analysing data, improving resilience, and supporting
member services. Development will continue into 2024.
People risk
Attracting and retaining people with the right skills and capabilities remains a key area of focus to support the delivery of
our purpose.
The cost of living crisis will inevitably impact colleagues differently and the Society is committed to providing support through
a wide range of wellbeing resources and targeted benefits.
During 2023, the PRA published its expectations regarding inclusion and diversity in a consultation paper. Management has
reviewed requirements versus our inclusion and diversity strategy and concluded we are relatively well placed to meet the
proposals.
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 prioritised against strategic goals, that risks
to the Society from change activity are appropriately managed, and that the Society is able to flex the portfolio in response
to external events. During 2023, the Society has appropriately adapted the change portfolio as the external environment has
presented challenges and opportunities.
Financial crime
The financial crime landscape remains challenging, with malicious actors adapting their strategies to identify and exploit
vulnerabilities alongside evolving legal and regulatory requirements. Account Takeovers and Authorised Push Payment
(APP) fraud remain a key threat to members, with increasingly complex and sophisticated social engineering techniques
being employed. In response, the Society’s financial crime strategy continues to focus on enhancing analytic and control
capabilities, to enable a more responsive model. As well as adapting internal controls in response to the threats it faces, the
Society continues to focus on providing customers and colleagues with educational information and training, helping them to
better protect themselves against financial crime.
Third party risk
The Society continues to increase the number of key third parties used to deliver elements of services to members. Material
suppliers are identified, and appropriate due diligence is undertaken to gain assurance that they remain capable of maintaining
their services to us even in a stressed environment. Additionally we also ensure we have appropriate strategies in place should
unplanned events occur.
Principal Risks continued
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Legal and regulatory risk
The Society has a robust process in place for ensuring new regulation is identified and implemented effectively. During 2023,
the Society enhanced its processes in response to changes in regulations, including adapting to the new requirements under
Consumer Duty and the Mortgage Charter to support better customer outcomes.
Outlook
The uncertainty in the external political and economic environment experienced during 2023 is expected to continue in 2024.
The Society will monitor developments to identify and respond to issues as they emerge and adapt resilience frameworks to
ensure we can maintain our services to members. The Society is well placed to manage these changes effectively.
In addition, management will continue to progress the Society’s multi-year technology programme, which includes
progressing a plan to upgrade our banking platform.
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 and will ultimately impact the outcomes
customers receive. This can manifest from a number of key areas, including:
• Product and services
• Price and value
• Customer communications and
understanding
• Customer support
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 conduct risks. 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 work.
Managing conduct risk
The following controls and procedures help to mitigate conduct risk:
• A board defined appetite is approved, supported by the conduct risk policy and frameworks. This is governed through
CORC, including monitoring of MI. With the introduction of the Consumer Duty in 2023, the outcomes MI has been
further developed and we anticipate this will continue to evolve over time.
• Oversight of first line activity is performed by the first line Quality Monitoring Team, as well as the second and third line of
defence, through risk-based monitoring and assurance plans.
• A customer understanding framework is in place to ensure the Society’s communications and product literature provide
the right information and are clear, transparent and timely.
• A customer support framework ensures support is provided to meets customers’ needs at the point of sale and
throughout the life of the product, so that customers can use their products as reasonably anticipated and without
unreasonable barriers to product changes, switching providers, or making a complaint. This is further supported by
vulnerability standards, which outline how we support customers with vulnerability characteristics.
• Customer facing colleagues are suitably trained, with competency regularly assessed. Ongoing coaching and
development are in place for all customer facing colleagues.
Leeds Building Society | Annual Report and Accounts 2023 109
• All Society processes are written in accordance with regulatory expectations.
• The Society’s complaints handling policy and supporting processes ensure complaints are addressed with empathy and
sensitivity through a fair and transparent process.
2023 performance
In 2023, the Society continued to respond to changing market and customer dynamics, particularly in consideration of rising
interest rates and the ongoing cost of living crisis:
• In preparation for its implementation in July 2023, the Society mobilised a project team to meet the FCA’s Consumer
Duty requirements. This included implementing the principle, rules and outcomes through policy and frameworks;
reviews of communications and servicing; journey mapping of the top customer journeys; and enhancements to
outcomes monitoring and reporting. Fair value assessments were also carried out on all on sale products, with a review of
off-sale products underway in readiness for the FCA’s July 2024 deadline.
• The Society signed up to the Mortgage Charter, supporting borrowers concerned by the cost of living and the impact of
the higher interest rate environment. This allows them to temporarily switch to interest only repayments or extend their
mortgage term, without a new affordability check or impacting their credit file.
• Alongside this, the Society continued its investment in people and systems in the Mortgage Support function, which
deals with customers in financial difficulties. The Society also continued not to charge arrears fees throughout 2023.
• Mortgage lending criteria was reviewed regularly to ensure the Society continued to lend responsibly. Stress rates
and affordability assessments were monitored and adjusted to support the Society’s purposeful lending, whilst also
responding to rising interest rates and the cost of living crisis.
• A range of savings products were launched through the year to support customers saving for a home deposit and shared
ownership borrowers looking to build savings in order to staircase their mortgage.
• Complaints data published by the FCA for the first half of 2023 ranked the Society fourth best in banking (retail savings
products) and eleventh for home finance. Complaint results and root causes were reported to CORC, with an annual
summary report to the board. Quality of complaint customer outcomes, as well as root cause analysis to prevent
reoccurrence, remained a focus throughout the year and actions are in plan for 2024 to further refine complaints
journeys.
Outlook
• The Society 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, or facing, financial difficulty.
• Further embedding of the Consumer Duty will be a focus in 2024. This will include completion of the closed book fair
value assessments, as well as further development of outcomes monitoring and testing, and supporting customers’
needs, including those with vulnerabilities.
• System based changes will continue for savings and mortgages to improve customer outcomes and experience. This
includes an ongoing multi–year project to replace our core banking platform.
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.
Principal Risks continued
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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:
• A board defined appetite is approved at least annually, supported by a suite of appropriate policies.
• 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.
• The corporate planning process assesses the business environment on a regular basis, and is board approved.
• Competitor and market performance is assessed by regular thematic reviews.
• A responsible business strategy and targets are maintained, 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.
2023 performance
During 2023, the Society continued to respond to evolving market conditions and customer dynamics in the context of
further interest rate rises and the cost of living crisis:
• Conditions within the Society’s operating environment remain challenging, reflective of subdued economic activity,
the impact of higher interest rates and the cost of living crisis. The combination of these factors has reduced customer
affordability and as a consequence weakened housing market activity.
• Competition in the UK mortgage market gained momentum during the year as impacts of the ‘mini budget’ in the fourth
quarter of 2022 dissipated and firms competed in a smaller mortgage market.
• From a savings perspective, price competition has further increased driven by savers looking to take advantage of the
higher interest rate environment, a new generation of digital challenger banks and lenders starting to refinance TFSME
drawings.
• In the context of heightened competition within our core markets, we have continued to carefully monitor the market
positioning of our products and responded accordingly. Furthermore, the Society has launched a range of new initiatives
/ product offerings in order to deliver on our purpose e.g. Home Deposit Saver, Shared Ownership Saver, Experian Boost
and Reach Mortgages.
• During the year, the Society continued to progress an ambitious change agenda to further support member experience
and strengthen our operational resilience. As a consequence of this investment, and increased levels of competition,
the Society’s cost to income ratio increased from 37.4% in 2022 to 47.3%. Notwithstanding this increase, the Society
maintains an efficient business model relative to peers.
Outlook
• The Society expects more challenging conditions within its operating environment during 2024 against the backdrop of
ongoing macroeconomic uncertainty, political risks and strong competition within both mortgage and savings markets.
• The Society will continue to closely monitor external developments and assess potential impacts under both central and
stressed conditions.
• Progress with the Society’s strategic change portfolio will also be closely monitored, to ensure that key transformational
projects are appropriately prioritised and effectively delivered to support achievement of our strategic objectives.
Leeds Building Society | Annual Report and Accounts 2023 111
Governance
The Board of Directors
Year ended 31 December 2023
The biographies of each member of the board are shown here and serve to
demonstrate the reasons why the strengths and experience of each director
contribute to our long term and sustainable success.
Iain Cornish
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
and member of Remuneration Committee.
Strengths and experience: Iain has worked in the
financial services industry for over 30 years. His previous
roles include CEO of Yorkshire Building Society and Chair
of the Building Societies Association. Iain has also held
several non-executive posts, such as: Treasury Select
Committee Special Advisor and Independent Director
for the Prudential Regulation 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. Iain is also chair of governors at Leeds
Beckett University.
“As Chair, my role is to lead your board in overseeing the
performance of the Society and the development and
implementation of its strategy. Our purpose of putting home
ownership within reach of more people, generation after
generation, is true to our roots as a building society, and I
firmly believe it is right for our members. Over the last year,
the board’s focus has been on furthering this purpose in a
climate which has been difficult for our borrowers and our
savers. We are not expecting any significant recovery in the
economy in 2024, so my priority will be to make sure that the
Society continues to offer sustainable good value to savers,
and enables as many borrowers as possible to buy the homes
they want. At the same time, I will be concentrating on
ensuring that the Society remains financially secure for the
future, and that the substantial investments which we are
making to improve services to members are managed well,
and that they deliver the benefits intended.”
Richard Fearon
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’s
responsibilities include promoting the long-term
success of the Society, and leading the development and
implementation of the Society’s strategy and purpose in
the interest of its members and other stakeholders.
Other roles: Richard is a director of UK Finance Limited
and is a member 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, as well as promoting
and ensuring the delivery of good customer outcomes
through a customer focused strategy and culture. Our
purpose has supported us through 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.”
Leeds Building Society | Annual Report and Accounts 2023 113
Annette Barnes
Independent Non-Executive Director
Appointed: February 2019.
Board committees: Chair of Remuneration and member
of Board Risk and Nominations committees.
Strengths and experience: Before joining the Society,
Annette was CEO at Lloyds Bank Private Banking Ltd and
Managing Director of Wealth & Mass Affluent for Lloyds
Banking Group. Annette has over 35 years’ experience
in financial services. With her background in operations,
technology and customer engagement, plus recent board
and regulatory experience, Annette brings a wealth of
knowledge to the board.
Annette is Chair of the Remuneration Committee and, as
such, part of Annette’s role is to make sure the Society
has the right reward structures in place, to foster our
mutual culture and to attract and retain the talent we
need to deliver on our purpose.
Other roles: Annette is a non-executive director, Chair
of Remuneration Committee and Senior Independent
Director of GlobalData plc and a non-executive director,
Chair of Remuneration and Nominations Committees of
Stratos Markets Ltd.
“My responsibility as a board member is to challenge and
support management, so that collectively we can continue
to meet the changing needs of members, colleagues and
other stakeholders. In 2023, I was pleased to be appointed
as the Society’s Consumer Duty Champion and designated
non-executive for colleague engagement. In undertaking
these roles, I regularly meet with colleagues to discuss their
experiences and understand any changes they’d like to
see within the business to further support members
and colleagues.”
Farah Buckley
Independent Non-Executive Director
Appointed: April 2023.
Board committees: Member of the Audit and Board Risk
committees.
Strengths and experience: Farah joined the board in
2023. Initially qualifying as a chartered accountant at
Deloitte, Farah has had a successful executive career with
a focus on private equity and corporate finance, most
recently with Hermes GPE and Schroder Adveq. Farah has
extensive exposure of board roles with a portfolio of non-
executive positions, bringing deep experience in audit,
investment, strategy, risk and ESG.
Other roles*: Farah holds non-executive positions with
Aurora Investment Trust plc, Caledonia Investments plc
and Apollo Syndicate Management Limited. Farah is
also a non-executive director and Chair of Long Term
Assets Limited.
“Having worked in financial services for over 20 years,
my extensive knowledge and experience, complements
the other directors in our oversight of the Society. As a
chartered accountant, I’m also able to bring relevant skills
and insight to the Society.”
* As at 31 December 2023, the number of non-executive
positions held were subject to a waiver issued by the
Prudential Regulation Authority.
The Board of Directors continued
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Andrew Conroy
Chief Financial Officer
Appointed: Chief Financial Officer in July 2019 and
Executive Director in January 2020.
Strengths and experience: Andrew has almost 20
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
and Balance Sheet Optimisation Group. He was also the
Chair of Cost Optimisation Group until December 2023,
when responsibility transferred to Andrew Greenwood.
He has responsibility for the Society’s Finance, Treasury,
Data 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.
“UK economic uncertainty continued during 2023, with the
rate of inflation in the first half of the year being particularly
high. The Bank of England increased the base rate on five
occasions during 2023 to rates similar to those in 2007.
My focus during this time has been to make sure 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 2024.”
David Fisher
Non-independent Non-Executive
Director
Appointed: March 2012.
Board committees: Member of Audit, Board Risk and
Remuneration committees (as at 1 December 2023).
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.
Other roles: David is a non-executive director of Tandem
Bank Ltd and Tandem Money Ltd.
“In order to ensure the Society can deliver its purpose over
time, it needs to maintain its strength and stability and
effectively manage its risks. My role as a member of the
board 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. My ongoing priority is to ensure risks are being
managed appropriately, and to provide an appropriate level
of challenge to management, so we can remain secure.”
Leeds Building Society | Annual Report and Accounts 2023 115
The Board of Directors continued
Neil Fuller
Independent Non-Executive Director
Appointed: December 2020.
Board committees: Chair of Board Risk Committee and
member of Audit and Remuneration committees.
Strengths and experience: Neil has over 39 years’
experience in retail banking and financial services. Before
joining the Society, Neil was the Chief Risk Officer and
Executive Board Director at the Bank of Ireland UK plc
and Chief Risk Officer at GE Capital Bank Ltd. Neil also
previously held a variety of roles including Risk Director
and Chief Risk Officer in the UK retail division of Royal
Bank of Scotland and NatWest.
Other roles: Neil is a non-executive director of Cynergy
Bank Limited.
“I believe the experience I’ve gained as Chief Risk Officer
at different organisations and my strong understanding of
risk management and the principal risks facing the financial
services sector, bring value and strengthen the board and
support me in my role as Chair of Board Risk Committee.
My key areas of focus are to make sure the Society remains
resilient and manages risk appropriately, particularly in the
current economic climate. The ethics of a mutual resonate
strongly with me and I very much enjoy working with
the Society.”
Andrew Greenwood
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 including Chief
Risk Officer from 2011 to 2022. Having worked for the
Society for more than 25 years, Andrew has extensive
experience of risk management, strategy and a strong
knowledge of the organisation, its people and culture.
Andrew’s main line management responsibilities are for
the risk, and property and business services functions.
Andrew is also Chair of our Inclusion and Diversity
Steering Group, which supports the delivery of the
Society’s inclusion and diversity strategy and progressing
our strategic objectives in this area.
Other roles: Andrew is a member of the UK Finance
Sustainability Committee.
“I am a member of a number of risk focused committees as
well as Chair of the Models and Rating System Committee.
This includes helping other directors understand the model
framework, which underpins assumptions and decision
making. As Deputy CEO, I am also responsible for managing
climate-related risks. A key aspect of this is reducing our
carbon footprint on a pathway to net zero and working with
key stakeholders to help them to do the same.”
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Gareth Hoskin
Independent Non-Executive Director
Appointed: November 2015, Vice Chair and Senior
Independent Director since January 2019.
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. This
included almost 20 years at Legal & General plc as
a director and CEO of the international division,
and before this was a chartered accountant at
PricewaterhouseCoopers.
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.
“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. My other
responsibilities include monitoring the integrity of external
financial reporting, as well as safeguarding and assessing
the effectiveness, performance and independence of the
Internal Audit function and overseeing the tender and
appointment of our new external auditor. Additionally, I act
as our whistleblowing champion and ensure our culture
welcomes open and transparent discussions.”
Rob Howse
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 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 and
the Royal Navy, as well as McKinsey and Company where,
Rob’s role as associate partner allowed him to specialise
in advising multinational clients on the design and
execution of transformation programmes.
As Chief Operating Officer, Rob is the Chair of the
Executive Transformation and the Operational
Resilience Committees.
Other roles: Rob is Chair of the UK Finance Digital,
Technology and Cyber Product and Service Board. Rob
is also a governor, trustee and director of The Grammar
School at Leeds.
“My responsibilities include areas in technology,
transformation and operational resilience, where I have
extensive experience. This allows me to make sure that the
Society continues to operate safely while still investing in
our long-term future and improving the way that we work
every day. I’ll also be focusing on the successful delivery of
the critical, multi-year core system migration programme.“
Leeds Building Society | Annual Report and Accounts 2023 117
Pam Rowland
Independent Non-Executive Director
Appointed: May 2023.
Board committees: Member of Board Risk, Nominations
and Remuneration committees.
Strengths and experience: Pam is a chartered banker
and has over 30 years’ financial services experience.
Her most recent executive role was Chief Operating
Officer at Paragon Banking Group Plc. Prior to working at
Paragon, Pam was Managing Director Change Delivery
at Barclays UK Retail Bank and Chief Operating Officer at
ING Direct. Pam has extensive experience in operations,
people leadership and customer led and digital
transformation programmes.
Other roles: Pam is a non-executive director of
Saga Services Ltd.
“My experience of financial services operations and
transformation programmes, as well as in promoting a
strong customer centric and people focussed culture, are
very relevant to the progressive agenda at the Society. I was
delighted to join the Society in 2023 and support it in its
continuing success.”
Anita Tadayon
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.
Previously Anita has worked in transformation and Digital
and Technology for Sky, British Gas and BT Business.
During Anita’s time at British Gas, she was responsible for
the conduct team within customer operations which has
enhanced her FCA regulatory knowledge. Anita also has
an MBA from London Business School.
Other roles: Anita is a director of Tadayon Consulting
Limited.
“I have a strong track record in transformation, combining
technology and change, and I am able to add value to
the board discussions in this area. My knowledge and
experience provide different insights and experience
thereby bringing further strength and diversity to the board.
I’m passionate about the values associated with mutuality
and I’m delighted to be a member of the board.”
The Board of Directors continued
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The Executive Committee (ExCo)
Year ended 31 December 2023
As executive directors of the board, Richard Fearon, Andrew Greenwood, Andrew Conroy and Rob Howse, whose biographies
can be found on pages 113 to 117, are members of the ExCo. Details of the other members of the ExCo are set out below:
Bernadette Bruton
Chief People Officer
Bernadette joined the Society in October 2023 and is responsible for
the Society’s People division. Bernadette has a breadth of experience,
including roles in retail banking as well as HR. Her most recent role was
at National Australia Bank, having previously worked at Aviva, Northern
Rock and Barclays. Bernadette will support management in its focus on the
Society’s purpose of putting homeownership within reach of more people -
generation after generation.
Chief Internal Auditor
Caroline is a chartered accountant and was trained at KPMG, where she
spent eight years delivering and managing external audits and other
assurance work in the financial services sector. She joined the Society
in May 2015 and since then has held several Internal Audit and Finance
leadership roles. She was appointed Chief Internal Auditor and joined
the ExCo on 1 November 2023. Caroline is responsible for leading an
independent and effective Internal Audit function.
Caroline Dale
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. As an ExCo Member,
Parveen leads the Customer Division that services our customers,
through their channel of choice: branches, telephony and digital. Parveen
is accountable for the customer strategy of the Society, ensuring it meets
members needs now and in the future. Parveen is Chair of the Conduct and
Operational Risk Committee.
Parveen Kaur
Leeds Building Society | Annual Report and Accounts 2023 119
Chief Commercial Officer
Andy has extensive experience in financial services, having operated
in various senior risk, commercial and consulting roles across PWC,
Skipton Building Society, Northern Rock, National Australia Bank and
Bradford & Bingley.
Andy joined the Society in 2012 and has held the roles of Director of Credit
Risk, Deputy Chief Risk Officer and more recently, Chief Commercial Officer,
in which he has responsibility for the development, management and
distribution of our products, our digital channels and brand and marketing.
Andy is Chair of the Credit Committee.
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 function, with functional responsibility for strategy, responsible
business, customer insights, and internal communications. Nick is also
Chair of the Responsible Business Forum.
Andy Moody
Nick Young
Chief Risk Officer
Andy has worked in financial services for over 25 years, with experience in 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 function, as part of the risk strategy refresh and he joined the ExCo in
March 2021, following his appointment as Risk Director and subsequently
became Chief Risk Officer from 1st October 2022. Andy is Chair of Models
and Ratings Committee.
Andy Mellor
Executive Committee (ExCo) continued
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Corporate Governance Report
Year ended 31 December 2023
Chair’s introduction
The last year continued to present challenges with rising inflation, interest rates and increased costs of living, all of which
continue to have an impact on our members, colleagues and the wider community we serve. As a board, we have adapted and
navigated through the challenges presented to us, with the primary purpose of supporting our members and colleagues and
ensuring the stability and long-term success of the Society.
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 throughout the board’s operations and ensure that we
make balanced decisions in the interests of our stakeholders.
Corporate Governance
The Society has a strong governance framework in place with carefully documented lines of delegation and authority, which
underpin how decisions can be made.
Upholding high standards of governance is essential for the long-term sustainable success of the Society and is integral
to the delivery of our strategy. We base our approach to governance 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). I am pleased to confirm that our governance arrangements meet
the relevant requirements of the Code. A copy of the 2018 Code is available on the Financial Reporting Council’s website at
www.frc.org.uk
The board remains fully committed to open and transparent reporting and will align to the outcomes from the Department
for Business, Energy and Industrial Strategy (BEIS, now the Department for Business and Trade) consultation on ‘Restoring
trust in audit and corporate governance’ and the proposed revisions to the Code. The board embraces emerging corporate
governance best practices and regulatory developments and is willing to adopt changes voluntarily to achieve the best
outcomes for the Society.
People
In July, the board received a progress update on our inclusion and diversity strategy: ‘Being You; Transforming Us’.
This included an overview of how we plan to continue to embed inclusive practices into everything we do, creating a truly
collaborative environment where diverse perspectives are sought to fuel innovation and deliver our purpose. Targets were
also updated due to the positive progress we had already made towards the 2025 targets.
During the year, we made good progress towards the targets we had set for both gender and ethnicity at board level and
the refreshed targets for senior leadership representation. We are delighted to report that we have exceeded our target
for gender representation on the board, with a rate of 33% as of 31 December 2023, against a target of 30%. Our target for
ethnic representation at board level has also been exceeded. As of 31 December 2023, two board members were from an
ethnic minority background against a target of one or more.
Following on from this success, it was agreed to introduce new diversity targets for our senior leadership team and our
approach continues to align with best practice / Women in Finance Charter and with recent proposals from our regulators.
Our newly agreed targets are now set out to the year 2030, however we are already in line with our ambitions. For female
senior leadership we have a trajectory target of 39% which has been achieved. For ethnic minority senior leadership
representation, our trajectory target is 7.5% and we have achieved 8.5%. We are confident that this progress will support
us in delivering our targets by 2030.
As part of the review, we discussed broadening our equality data and the measures which we monitor, to include areas such as
socioeconomic factors and further protected characteristics. Our internal data campaign which encouraged our colleagues
to voluntarily disclose equality related information about themselves has further supported our ambitions in this area and
provided insight to help inform our priorities.
Leeds Building Society | Annual Report and Accounts 2023 121
Board effectiveness
To ensure success and sustainability, we recognise the importance of assessing our own performance on a regular basis and
the need to continuously re-evaluate and improve.
In 2023, the approach to our effectiveness review comprised of an internal board effectiveness questionnaire;
observations of the Remuneration Committee and individual assessments of board members, which were undertaken
against our non-executive director competency framework. The board was found to be functioning effectively and there
was significant alignment from the directors on what had gone well during the year.
More detailed information on the evaluation process is available to read on pages 132 to 133 of this report.
Auditor appointment
As reported in 2022, a detailed tender process was undertaken in 2022 for the appointment of a new external auditor.
The board agreed with the Audit Committee’s recommendation; to appoint Ernst and Young LLP, who will formally be
appointed and responsible for the delivery of the external audit for the year ending 31 December 2024, subject to member
approval at the 2024 AGM. Deloitte LLP’s appointment will cease at the end of the 2024 AGM. You can read more about the
tender process in the Audit Committee report in our 2022 Annual Report and Accounts.
Future outlook
In January 2024, I formally announced my intention to step down as Chair of Leeds Building Society in 2025. After more than
30 years of working in financial services, I now intend to spend more time on my other appointments and commitments.
Recruitment for a successor is underway and I will remain in post until a candidate has been appointed. I look forward to
continuing in my role as Chair until that time to progress the Society’s purpose, ensuring a sustainable Society for both
current and future members.
Iain Cornish
Chair of the Board
22 February 2024
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Our approach to corporate governance
The role and responsibilities of the board
The board’s role is to lead the Society and to secure its long-term success by developing and implementing a strategy which
delivers the Society’s purpose for the benefit of our current and future members, colleagues, and the communities we serve.
Creating mutual value for our stakeholders is a priority which the board ensures is integral when making decisions.
The board delegates certain duties to its dedicated board and management committees, each of which has a detailed terms
of reference (ToR) which documents the level of delegated authority it has and its areas of focus. Copies of each board
committee’s ToR can be found on our website: leedsbuildingsociety.co.uk/your-society/about-us/board-committees.
Our governance structure
Board
Remuneration
Committee
Board Risk
Committee
Audit
Committee
Nominations
Committee
Our Executive Committee (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. ExCo delegates some of its duties to, and is supported by, a number of management committees.
