2016 Covered Bond Roadshow April 2016 Disclaimer NOT FOR - - PowerPoint PPT Presentation

2016 Covered Bond Roadshow April 2016

REG S BEARER-FORM SELLING RESTRICTIONS: NOT FOR DISTRIBUTION TO ANY US PERSON OR TO ANY PERSON OR ADDRESS IN THE UNITED STATES

1

Disclaimer

NOT FOR DISTRIBUTION TO ANY U.S. PERSON OR TO ANY PERSON OR ADDRESS IN THE U.S. Important: You must read the following before continuing. The following applies to the presentation materials following this page, and you are therefore advised to read this carefully before reading, accessing or making any other use of the presentation materials. In accessing the presentation materials, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access. This presentation is the property of Leeds Building Society (“LBS”). The investments and services contained herein are not available to private customers in the United Kingdom. By receiving this presentation, each investor (i) acknowledges that any offering is being made only outside the United States to non-U.S. persons in reliance upon Regulation S under the U.S. Securities Act of 1933 and (ii) is deemed to represent that it is not a U.S. person within the meaning of Regulation S and is not accessing the presentation from a location within the United States, its territories and possessions (including Puerto Rico, the U.S. Virgin Islands, Guam, America Samoa, Wake Island and the Northern Marina Islands or the district of Columbia). If you are unable to agree to and confirm each of the items above, then you will not be eligible to view the presentation and you must destroy all copies of the presentation immediately and notify us forthwith of having done so. By electing to receive this presentation, you represent, warrant and agree that you will not attempt to reproduce or re-transmit the contents of this presentation by any means. This presentation does not constitute a prospectus or other offering document (an “offering document”) in whole or in part. Information contained in this presentation is a summary only. Under no circumstances shall these presentation materials constitute an offer to sell or the solicitation of an offer to buy securities. In particular, nothing in this presentation constitutes an offer of securities for sale in the U.S. Recipients of these presentation materials who intend to subscribe for or purchase any securities are reminded that any subscription or purchase may only be made on the basis of the information contained in any final offering document. These presentation materials may only be communicated to persons in the United Kingdom in circumstances where section 21(1) of The Financial Services and Markets Act 2000 does not apply or to whom this document may otherwise be lawfully communicated. As such, this communication is made only to persons in the United Kingdom who (i) have professional experience in matters relating to investments or (ii) are high net worth entities falling within Article 49(2)(a) to (d) of the FSMA (Financial Promotion) Order 2005 or certified high net worth individuals within Article 48 of the FMSA (Financial Promotion) Order 2005 (together, ”Relevant Persons”). The information given in this presentation is not intended to be relied on either as particular advice or for making investment decisions. By receiving this presentation each investor is deemed to represent that it is a sophisticated investor and possesses sufficient investment expertise to understand the risks involved in the offering. Investors must rely solely on their

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• n request from LBS.

REG S BEARER-FORM SELLING RESTRICTIONS: NOT FOR DISTRIBUTION TO ANY US PERSON OR TO ANY PERSON OR ADDRESS IN THE UNITED STATES

Executive Summary

• Leeds Building Society (‘Leeds’) is a UK based mutual Building Society and has operated from the centre
• f Leeds since its formation in 1875, it has assets of £13.5bn, operates from 67 branches throughout the

UK, Gibraltar and Ireland and is rated A2/P-1 (stable) by Moody’s and A-/F1 (stable) by Fitch

• During 2015 Total Assets increased by 11%, Operating Profit Before Tax increased by 34% to £108.5bn,

Retail Savings balances increased to a record £9.9bn and our Cost : Income Ratio of 36.4% was stronger than any of our peers’

• Our €7bn Global Covered Bond programme is guaranteed by Leeds Building Society Covered Bond LLP

and is rated AAA/Aaa (Fitch/Moody’s). There are £819.25m of bonds outstanding, supported by £1.6bn of UK first lien prime residential mortgages

• Key structural features include:
• Requirement to meet Asset Coverage Test on a monthly basis, with maximum asset percentage determined by rating

agencies

• LLP bank account held at highly rated institution, with revenue and principal external receipts transferred daily
• Cover pool interest rate swap provided by Leeds Building Society swaps mortgage interest into £1mL
• Covered Bond swaps provided by highly rated 3rd parties

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Source: Leeds Building Society Annual Results, as of 31 December 2015

3 ► Leeds Building Society 2015 Financial Highlights 2015 New Lending & the Mortgage Portfolio Funding & Liquidity Capital Mortgage Operations & Risk Appetite Covered Bond Programme Appendix I – UK Economy Appendix II – UK Mortgage Sector Appendix III – Mortgage Operations Appendix IV – Group Business Model Appendix V – Mutual Structure

Introduction

About us

• Founded in 1875, and now the 5th largest building society
• Over 700,000 members with 67 branches in the UK, Ireland and Gibraltar
• Business model is built on providing a secure home for savers’ funds and helping people buy homes
• Originates mortgages secured on residential property, for owner occupation, including shared ownership and for

buy to let purposes. These are sourced through our approved network of mortgage brokers, branch network and direct service

• As a building society, we are required to fund the majority of mortgage lending with members’ savings. We offer

savings products in branches, by post and online

• Established under the Building Societies Act and regulated by the PRA and FCA. Our covered Bond programme

is also regulated by the FCA

• We offer a complementary range of mortgage related insurance products and other investment services
• Long term profitability sufficient to support sustainable organic growth
• Lowest cost income ratio of our peer group
• One of only three Building Societies with an A rating with both Moody’s and Fitch which has been maintained

throughout the last ten years

Agency Senior Outlook Long Term Outlook Short Term Outlook Moody’s A2 Stable A2 Stable P-1 Stable Fitch A- Stable A- Stable F1 Stable

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To be Britain’s most successful building society

Mission:

‘Our purpose is to help people save and have the home they want. We will continually adapt to anticipate our members’ changing needs and by doing the things we do well, we will help our members get on with life’

Delivering value to a growing membership

• 1. Secure

To generate strong levels

• f profit which are retained

in the business to build a solid platform for growth

• 2. Customer Focussed

To support the aspirations

• f a wide range of

borrowers and savers, in particular those who are not well served by the wider market

• 3. Service Driven

To deliver outstanding personal service to all our members

• 4. Efficient

To continue to reinvest in the business to improve efficiency, whilst being intolerant of waste

1. Retain strong Capital and Leverage Ratios to meet future regulatory requirements 2. Attain IRB Status 3. Proactively manage our legacy portfolios to reduce the impact of unexpected losses 1. Leverage our brand and digital marketing capability to reach new customer segments 2. Further develop our lending strategy, through improved technology and processes 3. Embed member communications to support

• ur member values

4. Embed customer centricity into the Society 1. Embed our intermediary proposition to deliver industry leading broker experience 2. Through our Omni-Channel programme, develop our seamless, simple and secure model to better respond to customer needs

Our Vision, Mission and Strategy

1. Ensure on-going resilience, scalability and flexibility of the Society’s systems 2. Develop our enterprise wide IT capability to achieve greater agility and speed to market 3. Improve our data management capability to achieve more efficient and targeted customer management

Strategic Activities Vision:

5

2015 Business Highlights

• New mortgage lending increased by 15% to £3.1bn (£2.7bn 2014) significantly above our market share1
• Net residential lending of £1.4bn (£1.1bn in 2014) is our best ever performance
• Total charge for impairment losses reduced to £18.5m (£39.5m : 2014)
• As a consequence of these, operating profit rose by 34% to a record £108.5m (£80.9m : 2014)
• Savings balances grew by £751m (£560m 2014) to £9.9bn, the highest level in our history
• We attracted 22,000 new members, taking total membership to a record 719,000 (697,000 : 2014)
• Capital and reserves increased to £830m (£731m : 2014)
• Total assets increased by 11% to a record £13.5bn (£12.1bn : 2014)

A record year…

1Leeds Building Society defines market share as follows:

Mortgages – Council of Mortgage Lenders market share statistics Savings – Mutual sector net retail savings as published by the Building Societies Association. CACI Data, October 2015, latest figures available – CACI is an independent company that provides Financial Services benchmarking data and covers 85% of the high street cash savings market

Source: Leeds Building Society Annual Results, as of 31 December 2015

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Key Performance Indicators

Secure Customer focused Service driven

Operating profit before exceptional items Increased by 34% to £108.5m (2014: £80.9m) and represents 0.85% of mean assets ( 2014: 0.69%) Gross residential lending Increased by 15% to £3.1bn (2014: £2.7bn) Net Promoter Score Reduced to 49 (2014: 54) Benchmarked favourably against

• ther financial
• rganisations

Net interest margin Improved to 1.62% compared to 1.58% in 2014 Net residential lending Record net residential lending of £1.4bn (2014: £1.1bn) Number of days from mortgage application to

• ffer

12 days which continues to be better than our internal target Regulatory Capital CET 1 capital increased to £783m (2014: £704m) CET 1 capital ratio of 15.5% (2014: 15.6%) Leverage ratio of 5.5% (2014: 5.6%) Net savings balances Increased to £9.9bn (2014: £9.2bn) % of customer administration processing completed on the same day Reduced to 86% (2014: 89%). This reflects the exceptional demand for the Society’s ISA products LT Credit rating A2 / A- Stable / Stable (Moody’s / Fitch) Change in membership Membership increased to 719,000 in 2015 (2014: 697,000) Colleague Engagement Colleague engagement remains high at 76% based

• n internal scores

(2014: 76%)

Efficient

Cost to income ratio Increased to 36.4% (2014: 33.4%) which is the strongest ratio among

• peers. Reflecting

the Society’s continued investment programme Cost to mean assets Expenses as a proportion of mean assets increased to 0.62% (2014: 0.57%) Colleague turnover Reduced to 14% (2014: 17%)

7

Peer Group Comparison (2015 Results)

Leeds YBS Coventry Skipton Principality

Total group assets (£bn)

13.5 38.2 34.1 17.5 7.6

Underlying pre-tax profits as % of mean assets

0.85% 0.46% 0.66% 0.88% 0.66%

Net interest margin

1.62% 1.41% 1.11% 1.33% 1.81%

Cost : Income ratio

36% 63% 37% 74% 59%

Management expense ratio

0.62% 0.91% 0.42% 2.77% 1.13%

% growth in loans & advances to customers (vs 2014)

12.5% 3.4% 9.1% 11.9% 6.6%

Retail deposits (shares) % growth (vs 2014)

8.2% 0.6% 8.4% 11.9% 0.2%

CET1 capital ratio

15.5% 14.5% 29.4%* 16.8% 21.0%*

Leverage ratio

5.5% 5.0% 4.0% 6.1% 5.5%

Source: 2015 Annual Results; * Coventry & Principality use IRB approach

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Outlook for 2016

• Generated exceptional profit in 2014 & 2015, likely to return to long run average

relative to size in future years

• Economy is likely to remain conducive to lending growth
• Risks to the real economy exist but the Society remains well insulated
• Competition likely to return to the mortgage market
• We are progressing through an investment hungry period and look forward to

realising the benefits of this investment in future years

• Strong ratios, strong efficiency and low loss environment will underpin continuing

strong profitability

• We will generate enough to provide capital for future growth
• Profitability expected to continue to support above market average growth capital

generation

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10 Leeds Building Society ► 2015 Financial Highlights 2015 New Lending & the Mortgage Portfolio Funding & Liquidity Capital Mortgage Operations & Risk Appetite Covered Bond Programme Appendix I – UK Economy Appendix II – UK Mortgage Sector Appendix III – Mortgage Operations Appendix IV – Group Business Model Appendix V – Mutual Structure

Income Statement

• Operating profit before tax rose by 34% to a

record £108.5m

• Pre-tax profit as a % of mean assets remains

strong at 0.85%

• Net interest margin increased to 1.62%
• Loan loss charges reduced to £18.5m from

£39.5m in 2014 driven by reducing exposure to commercial lending

2015 (£m) 2014 (£m)

Net Interest income 207.5 184.8 Other Income 11.4 13.6 Total Income 218.9 198.4 Management Expenses (77.0) (64.6) Depreciation (2.7) (1.6) Loan Loss Charges (18.5) (39.5) FSCS & Other Provisions (8.8) (11.8) Investment property fair value movement (3.4) Operating Profit Before Tax 108.5 80.9 Pension Curtailment Gain 7.0 Total Profit Before Tax 108.5 87.9 Tax (19.6) (18.5) Profit After Tax 88.9 69.4

Source: Leeds Building Society Annual Results, as of 31st December 2015

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Balance Sheet

• Total Assets increased by 11% to a record £13.5bn

(£12.1bn : 2014)

• Mortgages & Loans increased by 13% in 2015
• Total liquidity (inc. off balance sheet) of 15.8%
• Retail Savings increased by £751m from 2014 to a

record £9.9bn, a growth of 8%

• CET 1 capital ratio of 15.5% (2014:15.6%) on

standardised basis

2015 (£m) 2014 (£m) Mortgages & Loans 11,544 10,261 Liquid Assets 1,677 1,584 Other Assets & Adj. 286 286 Total Assets 13,507 12,131 Retail Savings 9,933 9,182 Wholesale Funds 2,531 1,971 Other Liabilities 252 273 Total Liabilities 12,716 11,426 Reserves & Capital 791 705 Total Liabilities & Capital 13,507 12,131

7,596 8,275 9,152 10,261 11,544 2011 2012 2013 2014 2015

Mortgage and Loan Balances (£m)

Source: Leeds Building Society Annual Results, as of 31st December 2015

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Net Interest Margin

• Net interest margin increased to 1.62% in 2015,

compares strongly with peers

• Net interest income up £22.7m to £207.5m
• The increase was largely due to the strong

mortgage lending complemented by lower funding costs

• We continue to pay higher than market average

savings rates to members

Source: Leeds Building Society Annual Results, as of 31st December 2015, latest report and accounts

1.58% 1.45% 1.13% 1.33% 1.62% 1.81% Nationwide YBS Coventry Skipton Leeds Principality

NIM % versus Peers

13

Provisions & Charges

• Residential loans impairment charge remained low

at £6.2m

• The total

level

• f

residential arrears, including possessions, reduced to 1.43% (2014: 1.88%)

• Commercial balances reduced 28% to £194m and

represent less than 2% of the book

• Impairment charge on commercial loans reduced by

£18.8m to £12.3m from 2014 and remaining negative equity is entirely covered by provisions