Oversight of matters delegated to board committees, 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 ExCo also attend board meetings when required to provide updates from each business area and to
discuss any pertinent matters. This provides board members with 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
and their membership can be found in each committee’s individual report from pages 140 to 157.
The board maintains a schedule of matters reserved for its own decision, which sets out material items that should be
retained for its own approval. Examples of items which are within the board’s remit are displayed overleaf. 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 ToR, which are available on our website: leedsbuildingsociety.co.uk/your-society/about-us/board-committees.
Leeds Building Society | Annual Report and Accounts 2023 123
Board responsibilities
Develop and
implement the
people strategy
Board evaluation
Brand strategy
Approve and oversee
technological
enhancements
to the Society’s
operations
Monitor the
performance of
the Society and its
capital and liquidity
requirements
Stakeholder
engagement
including seeking the
right outcomes for
our members.
Oversee consumer
outcomes
Development and
oversight of the
Society’s purpose
and strategy
Annual approval of
our Speak Up policy
Annual approval of
the Society’s risk
appetite
Proposals for the
appointment,
re-appointment or
removal of external
auditors
Annual review and
approval of the
Society’s annual
and interim financial
statements
Annual review of the
effectiveness of our
systems of internal
control.
Set the tone and
monitor culture
Board meetings
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.
In addition to the schedule of matters reserved for its decision, the board has formal terms of reference, which incorporate
a clear set of roles and responsibilities. The terms of reference are used to plan the agenda for each meeting. This allows the
Secretary the flexibility to allocate time to additional agenda items as matters arise that require discussion.
For each meeting, a comprehensive and timely set of papers is provided in advance. The board typically receives certain
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. Agendas also regularly include an item to reflect on the quality of the
discussions held, the content of papers and behaviours displayed. The purpose of this item is to drive efficiency and gain
constructive feedback from board members on the content of papers, in real time and in an open and transparent manner.
Purpose, strategy, and stakeholder impact are central to the board’s decision making process. The board has sought to
increase engagement with stakeholders to gain more insight into their views and requirements, which aids effective board
decision making. The principal way of doing this has been to hear directly from colleagues either in person or through in-video
presentations at board meetings, whereby the board hears directly from colleagues on their views and any issues they may
have within their business area. These ‘voice of the colleague’ sessions have proved to be very successful since their inception
and now feature regularly on the board agenda. More information on the voice of the colleague presentations is included in
the stakeholder section of this report.
Interactive presentations have also been another means of engagement with colleagues, which not only promotes
engagement but encourages diversity of thought.
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.
High quality report writing and board papers are vital for effective and informed decision making. The materials provided to
the board are reviewed regularly to ensure the information provided is clear and concise, with sufficient detail to enable a
decision to be made, but not too much so that it overcomplicates or dilutes the focus or the decision making process.
Examples of how stakeholders’ interests were considered in some of the key decisions made during the year can be found
within the Strategic Report on pages 29 and 30.
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Board and board committee meetings and attendance in 2023
In 2023, there were 12 scheduled meetings of the board. Attendance by executive and non-executive directors at all board
and board sub-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 2023 12 6 8 6 5
Annette Barnes 12 – 8 6 5
Farah Buckley 9/9 4/4 6/6 – –
Andrew Conroy 12 – – – –
Iain Cornish 12 – – 4/4 4/4
Richard Fearon 12 – – – –
David Fisher 10 6 8 – 3
Neil Fuller 12 6 8 – 1/1
Andrew Greenwood 11 – – – –
Gareth Hoskin 12 6 8 6 5
Rob Howse 12 – – – –
Pam Rowland 9/9 – 5/5 3/3 1/1
Anita Tadayon 12 – 5 – –
Our culture
We are proud to have a strong and positive culture, which is highly regarded and respected as a source of sustainable
competitive advantage. This culture 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. We continue to review and evaluate our
culture and time was allocated during 2023 for discussions with the board to gain their input into the development of our
culture and how to enable the shift from good to great.
The measurement of culture has matured with the introduction, in 2023, of the culture dashboard, which combines many of
the factors that contribute to our culture and comprises measures of colleague advocacy, belief in our purpose, inclusion and
customer empathy. The culture dashboard enables 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 is measured through colleague engagement
surveys. With the transition to a new provider in 2022, in 2023 we also took the opportunity to gain a better understanding of
external benchmarks and what the biggest drivers of colleague engagement are, to ensure we are assessing a comprehensive
view of engagement, comprising belief, advocacy, satisfaction and loyalty. Additionally, during 2023, we piloted a pulse survey
to give us richer insight throughout the year and to take a more agile approach to colleague listening, with plans to further
enhance our intelligent listening strategy during 2024.
The board understands and appreciates the importance of setting 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 which is set out in the
strategic report. Throughout the year board members have proactively focused on their behaviours, as demonstrated
through the board effectiveness review and a facilitated session exploring each behaviour in the context of their role.
Leeds Building Society | Annual Report and Accounts 2023 125
Whistleblowing
Our whistleblowing policy, ‘Speak Up’ sets out the standards we expect of colleagues and those who work with us. Our Speak
Up arrangements can be used to raise concerns if colleagues have any suspicions or knowledge of wrongdoing or misconduct.
Colleagues are reminded that it is important to speak up to help prevent things going wrong and to protect the Society,
our members and colleagues. We continue to reinforce the internal arrangements for raising concerns, through providing
colleagues with ongoing communication, training and awareness by a variety of means including:
• Speak Up standard, procedure and manager’s guidance on the Society’s intranet.
• Mandatory Speak Up elearning is provided to all colleagues annually.
• An independent and confidential route for reporting concerns is available via our external Speak Up Hotline Service, with
contact details provided on our intranet and external website, for access by third parties and colleagues.
• Our mandatory induction and new starter documentation contain information about Speak Up.
• Intranet articles about Speak Up arrangements are communicated to colleagues.
In our Speak Up standard, colleagues can find the procedure, frequently asked questions and guidance on how to report a
concern. This includes information about how they can report a concern.
At least annually, the board reviews our Speak Up arrangements and any reports arising. The policy is reviewed annually by
the Audit Committee, with final approval from the board. Our Speak Up standards were last approved by the board in October
2023, based on the recommendation of the Audit Committee. To verify that our Speak Up arrangements continue to be
effective and to further inform our approach, specific anonymised colleague feedback / verbatims were shared with the
Audit Committee and the board as part of the review and approval cycle. Gareth Hoskin, Non-Executive Director and Senior
Independent Director, continues to be the Society’s appointed whistleblowing champion.
In 2023, there were no instances of which we are aware, where events have occurred where a Speak Up could have been raised
and was missed.
Inclusion and diversity – 2023 activities
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. Included below are examples of the
ways in which we have progressed and enhanced our inclusion and diversity activities over the last twelve months. We were
very proud to be named as the first building society to achieve a gold level accreditation in the Inclusive Employers Standard
accreditation, which independently reviewed our progress against our inclusion and diversity strategy since its launch.
• Launch of a Society-wide training programme ‘Empowering Allyship’ to provide colleagues with the tools to understand
what it means to be an ally and the part they can play in making the Society inclusive by design.
• Delivery of an ‘Inclusion Includes You’ campaign which led to us obtaining enhanced equality data from our colleagues.
This data will remain a key area of focus for us as we seek to further progress the diversity and inclusion agenda.
• Refreshed our mental health first aider offer and diversified our representation to be reflective of our colleague base.
• Signed up to the Open Doors with Business in the Community (BITC) which is focused on the promotion and adoption of
inclusive recruitment practices. We also remain signatories of the Race at Work Charter with BITC and to the Women in
Finance Charter.
• Sponsorship of Leeds Pride and the Leeds West Indian Carnival.
• Worked to ensure all of our talent development programmes were supporting the growth of diverse talent pipelines.
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Colleague forums
We have a number of colleague-led diversity forums which focus on how to increase colleague awareness and promote an
inclusive culture where diversity is celebrated throughout. As mentioned above, we have sought to advance the activities
undertaken by each forum this year, by encouraging more collaboration between the forums to align activities in an
intersectional way.
All forums are represented at an inclusion and diversity Steering Committee, which is chaired by Andrew Greenwood,
the Deputy Chief Executive Officer. This committee meets on a quarterly basis and, for the first time this year, has provided
an opportunity for the forums to share the work they have undertaken, alongside any learnings.
Division of responsibilities
There are clear divisions between the roles of the executive and non-executive members of the board. The roles of the
Chair and CEO are held by separate individuals and each role has well defined 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, 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 Chief Executive Officer’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 Chief Executive Officer 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 purpose blueprint.
• 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.
• To oversee the delivery of good customer outcomes, through a customer focused
strategy and culture.
Leeds Building Society | Annual Report and Accounts 2023 127
Role Key accountabilities
Chief Executive Officer:
Richard Fearon
• To propose, develop and implement the Society’s strategy, corporate priorities and
purpose blueprint, 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 blueprint.
• 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 risk
management framework.
• To promote and ensure the delivery of good customer outcomes through a customer
focused strategy and culture.
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.
• To support the Chair in providing oversight of the delivery of good customer
outcomes, through a customer focused strategy and culture.
Non-Executive Directors:
Annette Barnes
Farah Buckley
David Fisher
Neil Fuller
Pam Rowland
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.
• Oversee and promote the delivery of good customer outcomes through a customer
focused strategy and culture.
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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.
• 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.
• Oversee and promote the delivery of good customer outcomes through a customer
focused strategy and culture.
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 code requires at least half of the board, excluding the Chair, to be made up of independent non-executive directors.
As at 31 December 2023, the board comprised twelve directors: four executive directors and seven independent
non-executive directors and one non-independent non-executive director. Succession plans are considered regularly
by the Nominations Committee. Read more about this in the Nominations Committee report on pages 142 to 144.
During 2023, two new independent non-executive directors were appointed to the board: Farah Buckley was appointed in
April and Pam Rowland was appointed in May. Farah and Pam will seek election from our members, for the first time at the
Society’s AGM in 2024.
Lynn McManus stepped down in January 2023 to pursue an opportunity in an executive role, with another financial
institution. Lynn’s appointment ceased prior to the onset of any board or committee meetings in 2023.
Having reached his nine year tenure in 2021, it had been planned for David Fisher to retire from the board at the end of
2022. However, following Lynn’s departure, the board agreed to extend David Fisher’s appointment into 2023 to provide
continuity and support to the board while recruitment for Lynn’s former role was underway. In November 2023, to further
support the board in its succession planning, including that of the Chair, it was proposed that David’s appointment would
be extended for up to a further three years as a non-independent director. David continues to provide challenge, scrutiny
and thoughtful discussion at both board and board committee meetings and his experience of the sector is considered
invaluable. David’s appointment will be subject to annual re-election by its members, at the Society’s AGM.
Succession plans for the Chair are underway, however Iain Cornish has agreed that he will remain in the role until 2025 and
will continue until a new candidate has been appointed. More information on succession planning for the Chair can be found
within the Nominations Committee report on page 141.
Leeds Building Society | Annual Report and Accounts 2023 129
Executive and non-executive composition
(as at 31 December 2023)
33%
67%
Executive
Non-executive
The board considers and acts upon recommendations
for appointments from the Nominations Committee. At
the first opportunity, 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 140 to 146.
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.
Board 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 policy
and 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.
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 also asks 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.
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.
Before committing to an additional 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). Directors are required to confirm if there are any
potential or actual conflicts of interest, and that the role will not adversely impact on their ability to discharge their duties at
the Society.
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.
33%
Gender diversity of the board
(as at 31 December 2023)
33%
67%
Female
Male
Tenure of non-executive directors (years)
(as at 31 December 2023)
37%
37%
13%
13%
0 to 3
4 to 6
7 to 9
9+
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On appointment, Farah Buckley held more than the prescribed number of directorships under Article 91 of the Capital
Requirements Directive IV and SYSC 4.3A.6R/ GOR 5.5, which stipulates a maximum of four non-executive directorship roles
can be held by a member of the management body. Owing to the very low time commitment of some of the roles held by
Farah, the Society sought a waiver from the Regulator prior to her appointment. The PRA agreed to a modification (under
Section 138A of the FSMA) up until 1 June 2024, at which point Farah Buckley’s directorship position will be re-assessed.
During the year the following new appointments were taken on by members of the board:
Name Entity Role Time Commitment
(per annum)
Iain Cornish Leeds Beckett University Chair of the
Board of Governors
30 days
Richard Fearon UK Finance Ltd Non-executive director 3 days
Andrew Greenwood UK Finance Ltd Member of the UK Finance
Sustainability Committee
3 days
Annette Barnes Stratos Markets Ltd
(trading as FXCM UK)
Non-executive director 24 days
Neil Fuller Cynergy Bank Ltd Non-executive director 36-48 days
Rob Howse Grammar School at Leeds Director, trustee
and governor
50 hours
The board approved each of these appointments and agreed that the time commitment would not impact the individual
director’s ability to commit to their role at the Society. A list of all external appointments held by board members is shown in
the Annual Business Statement on page 247.
In 2023, the board considered that all members of the board had sufficient time to fulfil their role.
Board independence
Independence of non-executive directors is an important aspect of board governance, and it plays a vital role in ensuring
that the executive directors and management level are appropriately challenged and held to account against performance
objectives.
The independence of our non-executive directors is considered annually by the Nominations Committee and is assessed
against the criteria set out in the Code. Greater focus is applied to those with longer tenure and those who have passed
their six year anniversary with the Society. In line with the criteria set out in the Code, the Nominations Committee and the
board agreed that all non-executive directors, with the exception of David Fisher, were considered to remain independent
in character and judgement and that there were no business or other circumstances which were likely to impair their
independence.
Since David Fisher reached his nine year tenure in 2021, the board has been satisfied he has continued to meet the
independence criteria and this has been demonstrated through his ongoing and effective challenge. However, on approval of
his extended term into 2024, the board agreed that while David continued to adopt an independent mindset and rigorously
challenge management, from a strict Code perspective, David would no longer be considered as independent. In accordance
with the Code requirements regarding independence, from 1 December 2023 David became a member of the Society’s board
only and, while he will attend certain board committees, he will no longer be classed as a member.
Leeds Building Society | Annual Report and Accounts 2023 131
Board evaluation 2023
Our annual board evaluation provides the board and its committees with an opportunity to consider and reflect on the quality
of its decision making and for each individual member to consider their own performance and performance of the board.
The annual board effectiveness review was conducted internally in 2023. The review comprised insight obtained from a board
effectiveness questionnaire completed by all board members and a number of colleagues from the senior leadership team,
the external auditor and the board technology advisor. Additionally, there was observation of a board committee meeting
and individual assessment of members of the board against the agreed non-executive competency framework, all of which
comprised the aggregate view of board and committee effectiveness.
The internal review concluded that the board, including its members, was operating effectively. The Code requires boards
to undertake a formal and rigorous annual evaluation of its 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’. The next externally facilitated evaluation will
be scheduled for 2024 in accordance with the 2018 Code provision.
The overall actions arising out of the 2023 internal evaluation along with details of the progressed actions from the 2022
evaluation, are summarised below:
Theme Actions and progress from the 2022 & 2023
board review
Opportunities and actions
Board
composition
• Continue to seek relevant external input - this was
found to have augmented thinking, particularly on
more technical areas such as innovation and data.
This has been supported through the continued
appointment of an independent board advisor (for the
multi-year technology programme).
• Secure succession plans – solid progress was achieved
on the diversity of the board through the appointment
of two new non-executive directors in 2023.
• Board skills assessment – this was refreshed in April
2023 and included two new non-executive directors.
• Continue to seek external input
where relevant and continue with the
appointment of the independent board
technical advisor, where appropriate.
• Proactively consider succession planning
and how individual experience and
expertise can be replaced.
• Prioritise clear talent and succession
planning for the Executive Committee.
• Facilitate workshops on cognitive
diversity.
Board
leadership and
society purpose
• Evident step-change in integrating the voice of
colleague into the board room.
• Board appointments including Annette Barnes as
designated colleague engagement representative
and Consumer Duty champion.
• Maintain a focus on the right level of detail to be had
as part of board discussions.
• Consider additional mechanisms for the
board to hear directly from members.
• Continue to review and focus on the
board agenda to ensure an appropriate
balance.
• Introduce six month reflections review
for newly appointed non-executives to
gather insight.
Board
governance and
performance
• Governance structure agreed to be appropriate,
with a strong sense that board governance has
continued to mature.
• No material actions required as there was strong
agreement that the governance process works well.
• Observations undertaken of board and committee
meetings found meetings to be well run, productive
challenge was made and clarification sought where
required.
• Continued focus required on brevity
and clarity of board papers to support
effective decision making.
• Board members to provide real time
reflection during meetings on the quality
and content of supporting papers.
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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 2023
concluded that committees were, overall, meeting their ToR. In line with the introduction of the Consumer Duty in July 2023,
the Conduct and Operational Risk Committee made some significant changes and so the effectiveness of this committee will
have an interim assessment of effectiveness mid-2024.
Directors’ induction, development and individual performance evaluation
On appointment, all of our 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 undertake.
The chair works closely with the people team to map the induction programme and has regular discussions with new directors
on progress. The programme aims to support new directors and helps them understand their roles within the committee and
governance structure.
As newly appointed directors, Farah and Pam met 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. Linked
to their board committee membership responsibilities, Farah and Pam also attended introductory meetings with the chairs
of the relevant board committees and received detailed guidance on the board’s Conflict of Interest Policy from the Society
Secretary. They were also provided with various documents to familiarise themselves with, such as our directors’ information
manual, the Code and the Building Society Association’s guidance on the Code.
NED Induction Programme
Farah Buckley – Non-Executive Director
Member of Audit and Board Risk committees
The board welcomed Farah in April. On joining the board she was provided with an extensive induction programme which
covered a wide range of information from across the business. The documentation and supporting materials provided
on appointment equipped Farah with a strong understanding of the business and supported the discussions held in the
introductory meetings she had in the first weeks and months with other members of the board and the senior leadership
team. As a member of the Audit and Board Risk committees, Farah’s induction was tailored to include meetings with
the chair of each committee, as well as appropriate members of the senior leadership team. She was provided with an
understanding of the Society’s current risks and the risk management framework in place, as well as an overview of the
external auditor tender process, the Society’s Internal Audit function and internal control processes.
Pam Rowland – Non-Executive Director
Member of Remuneration, Board Risk and Nominations committees
Pam joined the board in May, and similarly to Farah, her induction plan was tailored to her existing experience and the
committees to which she had been appointed as a member. Pam met with the chairs of each committee as well as having
meetings with the other committee members and members of the senior leadership team.
When reflecting on the induction programme to date, Pam reported that she had found having regular sessions with the
Chair, both pre and post board meetings, had provided her with a great deal of insight into the matters being discussed
at board meetings and supported her in her understanding and ability to contribute and take part in board discussions
from an early stage. Pam also reflected on the positive culture at the Society and how the open and transparent ways of
working were evident when speaking to colleagues and had aided her fact-finding discussions.
As part of the detailed induction programme provided to both Farah and Pam, they also received a number of briefing
updates from senior colleagues on topics pertinent to board discussions. These included themes such as cyber security
and the Society’s climate strategy.
Leeds Building Society | Annual Report and Accounts 2023 133
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 that they are not conflicted in any way, which would mean they were 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
2023, the board, without the Chair being present, concluded, following discussion that the Chair’s overall style is collegiate
and engaging and he is a strong and effective chair.
Board training and development
The board and each committee have an annual training plan, which sets out agreed areas of training to be delivered
throughout the year. Members of the board are invited to suggest topics and themes where training and development is
required, on an ongoing basis. In addition, board members are encouraged to engage with industry networks and attend
externally facilitated events and seminars to maintain and develop knowledge and gain insight into matters which impact
the Society.
In 2023, the board received training on several topics including:
Month Training
February 2023 Training facilitated by Grant Thornton on industry developments.
April 2023 Cloud and integration education session.
May 2023 Training facilitated by Capital Economics on the economy and the UK housing market.
October 2023 Training received on AVM’s (Automated Valuation Models). This included an overview on AVM
models including how the models are designed, how they perform and future model developments.
This was complemented by training on the Society’s valuation strategy and how AVM models are
used and controlled.
November 2023 Training received on the G4 IRB models that were submitted to the PRA for approval including a
refresher of the core underlying concepts.
November 2023 Board training on Artificial Intelligence (AI) / ChatGPT.
Board activities – areas of focus and strategic planning during 2023
Our purpose blueprint underpins our three to five year strategic plan and will continue to guide our thinking to future proof
our Society for years to come. During 2023, we continued to push forward with its delivery and that means our 2023 priorities
remained the same as the previous year, with the addition of consideration of how effective identification and management of
the risks we face underpins our long-term success. Further information with regard to our corporate priorities is available on
pages 13 to 15 in the Strategic Report.
In light of the continued uncertainty during 2023 there was a short-term need to dial up our efforts focused on building a
‘more responsive model’ so that as a Society we are best placed to respond to the changing conditions and the real and
challenging impacts those have on our members. Therefore, the three key areas of focus for the board during 2023 were
aligned to the Society’s more responsive model strategic driver and comprised of the following:
• Trading responsively: We sought to balance risk and reward in our lending choices, deliver resilient profitability, as well as
value to our members.
• Being responsive to member needs: We sought to be more accessible and provide support to our members when they
need to talk to us; whether they’re in financial difficulty or simply want to access a better savings rate.
• Communicating and engaging with our colleagues and customers: Communication in times of change and challenge is
key. For colleagues and members, our activities were shaped by the need to maintain trust, confidence and satisfaction.
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From a strategic planning perspective, each year the board holds two conferences, one for strategy in May and one for
planning in October. Each conference has a detailed agenda and supporting information to provide the basis for a discussion
on the strategic plans and objectives for the forthcoming 12 – 14 months. A number of items were discussed at this year’s
Board Strategy and Planning Conferences, a summary of which is included below:
Item Board discussion points
IT transformation To outline how the multi-year technology programme both enables and constrains the delivery of
our purpose over the next three to five years.
A shared understanding of how the multi-year technology transformation programme will
constrain and enable our ability to change.
Strategic risks To form a view of the key strategic risks the Society is facing and those which are currently being
prioritised (i.e. within our control versus outside our control).
To agree the strategic risks and themes and raise any additional topics for management review
through future governance forums.
Innovation Alignment on the proposed areas of focus and ambition for how we innovate to accelerate delivery
of our purpose.
A shared understanding of how our direct to customer proposition will be further developed
through a number of cross cutting initiatives.
A shared understanding of the five-year view of the direct to customer market, the opportunities,
threats and implications.
Savings channel
insight
To receive an overview (to reach a shared understanding) of the key attributes of our savings
members, show how the dynamics of our segment mix are changing over time versus our stated
ambition and to signpost the potential considerations for our customers, funding and channel
strategies.
Strategic cost
and efficiency
To present an overview of the investment made into the business in recent years and how we
intend to increase the focus on cost efficiency and the strategic approach to deliver productivity
improvements.
Awareness of our current cost position and board alignment on how we will be measuring,
tracking and influencing cost efficiency and what this means for the business.
Member value Acknowledging the member value delivered following the inception of the Society’s purpose
blueprint and that a key area of focus will be how this value is to evolve over the next five years.
Debating whether the Society’s future plans represent good value for our mortgage and savings
members.
Forward planning Do the Society’s future plans set the right balance between pushing forward on purpose,
optimising for commercial returns and effective risk management?
Have we made choices to effectively deploy our capital to further our purpose and de-risk the
balance sheet?
Response
to increased
competition
Reflecting on the possible impacts due to the continued uncertainty within the market and in
particular, interest rates.
The importance of agreeing on a view of the trajectory of new business spread and the proposed
responses that seek to maintain long term financial stability, generation after generation.
Investment
and costs
Ensuring agreement with the investment principles and the guardrails and the outcomes that
these generate.
Developing an approach to tracking transformation spend and the approach to targeting
productivity improvements over time.
Flexible plans Continued flexibility can be achieved by the continued use of the agile trading principles and the
methodology for defining the 2024 trading range.
Whether the activities in plan remain appropriate in light of the current uncertainty and the risk of
downturn stress events.
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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 on how we
actively engaged with our members and colleagues during 2023. Further details on our stakeholders and their importance to
us can be found on pages 25 to 30 of the Strategic Report.
Stakeholders list
Members Colleagues Communities Regulators Suppliers Intermediaries Environment Investors
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Members
We regularly engage with our members to understand what is important to them and to gain insight on the products and
services they’d like to receive, particularly in the current economic climate.
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 2023, the TalkingPoint panel had 3,384 members. Throughout
the year, several research activities were undertaken, including for example where we asked
members about the following topics:
• Branch Path to Purchase – research to understand the journey that an individual takes
before opening a new savings account in a branch (with any provider), with particular
focus on any online research they do prior to visiting a branch.
• Savings behaviour – to understand how changes in the Bank of England’s base rate
affect members savings behaviour.
• AGM – research to help to inform the planning of the 2024 AGM and member voting
packs.
• ISA research - to understand members’ views on Cash ISAs, such as how a rising
interest rate environment has affected how members think about Cash ISAs and how
much value is placed on the tax-free component of an ISA.
Annual General Meeting
(AGM)
Our AGM is an important date in our calendar and our single biggest member
engagement event. We are focussed 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. Last year we were delighted that our
voting turnout increased by 1.11% equating to an additional 10,769 votes.