• Spanish (£76m) and Irish (£146m) Euro residential

portfolios in managed run-off now represent less than 2% of book

2015 (£m) 2015 Provision of Book Value (%) 2014 (£m) Residential loan losses and provisions 6.2 0.06 5.9 Commercial loan losses and provisions 12.3 6.34 31.1 Other loan losses and provisions 2.5 Loan impairment and provisions 18.5 39.5 FSCS levy 5.5 6.4 Other provisions 3.3 5.4 Total impairment and provisions 27.3 51.3

Source: Leeds Building Society Annual Results, as of 31st December 2015

29.9 17.0 11.9 5.9 6.2 19.1 25.1 35.7 31.1 12.3 2011 2012 2013 2014 2015

Loan Loss Provisions (£m)

Residential Commercial

14

Costs and Efficiency

• Costs increased to accommodate investment to

support future growth

• The cost increases of the last 3 years are expected

to slow as the Society realises efficiencies from its investment programme

• Ratios demonstrate top quartile efficiency vs peer

group

Source: Leeds Building Society Annual Results, as of 31st December 2015

Key Investment Areas



Lending transformation



Omni-channel proposition



IRB progression



Digital & IT capability

926 946 996 1,104 1,223 Headcount

15

16 Leeds Building Society 2015 Financial Highlights ► 2015 New Lending & the Mortgage Portfolio Funding & Liquidity Capital Mortgage Operations & Risk Appetite Covered Bond Programme Appendix I – UK Economy Appendix II – UK Mortgage Sector Appendix III – Mortgage Operations Appendix IV – Group Business Model Appendix V – Mutual Structure

UK Residential Mortgage Portfolio

Source: December 2015 Internal Reports

1 measured as those either in possession or arrears of more than 1.5% of the balance 2 Average Indexed LTV weighted by balance

• Proportion of the book above 90% LTV has

reduced to c.5%

• Geographical spread is broadly in line with the

average distribution of UK housing stock

• Average Indexed LTV ratios have remained

relatively stable and are beginning to ease downwards

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2011 2012 2013 2014 2015

Indexed Loan to Value Distribution of Total Portfolio

> 90 <= 90 <= 80 <= 70 <= 50

0% 10% 20% 30% 40% 50% 60% 70% 80% 2011 2012 2013 2014 2015

Average Indexed Loan to Value2

Core Residential Buy To Let Shared Ownership

18.58% 16.18% 11.27% 8.46% 8.22% 7.81% 7.07% 6.64% 4.86% 4.29% 3.26% 3.10% 0.27%

2016 - Geographical Distribution of Mortgage Balances

South East Gr London Yorks & H North West South West W Midlands E Midlands Scotland E Anglia North East Wales N Ireland Other

17

UK Residential Mortgage Portfolio (cont.)

1 MIA = months in arrears

Source: December 2015 Internal Reports

• The arrears ratio1 reduced to 1.43% compared to

1.88% at the end of 2015

• Effective collections management, sustained

improvements in the economy and continued low interest rates are the main drivers of the improvement in the arrears ratio

• Legacy positions represent a very small proportion
• f the portfolio

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100

Months Cumulative 2+ MIA Emergence by Seasoning

2001 - 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

0% 1% 2% 3% 4% 5% 6% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Portfolio Arrears* (3+ MIA) Core Residential Buy To Let Shared Ownership

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Mainstream 63% BTL 20%

Shared Ownership 11% Spain & Ireland 2% Other (inc. Lifetime and Self Build) 4%

Residential Lending Portfolio (millions)

2015 New Lending

Source: December 2015 Internal Reports

• The rise in both gross and net lending reflects the

Society’s strategy of supporting a wide range of borrowers whilst controlling risk through limiting LTV and rigorous underwriting

• New Lending spans a wide range of prime segments

with over half generating premium margins. Risk is contained by restricting >85% LTV lending to only 11% of lending

• In 2015 the Society was the 12th largest UK lender

with market share of new mortgage lending of 1.43% (2014: 1.31%)

Volume (%) Margin LTV Low LTV Mainstream

44% Low Low

>85% LTV Mainstream

11% Premium High

BTL 21% Premium Low Shared Ownership 9% Premium Low Other 15% Premium Low

19

Mainstream 55% BTL 21% Shared Ownership 9% Holiday Let 1% Interest Only 4% Help to Buy 5% New Build 5%

2015 Lending (£m)

20 Leeds Building Society 2015 Financial Highlights 2015 New Lending & the Mortgage Portfolio ► Funding & Liquidity Capital Mortgage Operations & Risk Appetite Covered Bond Programme Appendix I – UK Economy Appendix II – UK Mortgage Sector Appendix III – Mortgage Operations Appendix IV – Group Business Model Appendix V – Mutual Structure

Funding Composition

• Retail savings remain at the heart of our funding model with the vast majority of residential lending funded by retail

savings

• We are investing in our digital offering to allow members the ability to engage with the Society through whichever

channel they prefer whether it is branch, online, telephone or mobile

• Retail funding remains cost effective for the Society due to the continued low interest rate environment
• The retail strategy is integral to our strategy and is supported by wholesale funding programmes that benefit from our

strong credit ratings

24% 26% 35% 6% 1% 8%

Retail Funding Split 2015

Fixed rate bonds Fixed rate ISA's Administered Variable ISA Regular Saver Other

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Diversified Funding Base

• We will look to serve our existing investor base in

conjunction with our corporate objectives

• Have established 3 long term funding platforms

across GBP and EUR

• Accessed each market in 2015
• Committed to supporting liquidity by building a

curve in both GBP and EUR

Growing the wholesale franchise Long Term Funding Platforms

Covered Bonds £819m*

Series 3 - £250m Nov 2020 Series 4 - £250m Dec 2018 Series 7 - £19m Oct 2019 Series 8 - £300m Feb 2018

Senior Unsecured £720m*

€500m 7yr Apr 2021 €500m 7yr May 2022

RMBS £431m*

Albion 2 - £300m Dec 17 Call Albion 3 - £325m Nov 19 Call

* Figures are all GBP equivalent as at 31st December 2015

2010-12 £250m 10yr CB £250m 3yr CB £250m 7yr CB 2013 £300m Albion 2 2014 €500m Senior Unsecured 2015 £300m Covered Bond €500m Senior Unsecured £325m Albion 3

2015 Activity 2015 Activity

22

Wholesale Funding Profile

Figures are all GBP equivalent and correct from 31st December 2015

• We maintain a smooth maturity profile with our longest maturity being 7yrs. No substantial refinancing in 2016/17

required.

• Wholesale funding is obtained through a balanced strategy using the RMBS, Covered Bonds and EMTN

programmes

• In 2015, Leeds accessed each of these markets, targeting maturities which complemented the existing profile and

allowed for future debt maturities across the curve

• Continuing access to FLS used as part of overall funding strategy

35% 32% 19% 1% 13%

Wholesale Funding Composition

Covered Bonds Senior Unsecured Securitisation Repo Money Market

23

50 100 150 200 250 300 350 400 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 2016 2017 2018 2019 2020 2021 2022

Wholesale Maturity Profile (£m)

Securitisation Covered Bond Senior Unsecured FLS

Liquidity

• Liquidity investments are ~90% in HQLA resulting in an LCR ratio of 194%
• Over 75% of the liquidity portfolio is held in UK Government / Bank of England exposures.

No peripheral Eurozone exposure

• The average duration of liquidity is ~13 months and the longest maturity is in 2021
• On-balance sheet liquidity is supported by…
• large pre-positioned loan portfolios with the Bank of England
• a retained RMBS (Guildford No.1) which is eligible both at the Bank of England and the European Central Bank
• The contingent liquidity available provides sufficient access to both the BoE and ECB in the event of a stress scenario

Source: Leeds Building Society Annual Results, as of 31st December 2015

21.9% 18.5% 17.6% 14.2% 15.8% 2011 2012 2013 2014 2015

Liquidity (£m)

24

25 Leeds Building Society 2015 Financial Highlights 2015 New Lending & the Mortgage Portfolio Funding & Liquidity ► Capital Mortgage Operations & Risk Appetite Covered Bond Programme Appendix I – UK Economy Appendix II – UK Mortgage Sector Appendix III – Mortgage Operations Appendix IV – Group Business Model Appendix V – Mutual Structure

Capital

• The Society’s ratios remain strong on a fully loaded

basis under CRD IV Leverage ratio of 5.5% is well above the regulatory minimum of 3%

• RWAs are calculated on a standardised basis. We

have applied for an IRB waiver. Under IRB we expect

• ur CET1 ratio to increase to 25%
• Reserves make up almost all our capital resources,

leaving capacity to raise other forms of capital if required

• Total CET 1 capital at £783m

2015 2014

CET 1

Standardised

15.5% 15.6%

CET1

IRB

25%

Leverage

5.5% 5.6%

• MREL consultation paper released by BoE in

December, consultation period closed in March

• The Society continues to monitor developments

and potential future implications and remains well placed to meet regulatory capital requirements as they evolve

Source: Leeds Building Society Annual Results, as of 31st December 2015

4.50% 1.50% 2.00% 2.50%

15.6% 15.5% 25.0% 0.40% 0.40% 0.40% 2014 2015 2015 (IRB) Fully-implemented CRD IV Requirement

CET1 AT1 Tier 2

Capital Conservation Buffer

26

Capital Adequacy under CRD IV

• The Society’s capital position remains very

strong under CRD IV as it features a low level

• f remunerated capital and a predominance of
• rganically generated reserves
• Under CRD IV, PIBS are de-classified as CT1

capital and are grandfathered into Tier 2 capital until 2021

14.6% 14.6% 15.6% 15.5% 5.4% 5.6% 5.5% 2012 2013 2014 2015

Capital Ratios

CT1 CET1 Leverage

27

Source: Leeds Building Society Pillar 3, as of 31st December 2015

2015 2014 Fully Loaded Fully Loaded £m £m Common Equity Tier 1 (CET1) General Reserve 765.1 674.7 AFS Reserve (1.2) 3.9 Revaluation Reserve 12.4 12.4 Other reserves 14.3 14.3 Total CET1 Capital before regulatory adjustments 790.6 705.3 CET1 Regulatory Adjustments (7.6) (1.3) Total CET 1 Capital 783.0 704.0 Additional Tier 1 (AT1) Capital PIBS 25.0 25.0 Amorisation of PIBS under transititonal rules (25.0) (25.0) Total Tier 1 Capital 0.0 0.0 Tier 2 (T2) Capital Collective Provisions 21.5 16.3 Subordinated Debt 0.0 0.0 PIBS 25.0 25.0 Total Tier 2 Capital 46.5 41.3 Total Capital Resources 829.5 745.3

28 Leeds Building Society 2015 Financial Highlights 2015 New Lending & the Mortgage Portfolio Funding & Liquidity Capital ► Mortgage Operations & Risk Appetite Covered Bond Programme Appendix I – UK Economy Appendix II – UK Mortgage Sector Appendix III – Mortgage Operations Appendix IV – Group Business Model Appendix V – Mutual Structure

All loans must have the following included within the approval process:

• Credit profile requirements are in line with prime lending criteria
• Credit search conducted with Equifax and credit score from the Society’s scoring models
• Affordability assessment conducted in line with MCOB 11.6 via the Society’s affordability model with full income verification
• Adequate collateral security in line with valuation requirements with 1st charge over property
• an AVM up to 80% LTV for remortgage / further advances only (further restrictions apply)
• Fraud checks in line with the Society’s Financial Crime Policy

Key Lending Policy Requirements

Residential (Owner Occupied)

• Maximum LTV 95%
• Max LTI 4.5x
• Sliding scale of loan size maxima from

£1.25m at 65% LTV to £300k at 95% LTV (applies to Shared Ownership also)

• Minimum property value of £50k (applies

to all loans)

• Affordability assessment stresses

mortgage payment reflecting 5 year BoE rate projections and ensures payable from disposable income

• Interest only permitted up to 50% LTV
• Max age 75 at term end

BTL

• Maximum LTV 70% and maximum

loan size up to £500k

• Borrower must own a residential

property

• Minimum income £25k for the highest-

earning borrower; or joint income of £40k

• The borrower must have a portfolio of

no more than 4 BTL mortgaged properties with the LBS, can have a total of 8 BTL mortgaged properties

• Rental cover at least 125% of

mortgage interest payment at BTL revert rate (5.99%)

• Max age 80 at term end

Shared Ownership

• Borrowers share between 25% and 75%
• Maximum loan to borrowers share of

property 95%

• Max LTI 4.5x
• Interest only is not permitted
• Lender Mortgagee Protection Clause

must be in place – ensures lender maintains 1st charge and recourse to 100% of property value

• Affordability assessment stresses

mortgage payment reflecting 5 year BoE rate projections and ensures payable from disposable income

• Max age 75 at term end

29

Mortgage Approval Process – Overview

• All loans are underwritten at the Society’s Head Office, by a formally trained and accredited underwriter

– Average experience of mortgage underwriters is >10 years

• Overall aim of the underwriters is to satisfy themselves of the ability of the borrower to maintain future capital and

interest payments in line with the Society’s obligation to carry out responsible lending and to ensure the property represents suitable security to lend against

• The Society will generally consider loans up to 95% of the lower of purchase price or valuation
• Underwriting process is divided into three stages:
• Applications are initially assessed by

the underwriting system which compares the application with the Society’s lending policy

• Applications are either automatically

accepted or referred to a member of the DIP team for further review

• Applications that fail the minimum credit

score are declined

• 45% of cases are referred for further

review, of which 40% are accepted

• Successful applications will then be

forwarded to the First Assessment

• All applications are fully

underwritten by an accredited underwriter holding an appropriate mandate

• Documentation such as identification

and proof of income and the borrower’s credit history are assessed

• Prior to January 2012, the underwriting
• f certain low risk applications with a

maximum 75% LTV were accelerated through an internal fast track process

• Valuation instructed
• 1. Decision in Principle (DIP)
• 2. First Assessment
• 3. Offer Approval
• Review of First Assessment

requirements and documentation received, including the valuation report

• Mortgage offer produced and approved

by a mandate holder or approved by the processing system if the loan falls within the applicable criteria

• A copy of the offer is sent to the

solicitor to ensure the conditions are satisfied

30

Affordability Assessment

• Since implementation a number of updates have been made to the model:

– Annual updates to expenditure deductions, provided by the ONS, and Tax and NI rates – Amendments to the interest rate stress to reflect changes in the forward view of rates – The inclusion of an household income multiple backstop, at 4.5 times

• Prior to the implementation of the Affordability framework in April 2012, the Society’s standard income multipliers

were calculated using an affordability measure known as the Debt Burden Ratio

• The proportion of the Society’s UK residential portfolio assessed via affordability currently stands at approximately