The 2024 AGM will be held at the Leeds Marriott Hotel on 18th April, or any adjournment
thereof.
Engagement in action – AGM 2023
The Society’s AGM is the largest member engagement event in our calendar. For the Society it is a valued opportunity
for us to engage with our members and encourage their participation both by voting and to inform us of their views.
During the 2023 voting period, and as part of our focus to enhance engagement, we encouraged members to send
us their questions or attend the meeting and raise question in person. We were pleased to receive a high number of
questions from members prior to the 2023 AGM and responded to all questions directly. The majority of questions
were received by email and the main topics related to the diversity of the board and the steps being taken by the
Society to enhance inclusion and diversity, corporate responsibility, director remuneration, member products and
savings rates.
The board reviewed the level of queries received alongside the most common themes and used it as a means of
monitoring member sentiment. The insight gained is also used in future years when preparing a list of frequently
asked questions for members to review when voting in our AGM.
During 2023, another key area of focus for future AGMs has been to enhance the accessibility standards of our AGM
documentation. The AGM Team has allocated dedicated resource to focus on this, working alongside our colleague-
led disability forum, to enhance accessibility where possible.
Leeds Building Society | Annual Report and Accounts 2023 137
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 colleague division
from the relevant executive
director or member or ExCo
Sessions are scheduled at regular intervals throughout the year 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. An annual roadshow
also takes place to provide colleagues with an update on the Society’s annual financial
results and future objectives. These were hosted in person by members of the executive
team with the option to watch online as well.
Annual colleague
engagement survey
A formal engagement survey is undertaken each year to provide insight on colleague
views, themes, and any areas of concern. In 2023, an additional pulse survey was also
undertaken in September as a means of monitoring culture. You can read more about the
results of the surveys in the Strategic Report on page 16.
‘Voice of the Colleague’
video presentations from
colleagues delivered at board
meetings, and in person
meetings with colleagues
Continuing on from its success in 2021 and 2022, colleague views have been heard in the
boardroom through a series of in-video presentations and in person presentations. In
2023, these have included sessions with insight from colleagues on our intermediaries,
support provided to vulnerable customers, mortgage services as well as a session led by
members of the Colleague Association.
Attendance by board
members at colleague
inclusion and diversity forums
and colleague association
meetings
Several non-executive and executive board members, including the Chair, 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.
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 is made up of 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. In 2023, the association met with the Chair, Iain
Cornish, CEO, Richard Fearon, and Annette Barnes. The chair of the association and head
of HR also attended a board meeting to provide an overview of colleague insight / views in
relation to how they felt about working at the Society.
Designated non-executive for
Colleague Engagement
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. More information is included on page 139 of
this report.
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Engagement in action – views from colleagues
Annette Barnes was appointed as the designated non-executive for colleague engagement in January 2023.
Annette reports to the board regularly on her findings and agrees appropriate actions with management. Through
regular meetings with the Colleague Association, colleagues in branches, in our Cobalt office, and departmental
visits, Annette has gained valuable insight into colleague opinions and views from across the organisation. Annette
provided an annual update to the board in September to share her findings and reflections, a summary of which is
provided below:
• Colleagues are very appreciative of the significant changes that have been made to enhance salary and benefits.
• Colleagues recognise the changes to working patterns to further support hybrid working.
• Colleagues felt that the Society had progressed its inclusion and diversity agenda and felt that the right
conversations were taking place.
• Talent development and colleague progression were noted as areas where colleagues would like further focus.
• Colleagues were reported to really enjoy how ‘purpose led’ the Society is and have a strong interest in ESG matters.
• Volunteering days, particularly as a team, were reported to be good networking opportunities and a valued benefit
for all colleagues.
Approved by the board of directors and signed on behalf on the board.
Iain Cornish
Chair
22 February 2024
Leeds Building Society | Annual Report and Accounts 2023 139
Nominations Committee Report
Year ended 31 December 2023
Nominations Committee highlights from 2023
• Two new non-executive directors appointed: Farah Buckley and Pam Rowland.
• Annette Barnes and Pam Rowland appointed as members of Nominations Committee.
• Positive progress towards board diversity targets.
Committee membership during 2023
• Iain Cornish (Chair) – since April 2021.
• Gareth Hoskin – since January 2019.
• Pam Rowland – since October 2023.
• Annette Barnes – since January 2023.
• Katherine Tong – Committee Secretary.
Number of meetings and attendance
• Four scheduled meetings with 100% attendance from committee members.
• Two additional meetings in October and November.
• The attendance records from each meeting in 2023 are included on page 125 of the Corporate Governance report.
Introduction from the Chair
I am pleased to present our 2023 report on the Nominations Committee, which summarises our activities over the past year
and the role and responsibilities of the committee.
Committee focus 2023
Key areas of focus for the committee in 2023 have included a focused review into board succession planning, board
recruitment, progression of the 2022 external board evaluation actions, the 2023 internal board evaluation, as well as
consideration of our inclusion and diversity statement, which outlines our intent.
Inclusion and diversity have continued to provide a central theme across all our meeting agendas, with detailed discussions
taking place, alongside an in-depth review of progress towards our inclusion and diversity targets and ambitions. Our
strategy is about embedding inclusive practices into everything we do, creating a truly collaborative environment where
diverse perspectives are sought to fuel innovation and deliver our purpose. The committee recognises the lead role it
plays in furthering this agenda and has actively sought to progress and agree actions throughout the year. I have attended
each of our five colleague-led forums to hear about their activities and how they support the progression of the inclusion
and diversity strategy. Their passion and commitment to further this agenda is impressive. Our Purpose Impact Report
also includes further information on how our efforts support our communities and is available on the Society’s website:
leedsbuildingsociety.co.uk/press/financial-results.
The committee also continued to oversee the Society’s governance arrangements to ensure we operate within a strong
governance framework and in accordance with the recommendations of the UK Corporate Governance Code (the Code).
This year, we have been mindful of the Financial Reporting Council (FRC)’s consultation and proposed revisions to the Code
and the actions required to comply with any potential changes. However, following an announcement from the FRC that it was
stopping the development of more than half of the proposals set out, we will be putting this on the agenda for 2024 to review
in detail once the final revisions to the Code have been confirmed.
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Board appointments
Board composition featured regularly on the committee agenda this year and recruiting suitable candidates has been at the
forefront of our discussions. We started the year recruiting for at least two new non-executive positions and focused our
search on appointing the right people to meet the board’s needs in terms of skills and experience. While also considering our
diversity objectives, we were mindful to adopt a multi-year approach to ensure the appointed candidates would fill future skills
gaps, as other existing board members reach the end of their tenures.
We were delighted to confirm the appointment of Farah Buckley and Pam Rowland to the board as independent non-executive
directors in April and May respectively. Both candidates will stand for election for the first time at the 2024 AGM.
As reported last year, 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, the board agreed to extend David Fisher’s appointment
into 2023 to support succession planning. Since that time, in November, the board approved a proposal from the committee
to extend his appointment for up to a further three years. However, given the length of David’s tenure on the board, it was
agreed that he would become a non-independent non-executive director from 1 December 2023. More information on board
composition is included below and in the Corporate Governance Report on pages 127 to 129.
Role and responsibilities
A summary of the committee’s role and the activities undertaken by the committee in 2023 is detailed below.
What is the Nominations Committee responsible for?
Nominations Committee responsibilities:
• Oversight of succession planning and pipeline development for directors and the senior leadership team, ensuring
an appropriate focus on diversity.
• Succession planning for the board and its committees.
• Oversight of the appointment and induction process for board candidates.
• Agreeing the approach and coordination of the annual board evaluation review.
• Review of the board conflict of interest policy, including monitoring any potential or actual conflicts of interest.
• Ongoing assessment of the independence and time commitment of non-executive directors.
• Oversight of the Society’s governance structure and practices to ensure compliance with the Code and best
practice, in so far as it is possible for a building society.
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 statement on an annual basis.
Activities in 2023 As noted in the introduction, two new board appointments were made in the first half of 2023
with the appointment of Farah Buckley and Pam Rowland in April and May respectively.
David Fisher reached his nine year tenure in March 2021 and has subsequently agreed to an
extended term to support continuity and succession planning.
In January 2024, the Chair confirmed his intention to step down in 2025. Two additional
meetings were held in October and November, without the Chair present, to discuss and agree
a succession plan for his role. Discussions have included consideration as to the appointment
of an external recruitment agency which will be engaged to recruit for the role and have a focus
on inclusion and diversity as well as seeking candidates with the right skills and experience for
the role.
Leeds Building Society | Annual Report and Accounts 2023 141
Board composition
Activities in 2023 To support succession planning, including that of the Chair and Senior Independent Director,
in November 2023, the committee proposed to the board to extend David’s appointment
for up to a further three years. David’s experience and knowledge of the business continue
to be extremely valuable to the board and it was agreed that his appointment would provide
continuity and additional strength while succession plans for the Chair, are secured for the
future. Although David continues to demonstrate diversity of thought and a strong level of
scrutiny and challenge to board and committee discussions, due to the length of his tenure, it
was agreed he would be considered as a non-independent board member from 1 December
2023. The committee was mindful that the board would still meet the Code requirements in
this regard, at least half of the board, excluding the Chair, are required to be independent non-
executives. The committee will continue to monitor this closely as the composition of the
board evolves.
In 2023, the committee reviewed and approved the updates to the board inclusion and diversity
statement and reviewed the progress realised towards our inclusion and diversity strategy.
The Society’s statement on inclusion and diversity is available on the Society’s website at
leedsbuildingsociety.co.uk/your-society/financial-information/diversity.
More information on the committee’s activities in this area are included in the inclusion and
diversity section of this report on pages 145 to 146.
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. 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. 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 2023 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 is 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 tenure of each non-executive director who is nearing the end of their three, six or nine year
term within the next 18 months is discussed at the relevant committee meeting, alongside the
impact on succession plans and what skills would be required should a director leave at the end
of their term.
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Succession planning
Activities in 2023 Following the appointments of Farah and Pam in the first half of the year, consideration
was given as to which committees suited their experience and knowledge alongside future
succession plans for each committee. After consideration and approval from the board, it
was agreed that Pam would join the Nominations and Remuneration committees and Farah
would join the Audit Committee. Following the decision that David Fisher would remain on the
board as a non independent non-executive director, it was agreed that he would step down
as a member of the Board Risk, Audit and Remuneration committees and would be present
as an attendee from 1 December 2023. Committee membership was considered carefully in
2022 and 2023 to ensure appropriate replacements were made for David Fisher. As part of
this, it was agreed that Iain Cornish would be appointed as a member of the Remuneration
Committee. As part of these discussions, it was noted that he wouldn’t take part in any of the
discussions relating to his own remuneration.
The Leeds NED network
The Leeds NED Network was set up by the Society in 2021, with the objective of establishing
relationships with potential diverse candidates and to provide insight on the role of a non-
executive and the skills and experience required, both at the Society and more generally across
financial services. Several meetings have been held since its inception and the network was
reinvigorated in 2023 with a number of high calibre individuals in attendance, with a wide range
of topics discussed. The Chair and CEO attended the meetings and provided attendees with
examples of topics discussed at the Society’s board meetings. They shared examples of how
challenge was presented and explained interactions between non-executive directors and
management. The sessions sought to provide practical insight into what it means to be a
non-executive and what the expectations are of the role.
Board skills matrix
The committee has a detailed skills matrix for the board, which indicates the level of skills and
experience required to deliver our strategy and to effectively support the business over our
strategy horizon. The range of skills within the matrix reflects the complexity of executive
and non-executive director roles, as well as 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 help to determine gaps and priorities for succession planning. In 2023,
the committee concluded that the board had strengthened its transformation and IT / digital
skill set through the appointments of Anita Tadayon and Rob Howse and the level of customer
and ESG experience had been enhanced through the experience on the board collectively.
The committee also noted that the skills matrix assessment would be complemented by
the cognitive diversity assessment, which was completed as part of the board effectiveness
review.
In 2023, the committee also completed a comprehensive review of the competency framework
for the non-executive directors. This underpins the recruitment process, performance
and coaching and appraisal activity. Updates were made to the non-executive competency
framework to ensure it is future-focused, demonstrates resilience, adaptability and creativity
in the face of the changing environment. It is also aligned to the Society’s behavioural
expectations, which will support the overall effectiveness of the board. In addition, the
committee discussed how it would be necessary to ensure that the board induction and
ongoing training actively enabled attainment of these competency expectations and that
board succession planning and recruitment must also align accordingly.
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Succession planning
Activities in 2023
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. Independent
non-executive directors may also be proposed for a third term, up to a maximum of a further
three years (nine years in total, or more 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
non-executive role, is provided to each non-executive director as appropriate.
In July 2023, the committee proposed, and the board agreed, to extend Neil Fuller’s term
extension for a second three year term, subject to annual election at the AGM. It was also
agreed that Gareth Hoskin’s appointment would be extended into 2025 to provide oversight of
the external audit transition. Gareth will reach his nine year tenure with the Society in
November 2024.
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 2023
Board evaluation
In 2023, the committee agreed the plans for the 2023 board evaluation process and received
regular updates on actions from the 2022 review process. More information on the board
evaluation is included in the Corporate Governance Report.
Board appraisals
In 2023, 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 revised non-
executive 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. Following his nine year tenure ending in 2021 and the previous approval to extend his
appointment into 2023 and now up to a further three years, detailed discussions were held to
assess David Fisher’s independence. Due to the length of his tenure it was agreed in November
that David Fisher would be considered as non-independent director from 1 December 2023.
The committee concluded that all other directors remain independent and that all external
appointments remained appropriate. Further details on the 2023 review process, conflicts of
interest, external directorships and the associated time commitments are contained within the
Corporate Governance Report.
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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 2023 In 2023, following a detailed review of compliance against the existing version of 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.
In addition, the committee received an overview of the FRC’s proposed revisions to the Code
and a summary of potential actions which would be required to ensure compliance. Since then
the FRC has announced that it won’t be progressing more than half of the proposed revisions.
The committee will review the updates to the Code further once these are published by the
FRC in 2024.
Throughout the year, the committee also reviewed the division of responsibilities of the Chair,
CEO and Senior Independent Director and agreed to update the document to include reference
to the FCA’s Consumer Duty requirements, the 2025 board calendar and the committee’s ToR.
Inclusion and diversity
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, which is to be an organisation where we harness inclusive practices so
that all colleagues are 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.
In 2023, the committee reviewed and approved the updates to the board inclusion and diversity statement and reviewed the
progress towards the inclusion and diversity strategy. The Society’s statement on inclusion and diversity is available on the
Society’s website at leedsbuildingsociety.co.uk/your-society/financial-information/diversity.
As part of our strategic review, we also took the opportunity to review our targets. Factors that influenced the review of
our targets included benchmarking inside and outside the sector and we also reflected on what was the right approach for
us given progress being made on our existing targets (as at the end of 2022 we had achieved most of our targets set out
to 2025). This brings us more in line to other signatories of the Women in Finance Charter and also aligns to the current
proposals within the FCA and PRA inclusion and diversity consultation papers.
To support us in setting stretching and credible targets we reviewed relevant and forecast data sets, such as attraction,
attrition, promotional rates etc. This work aligns with our decision to voluntarily opt into the FCA’s diversity expectations in
regard to board representation with a 2030 target aspiration date.
The table below sets out the Society’s progress against the 2030 targets for gender and ethnicity representation on the board
and in the senior leadership team, as at 31 December 2023.
Leeds Building Society | Annual Report and Accounts 2023 145
Element Proposed progress
to target for 2023
Actual position as
at 31 Dec 2023
Target for 2030
Board gender diversity 30% 33% Minimum of 30%
Board ethnic minority representation One or more
members
Two members One or more
members
Female representation at senior leadership level 39% 39% 45%
Ethnic minority representation at senior leadership level 7.5% 8.5% 10%
We continue to make progress in being a Society where colleagues feel seen, valued and enabled to be at their best. 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. 57% 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 and more information on the activities undertaken to promote wider
diversity within the Society can be found in the Strategic Report on pages 9 to 30.
Key areas of focus in 2024
Succession planning for the Chair, led by the Senior Independent Director, will be a key focus for the committee in 2024.
In addition, the committee will continue to review the changes to the UK’s corporate governance framework and make any
changes to ensure alignment with best practice, as well as ensuring effective succession planning to support the long-term
sustainability of the Society with inclusion and diversity always being at the forefront of our discussions in this area.
Iain Cornish
Chair of Nominations Committee
22 February 2024
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Audit Committee Report
Year ended 31 December 2023
Audit Committee highlights from 2023
• Annual Report and Accounts recommended to
the board for approval.
• Integrated assurance continues to demonstrate our
control environment is effective and proportionate.
• Provided oversight over the content / publication of
the Purpose Impact Report.
• Received updates with respect to the Society’s
approach to regulatory reporting for discussion
and decision.
• Ensured alignment with Financial Reporting
Council’s new Minimum Standard applicable to Audit
Committees and the External Audit.
• Due to the Society’s size, new Pillar 3 Large Institution
Reporting became applicable.
• External Audit Transition Planning.
• Appointment of the new Chief Internal Auditor.
Committee membership during 2023
• Gareth Hoskin (Chair) – member since January 2016.
• David Fisher – member since May 2017.
• Neil Fuller – member since January 2021.
• Farah Buckley – member since April 2023.
Number of meetings and attendance
• Six meetings during the year with 100% attendance from committee members.
• 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
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 2023.
The committee comprises solely of 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
Effectiveness,
performance and
independence of the
Internal Audit function
Adequacy and
effectiveness of our
systems of internal
control and risk
management
Independence,
performance and
objectivity of the
external auditor
In 2023, the difficult economic environment, with elevated levels of inflation and higher 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.
Leeds Building Society | Annual Report and Accounts 2023 147
In particular, the volatile 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.
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 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.
In November 2023, Karen Bassett stood down as Chief Internal Auditor to pursue an external role. I would like to convey the
committee’s thanks to Karen for her significant contribution over the last nine years. I would also like to take this opportunity
to welcome Caroline Dale, who has joined the Society’s Executive Committee following her appointment as Chief Internal
Auditor on 1 November 2023.
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 May 2023 the Financial Reporting Council (FRC) published its minimum
standard 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 incorporate changes where appropriate.
Gareth Hoskin
Chair of Audit Committee
22 February 2024
What the committee did during 2023
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. 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.
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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
202 to 207.
Following substantial redevelopment of the models used for calculating
residential impairment loss provisions in 2021, the first biennial review has taken
place this year and any subsequent changes to the models have been minor.
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 2023, and Credit Committee, which approved the approach
to the non UK loan portfolio and provided preliminary approval of the final
provisions, including post model adjustments.
Despite evidence of economic resilience in 2023, the external environment
remains extremely volatile, 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 during 2023 by 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 2024, 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 2023 year end are appropriate in the
circumstances.
Therefore, the committee concluded that the level of impairment provisions at
31 December 2023 is reasonable.
Leeds Building Society | Annual Report and Accounts 2023 149
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 207 to 208.
The model used by management to calculate the fair value of the collateral
loan underwent an in-depth review in 2022 and remains appropriate. 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 to be used and management refresh their calculation at the end of each
reporting period so that the rate applied is aligned to the current interest rate
and economic environment.
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 2024 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.
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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. 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 noted the results of
this testing which did not reveal any material errors.
The committee therefore satisfied itself that hedge accounting has been
appropriately applied 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.
Management has chosen to apply the hedge accounting requirements of IFRS 9
for micro fair value hedges and the macro cash flow hedge from 1 January 2024.
The committee was provided with the rationale for the transition from IAS 39
and was satisfied that the change in accounting policy was appropriate.
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 42 to 44.
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 below.
Leeds Building Society | Annual Report and Accounts 2023 151
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.
• Risk-based 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.
• 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 2023 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 risk culture continues to mature. Identified control weaknesses are being adequately addressed by
management, with ongoing remedial actions. A particular focus from risk during the year has been to challenge management
on the impact on risks and controls arising from continued uncertainty in the economic environment and ensuring that
change supports the delivery of our purpose.
Internal Audit’s work during 2023 has been aligned to the Society’s purpose 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 this year’s review and the evidence provided by all three lines of defence, the committee concluded that the
Society has adequate and effective systems of control and risk management framework in place, which has allowed risks to be
appropriately identified and managed. Further enhancements to discrete elements of the framework have been identified to
increase risk maturity over the next twelve months as part of a process of continuous improvement, which are encapsulated
within the Society’s corporate objectives and risk strategy.
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. The committee approved the Internal Audit charter
and ToR which detail the scope, purpose, authority and responsibilities of the function, noting that these reflect industry best
practice. The chair also reviewed the Chief Internal Auditor’s objectives for the year. Following a recruitment process, including
external benchmarking and interviews with members of the Audit Committee and the CEO, a new Chief Internal Auditor
was appointed in November 2023 and the committee reviewed the handover activities. Internal Audit provides an annual
declaration of independence, which confirmed that there was no impairment of its independence. Further, since the new
Chief Internal Auditor was previously the Director of Finance Operations for the Society, the Committee has reviewed and
noted the additional independence safeguards put in place by Internal Audit.
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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. We probed
on the coverage of Consumer Duty within the Internal Audit plan, and discussed plans to supplement available resources
with external expertise to ensure industry wide views are taken into account when assessing this new area. We also received
regular updates on coverage of the Society’s multi-year technology transformation programme and challenged to ensure
that any implications of observations arising from wider audit work are taken into account in the assurance work on this
programme. Where high priority observations were made by Internal Audit during the year we requested further clarity on the
approach to following up these items.
Following the introduction of Internal Audit’s ‘roadmap’ for continuous improvement over the next three to five years, we have
received half-yearly updates on Internal Audit’s progress with delivery of these improvements.
During the year, Internal Audit engaged a third party to undertake an External Quality Assessment (EQA), providing
an assessment of Internal Audit against the ‘International Standards for the Professional Practice of Internal Auditing’
(IIA Standards) and the CIIA ‘Guidance for Internal Audit within the Financial Services Sector’ (FS Code), together with
benchmarking of Internal Audit’s position compared to peers. The committee noted that Internal Audit generally conforms
with the IIA Standards and has largely adopted and addressed the recommendations of the FS Code. It was also noted that
Internal Audit compares well against peers with a number of areas of leading or good practice. The committee reviewed
Internal Audit’s plan of actions to address observations made in the EQA review which Internal Audit has confirmed will be
added to the continuous improvement roadmap.
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 19 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 in 2022.
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 relating to the tender can be found within the Society’s Annual Report
and Accounts for the year ending 31 December 2022, a copy of which is available on the Society’s website. Two very strong
candidate firms were recommended to the board, who agreed with the committee’s 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.
During the 2023 financial year, 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 qualification 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 2022 / 23 (published in July 2023).
Leeds Building Society | Annual Report and Accounts 2023 153
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 2023, including one-off items,
represented 15% of the audit fees for the year.
The committee satisfied itself that the external auditor is effective and independent.
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, with anonymised verbatims commenting on
the high quality of the reports / papers submitted to the committee, and concluded that the committee had functioned well.
The review also concluded that the Chair continues to be effective, actively encouraging debate and seeking input from all
committee members and attendees.
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 2023 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. During 2023, additional training topics included: economic / accounting
updates together with credit risk / market risk insights to inform the annual and interim approvals of the Society’s financial
statements; IFRS 9 hedge accounting; and regulatory reporting.
The year ahead
In support of ongoing open and transparent reporting, the committee welcomed the outcomes from the Department for
Business, Energy and Industrial Strategy (BEIS, now the Department for Business and Trade) consultation on ‘Restoring Trust
in Audit and Corporate Governance’ and the proposed revisions to the UK Corporate Governance Code. The committee
embraces emerging best practices and regulatory developments and intends to adopt changes voluntarily to achieve the best
outcomes for the Society.
A key focus for 2024 will be to work collaboratively with Ernst & Young LLP, our new external auditor, to ensure the Society’s
external audit process continues to deliver value for money. We are also looking forward to working with our new Chief Internal
Auditor as she embarks on their first full annual reporting cycle.
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Board Risk Committee Report
Year ended 31 December 2023
Board Risk Committee highlights from 2023
• Appointment of two new committee members.
• Oversight of the implementation of the new Consumer Duty regulation.
• Close monitoring of external developments and market volatility to assess and manage the impacts on the
Society’s principal and emerging risk profile.
Committee membership during 2023
• Neil Fuller (Chair) – Chair since January 2022.
• David Fisher
1
– member since March 2014.
• Gareth Hoskin – member since November 2015.
• Annette Barnes – member since February 2019.
• Anita Tadayon – member since October 2021.
• Farah Buckley – member since April 2023.
• Pam Rowland – member since May 2023.
Number of meetings and attendance
• Eight meetings held during the year.
• 94% attendance from committee members (the attendance record of committee members is set out on page 125).
Introduction from the Chair
I am pleased to present the Board Risk Committee’s report for the year ended 31 December 2023.
This report outlines the operations of the committee and how it 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 considered the current and emerging risk profile of the Society against a backdrop of
heightened geopolitical, economic and financial market uncertainty. In particular, focus has been given to monitoring
the potential affordability impacts of higher interest rates on borrowers, along with understanding the potential impact
mitigations for emerging risks.
The committee has monitored the Society’s implementation of the FCA’s Consumer Duty regulation. This has included
ensuring that policies and supporting frameworks are fit for purpose and support the delivery of good customer outcomes.