68% for owner occupied business The approach that the Society currently uses to assess residential mortgage affordability went live on 15 April 2012

Applicant’s Income Income defined within the Current Lending Policy Tax & National Insurance Deductions As per standard HMRC rules Expenditure Includes credit commitments and

• ther significant

items and general household spending Monthly Disposable Income To be applied as mortgage payment

• =

Stressed Mortgage Payment Payment calculated using a stressed interest rate on a capital and interest basis Monthly Disposable Income Calculation

Compare to determine affordability

31

Application Verification

• Upon receipt a qualified underwriter will review all mortgage applications and:

– Compare the fully submitted application to the Decision in Principle – Assess what further documentation, above the minimum required documents, may be required in order to provide the Society with adequate security to lend

• A valuation is carried out to determine whether the property is suitable security for the loan

– A down valuation (where the valuation is lower than the agreed sale price on the application) may result in a maximum loan being applied

• Any concern about the potential for fraud is referred to the Financial Crime Team
• Updated first assessment tool with criteria rules built in and details of remaining affordability implemented September 2013
• The First Assessment review focuses on four key areas:

Identification

• EID pass required or evidence obtained (UK Passport, Driving Licence), together with indefinite leave to remain

in the UK and UK tax payer

Residential History

• Covering a minimum 24 month period, confirmation from either the credit check or paper proof using

satisfactory documents

• Any undisclosed address is also credit searched

Ability to repay

• Proof of income in the form of 3 months payslips or accounts if self employed. Plus the last 3 months bank

statement showing salary / income being credited

• Affordability assessed taking into account, income as per lending policy, less tax & NI, credit commitments,

undisclosed loans, leasehold charges, significant outgoings, student loans and household expenditure based on ONS data

• Affordability is based on capital and interest using a stressed rate of interest
• If the income is less than that declared at the decision in principle stage, a maximum loan is applied

Credit Worthiness

• Proof of payment of any mortgage or loan either from the credit search or in the form of bank statements

covering 12 months for a mortgage and 6 months for other commitments

• Applications that fail the minimum credit score are declined

32

Approval & Rejection Process

Decision in Principle System Decision Refer Accept Review by underwriter Accept Decline Application Submitted Offer Completion (42%) Review by underwriter

• The main reasons for declines during the DIP stage are rejected credit scores and adverse credit
• Rejected credit scores are automatically declined by an underwriter
• 5.8% rolling 12 months average of new lending is processed as outside criteria (includes previously denied applications

that are reconsidered)

33

34 Leeds Building Society 2015 Financial Highlights 2015 New Lending & the Mortgage Portfolio Funding & Liquidity Capital Mortgage Operations & Risk Appetite ► Covered Bond Programme Appendix I – UK Economy Appendix II – UK Mortgage Sector Appendix III – Mortgage Operations Appendix IV – Group Business Model Appendix V – Mutual Structure

Covered Bonds Summary

Issuer / Seller Leeds Building Society Covered Bond Guarantor Leeds Building Society Covered Bonds LLP Programme Size EUR 7 bn Ratings AAA / Aaa (Fitch/Moody’s) UK RCB Registered Yes Listing London Stock Exchange Collateral UK first lien prime residential mortgages Bonds Outstanding £819.25m Asset Percentage 83% Moody’s Timely Payment Indicator Probable Pool Size £1.6bn Number of Loans 18,345 Over-collateralisation 197% WA Current LTV 61.02 WA Indexed LTV 55.22 WA Seasoning (months) 47.32 BTL 10.28% IO 19.34% Loan in arrears > 1 month 0.46% Maturity options Soft Bullet Interest Rate Swap Provider Leeds Building Society Covered Bond Swap Provider 3rd Parties

35

Asset Coverage Test

• The Asset Coverage Test (ACT) calculates the amount of over collateralisation needed to support the AAA ratings
• The ACT is passed when the Adjusted Aggregate Loan Amount (AALA) is greater than or equal to the sum of the principal

amount of outstanding Covered Bonds

• The AALA is the sum of the following:

A (the lower of)

Cash in GIC Account represented by principal receipts from portfolio

B, C, D

Cash capital contributions by Leeds and unutilised proceeds of term advances Substitution Assets

+

Set-off

Y, Z

Negative Carry

• The Adjusted True Balance for each loan in the

pool adjusted for arrears and LTV minus Loans which are subject to a breach of representation and warranty Asset Percentage: 83.00%

(ensuring a minimum over collateralisation)

x

The Arrears Adjusted True Balance minus Loans which are subject to a breach of representation and warranty (i) (ii)

36

Arrears Adjusted True Balance - A Available Principal Receipts - B Cash Contributions - C Substitution Assets - D Savings Set- Off - Y Negative Carry - Z Loan Amount to Covered Bond ratio percentage

1,328,471,575 29,367,053 13,373,940 39,758,477 62.79%

Covered Bonds Structural Overview

• Leeds Building Society Covered Bonds LLP (“LLP”) is a consolidated entity of Leeds Building Society (“LBS”)
• The LLP is a bankruptcy remote SPV into which the collateral pool is transferred. The guarantee offered by the LLP is

supported by mortgage collateral enabling a AAA-rating

37

Leeds Building Society Seller Leeds Building Society Covered Bonds Limited Liability Partnership LLP Leeds Building Society Interest Rate Swap Provider Leeds Building Society Issuer Covered Bondholders Security Trustee/Bond Trustee Covered Bond Swap Providers (if required) Other Secured Creditors

Sale of mortgages Consideration Swaps Deed of Charge Security under Deed of Charge Security under Deed of Charge Covered Bonds Covered Bonds Proceeds Covered Bond Guarantee Intercompany Loan Repayment of Intercompany Loan

Cover Pool Stratifications

Arrears Details

Number of Accounts % of Portfolio Current Balance (£) % of Portfolio Current

17,862 97.37% 1,584,637,256 98.08%

>0 - <= 1 month arrears

399 2.17% 24,722,910 1.53%

>1 - <= 2 month arrears

58 0.32% 4,638,369 0.29%

>2 - <= 3 month arrears

26 0.14% 1,696,368 0.10%

>3 month arrears

0.00% 0.00%

Total

18,345 100.00% 1,615,694,904 100.00%

Regional Distribution

Number of Accounts % of Portfolio Current Balance (£) % of Portfolio East Anglia

940 5.12% 87,694,230 5.43%

East Midlands

1,317 7.18% 115,577,204 7.15%

Greater London

1,324 7.22% 233,383,121 14.44%

Northern Ireland

849 4.63% 51,738,494 3.20%

North East

1,364 7.44% 85,750,231 5.31%

North West

2,011 10.96% 150,687,039 9.33%

Scotland

1,438 7.84% 95,040,984 5.88%

South East

2,207 12.03% 270,398,532 16.74%

South West

1,193 6.50% 116,479,152 7.21%

Wales

904 4.93% 65,519,963 4.06%

West Midlands

1,497 8.16% 121,981,879 7.55%

Yorkshire and Humber

3,301 17.99% 221,444,074 13.71%

Other

0.00% 0.00%

Total 18,345 100.00% 1,615,694,904 100.00%

38

Cover Pool Stratifications (Continued)

Seasoning in Months

Number of Accounts % of Portfolio Current Balance (£) % of Portfolio >0 - <=12

2,195 11.97% 289,468,404 17.92%

>12 - <=18

1,657 9.03% 183,452,876 11.35%

>18 - <=24

1,587 8.65% 181,861,091 11.26%

>24 - <=30

1,140 6.21% 131,210,864 8.12%

>30 - <=36

965 5.26% 101,553,495 6.29%

>36 - <=42

674 3.67% 61,343,052 3.80%

>42 - <=48

863 4.70% 68,446,086 4.24%

>48 - <=54

637 3.47% 40,153,757 2.49%

>54

8,627 47.03% 558,205,277 34.55%

Total

18,345 100.00% 1,615,694,904 100.00%

Minimum

0.58

Maximum

141.29

Weighted Average

47.32

Repayment Type

Number of Accounts % of Portfolio Current Balance (£) % of Portfolio Repayment

14,543 79.28% 1,262,447,314 78.14%

Interest Only

3,364 18.34% 312,552,766 19.34%

Part & Part

438 2.39% 40,694,824 2.52%

Total

18,345 100.00% 1,615,694,904 100.00%

39

Cover Pool Stratifications (Continued)

Current LTV (Indexed)

Number of Accounts % of Portfolio Current Balance (£) % of Portfolio Cumulative % >0 - <=30%

5,114 27.88% 174,049,673 10.77% 10.77%

>30 - <=35%

902 4.92% 60,710,145 3.76% 14.53%

>35 - <=40%

989 5.39% 77,855,792 4.82% 19.35%

>40 - <=45%

981 5.35% 89,977,171 5.57% 24.92%

>45 - <=50%

1,143 6.23% 118,189,009 7.32% 32.24%

>50 - <=55%

1,358 7.40% 146,071,734 9.04% 41.28%

>55 - <=60%

1,735 9.46% 202,667,360 12.54% 53.82%

>60 - <=65%

1,892 10.31% 226,977,699 14.05% 67.87%

>65 - <=70%

1,731 9.44% 211,526,023 13.09% 80.96%

>70 - <=75%

1,294 7.05% 164,240,201 10.17% 91.13%

>75 - <=80%

546 2.98% 64,023,709 3.96% 95.09%

>80 - <=85%

374 2.04% 43,262,246 2.68% 97.77%

>85 - <=90%

182 0.99% 23,429,086 1.45% 99.22%

>90 - <=95%

73 0.40% 9,282,772 0.57% 99.79%

>95 - <=100%

31 0.17% 3,432,283 0.21% 100.00%

>100%

0.00% 0.00% 100.00%

Total

18,345 100.00% 1,615,694,904 100.00% 100.00%

Minimum

0.01

Maximum

99.74

Weighted Average

55.22

40

Cover Pool Stratifications (Continued)

Interest Payment Type

Number of Accounts % of Portfolio Current Balance (£) % of Portfolio Cumulative %

Fixed 10,170 55.44% 1,107,589,295 68.55% 68.55% Variable 7,183 39.16% 414,801,122 25.67% 94.22% Discount 529 2.88% 55,493,993 3.43% 97.65% Tracker 463 2.52% 37,810,493 2.35% 100.00% Tracker with Collar 0.00% 0.00% 100.00% Capped 0.00% 0.00% 100.00% Other 0.00% 0.00% 100.00% Total 18,345 100.00% 1,615,694,904 100.00% 100.00% *counted at largest part

Occupancy Status

Number of Accounts % of Portfolio Current Balance (£) % of Portfolio Cumulative %

Owner Occupied 16,198 88.30% 1,449,534,243 89.72% 89.72% Buy to let 2,147 11.70% 166,160,661 10.28% 100.00% Other 0.00% 0.00% 100.00% Total 18,345 100.00% 1,615,694,904 100.00% 100.00%

41

42 Leeds Building Society 2015 Financial Highlights 2015 New Lending & the Mortgage Portfolio Funding & Liquidity Capital Mortgage Operations & Risk Appetite Covered Bond Programme ► Appendix I – UK Economy Appendix II – UK Mortgage Sector Appendix III – Mortgage Operations Appendix IV – Group Business Model Appendix V – Mutual Structure

Overview and Key Economic and Market Assumptions

• In the UK, the uncertainty in the market leads to

restricted funding, loss of confidence and tightening of credit conditions. Consumer confidence also falls, leading to a reduction in consumer spending and the UK economy falls back into recession (as the current recovery is mainly fuelled by consumer spending)

• Companies reverse recent recruitment and wage rise

decisions, partially due to the severity of the recession and reduction in demand and also due to cost efficiencies gained from automating some jobs

• Inflation remains low throughout the scenario due to

lower demand and due to improved efficiency and productivity of automation of processes

• Real incomes fall and unemployment rises whilst

lending costs rise, which pushes down the demand for

• lending. House prices fall sharply, before reaching a

new equilibrium in 2018

• The Bank of England reduces bank base rate to 0.25%

for the duration of the forecast in order to support households and businesses Scenario assumptions 2016 2017 Q1 Central Downturn Q1 Central Downturn Economic GDP (y/y) 2.3% (2.0%) 2.3% (1.0%) CPI (y/y) 1.2% 0.5% 1.8% 1.2% Base Rate (y/e) 0.5% 0.25% 0.5% 0.25% Unemployment Rate 5.1% 6.8% 5.1% 7.0% Earnings Growth (y/y) 3.0% 1.2% 3.5% 1.2% Market House Prices (y/y) 4.0% (10.6%) 3.5% (3.1%) Gross Lending (£bn) £235bn 200 – 260 £187bn £250bn 215 – 265 £165bn Net Lending (£bn) £37bn 22 - 55 £25bn £39bn 28 - 60 £18bn

• As well as the central scenario in the Q1 Forecast, we have also modelled two alternative scenarios; an increased competition and a 1 in

20 economic downturn, in which there is a severe market reaction to an event outside the UK, which leads to uncertainty in the money markets

• The increased competition scenario adopts the same economic and market assumptions as the central scenario, but the downturn

scenario assumptions are included in the table below

43

Potential Impacts Following a Brexit

Potential Brexit timeline

23rd June 2016: EU referendum c2018: UK formally exits the European Union If there is a vote to exit, the UK government has two years to negotiate the terms of withdrawal under Article 50 of the EU Treaty 2028?: Final agreements in place Further EU negotiations to define the relationship, and 3rd party negotiations to replace treaties that no longer apply e.g. Free Trade Agreements

Area affected Possible impact on the UK Possible impact on LBS GDP

• Almost all studies on the impact of a Brexit points to a small

negative impact on GDP growth in 2016-17, even where the

• verall impact is positive over the longer term (see Graph 3)
• A slight initial fall in GDP growth should not

have a significant effect upon the Society, depending upon the impact on consumer and business confidence during this time period Trade

• The UK will remain within the EU single market until the two

year negotiation period is up. Therefore, there is not expected to be a significant impact on trade during this time

• No significant impact expected

Pound sterling

• The pound is expected to continue to weaken, potentially

hitting parity with the euro. This should increase exports, although the cost of imports will also rise, along with inflation

• Currency exposures all hedged to GDP.