Fully embedding revised Consumer Duty focussed governance, processes and procedures across the Society is a key focus
area for 2024.
In January 2023, Lynn McManus stood down from the committee to pursue an external role. I would like to convey the
committee’s thanks to Lynn for her contribution over the last five years. I would also like to take this opportunity to welcome
Farah Buckley and Pam Rowland to the committee, both of whom joined during the first half of 2023. Farah and Pam have
significant depth and breadth of experience within financial services.
Committee operations
During 2023, the committee consisted of seven members, all of whom were independent non-executive directors.
From 1 December 2023 David Fisher was reclassified as a non-independent non-executive director due to the length
of his tenure. On this basis, David will no longer be a member of the committee in 2024 but an attendee.
1 On 1 of December 2023 David Fisher was reclassified as a non-independent non-executive director. As a consequence, David will become an attendee of the committee
for meetings in 2024 onwards.
Leeds Building Society | Annual Report and Accounts 2023 155
Full biographies and experience of committee members are set out on pages 113 to 120 within the Governance Report.
At the invitation of the committee, meetings held in 2023 were also attended by the Chair of the Board and relevant
members of the executive and senior leadership team, ensuring that the three lines of defence were 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 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 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 and balanced risk management considerations.
• Overseeing the activities of supporting Executive Risk Committees.
A full set of duties are outlined within the committee’s ToR. 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 125. At the beginning of each meeting the Chief Risk Officer, provided an update to the committee
regarding the Society’s current and emerging risk profile. A summary of the supporting Executive Risk Committees was
also provided by their respective Chairs to ensure effective oversight of their activities.
To support the committee’s oversight of key and emerging risks, the committee receives training from internal and external
subject matter experts on a regular basis. During 2023, the committee received training on property collateral risk, IRB
modelling and regulatory reporting.
The committee is required to conduct a self-assessment of its effectiveness on an annual basis. The 2023 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 ToR, with a small number of minor
development areas identified, which will be addressed in 2024.
Matters considered by the committee in 2023
The committee had a balanced agenda in 2023, combining oversight of our current risk profile with emerging risks and
requirements. A summary of the key matters considered by the committee during 2023 are set out below.
Enterprise risk (including strategic / business risk)
• Risk appetite – the committee reviewed the Society’s risk appetite statements and metrics to set the context of the
2024 corporate plan, to ensure they remain fit for purpose and reflective of prevailing operating conditions.
• Enterprise Risk Management Framework (ERMF) – the committee approved recommended changes to the ERMF to
ensure that the Society’s risk management practices remain appropriate.
• Climate risk – the committee received an updated assessment regarding the impacts of risks associated with
climate change.
• Emerging external risks – the committee received regular updates regarding the Society’s evolving operating
environment and associated management response plans.
• 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)
• Credit risk – during the year the committee has closely monitored the performance of the Society’s lending portfolio,
given the heightened level of macroeconomic uncertainty from a prolonged period of higher inflation and substantial
increases in interest rates. Alongside this, the committee has kept appetite and policies under continuous review to
ensure that they remain appropriate for the prevailing operating environment.
Board Risk Committee Report continued
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156
• Financial – the management of other emerging prudential risks (including interest rate risk, funding and liquidity risk and
wholesale credit risk) has been another area of focus, driven by volatility in the macroeconomic environment and financial
markets and uncertainty within the banking sector following the collapse of several US banking institutions. In addition,
the committee also carefully considered the risks associated with the Tier 2 capital tender exercise, prior to execution.
• 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 and wholesale credit 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 new supervisory statement for model risk management and the associated response plan, prior to board approval.
Operational and conduct risk
• Operational resilience impact tolerances – the committee reviewed and reaffirmed the Society’s operational resilience
impact tolerances for key business services.
• Cyber risk – the committee reviewed periodic updates on material cyber risks and received a progress update on the
Society’s cyber strategy.
• Financial crime – the committee received the annual MLRO report and other financial crime updates on a periodic basis.
• Data protection – the committee received the annual Data Protection Officer’s Report.
• Outsourcing – the committee received updates on emerging third-party outsourcing risks and reviewed risk assessment
outputs for several new material suppliers.
• Change risk – the committee reviewed the risk profile associated with the discovery phase of our multi-year technology
programme. In addition, the committee reviewed a proposed assurance approach for the next phase of the project.
• Consumer Duty – the committee has closely overseen the Society’s implementation of the FCA’s Consumer Duty
regulation.
• Members in financial difficulty – the committee received regular updates on progress with the Society’s Mortgage
Support 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 2024
include:
• Assessment of the potential business model impacts from ongoing uncertainties in the external operating environment
and oversight of management response plans.
• Overseeing the embedding of Consumer Duty regulation across the Society.
• Close monitoring of customer outcomes across the business.
• Overseeing the risks and mitigants associated with the next phase of our multi-year technology programme.
• Overseeing the closure of identified gaps against the finalised policy statement in relation to model risk management.
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
22 February 2024
Leeds Building Society | Annual Report and Accounts 2023 157
Directors’ Remuneration Report
Year ended 31 December 2023
Remuneration Committee highlights from 2023
• Agreed company objectives for 2023 and individual
performance objectives for the senior team for 2023.
• Provided oversight of reward for the broader
colleague population.
• Reviewed the impact of Consumer Duty in respect of
remuneration arrangements and governance.
• Assessed continued compliance with the
Remuneration Code.
• Reviewed the current remuneration structure.
• Reviewed and approved the remuneration policy.
• Reviewed and agreed the approach for variable
remuneration schemes in readiness for 2024.
• Reviewed 2023 performance against the agreed
objectives, clearly linking to strategy and purpose.
Committee membership during 2023
In 2023 the committee comprised of six non-executive directors:
• Annette Barnes (Chair) – member since March 2021.
• David Fisher
1
– member since May 2012.
• Gareth Hoskin – member since January 2018.
• Iain Cornish – member since September 2023.
• Neil Fuller – member since November 2023.
• Pam Rowland – member since November 2023.
Number of meetings and attendance
• Five meetings were held during the year.
• 100% attendance from committee members, with the exception of David Fisher who missed two meetings.
• Leeds Building Society Chair, Chief Executive Officer, Deputy Chief Executive Officer, Chief People Officer,
and Reward Lead are regular attendees at the meetings.
Introduction from the Chair
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.
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.
Our members will have the opportunity to vote, on an advisory basis, on the remuneration policy and 2023 Directors’
Remuneration Report, at the AGM. There have been no changes to the Policy since the last member vote at the AGM held
in 2022.
The Remuneration Policy is consistent with and promotes sound and effective risk management and ensures processes and
practices do not introduce any risk of detriment to consumers.
The key features of the Remuneration Policy, are set out in full on pages 160 to 162.
As a mutual, purpose-led business, and as reported last year, we took steps to support our colleagues throughout the cost of
living crisis by electing to move our 2023 pay review for all colleagues forward from April 2023 to January 2023.
In 2023, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) removed the limit on the ratio
of variable to fixed pay (‘the bonus cap’) which prevented firms from paying variable pay in excess of 100% (or 200% with
shareholder / stakeholder approval). In response to these changes and aligned to our mutual culture, approach to recruitment
and retention, and to support the long term aims of the Society, we have chosen to maintain the 100% variable to fixed pay
limit and make no change to our annual bonus scheme.
1 On 1 of December 2023 David Fisher was reclassified as a non-independent non-executive director. As a consequence, David will become an attendee of the committee
for meetings in 2024 onwards.
Strategic Report
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Governance Financial Statements Other Information
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As reported in 2022, the Remuneration Committee approved a retention award, specifically in relation to the successful
delivery of the critical, multi-year technology transformation programme for the Chief Operating Officer, Rob Howse.
The first instalment of the retention award was paid in 2023. You can find further details relating to this award on page 163.
Performance and awards 2023
Earlier sections of the Annual Report and Accounts have set out how we have made strong progress across all of our key
metrics which determine our variable pay outturn.
After careful consideration, annual bonuses of between 16.7% and 18.09% (2022: 17% and 18.68%) have been awarded
for 2023 to the executive directors, which represents between 83.5% and 90.4% (2022: 85% and 93.42%) of the maximum
award available.
In arriving at the decision to award variable remuneration, a full risk assessment process was undertaken, during which the
committee considered a range of factors and received input from the Board Risk Committee. Following full consideration, no
adjustment to variable remuneration was deemed necessary.
The remuneration policy has operated as intended during the year.
2023 remuneration changes
In January 2023, all colleagues, including the executive directors, received a base pay increase.
As reported last year, having conducted a thorough external benchmarking exercise and having reviewed 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, with effect from January 2023.
In January 2023, the base pay increases for colleagues ranged from 6% to 25% with an average of 9.34% and the base pay of
all other executive directors increased by 6%. In addition, following an external benchmarking assessment undertaken during
the second quarter of 2023, from the 1 June 2023, the Chief Financial Officer received a base pay increase of 10.3% and the
Deputy Chief Executive Officer received a base pay increase of 5.8%.
The Chair’s and non-executive director’s basic fees, also increased by 6% for 2023, in line with the minimum increase received
by our colleague population. Following a market review, in line with other committee chair roles and external benchmarking,
the Remuneration Committee Chair fee increased by 24.4% along with the introduction of an added fee for the additional
responsibility for the colleague engagement and Consumer Duty of £3,000. All of these changes were reported last year, and
no individual was present when their own remuneration was under discussion.
Looking ahead
Looking ahead to 2024, the committee will continue to ensure that 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.
I trust this report is helpful and informative. The Remuneration Committee recommends that members vote in favour of the
2023 Directors’ Remuneration Report and Remuneration Policy.
Annette Barnes
Chair of the Remuneration Committee
22 February 2024
Directors’ Remuneration Report continued
Leeds Building Society | Annual Report and Accounts 2023 159
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 or, as for any other colleague, where external
benchmarking identifies a market adjustment is required.
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 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 4x 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
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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 a maximum of 100% of fixed pay. All
retention bonuses, for material risk takers, are subject to the approval of the
Remuneration Committee.
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.
Leeds Building Society | Annual Report and Accounts 2023 161
The table below illustrates how the 2023 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 2023
Executive director remuneration summary for 2023
The total remuneration received by executive directors for 2023 is detailed below, compared with 2022. The total
remuneration for executive directors equates to 1.41% of Group profit before tax (2022:0.96%). This information has
been audited and shows remuneration for the years ending 31 December 2022 and 31 December 2023, as required to be
reported under the Building Societies (Accounts and Related Provisions) Regulations 1998. The awards made in respect
of performance in 2023 are in line with the 2023 Remuneration Policy, with a maximum annual bonus 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.
2023 audited
Executive directors Salary
Annual
bonus
Retention
award (3)
Pension
Loss of
office
Total fixed
remuneration
Total variable
remuneration
Total
remuneration
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
R G Fearon 665 123 – 74(1) – 739 123 862
A P Conroy 404 71 – 40(1) – 444 71 515
A J Greenwood 415 71 – 71(1) – 486 71 557
R J Howse 392 68 118 39(1) – 431 186 617
Total remuneration
(2)
1,876 333 118 224 – 2,100 451 2,551
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.
(3) The Remuneration Committee approved a retention award, specifically in relation to the successful delivery of the
critical, multi-year technology transformation programme for RJ Howse.
Directors’ Remuneration Report continued
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Governance Financial Statements Other Information
162
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.
Annual incentive
For 2023, corporate performance incentive opportunities were based on the performance measures in the following table.
The table also illustrates performance against each of the measures.
Blueprint performance measure Weightings for maximum (as % of salary) Pay out %
Trading responsibly 3.34% 3.06%
Being responsive to member needs 3.33% 2.77%
Communicating and engaging with our colleagues and customers 3.33% 3.33%
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 based on a maximum of 20%.
Personal performance achievement for executive directors was in the range of 7.675% to 16.7% (16.7% in respect of the
DCEO). Personal performance for executive directors in a non control function is based on a maximum of 10% and is assessed
on personal objectives relating to each executive director specific role and behaviours.
Retention award
As reported in 2022, the Remuneration Committee approved a retention award, specifically in relation to the successful
delivery of the critical, multi-year technology transformation programme for the Chief Operating Officer, RJ Howse.
The first instalment of the retention award of £117,660 was made in July 2023, based on the successful delivery of specific
project milestones and objectives.
The retention award is part of variable pay and is subject to malus and clawback, deferral and delivery in instruments,
as determined by the Remuneration Committee.
Risk assessment
The risk assessment process is independently managed by the Risk function. 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 function considers the corporate priorities and personal objectives for executive directors’ future year
remuneration, to ensure they are aligned with our risk appetite.
Leeds Building Society | Annual Report and Accounts 2023 163
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 2023.
Unpaid deferred elements of the annual bonus scheme
Executive
directors
Performance
year
Due
2024
£’000
Due
2025
£’000
Due
2026
£’000
Due
2027
£’000
Due
2028
£’000
Due
2029
£’000
Due
2030
£’000
Due
2031
£’000
Due
2032
£’000
Total
£’000
R G Fearon 2019 20 20 20 20 11 – – – – 91
2020 3 14 23 23 23 20 8 – – 114
2021 – 6 12 12 12 12 7 – – 61
2022 22 – 7 13 13 13 13 7 – 88
2023 24 24 – 7 15 15 15 15 8 123
Total 69 64 62 75 74 60 43 22 8 477
A P Conroy 2020 16 12 – – – – – – – 28
2021 – 4 7 7 7 7 4 – – 36
2022 13 – 3 8 8 8 8 3 – 51
2023 14 14 – 5 8 8 8 8 5 70
Total 43 30 10 20 23 23 20 11 5 185
A J Greenwood 2020 16 13 – – – – – – – 29
2021 – 4 7 7 7 7 4 – – 36
2022 13 – 5 7 7 7 7 5 – 51
2023 14 14 – 5 8 8 8 8 6 71
Total 43 31 12 19 22 22 19 13 6 187
R J Howse 2021 – 4 7 7 7 7 5 – – 37
2022 13 – 4 8 8 8 8 4 – 53
2023 14 14 – 4 8 8 8 8 4 68
Total 27 18 11 19 23 23 21 12 4 158
P A Hill 2018 25 25 25 14 – – – – – 89
Total 25 25 25 14 – – – – – 89
R S P Litten 2018 17 17 17 9 – – – – – 60
2019 3 3 4 4 2 – – – – 16
Total 20 20 21 13 2 – – – – 76
Total 227 188 141 160 144 128 103 58 23 1,172
The table above is an illustration of the annual bonus scheme awards and does not include retention awards. The payment of
deferred elements, for all variable remuneration (including retention awards) is subject to future performance, for example,
the application of malus. Clawback will be applied as required by regulation.
Directors’ Remuneration Report continued
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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 executive 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 2023
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
2023, there were 39 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
2023 2022
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
Senior management 39 32 7,480 6,500 1,137 1,299 8,617 7,799
Other material risk takers – – – – – – – –
Total remuneration (4) 39(3) 32 (3) 7,480 6,500 1,137 1,299(4) 8,617 7,799
Notes
(1) Fixed pay includes basic salary, benefits, pension, loss of office payments and fees for non-executive directors.
(2) £1,246k of variable pay is deferred for five or seven years (2022: £843k).
(3) Material risk takers who left the Society during the calendar year are included in the table above.
(4) The 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.
Leeds Building Society | Annual Report and Accounts 2023 165
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
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
I C A Cornish (Chair) 169 158 6 6 – – 175 164
G J Hoskin (Vice Chair) 56 52 5 3 24 24 85 79
A M Barnes 56 52 8 3 18 – 82 55
D Fisher 56 52 – – – – 56 52
N A Fuller 56 52 5 4 18 18 79 74
L R McManus (2) 2 52 2 5 – 12 4 69
A Tadayon 56 52 10 5 – – 66 57
F Buckley (3) 42 – 3 – – – 45 –
P Rowland (4) 37 – 3 – – – 40 –
Total 530 470 42 26 60 54 632 550
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 colleague left on 13 January 2023.
(3) This colleague joined on 1 April 2023.
(4) This colleague joined on 1 May 2023.
Non-executive directors (including the Chair) received an annual basic fee increase of 6% in January 2023, in line with
the colleague population. 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 the responsibility
for the Colleague Voice and Consumer Duty of £3,000.
From 1 April 2024, the non-executive directors fees will be as follows:
Non-executive directors Basic fees
Committee chair
fees
Total
2024
£’000
2024
£’000
2024
£’000
I C A Cornish (Chair) 175 – 175
G J Hoskin (Vice Chair) 58 25 83
A M Barnes 58 18 76
D Fisher 58 – 58
N A Fuller 58 18 76
A Tadayon 58 – 58
F Buckley 58 – 58
P Rowland 58 – 58
Total 581 61 642
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Payments to former directors
A payment of £25,307 has been made in 2023 to PA Hill, the former Chief Executive Officer, who retired on 30 June 2019.
A payment of £18,662 has been made in 2023 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 2023 to K 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 Remuneration Committee determined no risk
adjustment was required.
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 2023 results – directors’ remuneration report
Resolution % votes for % votes against
Directors’ remuneration report 92.39% 7.61%
Annual General Meeting 2022 results – directors’ remuneration policy
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 (£)
Chief Financial Officer (£)
Deputy Chief Executive Officer (£)
Chief Operating Officer (£)
100%
779
Fixed Target Maximum
88% 85%
12% 15%
885
920
100%
478
Fixed Target Maximum
88% 85%
12% 15%
543
565
100%
515
Fixed Target Maximum
88% 85%
12% 15%
581
603
100%
447
Fixed Target Maximum
88% 85%
12% 15%
507
528
Leeds Building Society | Annual Report and Accounts 2023 167
Fixed Consists of basic salary and pension
Basic salary is as at 1 April 2024
Executive director Basic salary Pension Total fixed
Chief Executive Officer £702,250 £77,247 £779,497
Deputy Chief Executive Officer £439,880 £74,780 £514,660
Chief Financial Officer £434,700 £43,470 £478,170
Chief Operating Officer £405,930 £40,593 £446,523
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% (80% for Control functions) 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 foregone.
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 a maximum of 100% of fixed pay. All retention
bonuses, for material risk takers, are subject to the approval of the Remuneration
Committee.
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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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 hold 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, while 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, the executive 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.
The table below illustrates the comparison of average salary increases to be made in April 2024 to the Chief Executive Officer,
executive directors and all other colleagues.
All other colleagues
Executive directors
Chief Executive Officer
4.98%
3.50%
3.50%
Leeds Building Society | Annual Report and Accounts 2023 169
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 2024 are as follows, compared with 1 January 2023:
1 January 2023 1 January 2024
R G Fearon £678,500 £678,500
A J Greenwood £401,775 £425,000
A P Conroy £380,670 £420,000
R J Howse £392,200 £392,200
The annual pay review takes place in April, for all colleagues in the Society, including executive directors. From the 1 June 2023,
following external benchmarking, the Chief Financial Officer received an increase of 10.3% and the Deputy Chief Executive
Officer received an increase of 5.8%.
Following a market review and external benchmarking, salaries from 1 April 2024 will be as follows will be as follows:
1 April 2024 Increase
R G Fearon £702,250 3.5%
A J Greenwood £439,880 3.5%
A P Conroy £434,700 3.5%
R J Howse £405,930 3.5%
Chief Executive Officer (CEO) pay ratio
The Companies (Miscellaneous Reporting) Regulations 2018, came into force for accounting periods starting from 1 January
2019 and requires 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
2023 Option A 31:1 21:1 14:1
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 2023:
Remuneration element 25th percentile (£) Median (£) 75th percentile (£)
Total pay and benefits 27,803 41,850 62,468
Salary 24,405 36,000 55,650
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Directors’ loans, transactions and related business activity
The aggregate amount outstanding at 31 December 2023 in respect of loans from the Society or a subsidiary undertaking to
directors of the Society or persons associated with directors was nil (2022: nil), being nil mortgages (2022: 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.
Total remuneration
£’000
Performance pay as % of maximum
2023 862 90.4
2022 752 93.4
2021 695 94.0
2020 684 82.9
2019 659 75.0
Percentage change in salary for Chief Executive Officer
The basic salary of the Chief Executive Officer increased by 15% during 2023. An average annual increase of 9.34% 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 15.0%
Deputy Chief Executive Officer 11.8%
Chief Financial Officer 16.3%
Chief Operating Officer 6.0%
Colleague average 9.3%
Minimum salary 14.6%
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 2023, compared to the previous year.
2023 2022 Percentage change
Group profit after tax £133.9 million £161.9 million -17.3%
Colleague remuneration costs £79.1 million £64.8 million 22.1%
Headcount 1,788 1,538 16.3%
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 2023 were PwC LLP. 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.
Leeds Building Society | Annual Report and Accounts 2023 171
Directors’ Report
Year ended 31 December 2023
The directors are pleased to present their Annual Report
and Accounts and Annual Business Statement, for the year
ended 31 December 2023.
Our business model and purpose-led strategy are described
in the business model and strategy section of the Strategic
Report on pages 9 to 30, where key performance indicators
are also presented.
Profits and capital
Profit before tax for the year was £181.5 million (2022:
£220.5 million). The profit after tax transferred to the general
reserve was £133.9 million (2022: £161.9 million). Total equity
attributable to members at 31 December 2023 was £1,643.4
million (2022: £1,506.8 million).
Gross capital at 31 December 2023 was £2,000.3 million
(2022: £2,013.5 million) including £323.9 million (2022:
£309.1 million) of subordinated liabilities and £33.0 million
(2022: £197.6 million) of subscribed capital. The ratio of
gross capital as a percentage of shares and borrowings was
7.83% at 31 December 2023 (2022: 8.86%) and the free
capital ratio was 7.46% (2022: 8.47%). Further explanation of
these ratios is provided in the Annual Business Statement on
page 246.
Mortgage arrears
At 31 December 2023, there were 320 (2022: 349) mortgage
accounts 12 months or more in arrears. The total mortgage
arrears, for these cases, was £4.3 million (2022: £4.0 million)
and the total principal balance outstanding was £32.8 million
(2022: £34.2 million).
Charitable and political donations
In 2023, the Society made donations of £301,670 (2022:
£190,200) to the Leeds Building Society Charitable
Foundation. Our other donations to charities and good
causes (including colleague match funding) during the year
amounted to £582,077 (2022: £545,700).
The Caring Saver and Your Interest in Theirs scheme
provided further donations of £13,170 (2022: £13,200) and
£84,874 (2022: £79,600) respectively to specified charities.
Additionally, the Society has a number of savings products
which support Dementia UK, resulting in a donation of
£82,082 (2022: £29,100).
Other charitable donations from colleagues and members
totalled £112,256 (2022: £116,200) taking total donations to
charities and good causes to £1,176,129 (2022: £974,000).
No political donations were made during the year
(2022: 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 84 to 111, 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 3 to 83 and the Corporate
Governance Report on pages 121 to 139.
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 25 to 30.
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 15 days at 31 December 2023
(2022: 27 days).
Environmental policy
The directors recognise 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
47 to 82 of the Strategic Report.
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Pillar 3 disclosures
The disclosures required under Pillar 3 of CRD IV 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 121 to 139.
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 185.
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 UK 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 41 to 44.
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 45 to 46 of the Strategic
Report.
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.
Leeds Building Society | Annual Report and Accounts 2023 173
• 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
2023, their roles and membership of board committees are
detailed on pages 113 to 118.
In line with best practice, all executive and non-executive
directors offer themselves for election or re-election by the
members at the AGM.
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 Ernst & Young LLP’s 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 pages 147 to 154.
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, Compliance and Secretary
22 February 2024
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Financial
Statements
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176
Independent Auditor’s Report to the
Members of Leeds Building Society
Year ended 31 December 2023
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 2023 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.
• 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.
• The related notes 1 to 33.
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.
Leeds Building Society | Annual Report and Accounts 2023 177
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.
• Fair value of complex derivative instruments.
Within this report, key audit matters are identified as follows:
Similar level of risk.
Materiality The materiality that we used for the Group financial statements was £8.2 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 an appropriate lower
level component 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.
• 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.
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Independent Auditor’s Report continued
Year ended 31 December 2023
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.
5.1. IFRS 9 Financial Instruments – UK Residential Expected Credit Loss (ECL) provisioning
Key audit matter
description
In accordance with IFRS 9, expected credit losses are recognised for all UK residential
mortgages that are held at amortised cost. Estimating these expected losses requires the
use of complex models and application of judgement and estimation to assumptions based
on: how macroeconomic variables have impacted the performance of loans with similar credit
risk characteristics historically; projected house prices; and historical experience of forced sale
discounts. 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 £44.5 million (2022: £41.8 million) of UK residential impairment provisions at year-
end, in accordance with IFRS 9. In the current year, as shown in Note 2(b), the directors recognised
post model adjustments (PMAs) of £20.8 million (2022: £24.0 million) due to the potential increased
risk of default arising from the challenges facing borrowers in the current economic environment.
Our key audit matter on ECL provisioning relates specifically to:
• The completeness and accuracy of PMAs to account for model limitations. Management
has applied overlays to mitigate the risk associated with customer affordability, inadequate
cladding, transaction bias and climate risk.
• The economic forecasts selected, and the weightings applied, which are based on a range of
forecasts that take account of current and historic macroeconomic conditions. Judgement is
involved in selecting key assumptions and weightings.
The Group’s loan loss provision balances are detailed within note 8. The Group’s associated
accounting policies are detailed on pages 196 to 197 with detail about judgements in applying
accounting policies and key sources of estimation uncertainty on pages 202 to 207. The directors’
consideration of the effect of the future economic environment is disclosed on pages 202 to 205.