Wider swap margin may increase funding costs Equities

• Equity values would be likely to fall following a ‘Leave’ vote,

given continued uncertainty around trade agreements

• No significant impact expected

Residential property market

• No immediate impact expected, as demand is likely to

remain strong. Potential risk to London market due to the more diversified market

• No significant impact expected
• LBS exposure to London is lower than

average Regulation

• The UK will need to continue to adhere to EU regulations

during this transitional period (although with no influence

• ver these), and we are also unlikely to see an immediate

change given many UK regulations are driven internationally

• No significant impact expected

44

45 Leeds Building Society 2015 Financial Highlights 2015 New Lending & the Mortgage Portfolio Funding & Liquidity Capital Mortgage Operations & Risk Appetite Covered Bond Programme Appendix I – UK Economy ► Appendix II – UK Mortgage Sector Appendix III – Mortgage Operations Appendix IV – Group Business Model Appendix V – Mutual Structure

Leading indicators

Leading indicators suggest house price growth is stabilising, as demonstrated below:  Per Rightmove, UK asking prices rose 0.5% to £290,963 in January 2016 (an annual increase of 6.5% and the 2nd highest increase

• ver the Christmas/New Year period since 2007), reflecting a

continuing lack of supply in the market  Halifax HPI was 9.5% for December 2015, up from 9.0% in November, and Nationwide HPI was in December was 4.5%, up slightly from 3.7% in November (an average price growth of 7%)  Halifax reported that the quarterly HPI growth rate remained below 2% for the 2nd month running, suggesting a slight softening in the underlying rate of growth  The slow-down in global growth slow-down may reduce the wealth

• f buyers in the higher-priced areas of the housing market, as

prices of equities and other asset prices fall

Industry Forecasts

House Price Inflation

HPI 2016 2017 2018 2019 2020

CML forecasting group (unofficial) (Nov 15)

4.2% 3.6%

Average of estate agents’ forecasts * (Nov/Dec 15)

4.5% 3.6% 3.3% 2.8% 3.3%

Experian (Dec 15)

3.7% 3.1% 3.0% 3.3% 3.4%

Capital Economics (Dec 15)

2.0%

Reuters poll of economists (Dec 15)

4.3% 3.9%

RICS (Dec 15)

6.0%

Halifax (Dec 15)

5.0%

E & Y Item Club (Jan 16)

4.7% 4.5% 4.5% 4.5%

IMLA (Jan 16)

5.4% 3.4%

Average

4.4% 3.7% 3.6% 3.5% 3.3%

Highest of CML forecasting group’s forecasts (Dec 15)

5.0% 4.3%

Lowest of CML forecasting group’s forecasts (Dec 15)

2.4% 3.0%

Current drivers

• There has been a continued lack of supply of properties on the

market, which has sustained price rises. House prices have remained relatively stable under both the Halifax HPI and Nationwide HPI in the second half of 2015

• House prices rises in 2015 have been higher than in our

Corporate Plan forecast

Underlying Economics

• House prices are still expected to rise as the demand for houses

will outstrip the supply. The supply is unlikely to be sufficiently increased through the Government’s new housing initiatives (such as Starter Homes) until 2017 onwards

* Includes Savills International, Hamptons International and Knight Frank estate agents

46

• 20.0
• 10.0

0.0 10.0 20.0 30.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 Halifax

UK House Price Inflation

3 8 13 18 23 28 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 2014 2015 2016

Housing Transactions 2016 2017

CML forecasting group (unofficial) (Nov 15)

1.268m 1.306m

CML (Dec 15)

1.250m 1.260m

RICS (Dec 15)

1.28m

IMLA (Jan 16)

1.30m

Average

1.275m 1.283m

Industry Forecasts

Housing Transactions

Source: CACi

• Transactions in 2015 were 1.231m, which was a 1% rise in

transactions compared to 2014. The average monthly number of transactions during H2 2015 was 114m

• Data from the CACi (see graph) show that applications have been

above prior year volumes for several months

Leading indicators

Leading indicators suggest a rise in new business in the first quarter of 2016, although demand may fall later on in the year:  CACi data shows that application volumes in recent months were higher than the same period a year earlier (see graph below)  A number of elements of the Conservative’s ‘Five point plan’ for home

• wnership (such as building 400,000 new affordable homes including

starter homes, a London HTB scheme and the Right to Buy extension) have the potential to boost housing transactions  RICS reported that new buyer enquiries rose more than expected in December, partly due to the upcoming BTL tax changes which caused purchases to be brought forward ahead of the Q1 stamp duty rise  Tax changes affecting the BTL market are likely to dampen demand for mortgages for BTL house purchase from Q2 2016 onwards, although remortgage volumes are expected to increase ahead of the phasing in of the reduced tax relief in 2017 onwards

Underlying Economics

• Improvements in household finances (supported by improvements

in the economy), as well as low mortgage rates should support the number of housing transactions

Current Drivers

47

Year-on-year market applications (volume, excl BTL)

Gross Lending 2016 2017 2018 2019

Industry forecasts Verdict Financial (Dec 15)

£222bn £230bn £241bn £252bn

CML (Dec 15)

£237bn £261bn

IMLA (Jan 16)

£240bn £263bn

Peer group forecasts CML forecasting group (unofficial) (Nov 15)

£233bn £254bn

Average

£233bn £252bn £241bn £252bn

Highest of CML forecasting group’s forecasts (Dec 15)

£250bn £290bn

Lowest of CML forecasting group’s forecasts (Dec 15)

£221bn £231bn

Industry and Peer Group Forecasts

Gross Lending

Current drivers

• Gross lending for 2015 was £220bn, higher than forecasted in

the Corporate Plan (£210bn) and by the CML in December (£214bn)

• BTL overall lending growth is expected to be flat for 2016 and

marginally reduce in 2017, as house purchase levels drop due to new tax measures being introduced from April onwards

48

25,000 50,000 75,000 100,000 125,000 150,000 175,000 200,000 225,000 250,000 275,000 2008 2009 2010 2011 2012 2013 2014 2015

Gross Lending £m

Source: CML

49 Leeds Building Society 2015 Financial Highlights 2015 New Lending & the Mortgage Portfolio Funding & Liquidity Capital Mortgage Operations & Risk Appetite Covered Bond Programme Appendix I – UK Economy Appendix II – UK Mortgage Sector ► Appendix III – Mortgage Operations Appendix IV – Group Business Model Appendix V – Mutual Structure

Lending Policy Development

A number of actions have been taken to control the profile of mortgage applications:

Exit of Selected Markets Exit of Selected Markets

• Exit of sub-prime lending in February 2008
• Exit of self certified lending markets in May 2008
• Exit of 100% LTV lending markets in 2008
• Exit from self build market in 2014
• Exit from overseas lending in September 2009 (Ireland) and December 2010 (Spain)

Overseas Lending Overseas Lending

• Maximum LTV controls tightened in response to credit crisis
• Since then, expansion of LTV criteria with scorecard control (up to 95% LTV based on scorecard)
• BTL LTV maximum reduced to 70% (2014)
• New build houses maximum LTV increased to 85% (2014)

LTV LTV

• New scorecard implemented as used as direct accept/ reject tool
• Definition of ‘prime’ borrower re-defined – allowable adverse credit tightened
• Cessation of Fast Track in January 2012
• IO and lending into retirement criteria controls tightened (e.g., maximum LTVs reduced)

Criteria Tightening Criteria Tightening

• Movement from Income Multiples to Affordability framework in April 2012
• Inclusion of a 5 times household income multiple backstop

New Affordability Model New Affordability Model New / Expanded Markets New / Expanded Markets

• Contractor Mortgages (launch August 2014)
• Maximum loan sizes increased to £1.25m

50

Valuation Methodology Overview

• Mortgage valuations are carried out in line with the RICS Appraisal & Valuation Manual
• A valuation is carried out on all properties proposed as security
• Valuation types used:

Standard (Full) Mortgage Valuation

• Used for all purchase transactions
• Used for remortgage transactions with LTV > 80%

Automated Valuation Model (AVM)

• Used for fee free remortgage transactions with LTV < 80%
• Maximum loan size of £400,000, maximum valuation of £500,000
• Minimum confidence factor of 5
• Used for further advances with LTV <80%, depending on a matrix which looks at LTV

and number of further advances

• AVM Provider: Hometrack Data Systems Ltd

Indexation (HPI)

• Applied to further advances with LTV < 70%, depending on a matrix which looks at

the LTV and number of further advances Construction / Staged Dispersal

• Stage payment mortgages inspected by surveyor at each stage completed
• New build properties inspected upon completion

Guidelines

• The Society’s valuation panel management is outsourced to a third party valuation services provider, e.surv Ltd
• The Society utilises the expertise of its valuation services provider to identify and react to developing market trends
• Leeds Building Society Valuation Guidance Notes are used by valuers and underwriting staff and set out the Society’s policy
• An exposure limit exists to restrict the volume of new applications underwritten using an AVM to no more than 20% of all new

applications Valuation monitoring – The Society monitors valuations on a quarterly basis using the Halifax House Price Index – Monthly exception reporting that identifies cases that have extreme negative / positive equity or show signs that the valuation has deteriorated are checked and re-valued where necessary

51

Collections Process

• Applies to England, Wales, Scotland and Northern Ireland
• Each stage is preceded by outbound telephone calls
• Where required reminders are sent by letter or email
• The average days from default to possession is 183 days

After this stage, Scottish and Northern Irish cases are referred to solicitors (Note: no Northern Irish loans in Albion No.3 pool) At this stage a “Calling Up Notice” is sent on Scottish cases

Day 1 Payment due Day 8 First reminder, 10 days to respond Day 18 Second reminder, 10 days to respond Day 28 Telephone/field agent visit, allow 21 days for report Day 49 Solicitors letter, 21 days to respond Day 70 Telephone for proposals/Issue a Summons

Foreclosures

Confirmation of Possession Full evaluation of property, if S/O offer to buy back is made to the Housing Association Property placed on the market or in auction Suitable offer is received and sale accepted public notice put on-line Any loss is passed to Loss Recoveries Proposals agreed with borrower to repay shortfall

Provision amended to reflect sale price New Provision based on lowest valuation Provision based on last HPI

Customer has 14 days to clear possessions Any surplus realised on completion of sale the Solicitor carries out searches to identify next entitled

52

53 Leeds Building Society 2015 Financial Highlights 2015 New Lending & the Mortgage Portfolio Funding & Liquidity Capital Mortgage Operations & Risk Appetite Covered Bond Programme Appendix I – UK Economy Appendix II – UK Mortgage Sector Appendix III – Mortgage Operations ► Appendix IV – Group Business Model Appendix V – Mutual Structure

Our Business Model

Helping our members get on with life

Savers via… Savers via… Raising long term, stable and diverse funds from the wholesale markets Raising long term, stable and diverse funds from the wholesale markets

BRANCH INTERNET POST

Mortgage Borrowers Mortgage Borrowers Maintaining liquid investments with strong credit rated institutions and central banks. Maintaining liquid investments with strong credit rated institutions and central banks. Continually improve the products and services we offer to help existing members and attract new members. Continually improve the products and services we offer to help existing members and attract new members. Making sufficient profit to maintain a strong capital base. Making sufficient profit to maintain a strong capital base.

We fund from: We lend to: We Invest to: We are financially secure: We are financially stable: As well as:

We differentiate ourselves from our competitors

We do things differently

• Achieve high member

satisfaction

• Savings rates above market

average

• Prudent lending approach

Our approach delivers member value in the way we do business

• Maintain strong capital base to ensure long term security of members
• Operate to the highest standards of trust and integrity
• Invest to build long term advocacy
• Help families and first time buyers to purchase homes through

competitive products

• We pay savings rates higher than market average rates
• High levels of customer service
• 574,000 saving

members

• Mainly over 50s

but intend to extend to young urbanites and settling down life stages

• Long term

average of 20% from wholesale markets

• 172,000 mortgage members
• Indexed LTV on mortgage

portfolio of <50%

• Our blend of lending

segments allows us to achieve an acceptable portfolio risk profile, along with superior margins

• Liquidity

Coverage Ratio of 205%

• Conservative

investment strategy

• The Society is

investing (c£7.0m in 2015) to support strategic change in the business

• Strong focus on

customer experience and digital

• Generate 40 - 55p of

pre-tax profit for every £100 of assets

• Core Tier 1 ratio of

>15%, significantly higher then regulatory requirement We will carry on doing things differently

• Customer centric approach
• Single contact point supported by

efficient and seamless processes

• Greater agility to execute change
• Strong brand proposition
• Focus on segmental lending

Mainstream Semi- Mainstream Underserved e.g. Mid/Low LTV Owner Occupied BTL

54

55 Leeds Building Society 2015 Financial Highlights 2015 New Lending & the Mortgage Portfolio Funding & Liquidity Capital Mortgage Operations & Risk Appetite Covered Bond Programme Appendix I – UK Economy Appendix II – UK Mortgage Sector Appendix III – Mortgage Operations Appendix IV – Group Business Model ► Appendix V – Mutual Structure

The Mutual Framework

The characteristics of a building society

The Building Societies Act ► Minimum of 75% of assets must be loans secured on residential property ► At least 50% of funding must be from members ► No proprietary trading or speculation ► Owned by members The Building Societies Act ► Minimum of 75% of assets must be loans secured on residential property ► At least 50% of funding must be from members ► No proprietary trading or speculation ► Owned by members Naturally member focussed ► Asset concentration in UK residential mortgages ► Stakeholder and customer interests are naturally aligned ► Longer term strategic focus Naturally member focussed ► Asset concentration in UK residential mortgages ► Stakeholder and customer interests are naturally aligned ► Longer term strategic focus Stability is the result ► Asset mix leads to a low credit risk profile ► Consistent and longstanding presence in the mortgage and savings market ► Earnings profile is less complex and generally more stable ► Focus on customer service and delivering member value ► Strong political support for the building society model Stability is the result ► Asset mix leads to a low credit risk profile ► Consistent and longstanding presence in the mortgage and savings market ► Earnings profile is less complex and generally more stable ► Focus on customer service and delivering member value ► Strong political support for the building society model

• Building Societies are owned by their members
• Value is distributed to its members through service and pricing
• The Building Society model provides mortgages for homeowners funded by its members’ deposits
• No shareholder pressure – the members’ interests are at the heart of decision making but financial security remains

paramount

• Regulated by the Financial Conduct Authority and the Prudential Regulation Authority

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Key Contacts

Mark Taylor Head of Capital Markets

mtaylor@leedsbuildingsociety.co.uk +44 113 216 7415

Paul Riley Director of Treasury

priley@leedsbuildingsociety.co.uk +44 113 225 7525

http://www.leedsbuildingsociety.co.uk/treasury/ Andrew Moody Director of Credit Risk

amoody@leedsbuildingsociety.co.uk +44 113 225 9552

Robin Litten Chief Financial Officer

rlitten@leedsbuildingsociety.co.uk +44 113 225 7506

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