The Audit Committee’s consideration of the matter is described on page 149.
Leeds Building Society | Annual Report and Accounts 2023 179
How the scope
of our audit
responded to the
key audit matter
We gained 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 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 considering 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 the loan book to the general ledger and substantively tested a sample of loans to
assess the completeness and accuracy of the data used in the provision calculation.
Key observations
Based on our audit procedures above, we concluded that the Group’s provision applied to the UK
residential mortgage book is reasonably stated.
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5.2. Hedge accounting
Key audit matter
description
The Group has designated a number of fair value macro hedges 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.
The Group has taken the IFRS 9 accounting policy choice to continue to apply IAS 39 accounting
with respect to all designated hedge relationships. 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.
Management’s chosen accounting policies are detailed on page 196. The Audit Committee’s
consideration of this risk is included on page 151. The hedged items adjustments are contained
within the fair value adjustment for hedged risk on loans and advances to customers of £132.3 and
fair value adjustment for hedged risk on shares of £31.9m.
In line with the requirements of IAS 39 management carries out prospective and retrospective
effectiveness testing monthly.
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 have independently assessed the manual adjustments made by management on designation
and de-designation fair value adjustments to the hedged items and hedging instruments.
We have reviewed the designation and classification of newly constructed hedges and involved our
financial instrument specialists to review and challenge the macro fair value.
We have performed independent valuations over a sample of hedged items and hedge instruments
as part of our hedge effectiveness testing and re-performed hedge effectiveness testing in order
to test management’s hedge ineffectiveness reporting in a timely manner.
We assessed the appropriateness of management’s disclosure related to hedge accounting.
Key observations
Based on our audit procedures above, we concluded that the overall hedge accounting treatment
and valuations were appropriate.
Independent Auditor’s Report continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 181
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 240 for a definition of level 3 measurements).
The collateral loan had a carrying value at 31 December 2023 of £153.6 million (2022: £161.9
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 the methodology shown on page
207 of the financial statements 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 32. Management’s
associated accounting policies are detailed on page 195 with detail about judgements in
applying accounting policies and critical accounting estimates on pages 207 and 208. The Audit
Committee’s consideration of the matter is described on page 150.
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.
With assistance from our valuation specialists, we challenged the appropriateness of directors’
valuation methodology over the fair valuation of the collateral loan.
With support from our valuation specialists, we have performed an independent re-calculation of
the discount rate to determine whether the discount rate for the overall valuation was acceptable.
We have challenged the assumptions through recalculation, review of judgement papers, and
comparison of internal data to third party evidence.
We reviewed model mechanics to test whether they are working appropriately and in line with
contracts with the originator, with the help of our internal modelling specialists.
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.
We assessed the appropriateness of the disclosure related to the collateral loan.
Key observations Based on our audit procedures above, we concluded that the Group’s valuation of the collateral
loan was reasonable.
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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 £31.2 million (2022: £32.2 million)
which are detailed within note 32 and comprise the following:
• The Retail Prices Index (RPI) linked derivative hedging the equity release portfolio.
• 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.
• The prepayment rate of mortgages within the RMBS securitisation vehicle.
Our key audit matter relates to the risk of management 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 196 with details about valuation
techniques and key inputs on page 208. The Audit Committee’s consideration of this risk is
included on page 150.
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 have engaged our internal complex pricing specialists to independently value the complex
derivatives, using our own independently developed models and considering the assumptions
management obtained from the counterparties.
We have assessed the reasonableness of the assumptions applied in the RPI valuation by involving
our specialists and reviewed the counterparty valuations received by management against in
house model valuations.
We worked with our complex pricing specialists to challenge whether the assumptions used were
within a reasonable range and consistent with those used in the valuation of the equity release
mortgage portfolio.
Key observations Based on our audit procedures above, we have concluded that the Group’s valuation of complex
derivative instruments was reasonable.
Independent Auditor’s Report continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 183
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 £8.2 million (2022: £8.7 million) £8.1 million (2022: £8.2 million)
Basis for determining
materiality
0.5% of net assets (2022: 0.5% of net assets
excluding subscribed capital)
0.5% of net assets capped at 99% of Group
materiality (2022: 0.5% of net assets excluding
subscribed capital capped at 95% of Group
materiality)
Rationale for the
benchmark applied
We have used 0.5% of net assets (2022: 0.5% of net assets excluding subscribed capital) as the benchmark for
determining materiality. The change in the materiality benchmark used is driven by net assets being a more
appropriate and reliable benchmark alongside aligning to market peers.
Net assets are an appropriate basis for materiality, due to the overall capital base being a key focus area for the
Society’s members, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). In
addition, the Society’s strategy is centered around maintaining a stable capital base.
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% (2022: 70%) of Group materiality 70% (2022: 70%) 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 nature, volume and size of corrected and uncorrected misstatements identified in the previous 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 £0.4 million
(2022: £0.4 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 (Leeds Building Society Covered Bonds LLP, Albion No.4 plc and Albion No.5 plc).
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 £4.5 million to £8.1 million
(2022: 1.7 million to £8.20 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.
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Independent Auditor’s Report continued
Year ended 31 December 2023
7.2. Our consideration of the control environment
Our approach in relation to the Group’s IT systems
We obtained an understanding of, tested and 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.
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 in the Group:
• Loans and advances to customers and associated interest income.
• Shares and amounts owed to other customers and associated interest expense.
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 47 to 82. 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 the climate related disclosures in the Annual Report is
consistent with our understanding of the business and the 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.
Leeds Building Society | Annual Report and Accounts 2023 185
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.
• Results of our enquiries of management, the directors and the Audit Committee about their own identification and
assessment of the risks of irregularities, including those that are specific to the Group’s sector.
• 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.
− 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 relevant internal specialists, including tax, financial
instruments, pensions, IT, macroeconomic, credit risk, pricing, prudential risk and industry specialists regarding how
and where fraud might occur in the financial statements and any potential indicators of fraud.
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Independent Auditor’s Report continued
Year ended 31 December 2023
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, fair value of complex derivatives 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 Group 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 taxation legislation, 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 Group’s ability to operate or to avoid a material penalty. These included
the regulations set by the FCA and the PRA, including those 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, in house 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.
• 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.
• 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.
Leeds Building Society | Annual Report and Accounts 2023 187
13. Opinion on other matter prescribed by the Capital Requirements (Country by
Country Reporting) Regulations 2013
In our opinion the information given on page 248 in the financial statements for the financial year ended 31 December
2023 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 (set out on pages 172 to 174):
• The directors’ statement with regards the appropriateness of adopting the going concern basis of accounting and
any material uncertainties identified.
• The directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why
the period is appropriate.
• The directors’ statement on fair, balanced and understandable.
• The board’s confirmation that it has carried out a robust assessment of the emerging and principal risks.
• The section of the annual report that describes the review of effectiveness of risk management and internal
control systems.
• The section describing the work of the Audit Committee.
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
19 years, covering the years ending 31 December 2005 to 31 December 2023. The year ended 31 December 2023 will be the
final year of our appointment as auditor.
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).
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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) 4.1.15R – DTR
4.1.18R, these financial statements will form part of the Electronic Format Annual Financial Report filed on the National
Storage Mechanism of the FCA in accordance with DTR 4.1.15R – DTR 4.1.18R. This auditor’s report provides no assurance
over whether the Electronic Format Annual Financial Report has been prepared in compliance with DTR 4.1.15R – DTR
4.1.18R.
Matthew Bainbridge (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Leeds, United Kingdom
22 February 2024
Leeds Building Society | Annual Report and Accounts 2023 189
Income Statements
For the year ended 31 December 2023
| Group | Group | Society | Society | ||
| 2023 | 2022 | 2023 | 2022 | ||
| Notes | £M | £M | £M | £M | |
Interest receivable and similar income | 3 | 1,260.5 | 676.1 | ||
Interest payable and similar charges | 4 | ( | ( | (923.1) | (316.7) |
Net interest receivable | 337.4 | 359.4 | |||
Fees and commissions receivable | 5.2 | 6.1 | |||
Fees and commissions payable | ( | ( | (0.6) | (0.5) | |
Fair value (losses) / gains from financial instruments | 5 | ( | (16.0) | 8.1 | |
Other operating income / (expense) | ( | 22.5 | (4.0) | ||
Total income | 348.5 | 369.1 | |||
Administrative expenses | 6 | ( | ( | (159.9) | (130.1) |
Depreciation and amortisation | 16,17 | ( | ( | (9.1) | (10.9) |
Impairment charge on loans and advances to customers | 8 | ( | ( | (6.1) | (11.9) |
Impairment of property, plant and equipment and intangible assets | 16,17 | ( | ( | (0.2) | (3.8) |
Provisions (charge) / release | 22 | ( | (0.7) | 0.5 | |
Operating profit and profit before tax | 172.5 | 212.9 | |||
Tax expense | 9 | ( | ( | (45.3) | (57.3) |
Profit for the financial year | 127.2 | 155.6 |
All amounts relate to continuing operations.
The notes on pages 194 to 244 form part of these accounts.
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Statements of Comprehensive Income
For the year ended 31 December 2023
| Group | Group | Society | Society | ||
| 2023 | 2022 | 2023 | 2022 | ||
| Notes | £M | £M | £M | £M | |
Profit for the financial year | 127.2 | 155.6 | |||
| Items that may subsequently be reclassified to profit and loss: | |||||
Fair value gains recorded in cash flow hedge reserve | 15.0 | 118.1 | |||
Gains previously recorded in cash flow hedge reserve amortised through profit or loss | ( | ( | (26.7) | (5.2) | |
Fair value gains / (losses) on investment securities measured at fair value through other comprehensive income | ( | 13.4 | (10.8) | ||
Losses on investment securities measured through other comprehensive income reclassified to profit or loss on disposal | 1.4 | 1.7 | |||
Tax relating to items that may subsequently be reclassified | ( | 0.5 | (19.7) | ||
Effect of change in corporation tax rate | ( | 0.1 | (9.4) | ||
| Items that may not subsequently be reclassified to profit and loss: | |||||
Actuarial loss on retirement benefit surplus | 25 | ( | ( | (0.9) | (4.9) |
Revaluation loss on properties | 17 | ( | – | (1.9) | |
Tax relating to items that may not be reclassified | – | 1.9 | |||
Effect of change in corporation tax rate | ( | (0.1) | 0.5 | ||
Total comprehensive income for the year | 129.9 | 225.9 |
Leeds Building Society | Annual Report and Accounts 2023 191
Statements of Financial Position
For the year ended 31 December 2023
Notes
| Group | Group | Society | Society | ||
| 2023 | 2022 | 2023 | 2022 | ||
| £M | £M | £M | £M | ||
| Assets | |||||
| Liquid assets | |||||
Cash in hand and balances with the Bank of England | 11 | 2,830.0 | 2,958.1 | ||
Loans and advances to credit institutions | 11 | 109.2 | 83.3 | ||
Investment securities | 12 | 2,515.6 | 1,452.8 | ||
Derivative financial instruments | 31 | 443.6 | 679.5 | ||
Loans and advances to customers | 13 | ||||
Loans fully secured on residential property | 21,782.9 | 20,324.3 | |||
Other loans | 158.3 | 168.9 | |||
Fair value adjustment for hedged risk on loans and advances to customers | ( | ( | (132.3) | (585.9) | |
Other assets, prepayments and accrued income | 14 | 431.8 | 447.8 | ||
Current tax assets | 9.8 | 4.6 | |||
Deferred tax assets | 26 | 3.0 | 0.3 | ||
Intangible assets | 16 | 29.8 | 22.5 | ||
Property, plant and equipment | 17 | 64.5 | 66.7 | ||
Retirement benefit surplus | 25 | 2.9 | 3.6 | ||
Total assets | 28,249.1 | 25,626.5 | |||
| Liabilities | |||||
Shares | 18 | 20,793.0 | 17,520.4 | ||
Fair value adjustment for hedged risk on shares | ( | 31.9 | (100.7) | ||
Derivative financial instruments | 31 | 232.8 | 237.2 | ||
Amounts owed to credit institutions | 1,869.3 | 2,268.4 | |||
Amounts owed to other customers | 19 | 521.6 | 404.7 | ||
Debt securities in issue | 20 | 2,361.0 | 2,620.2 | ||
Other liabilities and accruals | 21 | 410.2 | 631.0 | ||
Deferred tax liabilities | 26 | 35.3 | 32.1 | ||
Provisions for liabilities and charges | 22 | 1.3 | 0.6 | ||
Subordinated liabilities | 23 | 323.9 | 309.1 | ||
Subscribed capital | 24 | 33.0 | 197.6 | ||
Total liabilities | 26,613.3 | 24,120.6 | |||
General reserve | 1,540.9 | 1,414.4 | |||
Cash flow hedge reserve | 74.3 | 81.3 | |||
Fair value reserve | ( | 4.7 | (5.9) | ||
Revaluation reserve | 1.6 | 1.8 | |||
Other reserve | 14.3 | 14.3 | |||
Total liabilities and equity | 28,249.1 | 25,626.5 |
The accounts on pages 189 to 244 were approved by the board of directors on 22 February 2024.
Signed on behalf of the board of directors by:
Iain Cornish
Chair
Richard Fearon
Chief Executive Officer
Andrew Conroy
Chief Financial Officer
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Statements of Changes in
Members’ Interest
For the year ended 31 December 2023
| Cash flow | Total equity | |||||
| General | hedge | Fair value | Revaluation | Other | attributable | |
| reserve | reserve | reserve | reserve | reserve | to members | |
| Group 2023 | £M | £M | £M | £M | £M | £M |
At 1 January 2023 | ( | |||||
Comprehensive income for the year | ( | ( | ||||
At 31 December 2023 | ||||||
| Cash flow | Total equity | |||||
| General | hedge | Fair value | Revaluation | Other | attributable | |
| reserve | reserve | reserve | reserve | reserve | to members | |
| Group 2022 | £M | £M | £M | £M | £M | £M |
At 1 January 2022 | ||||||
Comprehensive income for the year | ( | |||||
Revaluation gains transferred on disposal of assets | ( | |||||
At 31 December 2022 | ( |
Society 2023
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 2023 1,414.4 81.3 (5.9) 1.8 14.3 1,505.9
Comprehensive income for the year 126.5 (7.0) 10.6 (0.2)
– 129.9
At 31 December 2023 1,540.9 74.3 4.7 1.6 14.3 1,635.8
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
At 1 January 2022 1,256.7
– 0.7 8.3 14.3 1,280.0
Comprehensive income for the year 149.8 81.3 (6.6) 1.4
–225.9
Revaluation gains transferred on disposal of assets 7.9
–
–
(7.9) – –
At 31 December 2022 1,414.4 81.3 (5.9) 1.8 14.3 1,505.9
Leeds Building Society | Annual Report and Accounts 2023 193
Statements of Cash Flows
For the year ended 31 December 2023
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
Profit before tax | 172.5 | 212.9 | ||
| Adjusted for: | ||||
| Impairment charge | 6.1 | 11.9 | ||
| Provisions charge | ( | 0.7 | (0.5) | |
| Depreciation and amortisation | 9.1 | 10.9 | ||
| Impairment of property, plant and equipment and intangible assets | 0.2 | 3.8 | ||
| Fair value of collateral loan which represents a pool of equity release mortgages | 6.9 | 53.9 | ||
Non-cash and other items | ( | (30.6) | 27.0 | |
Cash generated from operations | 164.9 | 319.9 | ||
| Changes in operating assets and liabilities: | ||||
Derivative financial instruments | ( | ( | (44.4) | 21.8 |
Loans and advances to customers | ( | ( | (1,461.0) | (2,031.8) |
Loans and advances to credit institutions* | ( | ( | (7.1) | (8.6) |
Other operating assets | ( | 16.1 | (235.8) | |
Shares | 3,272.6 | 2,262.4 | ||
Amounts owed to credit institutions and other customers | ( | ( | (282.2) | (126.7) |
Other operating liabilities | ( | (219.4) | 428.0 | |
Taxation paid | ( | ( | (49.6) | (56.0) |
Net cash flows from operating activities* | 1,389.9 | 573.2 | ||
| Cash flows from investing activities | ||||
Purchase of investment securities | ( | ( | (2,882.9) | (1,292.5) |
Proceeds from sale and redemption of investment securities | 1,840.2 | 873.0 | ||
Purchase of intangible assets | ( | ( | (12.5) | (3.9) |
Purchase of property, plant and equipment | ( | ( | (1.9) | (3.7) |
| Proceeds from sale of property, plant and equipment | – | 8.9 | ||
Net cash flows from investing activities | ( | ( | (1,057.1) | (418.2) |
| Cash flows from financing activities | ||||
Net proceeds from issue of debt securities | 0.4 | 665.1 | ||
Repayments of debt securities in issue | ( | ( | (269.9) | (420.9) |
Repayments of subscribed capital | ( | (171.2) | – | |
Principal lease payments | ( | ( | (1.4) | (1.6) |
Net cash flows from financing activities | ( | (442.1) | 242.6 | |
Net increase in cash and cash equivalents* | ( | (109.3) | 397.6 | |
Cash and cash equivalents at the beginning of the year* | 2,970.7 | 2,573.1 | ||
Cash and cash equivalents at the end of the year* | 2,861.4 | 2,970.7 |
* The 2022 Statements of Cash Flows have been restated to exclude the mandatory reserve deposit of £70.7 million which is not available for use in the Group’s
day to day operations. See note 11 for further details.
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Notes to the Accounts
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 195
1. Accounting policies (continued)
(d) Financial instruments (continued)
(i) Classification and measurement (continued)
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1. Accounting policies (continued)
(d) Financial instruments (continued)
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 197
1. Accounting policies (continued)
(e) Impairment of financial assets (continued)
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1. Accounting policies (continued)
(e) Impairment of financial assets (continued)
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 199
1. Accounting policies (continued)
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1. Accounting policies (continued)
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 201
2. Critical accounting estimates and judgements (continued)
(a) Critical judgements (continued)
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2. Critical accounting estimates and judgements (continued)
(b) Significant accounting estimates and assumptions
2023 | 2022 | |
Central | 50% | 55% |
Downside | 25% | 20% |
Alternative downside | 20% | 20% |
Growth | 5% | 5% |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 203
2. Critical accounting estimates and judgements (continued)
(b) Significant accounting estimates and assumptions (continued)
(i) Impairment losses on loans and advances to customers (continued)
| 31 December 2023 | |||||
2024 | 2025 | 2026 | 2027 | 2028 | |
House price inflation | (6.50%) | 1.50% | 2.50% | 2.50% | 2.50% |
Unemployment rate (31 December) | 5.00% | 4.75% | 4.50% | 4.20% | 4.00% |
Gross domestic product growth | (0.25%) | 0.75% | 1.00% | 1.50% | 1.50% |
Base rate (31 December) | 4.75% | 4.25% | 4.25% | 4.00% | 4.00% |
| 31 December 2022 | |||||
2023 | 2024 | 2025 | 2026 | 2027 | |
House price inflation | (10.00%) | 0.00% | 1.00% | 1.50% | 1.50% |
Unemployment rate (31 December) | 4.50% | 5.20% | 5.50% | 5.50% | 5.20% |
Gross domestic product growth | (1.50%) | 0.00% | 0.50% | 1.00% | 1.00% |
Base rate (31 December) | 4.00% | 3.00% | 2.25% | 2.25% | 2.25% |
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2. Critical accounting estimates and judgements (continued)
(b) Significant accounting estimates and assumptions (continued)
(i) Impairment losses on loans and advances to customers (continued)
| 31 December 2023 | |||||
2024 | 2025 | 2026 | 2027 | 2028 | |
House price inflation | (13.70%) | (2.00%) | 0.00% | 0.00% | 1.00% |
Unemployment rate (31 December) | 6.50% | 7.30% | 6.20% | 5.80% | 5.80% |
Gross domestic product growth | (0.70%) | (1.30%) | 1.00% | 1.00% | 1.00% |
Base rate (31 December) | 6.00% | 3.00% | 0.75% | 0.25% | 0.25% |
| 31 December 2022 | |||||
2023 | 2024 | 2025 | 2026 | 2027 | |
House price inflation | (13.70%) | (2.00%) | 0.00% | 0.00% | 1.00% |
Unemployment rate (31 December) | 7.30% | 6.50% | 6.20% | 5.80% | 5.80% |
Gross domestic product growth | (2.00%) | 0.00% | 1.00% | 1.00% | 1.00% |
Base rate (31 December) | 3.25% | 0.10% | 0.10% | 0.10% | 0.10% |
| 31 December 2023 | |||||
2024 | 2025 | 2026 | 2027 | 2028 | |
House price inflation | (20.00%) | (5.00%) | (4.00%) | 0.00% | 1.00% |
Unemployment rate (31 December) | 7.80% | 8.40% | 7.90% | 7.80% | 7.80% |
Gross domestic product growth | (0.20%) | (4.20%) | 2.10% | 1.50% | 1.50% |
Base rate (31 December) | 6.50% | 4.50% | 1.00% | 0.10% | 0.10% |
| 31 December 2022 | |||||
2023 | 2024 | 2025 | 2026 | 2027 | |
House price inflation | (20.00%) | (5.00%) | (4.00%) | 0.00% | 1.00% |
Unemployment rate (31 December) | 8.40% | 7.80% | 7.90% | 7.50% | 7.00% |
Gross domestic product growth | (0.20%) | (4.20%) | 2.10% | 1.50% | 1.50% |
Base rate (31 December) | 3.00% | 0.00% | 0.00% | 0.10% | 0.10% |
| 31 December 2023 | |||||
2024 | 2025 | 2026 | 2027 | 2028 | |
House price inflation | 1.00% | 2.00% | 2.70% | 2.70% | 2.70% |
Unemployment rate (31 December) | 4.80% | 4.50% | 4.30% | 4.00% | 4.00% |
Gross domestic product growth | 0.50% | 1.10% | 1.60% | 2.10% | 2.10% |
Base rate (31 December) | 5.00% | 4.50% | 4.00% | 3.25% | 3.25% |
| 31 December 2022 | |||||
2023 | 2024 | 2025 | 2026 | 2027 | |
House price inflation | 7.00% | 2.00% | 2.00% | 3.00% | 3.00% |
Unemployment rate (31 December) | 3.70% | 4.00% | 4.30% | 4.00% | 4.00% |
Gross domestic product growth | 5.00% | 2.00% | 2.00% | 2.50% | 2.00% |
Base rate (31 December) | 4.50% | 3.00% | 3.00% | 3.00% | 3.00% |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 205
2. Critical accounting estimates and judgements (continued)
(b) Significant accounting estimates and assumptions (continued)
(i) Impairment losses on loans and advances to customers (continued)
| 31 December 2023 | |||||
2024 | 2025 | 2026 | 2027 | 2028 | |
House price inflation | (10.60)% | (0.70)% | 0.60% | 1.40% | 1.80% |
Unemployment rate (31 December) | 5.90% | 6.10% | 5.60% | 5.30% | 5.20% |
Gross domestic product growth | (0.30)% | (0.70)% | 1.30% | 1.40% | 1.40% |
Base rate (31 December) | 5.40% | 4.00% | 2.70% | 2.20% | 2.20% |
| 31 December 2022 | |||||
2023 | 2024 | 2025 | 2026 | 2027 | |
House price inflation | (11.90)% | (1.30)% | (0.20)% | 1.00% | 1.40% |
Unemployment rate (31 December) | 5.80% | 5.90% | 6.10% | 5.90% | 5.60% |
Gross domestic product growth | (1.00)% | (0.70)% | 1.00% | 1.20% | 1.20% |
Base rate (31 December) | 3.70% | 1.80% | 1.40% | 1.40% | 1.40% |
| + 10.0 | + 5.0 | - 5.0 | - 10.0 | |
| percentage | percentage | percentage | percentage | |
| points | points | points | points | |
(Decrease) / increase in impairment loss provisions (£M) | (1.9) | (1.2) | 1.6 | 3.7 |
| + 2.0 | + 1.0 | - 1.0 | - 2.0 | |
| percentage | percentage | percentage | percentage | |
| points | point | point | points | |
Increase / (decrease) in impairment loss provisions (£M) | 3.4 | 1.3 | (0.7) | (0.9) |
| 2023 | 2022 | |
| £M | £M | |
| (Decrease)/increase in impairment loss provisions if scenarios are weighted 100%: | ||
Central | (12.9) | (8.9) |
Downside | 1.9 | (0.8) |
Alternative downside | 58.5 | 37.3 |
Growth | (14.8) | (11.6) |
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2. Critical accounting estimates and judgements (continued)
(b) Significant accounting estimates and assumptions (continued)
(i) Impairment losses on loans and advances to customers (continued)
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 207
2. Critical accounting estimates and judgements (continued)
(b) Significant accounting estimates and assumptions (continued)
(i) Impairment losses on loans and advances to customers (continued)
| (Decrease) / increase in post | ||
Assumption | Sensitivity modelled for current assumption | model adjustment (£M) |
| Number of borrowers that will migrate to Stage 3 due to risk | Decrease / increase by 5 percentage points | (1.1) / 1.8 |
| of shortfall | ||
| £100 threshold above which shortfall against mortgage | Increase threshold to £200 / reduce threshold to 1p | (1.9) / 2.7 |
| payment is ‘unaffordable’ and PMA is applied | ||
Product interest rates available for switching product on maturity or for standard variable rate | Reduce / increase rates by 1 percentage point | (1.0) / 2.4 |
Assumption | Basis of estimation |
Discount rate | Derived from current market rates for new equity release mortgages adjusted for the specific profile of the Group's portfolio, |
| also reflects liquidity term premium in current market funding costs | |
Property price volatility | Analysis of historic property price volatility and external research |
Sales price haircut | Average actual discounts observed on the portfolio during the 2023 and 2022 financial years |
Assumption | Sensitivity modelled for current assumption | (Decrease) / increase in fair value of collateral loan (£M) |
Discount rate | + / - 1 percentage point (floored at the risk free rate) | (11.7) / 13.3 |
Property price volatility | + / - 3 percentage points | (4.5) / 4.1 |
Sales price haircut | + / - 5 percentage points | (3.8) / 3.3 |
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2. Critical accounting estimates and judgements (continued)
(b) Significant accounting estimates and assumptions (continued)
(ii) Fair value of the collateral loan (continued)
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
| Interest receivable calculated using the effective interest rate method: | ||||
| On instruments held at amortised cost: | ||||
On loans fully secured on residential property | 693.3 | 512.7 | 693.3 | 512.7 |
On other loans and advances to customers | 0.5 | 0.8 | 0.5 | 0.8 |
On liquid assets | 159.7 | 42.0 | 154.1 | 42.0 |
Total interest receivable on instruments held at amortised cost | 853.5 | 555.5 | 847.9 | 555.5 |
| On instruments held at fair value through other comprehensive income: | ||||
On investment securities | 93.8 | 19.1 | 98.8 | 21.1 |
Total interest receivable calculated using the effective interest rate method | 947.3 | 574.6 | 946.7 | 576.6 |
| Similar income / (expense) on instruments held at fair value through profit or loss: | ||||
On other loans and advances to customers | 12.0 | 11.4 | 12.0 | 11.4 |
| Net income on derivatives that hedge financial assets and are designated in accounting | ||||
hedge relationships | 298.6 | 96.9 | 298.6 | 96.9 |
| Net income / (expense) on derivatives that hedge financial assets and are not designated | ||||
in accounting hedge relationships | 5.7 | (7.0) | 3.2 | (8.8) |
Total similar income on instruments held at fair value through profit or loss | 316.3 | 101.3 | 313.8 | 99.5 |
Total interest receivable and similar income | 1,263.6 | 675.9 | 1,260.5 | 676.1 |
| Included in the above is: | ||||
Interest receivable on impaired financial assets | 13.3 | 8.3 | 13.3 | 8.3 |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 209
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
| Interest payable on instruments held at amortised cost: | ||||
On shares held by individuals | 551.7 | 175.3 | 551.7 | 175.3 |
| On deposits and other borrowings: | ||||
Wholesale and other funding | 233.7 | 90.4 | 223.8 | 90.6 |
Lease liabilities | 0.2 | 0.3 | 0.2 | 0.3 |
On subordinated liabilities | 6.3 | 5.8 | 6.3 | 5.8 |
On subscribed capital | 9.2 | 10.8 | 9.2 | 10.8 |
Total interest payable on instruments held at amortised cost | 801.1 | 282.6 | 791.2 | 282.8 |
| Similar charges on instruments held at fair value through profit or loss: | ||||
Net charges on derivatives which hedge financial liabilities and are designated in accounting hedge relationships | 101.9 | 24.3 | 104.1 | 26.4 |
Net charges on derivatives which hedge financial liabilities and are not designated in accounting hedge relationships | 23.0 | 9.4 | 27.8 | 7.5 |
Total similar charges on instruments held at fair value through profit or loss | 124.9 | 33.7 | 131.9 | 33.9 |
Total interest payable and similar charges | 926.0 | 316.3 | 923.1 | 316.7 |
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
| Fair value hedge relationships | ||||
Derivatives designated in fair value hedge relationships | (281.5) | 254.5 | (293.3) | 281.5 |
Fair value adjustment for hedged risk of hedged items | 252.5 | (254.8) | 264.3 | (281.9) |
| Cash flow hedge relationships | ||||
Derivatives designated in cash flow hedge relationships | 26.9 | 5.4 | 26.9 | 5.4 |
| Derivatives not designated in accounting hedge relationships | ||||
Equity release swaps | 0.7 | 61.4 | 0.7 | 61.4 |
Cross currency swaps net of retranslation on matched Euro liabilities | 1.6 | 2.1 | 0.2 | – |
Other derivatives | – | – | (7.9) | (4.4) |
| Other financial instruments measured at fair value through profit or loss | ||||
Collateral loan which represents a pool of equity release mortgages | (6.9) | (53.9) | (6.9) | (53.9) |
Total fair value (losses) / gains from financial instruments | (6.7) | 14.7 | (16.0) | 8.1 |
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| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| £M | £M | |
| Staff costs | ||
Wages and salaries | 79.1 | 64.8 |
Social security costs | 8.2 | 6.9 |
Pension costs | 10.8 | 8.2 |
Temporary staff | 9.0 | 5.1 |
Other staff costs | 1.6 | 1.4 |
Less capitalised staff costs | (5.8) | (2.6) |
Remuneration of auditor (see below) | 1.1 | 1.0 |
| Other administrative expenses | ||
Technology | 17.6 | 15.1 |
Development activity | 8.9 | 5.9 |
Property | 7.3 | 6.5 |
Legal and professional fees | 3.5 | 3.8 |
Marketing | 5.3 | 3.6 |
Regulatory fees | 2.8 | 2.4 |
Postage and stationery | 2.1 | 1.8 |
Recruitment and training | 2.1 | 1.3 |
Other | 6.3 | 4.9 |
Total administrative expenses | 159.9 | 130.1 |
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| £‘000 | £‘000 | |
Fee payable to the Society’s auditor for the audit of the Society’s annual accounts | 916.2 | 798.8 |
Fees payable to the Society’s auditor for the audit of the Society’s subsidiaries | 28.2 | 41.6 |
Total audit fees | 944.4 | 840.4 |
Assurance services | 170.8 | 151.7 |
Total non-audit fees | 170.8 | 151.7 |
Total auditor’s remuneration | 1,115.2 | 992.1 |
Fees payable to the Society’s auditor and its associates in respect of associated pension schemes | 20.7 | 11.6 |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 211
7. Staff numbers
The average number of people employed during the year was as follows:
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| Number | Number | |
Central administration | 1,493 | 1,255 |
Branches | 295 | 283 |
Total monthly average number of people employed | 1,788 | 1,538 |
Total monthly average number of full time equivalent employees | 1,662 | 1,466 |
At 31 December 2023, the total number of people employed by the Group and the Society was 1,813 (2022: 1,668).
8. Impairment on loans and advances to customers
| Loans fully | ||||
| secured on | Loans fully | |||
| residential | secured on | Other | ||
| property | land | loans | Total | |
| Group & Society 2023 | £M | £M | £M | £M |
| Impairment loss provision: | ||||
At 1 January 2023 | 48.0 | 1.6 | 2.5 | 52.1 |
Charge / (credit) for the year | 6.4 | (0.2) | – | 6.2 |
Amounts written off during the year | (0.7) | – | (2.5) | (3.2) |
Movement in foreign exchange rate | (0.2) | – | – | (0.2) |
At 31 December 2023 | 53.5 | 1.4 | – | 54.9 |
| Income Statement | ||||
Charge / (credit) for the year | 6.4 | (0.2) | – | 6.2 |
Recoveries of amounts previously written off | (0.1) | – | – | (0.1) |
Total income statement charge / (credit) | 6.3 | (0.2) | – | 6.1 |
| Loans fully | ||||
| secured on | Loans fully | |||
| residential | secured on | Other | ||
| property | land | loans | Total | |
| Group & Society 2022 | £M | £M | £M | £M |
| Impairment loss provision: | ||||
At 1 January 2022 | 37.3 | 1.7 | 2.5 | 41.5 |
Charge / (credit) for the year | 12.1 | (0.1) | – | 12.0 |
Amounts written off during the year | (1.7) | – | – | (1.7) |
Movement in foreign exchange rate | 0.3 | – | – | 0.3 |
At 31 December 2022 | 48.0 | 1.6 | 2.5 | 52.1 |
| Income Statement | ||||
Charge / (credit) for the year | 12.1 | (0.1) | – | 12.0 |
Recoveries of amounts previously written off | (0.1) | – | – | (0.1) |
Total income statement charge / (credit) | 12.0 | (0.1) | – | 11.9 |
The Group’s policy for calculating impairment of loans and advances to customers (including retail mortgages and loan commitments)
is detailed in note 1(e). Details of the significant accounting estimates and judgements required in the calculation of impairment loss
provisions, including the incorporation of forward looking information, are provided in note 2.
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8. Impairment on loans and advances to customers (continued)
The table below summarises the Group’s retail mortgage balances, loan commitments and associated impairment loss provisions.
The classification of loans into stages for impairment purposes is explained in note 1(e).
Group & Society 2023 | Group & Society 2022 | |||||
| Impairment | Impairment | |||||
| Gross | loss | Provision | Gross | loss | Provision | |
| exposure | provision | coverage | exposure | provision | coverage | |
| £M | £M | % | £M | £M | % | |
| Retail mortgages | ||||||
Stage 1 | 17,670.1 | 4.8 | 0.03 | 16,965.3 | 5.1 | 0.03 |
Stage 2 and <30 days past due | 3,791.4 | 29.0 | 0.76 | 3,088.3 | 30.0 | 0.97 |
Stage 2 and 30+ days past due | 111.0 | 2.9 | 2.61 | 97.2 | 1.6 | 1.65 |
Stage 3 and <90 days past due | 125.0 | 2.1 | 1.68 | 108.5 | 1.9 | 1.75 |
Stage 3 and 90+ days past due | 138.9 | 14.4 | 10.37 | 113.0 | 9.2 | 8.14 |
Total retail mortgages | 21,836.4 | 53.2 | 0.24 | 20,372.3 | 47.8 | 0.23 |
| Loan commitments | ||||||
Stage 1 | 1,268.9 | 0.3 | 0.02 | 1,051.7 | 0.2 | 0.02 |
Total impairment loss provision | 23,105.3 | 53.5 | 0.23 | 21,424.0 | 48.0 | 0.22 |
The tables below provide information on movements in the gross retail mortgage exposures and associated impairment loss provisions
during the year:
Stage 1 | Stage 2 | Stage 3 | Total | |||||
| Provision | Provision | |||||||
| Gross | Provision | Gross | Lifetime | Gross | Lifetime | Gross | ||
| exposure | 12m ECL | exposure | ECL | exposure | ECL | exposure | Provision | |
| Group & Society 2023 | £M | £M | £M | £M | £M | £M | £M | £M |
At 1 January 2023 | 16,965.3 | 5.1 | 3,185.5 | 31.6 | 221.5 | 11.1 | 20,372.3 | 47.8 |
| Transfers resulting in increased | ||||||||
| impairment loss provision: | ||||||||
From Stage 1 to Stage 2 | (1,837.6) | (0.4) | 1,837.6 | 4.2 | – | – | – | 3.8 |
From Stage 1 to Stage 3 | (45.3) | – | – | – | 45.3 | 0.9 | – | 0.9 |
From Stage 2 to Stage 3 | – | – | (68.1) | (0.7) | 68.1 | 5.1 | – | 4.4 |
| Transfers resulting in reduced | ||||||||
| impairment loss provision: | ||||||||
From Stage 2 to Stage 1 | 926.2 | 0.3 | (926.2) | (1.4) | – | – | – | (1.1) |
From Stage 3 to Stage 1 | 6.3 | – | – | – | (6.3) | – | – | – |
From Stage 3 to Stage 2 | – | – | 30.6 | 0.2 | (30.6) | (0.3) | – | (0.1) |
| Change in impairment loss | – | – | – | – | – | 0.3 | – | 0.3 |
| provision resulting from loan | ||||||||
| modifications | ||||||||
Other remeasurement of impairment loss provision (no movement in stage) | – | (2.3) | – | (1.1) | – | 2.4 | – | (1.0) |
New advances | 5,311.8 | 2.9 | – | – | – | – | 5,311.8 | 2.9 |
Redemptions and repayments | (3,656.6) | (0.8) | (157.0) | (0.9) | (34.1) | (2.3) | (3,847.7) | (4.0) |
Write offs | – | – | – | – | – | (0.7) | – | (0.7) |
At 31 December 2023 | 17,670.1 | 4.8 | 3,902.4 | 31.9 | 263.9 | 16.5 | 21,836.4 | 53.2 |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 213
8. Impairment on loans and advances to customers (continued)
Stage 1 | Stage 2 | Stage 3 | Total | ||||||||
| Provision | Provision | ||||||||||
| Gross | Provision | Gross | Lifetime | Gross | Lifetime | Gross | |||||
| exposure | 12m ECL | exposure | ECL | exposure | ECL | exposure | Provision | ||||
| Group & Society 2022 | £M | £M | £M | £M | £M | £M | £M | £M | |||
At 1 January 2022 | 16,208.6 | 9.3 | 1,903.3 | 11.6 | 228.4 | 16.1 | 18,340.3 | 37.0 | |||
| Transfers resulting in increased | |||||||||||
| impairment loss provision: | |||||||||||
From Stage 1 to Stage 2 | (1,847.5) | (0.7) | 1,847.5 | 16.5 | – | – | – | 15.8 | |||
From Stage 1 to Stage 3 | (32.5) | – | – | – | 32.5 | 0.7 | – | 0.7 | |||
From Stage 2 to Stage 3 | – | – (42.3) | (1.1) | 42.3 | 1.7 | – | 0.6 | ||||
| Transfers resulting in reduced | |||||||||||
| impairment loss provision: | |||||||||||
From Stage 2 to Stage 1 | 492.9 | 0.1 | (492.9) | (0.9) | – | – | – | (0.8) | |||
From Stage 3 to Stage 1 | 10.4 | – | – | – (10.4) | (0.1) | – | (0.1) | ||||
From Stage 3 to Stage 2 | – | – | 32.5 | 0.2 | (32.5) | (0.7) | – | (0.5) | |||
| Change in impairment loss | |||||||||||
| provision resulting from loan | |||||||||||
modifications | – | 0.1 | – | – | – | (0.2) | – | (0.1) | |||
Other remeasurement of impairment loss provision (no movement in stage) | – | (5.3) | – | 6.2 | – | (3.5) | – | (2.6) | |||
New advances | 6,145.4 | 2.6 | – | – | – | –6,145.4 | 2.6 | ||||
Redemptions and repayments | (4,012.0) | (62.6) | (1.0) | (0.9) | (38.8) | (1.2) | (4,113.4) | (3.1) | |||
Write offs | – | – | – | – | – | (1.7) | – | (1.7) | |||
At 31 December 2022 | 16,965.3 | 3,185.5 | 5.1 | 31.6 | 221.5 | 11.1 | 20,372.3 | 47.8 | |||
In the above tables, the impact of changes to accounting estimates and judgements, including macroeconomic scenarios and probability
weightings, is included within ‘other remeasurement of impairment loss provision’ unless the change results in the transfer of a loan
between stages, in which case it is included in the relevant transfer row.
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| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
| Analysis of charge in the year | ||||
| Current tax | ||||
UK corporation tax on profits for the year | 45.1 | 56.6 | 45.1 | 56.6 |
Adjustments in respect of prior year | (0.2) | (1.8) | (0.2) | (1.8) |
Total current tax | 44.9 | 54.8 | 44.9 | 54.8 |
| Deferred tax | ||||
Origination and reversal of timing differences | 2.6 | 1.9 | 0.3 | 0.6 |
Adjustments in respect of prior year | – | 2.3 | – | 2.3 |
Adjustments for changes in tax rates | 0.1 | (0.4) | 0.1 | (0.4) |
Total deferred tax | 2.7 | 3.8 | 0.4 | 2.5 |
Tax on profit on ordinary activities | 47.6 | 58.6 | 45.3 | 57.3 |
| Factors affecting total tax charge for the year: | ||||
Profit on ordinary activities before tax | 181.5 | 220.5 | 172.5 | 212.9 |
Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 23.5% (2022: 19.0%) | 42.7 | 41.9 | 40.6 | 40.4 |
| Effects of: | ||||
Banking surcharge | 4.4 | 15.2 | 4.4 | 15.2 |
Adjustments in respect of prior year (current tax) | (0.2) | (1.8) | (0.2) | (1.8) |
Tax on profits of Leeds Building Society Covered Bonds LLP | – | – | – | 0.6 |
Expenses not deductible for tax purposes | 0.3 | 1.0 | 0.3 | 1.0 |
Other differences | (2.3) | (1.5) | (0.2) | (0.6) |
Total current tax | 44.9 | 54.8 | 44.9 | 54.8 |
Origination and reversal of timing differences | 2.6 | 1.9 | 0.3 | 0.6 |
Adjustments in respect of prior year (deferred tax) | – | 2.3 | – | 2.3 |
Adjustments for changes in tax rates (deferred tax) | 0.1 | (0.4) | 0.1 | (0.4) |
Tax on profit on ordinary activities | 47.6 | 58.6 | 45.3 | 57.3 |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 215
| Amortised | |||||
| cost | FVOCI | FVTPL | Total | ||
| Group 2023 | £M | £M | £M | £M | |
| Financial assets: | |||||
Cash in hand and balances with the Bank of England | 2,830.0 | – | – | 2,830.0 | |
Loans and advances to credit institutions | 213.7 | – | – | 213.7 | |
Investment securities | – | 2,515.6 | – | 2,515.6 | |
Derivative financial instruments | – | – | 443.6 | 443.6 | |
| Loans and advances to customers: | |||||
Loans fully secured on residential property | 21,782.9 | – | – | 21,782.9 | |
Other loans | 4.7 | – | 153.6 | 158.3 | |
Fair value adjustment for hedged risk on loans and advances to customers | – | – | (132.3) | (132.3) | |
Total financial assets | 24,831.3 | 2,515.6 | 464.9 | 27,811.8 | |
| Financial liabilities: | |||||
Shares | 20,793.0 | – | – | 20,793.0 | |
Fair value adjustment for hedged risk on shares | – | – | 31.9 | 31.9 | |
Derivative financial instruments | – | – | 233.0 | 233.0 | |
Amounts owed to credit institutions | 1,869.3 | – | – | 1,869.3 | |
Amounts owed to other customers | 169.9 | – | – | 169.9 | |
Debt securities in issue | 2,750.1 | – | (41.5) | 2,708.6 | |
Subordinated liabilities | 349.9 | – | (26.0) | 323.9 | |
Subscribed capital | 33.0 | – | – | 33.0 | |
Total financial liabilities | 25,965.2 | – | 197.4 | 26,162.6 |
| Amortised | |||||
| cost | FVOCI | FVTPL | Total | ||
| Group 2022 | £M | £M | £M | £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 | –1,386.7 | –1,386.7 | |||
Derivative financial instruments | – | –679.9 | 679.9 | ||
| Loans and advances to customers: | |||||
Loans fully secured on residential property | 20,324.3 | – | –20,324.3 | ||
Other loans | 7.0 | –161.9 | 168.9 | ||
Fair value adjustment for hedged risk on loans and advances to customers | – | –(585.9) | (585.9) | ||
Total financial assets | 23,525.3 | 1,386.7 | 255.9 | 25,167.9 | |
| Financial liabilities: | |||||
Shares | 17,520.4 | – | –17,520.4 | ||
Fair value adjustment for hedged risk on shares | – | –(100.7) | (100.7) | ||
Derivative financial instruments | – | –251.9 | 251.9 | ||
Amounts owed to credit institutions | 2,268.4 | – | –2,268.4 | ||
Amounts owed to other customers | 229.7 | – | –229.7 | ||
Debt securities in issue | 2,711.0 | – | –2,711.0 | ||
Subordinated liabilities | 309.1 | – | –309.1 | ||
Subscribed capital | 197.6 | – | –197.6 | ||
Total financial liabilities | 23,236.2 | –151.2 | 23,387.4 | ||
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10. Classification of financial assets and liabilities (continued)
| Amortised | ||||
| cost | FVOCI | FVTPL | Total | |
| Society 2023 | £M | £M | £M | £M |
| Financial assets: | ||||
Cash in hand and balances with the Bank of England | 2,830.0 | – | – | 2,830.0 |
Loans and advances to credit institutions | 109.2 | – | – | 109.2 |
Investment securities | – | 2,515.6 | – | 2,515.6 |
Derivative financial instruments | – | – | 443.6 | 443.6 |
| Loans and advances to customers: | ||||
Loans fully secured on residential property | 21,782.9 | – | – | 21,782.9 |
Other loans | 4.7 | – | 153.6 | 158.3 |
Fair value adjustment for hedged risk on loans and advances to customers | – | – | (132.3) | (132.3) |
Total financial assets | 24,726.8 | 2,515.6 | 464.9 | 27,707.3 |
| Financial liabilities: | ||||
Shares | 20,793.0 | – | – | 20,793.0 |
Fair value adjustment for hedged risk on shares | – | – | 31.9 | 31.9 |
Derivative financial instruments | – | – | 232.8 | 232.8 |
Amounts owed to credit institutions | 1,869.3 | – | – | 1,869.3 |
Amounts owed to other customers | 521.6 | – | – | 521.6 |
Debt securities in issue | 2,394.8 | – | (33.8) | 2,361.0 |
Subordinated liabilities | 349.9 | – | (26.0) | 323.9 |
Subscribed capital | 33.0 | – | – | 33.0 |
Total financial liabilities | 25,961.6 | – | 204.9 | 26,166.5 |
| Amortised | ||||||
| cost | FVOCI | FVTPL | Total | |||
| Society 2022 | £M | £M | £M | £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 | 83.3 | – | – | 83.3 | ||
Investment securities | –1,452.8 | –1,452.8 | ||||
Derivative financial instruments | – | –679.5 | 679.5 | |||
| Loans and advances to customers: | ||||||
Loans fully secured on residential property | 20,324.3 | – | –20,324.3 | |||
Other loans | 7.0 | –161.9 | 168.9 | |||
Fair value adjustment for hedged risk on loans and advances to customers | – | –(585.9) | (585.9) | |||
Total financial assets | 23,372.7 | 1,452.8 | 255.5 | 25,081.0 | ||
| Financial liabilities: | ||||||
Shares | 17,520.4 | – | –17,520.4 | |||
Fair value adjustment for hedged risk on shares | – | –(100.7) | (100.7) | |||
Derivative financial instruments | – | –237.2 | 237.2 | |||
Amounts owed to credit institutions | 2,268.4 | – | –2,268.4 | |||
Amounts owed to other customers | 404.7 | – | –404.7 | |||
Debt securities in issue | 2,620.2 | – | –2,620.2 | |||
Subordinated liabilities | 309.1 | – | –309.1 | |||
Subscribed capital | 197.6 | – | –197.6 | |||
Total financial liabilities | 23,320.4 | –136.5 | 23,456.9 | |||
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 217
11. Cash and cash equivalents
For the purposes of the Statements of Cash Flows, cash and cash equivalents comprise the following balances with a maturity of less
than three months.
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
Cash in hand | 2.0 | 1.9 | 2.0 | 1.9 |
Balances with the Bank of England | 2,828.0 | 2,956.2 | 2,828.0 | 2,956.2 |
Cash in hand and Balances with the Bank of England | 2,830.0 | 2,958.1 | 2,830.0 | 2,958.1 |
Loans and advances to credit institutions (excluding mandatory reserve deposits) | 135.9 | 165.2 | 31.4 | 12.6 |
Total cash and cash equivalents | 2,965.9 | 3,123.3 | 2,861.4 | 2,970.7 |
The amount reported for loans and advances to credit institutions in the Statements of Financial Position includes mandatory reserve
deposits of £77.8 million (2022: £70.7 million) which are not available for use in the Group’s day to day operations.
Total cash and cash equivalents as reported in the 2022 Statements of Cash Flows has been restated to exclude these mandatory
reserve deposits.
The Group’s loans and advances to credit institutions includes £104.5 million (2022: £152.6 million) of balances belonging to the Society’s
securitisation programmes which are not available for general use by the Society.
12. Investment securities
All of the investment securities held by the Group and the Society are listed and at 31 December 2023 are of investment grade.
The tables below show the changes in fair value during the year. No impairment loss provision is held against these assets since
calculated ECL is immaterial (2022: no provision).
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
At 1 January | 1,386.7 | 949.1 | 1,452.8 | 1,040.4 |
Additions | 2,882.9 | 1,292.5 | 2,882.9 | 1,292.5 |
Disposals (sale and redemption) | (1,774.0) | (847.9) | (1,840.2) | (873.0) |
Movement in fair value | 20.0 | (7.0) | 20.1 | (7.1) |
At 31 December | 2,515.6 | 1,386.7 | 2,515.6 | 1,452.8 |
At 31 December 2023, no investment securities were pledged as collateral under sale and repurchase agreements (2022: none).
13. Loans and advances to customers
| Impairment | |||
| Gross | loss | ||
| exposure | provision | Total | |
| Group & Society 2023 | £M | £M | £M |
Loans fully secured on residential property | 21,836.4 | (53.5) | 21,782.9 |
Loans fully secured on land | 6.1 | (1.4) | 4.7 |
Other loans | 153.6 | – | 153.6 |
Total loans and advances to customers | 21,996.1 | (54.9) | 21,941.2 |
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13. Loans and advances to customers (continued)
| Impairment | |||
| Gross | loss | ||
| exposure | provision | Total | |
| Group & Society 2022 | £M | £M | £M |
Loans fully secured on residential property | 20,372.3 | (48.0) | 20,324.3 |
Loans fully secured on land | 8.6 | (1.6) | 7.0 |
Other loans | 164.4 | (2.5) | 161.9 |
Total loans and advances to customers | 20,545.3 | (52.1) | 20,493.2 |
The Group has previously acquired a pool of equity release mortgages from a third party. The Group assumed certain, but not all,
risks arising from these loans with the remainder retained by the third party, which also retained a proportion of the income from the
underlying equity release mortgages. As a consequence, these mortgages have been recognised as a collateral loan to the third party
within other loans in the table above. This loan is measured at fair value through profit or loss.
The net fair value movement on loans and advances to customers at fair value through profit or loss was a loss of £0.4 million
(2022: £53.9 million loss) for both the Group and Society. The equity release mortgages are economically hedged using interest rate
swaps and as a result the loss was offset by a net fair value gain on the swaps of £0.7 million (2022: £61.4 million gain).
Loans and advances to customers, for both the Group and Society, include £3,342.0 million (2022: £3,796.6 million) of loans which have
been ringfenced from the Society for its associated secured funding vehicles.
| LBS | ||||
| Covered | ||||
| Bonds | Albion | Albion | ||
| LLP | No. 4 plc | No. 5 plc | Total | |
| 2023 | £M | £M | £M | £M |
Loans and advances transferred from the Society to secured funding vehicles | 2,974.1 | – | 367.9 | 3,342.0 |
Loan notes issued by the Society | 2,033.5 | – | 349.8 | 2,383.3 |
| LBS | ||||
| Covered | ||||
| Bonds | Albion | Albion | ||
| LLP | No. 4 plc | No. 5 plc | Total | |
| 2022 | £M | £M | £M | £M |
Loans and advances transferred from the Society to secured funding vehicles | 3,588.8 | 207.8 | – | 3,796.6 |
Loan notes issued by the Society | 2,308.6 | 219.8 | – | 2,528.4 |
The covered bonds and residential mortgage backed securities issued have been used to secure long term funding from other financial
institutions. The loans are retained in the Society’s Statement of Financial Position as the Society continues to control the loans and
substantially retains the risks and rewards relating to them.
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
Collateral | 208.2 | 239.9 | 208.2 | 239.9 |
Prepayments | 9.8 | 5.7 | 9.8 | 5.7 |
Other assets | 6.1 | 2.7 | 213.8 | 202.2 |
Total other assets, prepayments and accrued income | 224.1 | 248.3 | 431.8 | 447.8 |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 219
Name | Major Activities | Class of Shares held | Interest of Society | Address |
Leeds Mortgage Funding Limited | Non-trading | Ordinary £1 shares | 100% | 26 Sovereign Street, Leeds, LS1 4BJ |
| Leeds Building Society Covered | Provision of mortgage assets and | * * 26 Sovereign Street, Leeds, LS1 4BJ | ||
| Bonds LLP | guarantor of covered bonds | |||
| Leeds Covered Bonds Designated | First designated member of | * * 1 Bartholomew Lane, London, | ||
| Member (No. 1) Limited | Leeds Building Society Covered | EC2N 2AX | ||
| Bonds LLP | ||||
| Leeds Covered Bonds Designated | Second designated member of | * * 1 Bartholomew Lane, London, | ||
| Member (No. 2) Limited | Leeds Building Society Covered | EC2N 2AX | ||
| Bonds LLP | ||||
| Leeds Covered Bonds Holdings | Holding company to both Leeds | * * 1 Bartholomew Lane, London, | ||
| Limited | Covered Bonds Designated | EC2N 2AX | ||
| Member (No. 1) & (No. 2) Limited | ||||
Albion No.4 plc | Provision of residential mortgage | 11 th Floor, 200 Aldersgate Street, | ||
| backed securities | London, EC1A 4HD | |||
Albion No.4 Holdings Limited | Holding company to Albion | 11 th Floor, 200 Aldersgate Street, | ||
| No. 4 plc | London, EC1A 4HD | |||
Albion No.5 plc | Provision of residential mortgage | 11 th Floor, 200 Aldersgate Street, | ||
| backed securities | London, EC1A 4HD | |||
Albion No.5 Holdings Limited | Holding company to Albion | 11 th Floor, 200 Aldersgate Street, | ||
| No. 5 plc | London, EC1A 4HD |
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| New core | System | ||
| systems | enhancements | Total | |
| Group & Society 2023 | £M | £M | £M |
| Cost | |||
At 1 January | 16.1 | 18.2 | 34.3 |
Additions | – | 12.5 | 12.5 |
Disposals | – | – | – |
At 31 December | 16.1 | 30.7 | 46.8 |
| Amortisation and impairment | |||
At 1 January | 3.7 | 8.1 | 11.8 |
Amortisation charged in the year | 1.6 | 3.4 | 5.0 |
Impairment charged in the year | – | 0.2 | 0.2 |
At 31 December | 5.3 | 11.7 | 17.0 |
| Net book value | |||
At 31 December | 10.8 | 19.0 | 29.8 |
| New core | System | ||
| systems | enhancements | Total | |
| Group & Society 2022 | £M | £M | £M |
| Cost | |||
At 1 January | 16.1 | 21.5 | 37.6 |
Additions | – | 3.9 | 3.9 |
Disposals | – | (7.2) | (7.2) |
At 31 December | 16.1 | 18.2 | 34.3 |
| Amortisation and impairment | |||
At 1 January | 2.1 | 10.5 | 12.6 |
Amortisation charged in the year | 1.6 | 4.8 | 6.4 |
Disposals | – | (7.2) | (7.2) |
At 31 December | 3.7 | 8.1 | 11.8 |
| Net book value | |||
At 31 December | 12.4 | 10.1 | 22.5 |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 221
| Long | Short | Office and | ||||
| Freehold | leasehold | leasehold | computer | Right-of- | ||
| premises | premises | premises | equipment | use assets | Total | |
| Group & Society 2023 | £M | £M | £M | £M | £M | £M |
| Cost or valuation | ||||||
At 1 January | 51.8 | 0.2 | 0.9 | 45.0 | 12.4 | 110.3 |
Additions | – | – | – | 1.7 | 0.2 | 1.9 |
At 31 December | 51.8 | 0.2 | 0.9 | 46.7 | 12.6 | 112.2 |
| Depreciation and impairment | ||||||
At 1 January | 4.8 | – | 0.9 | 33.6 | 4.3 | 43.6 |
Depreciation charged in the year | – | – | – | 2.9 | 1.2 | 4.1 |
At 31 December | 4.8 | – | 0.9 | 36.5 | 5.5 | 47.7 |
| Net book value | ||||||
At 31 December | 47.0 | 0.2 | – | 10.2 | 7.1 | 64.5 |
| Long | Short | Office and | ||||
| Freehold | leasehold | leasehold | computer | Right-of- | ||
| premises | premises | premises | equipment | use assets | Total | |
| Group & Society 2022 | £M | £M | £M | £M | £M | £M |
| Cost or valuation | ||||||
At 1 January | 61.4 | 0.2 | 0.9 | 44.1 | 13.6 | 120.2 |
Additions | 1.2 | – | – | 2.5 | 1.0 | 4.7 |
Disposals | (8.9) | – | – | (1.6) | (2.2) | (12.7) |
Increase in value reported in Other Comprehensive Income | (1.9) | – | – | – | – | (1.9) |
At 31 December | 51.8 | 0.2 | 0.9 | 45.0 | 12.4 | 110.3 |
| Depreciation and impairment | ||||||
At 1 January | 1.0 | – | 0.9 | 31.8 | 4.1 | 37.8 |
Disposals | – | – | – | (1.3) | (1.2) | (2.5) |
Depreciation charged in the year | – | – | – | 3.1 | 1.4 | 4.5 |
Impairment charged in the year | 3.8 | – | – | – | – | 3.8 |
At 31 December | 4.8 | – | 0.9 | 33.6 | 4.3 | 43.6 |
| Net book value | ||||||
At 31 December | 47.0 | 0.2 | – | 11.4 | 8.1 | 66.7 |
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17. Property, plant and equipment (continued)
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| £M | £M | |
Freehold premises | 44.6 | 44.6 |
Long leasehold premises | 0.2 | 0.2 |
At 31 December | 44.8 | 44.8 |
| The amount of land and buildings occupied by the Group and Society for its own activities is: | ||
At 31 December | 45.0 | 45.5 |
18. Shares
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| £M | £M | |
Held by individuals | 20,789.2 | 17,515.2 |
Other shares | 3.8 | 5.2 |
Total shares | 20,793.0 | 17,520.4 |
19. Amounts owed to other customers
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
Amounts owed to subsidiary undertakings | – | –351.7 | 175.0 | |
Other deposits | 169.9 | 229.7 | 169.9 | 229.7 |
Total amounts owed to other customers | 169.9 | 229.7 | 521.6 | 404.7 |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 223
20. Debt securities in issue
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
Certificates of deposit | – | 5.0 | – | 5.0 |
Senior unsecured debt | 315.9 | 299.1 | 315.9 | 299.1 |
Covered bonds | 2,037.3 | 2,296.5 | 2,045.1 | 2,316.1 |
Residential mortgage backed securities | 355.4 | 110.4 | – | – |
Total debt securities in issue | 2,708.6 | 2,711.0 | 2,361.0 | 2,620.2 |
The underlying security for the covered bonds and residential mortgage backed securities (RMBS) is certain loans and advances to
customers (see note 13 for further detail).
In September 2023, the Group issued £350 million of RMBS Class A from Albion No 5 plc, which are denominated in sterling and have a
fixed interest rate of 1.9% payable quarterly to July 2066, with an optional call date in September 2028.
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
Accruals | 18.6 | 20.6 | 18.6 | 20.6 |
| Lease liabilities | ||||
Current | 1.2 | 1.6 | 1.2 | 1.6 |
Non-current | 6.5 | 7.1 | 6.5 | 7.1 |
Other payables | 273.9 | 556.8 | 383.9 | 601.7 |
Total other liabilities and accruals | 300.2 | 586.1 | 410.2 | 631.0 |
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| Maturity analysis – contractual undiscounted cash flows | £M | £M |
Less than one year | 1.3 | 1.3 |
One to five years | 4.5 | 4.7 |
More than five years | 2.0 | 3.0 |
Total undiscounted cash flows at 31 December | 7.8 | 9.0 |
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21. Other liabilities and accruals (continued)
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| £M | £M | |
Interest payable on lease liabilities | 0.2 | 0.3 |
Depreciation of right-of-use assets | 1.2 | 1.4 |
Expenses relating to short term leases | 0.1 | 0.1 |
Expenses relating to leases of low value assets, excluding short term leases of low value assets | 0.1 | 0.1 |
Total recognised in Income Statement in the year | 1.6 | 1.9 |
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| £M | £M | |
Total cash outflow for leases | 2.1 | 2.3 |
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| £M | £M | |
At 1 January | 0.6 | 1.9 |
Amounts paid during the year | – | (0.8) |
Provision charge / (release) in the year | 0.7 | (0.5) |
At 31 December | 1.3 | 0.6 |
23. Subordinated liabilities
Subordinated liabilities comprise £323.9 million (2022: £309.1 million) of senior non-preferred fixed rate reset notes which were issued
during 2021 under the Group’s £2 billion Euro Medium Term Note Programme. The notes are denominated in sterling and have a fixed
interest rate of 1.5% payable semi-annually to 16 March 2026, followed by a further year at the benchmark gilt rate plus 1.3% until maturity
on 16 March 2027.
The total amount reported in the Statements of Financial Position represents the nominal value of £350.0 million (2022: £350.0 million) plus
accrued interest and a fair value adjustment for hedged risk.
The notes rank behind the claims of all other creditors and members of the Society, other than holders of permanent interest bearing shares
(PIBS) and tier 2 capital.
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 225
24. Subscribed capital
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| £M | £M | |
13 3/8 % permanent interest bearing shares | 25.0 | 25.0 |
3 3/4 % tier 2 capital | 8.0 | 172.6 |
Total | 33.0 | 197.6 |
The PIBS, which are denominated in sterling, were issued for an indeterminate period and are only repayable in the event of the winding
up of the Society. The PIBS have a fixed rate of interest of 133/8% payable semi-annually for an indeterminate period.
In October 2023 the Society repurchased 96% of the issued tier 2 subordinated notes at a discounted rate of 89.2%. £8.0 million of
notes remain outstanding at 31 December 2023 (2022: £200 million). The Society continues to meet its current and forecasted Minimum
Requirement for Own Funds and Eligible Liabilities (MREL). This requirement ensures that institutions have a minimum amount of
liabilities that can bear losses before and in resolution, allowing the resolution authority to use these financial resources to absorb losses
and recapitalise the continuing business.
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25. Retirement benefit surplus (continued)
(a) Overview of the Society’s pension arrangements (continued)
Risk | Impact |
Interest rate risk | A decrease in corporate bond yields results in an increase in the present value of the scheme liabilities because the discount |
| rate is linked to corporate bond yields | |
Inflation risk | An increase in inflation results in higher benefit increases for scheme members, increasing the scheme’s liabilities |
Longevity risk | An increase in life expectancies results in a longer benefit payment period which in turn increases the scheme liabilities |
Investment market risk | The value of the scheme’s assets is impacted by the market prices of those assets |
2023 | 2022 | |
Discount rate | 4.60% | 4.85% |
| Price inflation | ||
RPI | 3.05% | 3.40% |
CPI | 2.45% | 2.80% |
Future salary increases | N/A | N/A |
| Future pension increases | ||
RPI max 5% | 2.85% | 3.00% |
RPI min 3% max 5% | 3.70% | 3.85% |
Cash commutation | 100% of members assumed to take 80% | 100% of members assumed to take 80% |
| of maximum tax free cash | of maximum tax free cash | |
| Mortality | ||
Actuarial base table | S2PMA / S2PFA tables | S2PMA / S2PFA tables |
Future improvements | CMI_2022 with 1% p.a. long term trend, | CMI_2021 with 1.25% p.a. long term trend, |
| smoothing factor of 7, initial addition of | smoothing factor of 7, initial addition of 0, | |
| 0, w2020 and w2021 parameters of 10% | w2020 and w2021 parameters of 10% | |
| and w2022 parameter of 35% | ||
| Life expectancy | ||
Male at age 63 | 22.4 years | 23.0 years |
Female at age 63 | 24.6 years | 25.2 years |
Male at age 63 (currently aged 43) | 23.4 years | 24.4 years |
Female at age 63 (current age 43) | 25.8 years | 26.8 years |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 227
25. Retirement benefit surplus (continued)
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| £M | £M | |
Present value of funded obligations | (70.2) | (69.6) |
Present value of unfunded obligations | (0.6) | (0.6) |
Assets at fair value | 73.7 | 73.8 |
Surplus | 2.9 | 3.6 |
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| £M | £M | |
At 1 January | 70.2 | 112.9 |
Interest cost | 3.3 | 2.0 |
Actuarial gains arising from changes in demographic assumptions | (1.4) | (0.6) |
Actuarial losses / (gains) arising from changes in financial assumptions | 0.7 | (44.6) |
Actuarial losses on experience adjustment | 1.8 | 5.6 |
Benefits paid | (3.8) | (5.1) |
At 31 December | 70.8 | 70.2 |
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| £M | £M | |
At 1 January | 73.8 | 121.2 |
Interest income | 3.5 | 2.2 |
Return on scheme assets excluding interest income | 0.2 | (44.5) |
Contribution by employer | 0.4 | 0.4 |
Contribution by scheme members | – | – |
Administrative expenses | (0.4) | (0.4) |
Benefits paid | (3.8) | (5.1) |
At 31 December | 73.7 | 73.8 |
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25. Retirement benefit surplus (continued)
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| £M | £M | |
Corporate bonds | 40.0 | 37.8 |
Index-linked Government bonds | 13.5 | 8.4 |
Absolute return bonds | 4.8 | 4.6 |
Asset backed securities | 12.3 | – |
Liability driven investments | – | 14.0 |
Fixed-interest Government bonds | 0.4 | 0.3 |
Cash and cash equivalents | 2.7 | 8.7 |
Total assets | 73.7 | 73.8 |
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| £M | £M | |
Administration expenses | 0.4 | 0.4 |
Net interest on the defined benefit asset | (0.2) | (0.2) |
Total cost – defined benefit scheme | 0.2 | 0.2 |
| Group & | Group & | |
| Society | Society | |
| 2023 | 2022 | |
| £M | £M | |
Actuarial losses on experience adjustment | (1.8) | (5.6) |
Actuarial gains arising from changes in demographic assumptions | 1.4 | 0.6 |
Actuarial (losses) / gains arising from changes in financial assumptions | (0.7) | 44.6 |
Percentage of scheme liabilities (%) | (1.6)% | 56.4% |
Return on scheme assets excluding interest income | 0.2 | (44.5) |
Percentage of scheme assets (%) | 40.3% | (60.3)% |
Total loss recognised in SOCI during the year | (0.9) | (4.9) |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 229
25. Retirement benefit surplus (continued)
| Group & Society 2023 | |
| Approximate impact on defined benefit surplus | £M |
Increase discount rate by 1.0% | 8.4 |
Increase inflation assumption by 0.5% | (3.1) |
Change long term trend of increases in mortality improvement to 1.25% | (0.4) |
| Group & Society 2023 | |
| £M | |
Estimated employer normal contributions in financial year 2024 | 0.4 |
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
| Deferred tax | ||||
At 1 January | (32.7) | (1.7) | (31.8) | (2.1) |
Adjustment in respect of prior years | – | (2.3) | – | (2.3) |
Amount recognised directly in equity | (0.1) | (27.2) | (0.1) | (27.2) |
Income and expenditure movement during the year | (2.6) | (1.5) | (0.4) | (0.2) |
At 31 December | (35.4) | (32.7) | (32.3) | (31.8) |
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
| Deferred tax assets | ||||
IFRS9 transitional adjustments | 3.0 | 3.7 | 3.0 | 3.7 |
Differences relating to fixed assets | – | (3.4) | – | (3.4) |
Total deferred tax assets | 3.0 | 0.3 | 3.0 | 0.3 |
| Deferred tax liabilities | ||||
Cash flow hedge reserve | 28.3 | 31.6 | 28.3 | 31.6 |
Differences relating to fixed assets | 4.0 | – | 4.0 – | |
Revaluation reserve | 0.7 | 0.7 | 0.7 | 0.7 |
Pensions | 0.8 | 2.5 | 0.8 | 2.5 |
Temporary differences relating to trading items | 2.8 | (0.3) | (0.3) | (0.3) |
Fair value reserve | 1.8 | (2.4) | 1.8 | (2.4) |
Other temporary differences | – | 0.9 | – – | |
Total deferred tax liabilities | 38.4 | 33.0 | 35.3 | 32.1 |
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27. Tax effects relating to each component of other comprehensive income
Group 2023 | Society 2023 | |||||
| Tax | Tax | |||||
| Before tax | benefit/ | Net of tax | Before tax | benefit/ | Net of tax | |
| amount | (expense) | amount | amount | (expense) | amount | |
| £M | £M | £M | £M | £M | £M | |
Cash flow hedge reserve | (11.7) | 4.7 | (7.0) | (11.7) | 4.7 | (7.0) |
Investment securities at FVOCI | 14.8 | (4.2) | 10.6 | 14.8 | (4.2) | 10.6 |
Revaluation loss on properties | – | (0.2) | (0.2) | – | (0.2) | (0.2) |
Actuarial (losses) on retirement benefit obligations | (0.9) | 0.3 | (0.6) | (0.9) | 0.3 | (0.6) |
IFRS9 transitional adjustment | – | (0.1) | (0.1) | – | (0.1) | (0.1) |
Other comprehensive income | 2.2 | 0.5 | 2.7 | 2.2 | 0.5 | 2.7 |
Group 2022 | Society 2022 | |||||
| Tax | Tax | |||||
| Before tax | benefit/ | Net of tax | Before tax | benefit/ | Net of tax | |
| amount | (expense) | amount | amount | (expense) | amount | |
| £M | £M | £M | £M | £M | £M | |
Cash flow hedge reserves | 112.9 | (31.6) | 81.3 | 112.9 | (31.6) | 81.3 |
Investment securities at FVOCI | (9.1) | 2.5 | (6.6) | (9.1) | 2.5 | (6.6) |
Actuarial gains / (losses) on retirement benefit obligations | (1.9) | 3.3 | 1.4 | (1.9) | 3.3 | 1.4 |
Revaluation loss on properties | (4.9) | 0.1 | (4.8) | (4.9) | 0.1 | (4.8) |
IFRS9 transitional adjustment | – | (1.0) | (1.0) | – | (1.0) | (1.0) |
Other comprehensive income | 97.0 | (26.7) | 70.3 | 97.0 | (26.7) | 70.3 |
| Group | Group | Society | Society | |
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
At 1 January | 3,217.7 | 3,121.3 | 3,126.9 | 2,961.9 |
| Cash flows: | ||||
Net proceeds from issue of debt securities | 350.2 | 665.1 | 0.4 | 665.1 |
Repayments of debt securities in issue | (379.9) | (463.0) | (269.9) | (420.9) |
Repayments of subscribed capital | (171.2) | –(171.2) | – | |
| Non-cash flows: | ||||
Amortisation of discount on issue | (19.6) | 0.2 | (19.6) | 0.2 |
Accrued interest movements | 8.7 | 4.8 | 3.5 | 4.5 |
Foreign exchange movements | (9.1) | 23.2 | (9.1) | 23.2 |
Movement in fair value | 68.7 | (133.9) | 56.9 | (107.1) |
At 31 December | 3,065.5 | 3,217.7 | 2,717.9 | 3,126.9 |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 231
| Society | Directors and connected | |||
| subsidiaries | persons | |||
| 2023 | 2022 | 2023 | 2022 | |
| £M | £M | £M | £M | |
| Loans payable to the Society | ||||
Loans outstanding at 1 January | – | 1.9 | – – | |
Net movement during the year | – | (1.9) | – – | |
Loans outstanding at 31 December | – | – | – – | |
| Deposits payable by the Society | ||||
Deposits outstanding at 1 January | 175.1 | 243.4 | 0.2 | 0.2 |
Net movement during the year | 176.6 | (68.3) | 0.3 – | |
Deposits outstanding at 31 December | 351.7 | 175.1 | 0.5 | 0.2 |
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Activity | Risk | Type of derivative | Hedge accounting |
Fixed rate mortgage lending | Sensitivity to changes in interest rates | Pay fixed interest rate swaps | Fair value hedge |
| Cash flow hedge | |||
Fixed rate asset investments | Sensitivity to changes in interest rates | Pay fixed interest rate swaps | Fair value hedge |
Fixed rate savings products | Sensitivity to changes in interest rates | Receive fixed interest rate swaps | Fair value hedge |
Fixed rate wholesale funding | Sensitivity to changes in interest rates | Receive fixed interest rate swaps | Fair value hedge |
Equity release mortgages | Sensitivity to changes in interest rates | Pay fixed interest rate swaps | – |
Investment and funding in foreign currency | Sensitivity to changes in foreign | Cross currency interest rate swaps | – |
| exchange rates | and foreign exchange contracts |
Group 2023 | Group 2022 | |||||
| Contract or | Contract or | |||||
| underlying | underlying | |||||
| principal | Positive | Negative | principal | Positive | Negative | |
| amount | fair value | fair value | amount | fair value | fair value | |
| £M | £M | £M | £M | £M | £M | |
Interest rate swaps available to designate in accounting hedges | 24,335.1 | 442.8 | (208.7) | 18,379.4 | 679.5 | (218.7) |
| Derivatives not designated in accounting hedges: | ||||||
Equity release swaps | 61.5 | – | (18.9) | 65.5 | – (30.6) | |
Interest rate swaps | – | – | – | – | – | – |
Cross currency swaps | 494.3 | 0.8 | (5.4) | 502.5 | 0.4 | (2.6) |
Total derivatives held for hedging purposes | 24,890.9 | 443.6 | (233.0) | 18,947.4 | 679.9 | (251.9) |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 233
31. Derivative financial instruments and hedge accounting (continued)
(a) Derivative financial instruments (continued)
Society 2023 | Society 2022 | |||||
| Contract or | Contract or | |||||
| underlying | underlying | |||||
| principal | Positive | Negative | principal | Positive | Negative | |
| amount | fair value | fair value | amount | fair value | fair value | |
| £M | £M | £M | £M | £M | £M | |
Interest rate swaps available to designate in accounting hedges | 23,901.5 | 442.8 | (197.6) | 17,936.4 | 679.5 | (198.7) |
| Derivatives not designated in accounting hedges: | ||||||
Equity release swaps | 61.5 | – | (18.9) | 65.5 | – (30.6) | |
Interest rate swaps | 371.9 | – | (16.3) | 202.1 | – | (5.3) |
Cross currency swaps | 53.8 | 0.8 | – | 62.0 | – | (2.6) |
Total derivatives held for hedging purposes | 24,388.7 | 443.6 | (232.8) | 18,266.0 | 679.5 | (237.2) |
Group 2023 | Group 2022 | |||
| Notional | Notional | |||
| principal | Replacement | principal | Replacement | |
| amount | cost | amount | cost | |
| £M | £M | £M | £M | |
Less than 1 year | 8,428.9 | 43.9 | 6,612.1 | 51.1 |
Between 1 and 5 years inclusive | 15,711.5 | 381.5 | 11,309.2 | 592.6 |
More than 5 years | 750.5 | 18.2 | 1,026.1 | 36.2 |
Total derivatives | 24,890.9 | 443.6 | 18,947.4 | 679.9 |
Society 2023 | Society 2022 | |||
| Notional | Notional | |||
| principal | Replacement | principal | Replacement | |
| amount | cost | amount | cost | |
| £M | £M | £M | £M | |
Less than 1 year | 7,554.8 | 43.9 | 6,612.1 | 51.1 |
Between 1 and 5 years inclusive | 16,083.4 | 381.5 | 10,425.7 | 592.2 |
More than 5 years | 750.5 | 18.2 | 1,228.2 | 36.2 |
Total derivatives | 24,388.7 | 443.6 | 18,266.0 | 679.5 |
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31. Derivative financial instruments and hedge accounting (continued)
(b) Hedge accounting (continued)
| Less than | 3 to 12 | 1 to 5 | More than | |
| 3 months | months | years | 5 years | |
| Group 2023 | £M | £M | £M | £M |
| Macro fair value hedges of loans and advances to customers | ||||
Swap notional | 10.0 | 1,030.2 | 9,979.2 | 669.8 |
Average fixed rate | 1.1% | 1.7% | 2.6% | 3.9% |
| Macro fair value hedges of shares | ||||
Swap notional | – | 3,825.0 | 4,590.5 | – |
Average fixed rate | – | 4.7% | 4.7% | – |
| Micro fair value hedges of wholesale funding denominated in Sterling | ||||
Swap notional | – | – | 700.0 | – |
Average fixed rate | – | – | 1.4% | – |
| Micro fair value hedges of wholesale funding denominated in Euros | ||||
Swap notional | – | 433.5 | – | – |
Average fixed rate | – | 0.5% | – | – |
| Macro cash flow hedges | ||||
Swap notional | – | – | – | 450.0 |
Average fixed rate | – | – | – | 4.3% |
| Less than | 3 to 12 | 1 to 5 | More than | ||
| 3 months | months | years | 5 years | ||
| Group 2022 | £M | £M | £M | £M | |
| Macro fair value hedges of loans and advances to customers | |||||
Swap notional | 928.7 | 2,051.9 | 7,000.7 | 327.3 | |
Average fixed rate | 0.4% | 0.6% | 1.3% | 2.0% | |
| Macro fair value hedges of shares | |||||
Swap notional | – 3,074.5 | 2,415.0 – | |||
Average fixed rate | – 1.9% | 3.5% – | |||
| Micro fair value hedges of wholesale funding denominated in Sterling | |||||
Swap notional | – | –700.0 | 200.0 | ||
Average fixed rate | – | – 1.4% | 3.8% | ||
| Micro fair value hedges of wholesale funding denominated in Euros | |||||
Swap notional | – | – 443.0 – | |||
Average fixed rate | – | – 0.5% – | |||
| Macro cash flow hedges | |||||
Swap notional | – | – | – 400.0 | ||
Average fixed rate | – | – | – 4.2% | ||
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 235
31. Derivative financial instruments and hedge accounting (continued)
(b) Hedge accounting (continued)
Interest rate swaps | Hedged items | |||||||
| Accumulated fair | ||||||||
Carrying amount (Note 1) | Carrying amount | value adjustments | ||||||
| Notional | ||||||||
| amount | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | SOFP line | |
| Group 2023 | £M | £M | £M | £M | £M | £M | £M | item |
Hedge of loans and advances to customers | 11,689.2 | 362.5 | (77.0) | 12,085.1 | – | 78.4 | (359.0) | Note 2 |
Hedge of shares | 8,415.5 | 49.4 | (16.6) | – | 8,385.1 | 15.5 | (57.6) | Note 3 |
| Hedge of wholesale | ||||||||
funding denominated in Sterling | 700.0 | – | (59.8) | – | 700.0 | 59.8 | – | Note 4 |
| Hedge of wholesale | ||||||||
funding denominated in Euros | 433.5 | – | (7.7) | – | 433.5 | 7.7 | – | Note 4 |
Interest rate swaps | Hedged items | |||||||
| Accumulated fair | ||||||||
Carrying amount (Note 1) | Carrying amount | value adjustments | ||||||
| Notional | ||||||||
| amount | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | SOFP line | |
| Group 2022 | £M | £M | £M | £M | £M | £M | £M | item |
Hedge of loans and advances to customers | 10,308.6 | 670.0 | - | 10,521.4 | – | – | (667.1) | Note 2 |
Hedge of shares | 5,489.5 | 3.9 | (74.8) | – | 5,477.0 | 62.5 | (3.5) | Note 3 |
| Hedge of wholesale | ||||||||
funding denominated in Sterling | 900.0 | – | (116.7) | – | 900.0 | 116.6 | – | Note 4 |
| Hedge of wholesale | ||||||||
funding denominated in Euros | 443.0 | – | (20.0) | – | 443.0 | 19.6 | – | Note 4 |
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31. Derivative financial instruments and hedge accounting (continued)
(b) Hedge accounting (continued)
(i) Fair value hedge accounting (continued)
| Accumulated | ||||
| amount of | ||||
| Change in fair | fair value | |||
| value of hedging | Change in fair | Total hedge | adjustments | |
| instrument | value of hedged | ineffectiveness | remaining in the | |
| (Note 1) | item (Note 1) | (Note 2) | SOFP | |
| Group 2023 | £M | £M | £M | £M |
Loans and advances to customers | (366.9) | 386.5 | 19.6 | 148.4 |
Shares | 97.1 | (101.1) | (4.0) | 11.2 |
Wholesale funding denominated in Sterling | 28.3 | (29.8) | (1.5) | (0.6) |
Wholesale funding denominated in Euros | 11.5 | (11.5) | – | (0.4) |
| Accumulated | ||||
| amount of | ||||
| Change in fair | fair value | |||
| value of hedging | Change in fair | Total hedge | adjustments | |
| instrument | value of hedged | ineffectiveness | remaining in the | |
| (Note 1) | item (Note 1) | (Note 2) | SOFP | |
| Group 2022 | £M | £M | £M | £M |
Loans and advances to customers | 533.1 | (548.7) | (15.6) | 81.1 |
Shares | (47.5) | 41.2 | (6.3) | 43.5 |
Wholesale funding denominated in Sterling | (104.1) | 105.5 | 1.4 | (0.8) |
Wholesale funding denominated in Euros | (28.4) | 28.4 | – | (1.1) |
Interest rate swaps | Hedged items | |||||
Carrying amount (Note 1) | Carrying amount | |||||
| Notional | ||||||
| amount | Assets | Liabilities | Assets | Liabilities | SOFP line | |
| Group 2023 | £M | £M | £M | £M | £M | item |
Floating rate liabilities | 450.0 | – | (18.0) | – | (450.0) | Note 2 |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 237
31. Derivative financial instruments and hedge accounting (continued)
(b) Hedge accounting (continued)
(ii) Cash flow hedge accounting (continued)
Interest rate swaps | Hedged items | |||||
Carrying amount (Note 1) | Carrying amount | |||||
| Notional | ||||||
| amount | Assets | Liabilities | Assets | Liabilities | SOFP line | |
| Group 2022 | £M | £M | £M | £M | £M | item |
Floating rate liabilities | 400.0 | 2.5 | (3.9) | – | (400.0) | Note 2 |
| Accumulated | ||||
| amount of | Gains reclassified | |||
| Change in fair | fair value | from OCI | ||
| value of hedging | Total hedge | adjustments | to Income | |
| instrument | ineffectiveness | remaining in OCI | Statement | |
| (Note 1) | (Note 2) | (Note3) | (Note 4) | |
| Group 2023 | £M | £M | £M | £M |
Floating rate liabilities | 128.1 | 0.2 | 101.2 | 26.7 |
| Accumulated | Gains reclassified | |||
| Change in fair | amount of fair | from OCI | ||
| value of hedging | Total hedge | value adjustments | to Income | |
| instrument | ineffectiveness | remaining in OCI | Statement | |
| (Note 1) | (Note 2) | (Note3) | (Note 4) | |
| Group 2022 | £M | £M | £M | £M |
Floating rate liabilities | 118.3 | 0.2 | 112.9 | 5.2 |
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Group 2023 | Society 2023 | |||||
| Fair value | Carrying | Fair | Carrying | Fair | ||
| hierarchy | value | value | value | value | ||
| level | £M | £M | £M | £M | ||
| Financial assets: | ||||||
Cash in hand and balances with the Bank of England | Level 1 | 2,830.0 | 2,830.0 | 2,830.0 | 2,830.0 | |
Loans and advances to credit institutions | i) | Level 2 | 213.7 | 213.7 | 109.2 | 109.2 |
| Loans and advances to customers | ||||||
Loans fully secured on residential property | ii) | Level 3 | 21,782.9 | 21,375.6 | 21,782.9 | 21,375.6 |
Other loans | ii) | Level 2 | 4.7 | 4.7 | 4.7 | 4.7 |
| Financial liabilities: | ||||||
Shares | ii) | Level 2 | 20,793.0 | 20,747.2 | 20,793.0 | 20,747.2 |
Amounts owed to credit institutions | iii) | Level 2 | 1,869.3 | 1,869.3 | 1,869.3 | 1,869.3 |
Amounts owed to other customers | ii) | Level 2 | 169.9 | 169.9 | 521.6 | 521.6 |
Debt securities in issue | iv) | Level 1 | 2,400.3 | 2,365.3 | 2,394.8 | 2,357.6 |
Debt securities in issue | iv) | Level 2 | 349.8 | 349.9 | – | – |
Subordinated liabilities | v) | Level 1 | 349.9 | 322.1 | 349.9 | 322.1 |
Subscribed capital | v) | Level 1 | 33.0 | 51.3 | 33.0 | 51.3 |
Group 2022 | Society 2022 | |||||
| Fair value | Carrying | Fair | Carrying | Fair | ||
| hierarchy | value | value | value | value | ||
| level | £M | £M | £M | £M | ||
| Financial assets: | ||||||
Cash in hand and balances with the Bank of England | Level 1 | 2,958.1 | 2,958.1 | 2,958.1 | 2,958.1 | |
Loans and advances to credit institutions | i) | Level 2 | 235.9 | 235.9 | 83.3 | 83.3 |
| Loans and advances to customers | ||||||
Loans fully secured on residential property | ii) | Level 3 | 20,324.3 | 19,734.9 | 20,324.3 | 19,734.9 |
Other loans | ii) | Level 2 | 7.0 | 7.0 | 7.0 | 7.0 |
| Financial liabilities: | ||||||
Shares | ii) | Level 2 | 17,520.4 | 17,635.6 | 17,520.4 | 17,635.6 |
Amounts owed to credit institutions | iii) | Level 2 | 2,268.4 | 2,268.4 | 2,268.4 | 2,268.4 |
Amounts owed to other customers | ii) | Level 2 | 229.7 | 229.7 | 404.7 | 404.7 |
Debt securities in issue | iv) | Level 1 | 2,601.0 | 2,664.8 | 2,620.2 | 2,644.1 |
Debt securities in issue | iv) | Level 2 | 110.0 | 110.2 | – – | |
Subordinated liabilities | v) | Level 1 | 309.1 | 305.3 | 309.1 | 305.3 |
Subscribed capital | v) | Level 1 | 197.6 | 245.6 | 197.6 | 245.6 |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 239
32. Fair values (continued)
(a) Carrying value and fair value of financial instruments not carried at fair value (continued)
| Level 1 | Level 2 | Level 3 | Total | |
| Group 2023 | £M | £M | £M | £M |
| Assets: | ||||
Investment securities | 965.3 | 1,550.3 | – | 2,515.6 |
Derivative financial instruments | – | 443.6 | – | 443.6 |
Loans and advances to customers | – | – | 153.6 | 153.6 |
Fair value adjustment for hedged risk on loans and advances to customers | – | – | (132.3) | (132.3) |
Total assets | 965.3 | 1,993.9 | 21.3 | 2,980.5 |
| Liabilities: | ||||
Fair value adjustment for hedged risk on shares | – | 31.9 | – | 31.9 |
Derivative financial instruments | – | 218.1 | 14.9 | 233.0 |
Debt securities in issue | – | (41.5) | – | (41.5) |
Subordinated liabilities | – | (26.0) | – | (26.0) |
Total liabilities | – | 182.5 | 14.9 | 197.4 |
| Level 1 | Level 2 | Level 3 | Total | |
| Group 2022 | £M | £M | £M | £M |
| Assets: | ||||
Investment securities | 396.7 | 990.0 | –1,386.7 | |
Derivative financial instruments | –679.9 | –679.9 | ||
Loans and advances to customers | – | –161.9 | 161.9 | |
Fair value adjustment for hedged risk on loans and advances to customers | – | –(585.9) | (585.9) | |
Total assets | 396.7 | 1,669.9 | (424.0) | 1,642.6 |
| Liabilities: | ||||
Fair value adjustment for hedged risk on shares | –(100.7) | –(100.7) | ||
Derivative financial instruments | –225.0 | 26.9 | 251.9 | |
Total liabilities | –124.3 | 26.9 | 151.2 | |
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32. Fair values (continued)
(b) Fair value measurement basis for financial instruments carried at fair value (continued)
| Level 1 | Level 2 | Level 3 | Total | |
| Society 2023 | £M | £M | £M | £M |
| Assets: | ||||
Investment securities | 965.3 | 1,550.3 | – | 2,515.6 |
Derivative financial instruments | – | 443.6 | – | 443.6 |
Loans and advances to customers | – | – | 153.6 | 153.6 |
Fair value adjustment for hedged risk on loans and advances to customers | – | – | (132.3) | (132.3) |
Total assets | 965.3 | 1,993.9 | 21.3 | 2,980.5 |
| Liabilities: | ||||
Fair value adjustment for hedged risk on shares | – | 31.9 | – | 31.9 |
Derivative financial instruments | – | 201.6 | 31.2 | 232.8 |
Debt securities in issue | – | (33.8) | – | (33.8) |
Subordinated liabilities | – | (26.0) | – | (26.0) |
Total liabilities | – | 173.7 | 31.2 | 204.9 |
| Level 1 | Level 2 | Level 3 | Total | |
| Society 2022 | £M | £M | £M | £M |
| Assets: | ||||
Investment securities | 396.7 | 1,056.1 | –1,452.8 | |
Derivative financial instruments | –679.5 | –679.5 | ||
Loans and advances to customers | – | –161.9 | 161.9 | |
Fair value adjustment for hedged risk on loans and advances to customers | – | –(585.9) | (585.9) | |
Total assets | 396.7 | 1,735.6 | (424.0) | 1,708.3 |
| Liabilities: | ||||
Fair value adjustment for hedged risk on shares | –(100.7) | –(100.7) | ||
Derivative financial instruments | –205.0 | 32.2 | 237.2 | |
Total liabilities | –104.3 | 32.2 | 136.5 | |
Notes to the Accounts continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 241
32. Fair values (continued)
| Fair value | ||||
| Derivative | Loans and | adjustment | ||
| financial | advances to | for hedged | ||
| instruments | customers | risk | Total | |
| Group 2023 | £M | £M | £M | £M |
At 1 January 2023 | (26.9) | 161.9 | (585.9) | (450.9) |
Total gains / (losses) in the Income Statement | 1.4 | (6.9) | – | (5.5) |
Movement in fair value adjustment for hedged risk on loans and advances to customers | – | – | 453.6 | 453.6 |
Net repayment in the year | 10.6 | (1.4) | – | 9.2 |
At 31 December 2023 | (14.9) | 153.6 | (132.3) | 6.4 |
| Fair value | ||||
| Derivative | Loans and | adjustment | ||
| financial | advances to | for hedged | ||
| instruments | customers | risk | Total | |
| Group 2022 | £M | £M | £M | £M |
At 1 January 2022 | (77.6) | 215.5 | (169.1) | (31.2) |
Total gains / (losses) in the Income Statement | 50.7 | (53.9) | –(3.2) | |
Movement in fair value adjustment for hedged risk on loans and advances to customers | – | –(416.8) | (416.8) | |
Net repayment in the year | – | 0.3 | – 0.3 | |
At 31 December 2022 | (26.9) | 161.9 | (585.9) | (450.9) |
| Fair value | ||||
| Derivative | Loans and | adjustment | ||
| financial | advances to | for hedged | ||
| instruments | customers | risk | Total | |
| Society 2023 | £M | £M | £M | £M |
At 1 January 2023 | (32.2) | 161.9 | (585.9) | (456.2) |
Total losses in the Income Statement | (6.5) | (6.9) | – | (13.4) |
Movement in fair value adjustment for hedged risk on loans and advances to customers | – | – | 453.6 | 453.6 |
Net repayment in the year | 7.5 | (1.4) | – | 6.1 |
At 31 December 2023 | (31.2) | 153.6 | (132.3) | (9.9) |
| Fair value | ||||
| Derivative | Loans and | adjustment | ||
| financial | advances to | for hedged | ||
| instruments | customers | risk | Total | |
| Society 2022 | £M | £M | £M | £M |
At 1 January 2022 | (77.9) | 215.5 | (169.1) | (31.5) |
Total gains / (losses) in the Income Statement | 45.7 | (53.9) | –(8.2) | |
Movement in fair value adjustment for hedged risk on loans and advances to customers | – | –(416.8) | (416.8) | |
Net repayment in the year | – | 0.3 | – 0.3 | |
At 31 December 2022 | (32.2) | 161.9 | (585.9) | (456.2) |
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32. Fair values (continued)
| Relationship of | ||||||
| Fair value at | Fair value at | Significant | unobservable | |||
| Financial assets / | 31 December | 31 December | Fair value | Valuation technique(s) and | unobservable | inputs to |
| financial liabilities | 2023 | 2022 | hierarchy | key input(s) | input(s) | fair value |
| Investment | Group | Group | Level 1 | Quoted bid prices in an active | N/A | N /A |
| securities (Gilts and | Assets - £965.3 | Assets - £396.7 | market sourced from third party | |||
| Treasury Bills) | million | million | data providers. | |||
| Society | Society | |||||
| Assets - £965.3 | Assets - £396.7 | |||||
| million | million | |||||
| Investment | Group | Group | Level 2 | Valuations are sourced from third | N/A | N /A |
| securities | Assets - | Assets - £990.0 | party data providers. The nature | |||
| (excluding Gilts and | £1,550.3 | million | of these instruments means that | |||
| Treasury Bills) | million | Society | while a market exists, pricing | |||
| Society | Assets - | activity may be limited. | ||||
| Assets - | £1,056.1 | |||||
| £1,550.3 | million | |||||
| million | ||||||
| Derivative financial | Group | Group | Level 2 | Discounted cash flow. Future | N/A | N /A |
| instruments | Assets - | Assets - | cash flows are estimated based | |||
| (interest rate | £442.8 million | £679.5 million | on forward interest rates (from | |||
| swaps) | and Liabilities - | and Liabilities - | observable yield curves at the | |||
| £208.7 million | £218.7 million | end of the reporting period) and | ||||
| Society | Society | contract interest rates, discounted | ||||
| Assets - | Assets - | at a rate that reflects the credit | ||||
| £442.8 million | £679.5 million | risk exposure to the various | ||||
| and Liabilities - | and Liabilities - | counterparties. | ||||
| £197.6 million | £198.7 million | |||||
| Derivative financial | Group | Group | Level 2 | Discounted cash flow. Future | N/A | N /A |
| instruments (cross | Assets - | Assets - £0.4 | cash flows are estimated based | |||
| currency swaps) | £0.8 million | million and | on forward interest rates (from | |||
| and Liabilities - | Liabilities - | observable yield curves at the | ||||
| £5.4 million | £2.6 million | end of the reporting period) and | ||||
| Society | Society | contract interest rates discounted | ||||
| Assets - £0.8 | Liabilities - | at a rate that reflects the credit | ||||
| million | £2.6 million | risk exposure to the various | ||||
| counterparties. Any foreign | ||||||
| currency amounts are translated | ||||||
| into sterling at the contract | ||||||
| exchange rate. | ||||||
| Derivative financial | Group | Group | Level 2 | Discounted cash flow. Future | N/A | N /A |
| instruments (equity | Liabilities - | Liabilities - | cash flows are estimated based | |||
| release swaps) | £4.0 million | £3.7 million | on forward interest rates (from | |||
| (Level 2) | Society | Society | observable yield curves at the | |||
| Liabilities - | Liabilities - | end of the reporting period) and | ||||
| £4.0 million | £3.7 million | contract interest rates discounted | ||||
| at a rate that reflects the credit | ||||||
| risk exposure to the counterparty. | ||||||
| The profile of future notional | ||||||
| amounts is specified in the | ||||||
| contract. |
Year ended 31 December 2023
Notes to the Accounts continued
Leeds Building Society | Annual Report and Accounts 2023 243
32. Fair values (continued)
(d) Recurring fair value measurement (continued)
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32. Fair values (continued)
33. Events after the date of the Statement of Financial Position
There have been no subsequent events between 31 December 2023 and the date of approval of these Annual Report and Accounts
by the board which would have had a material impact on the financial position of the Group or the Society.
Notes to the Accounts continued
Leeds Building Society | Annual Report and Accounts 2023 245
Other
information
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246
Annual Business Statement
Year ended 31 December 2023
1. Statutory percentages
31 December
2023
Statutory
Limit
Lending limit 3.2% 25%
Funding limit 18.6% 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
2023
31 December
2022
As a percentage of shares and borrowings:
Gross capital 7.83% 8.86%
Free capital 7.46% 8.47%
Liquid assets 21.77% 20.15%
Profit for the financial year as a percentage of mean total assets 0.50% 0.67%
Management expenses as a percentage of mean total assets 0.63% 0.59%
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, other reserve, revaluation reserve, cash flow hedge reserve,
fair value 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.
• ‘Management expenses’ represent the aggregate of administrative expenses, depreciation and amortisation.
Leeds Building Society | Annual Report and Accounts 2023 247
3. Information relating to the directors at 31 December 2023
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
Leeds Beckett University (Governor)
Vice Chair
G J Hoskin
Vice Chairman 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 Officer from
27 February 2019
Chief Executive Officer 16.07.78 19.02.16
UK Finance Ltd
Deputy Chief Executive Officer
*A J Greenwood Deputy Chief Executive
Officer
11.12.69 08.01.15
None
Directors
A M Barnes Non-Executive Director 10.11.68 01.02.19
Globaldata plc
Stratos Markets Ltd (trading as FXCM UK)
** F A Buckley Non-Executive Director 12.05.80 01.04.23 Aurora Investment Trust plc
Caledonia Investments plc
Apollo Syndicate Management Ltd
Long Term Assets Ltd
*A P Conroy Chief Financial Officer 11.12.75 06.01.20 Saltmine Trust (trustee)
Arkose Funding Ltd
****Leeds Mortgage 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 Cynergy Bank Ltd
*R J Howse Chief Operating Officer 03.12.70 01.05.21 The Grammar School at Leeds (Governor)
P E Rowland Non-Executive Director 22.12.61 01.05.23 Saga Services Ltd
A Tadayon Non-Executive Director 10.06.66 22.10.21 Tadayon Consulting Ltd
*Executive directors.
** Under SYSC 4.3A.6R/ GOR 5.5, a member of the management body of a regulated firm may hold a maximum of four non-executive
directorship roles. Owing to the non material nature of some of the roles held by Farah Buckley (very low time commitment), the Society
sought a waiver from the PRA prior to her appointment. The PRA agreed to a modification (under Section 138A of the FSMA) up until
1 June 2024, at which point Farah Buckley’s directorship position will be re-assessed.
***David Fisher is a non-independent non-executive director.
**** 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 2023
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Country by Country Reporting
Year ended 31 December 2023
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 (2022: 50), total assets of £28.1 billion (2022:
£25.5 billion) and 919,000 members (2022: 839,000). 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 219. 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 2023 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 189.
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 210.
Corporation tax paid represents the total payments as reported in
the Statement of Cash Flows on page 193.
2023 UK* Spain Total
*UK
includes
Gibraltar
Total income
(£M) 357.5 2.3 359.8 0.8
Profit before
tax (£M) 181.5 (1.0) 180.5 0.1
Total assets
(£M) 28,109.4 36.5 28,145.9 5.8
Total assets
less liabilities
(£M) 1,608.7 36.5 1,645.2 5.8
Average
number of
FTEs 1,662 –1,662 –
Staff costs
(£M) 108.7 –108.7 –
Corporation
tax charge
(£M) 47.6 – 47.6 –
Corporation
tax paid (£M) 49.6 – 49.6 –
Return on assets
The return on assets, calculated as profit before tax divided by
mean total assets, was 0.70% (2022: 0.92%) for the year ended
31 December 2023.
Public subsidies received
The Group received no public subsidies in the year ended
31 December 2023.
Leeds Building Society | Annual Report and Accounts 2023 249
Glossary of Terms
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 2023
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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 3is 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 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
An account is classified as in default for impairment provisioning
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 (EIR)
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.
Glossary of Terms continued
Year ended 31 December 2023
Leeds Building Society | Annual Report and Accounts 2023 251
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)
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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Risk Management
Report
Governance Financial Statements Other Information
252
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.
The NSFR is currently an observable measure which became a
minimum standard in 2022 with the implementation of CRR2.
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 / 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 while 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.
Glossary of Terms continued
Year ended 31 December 2023
