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WestBromwich BldgSoc (WBS)

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Thursday 31 May, 2012

WestBromwich BldgSoc

Annual Financial Report

RNS Number : 5111E
West Bromwich Building Society
31 May 2012
 



West Bromwich Building Society

Preliminary results announcement for the year ended 31 March 2012

 

 

 

The West Brom today announces its results for the financial year ended 31 March 2012, reporting continued progress with its Back to Basics strategy.

 

Key highlights from the 2011/12 financial year include:

 

-     An increase in the Group's Core Tier 1 capital ratio from 12.8% to 13.3%, remaining one of the highest among UK banks and building societies

 

-     Strong levels of high quality liquidity balances maintained

 

-     Market-leading rates delivered to our savings members, with savers earning on average 1.86% higher than Bank Rate

 

-     Retail savings inflows of £2.4bn, attracting some 52,300 new savers, with residential mortgages covered 1.31 times by retail deposits

 

-     Net interest margin improved slightly to 0.47% (2010/11: 0.43%)

 

-     A reduction of 38% in credit impairment charges

 

-     Pre-tax losses further reduced, by 31% to £9.5m (2010/11: £13.8m)

 

Jonathan Westhoff, Chief Executive, commented:

 

"The West Brom has shown continued progress over the past year in line with our Back to Basics strategy and its emphasis on the core building society priorities of retail savings, investments and prime residential mortgages.  This has resulted in the Society once again being able to reduce pre-tax losses and, more significantly, deliver a strong improvement in underlying performance. 

 

While turbulence and instability in the economy prevails, our focus continues to be on providing our members with excellence in products and service.

 

For savers, we have sought to cushion the consequences of the challenging interest rate environment, where Bank Rate remains at its historically low level, by consistently offering a range of market-leading accounts.  At the same time, the majority of our residential mortgage borrowers have benefited significantly from very low rates linked to Bank Rate.

 

We have made tremendous advances with our branch modernisation programme, delivering a much improved quality of service. In addition, we completed the necessary work to re-establish ourselves in the prime residential mortgage market.

 

This willingness to invest in rejuvenating the branch network also reflects the Society's confidence in our position as the leading building society in Birmingham and the Black Country, and the sixth largest in the UK."

 

31 May 2012

 

 

 

 

 

Enquiries:

 

The West Brom                                                            0870 220 7785
Jonathan Westhoff - Chief Executive

Mark Gibbard - Group Finance Director

 

Chief Executive's Review

 

Performance

 

Given the challenging economic environment, it is pleasing to report that the West Brom has again shown progress over the last year.  Our Back to Basics strategy and its emphasis on the core building society priorities of retail savings, investments and prime residential mortgages has delivered increased capital ratios and strong levels of high quality liquidity.

 

The Group's financial results showed another improvement with a reduction of some 31% in the pre-tax loss figure, to £9.5m. 

 

An integral part of our Back to Basics strategy is looking after the financial interests of our members through a range of savings and investment products, alongside the offer of prime residential mortgages.

 

Bank Rate remains historically low and while this does bring a benefit for many of our residential mortgage borrowers it also places pressure on those seeking to maximise the return on their savings. 

 

Our commitment to savers has seen the West Brom feature consistently in the Best Buy tables over the course of the year, providing competitive products to customers whichever way they prefer to manage their accounts, be it through a branch, directly by telephone or post, or via the internet.

 

The Society's ability to attract retail deposits which, in the 12 months to 31 March 2012, amounted to a gross inflow of some £2.4bn, meant we were more than able to maintain the proportion of our funding that comes directly from members' deposits.  At 86.6% of total funding, these deposits have enabled us to comfortably fund residential mortgages at 1.31 times cover.

 

Shortly after the year end, we were able to complete a securitisation transaction of residential mortgage assets, the Society's first for six years, to diversify and extend the term of our funding sources.

 

Non-core activities

 

At the heart of the Society's Back to Basics strategy is an orderly withdrawal from those areas of operation into which we previously diversified - notably commercial lending, residential property letting and second charge lending.

 

Continued progress is evident, with a reduction of almost 30%, to £1.2bn, over the last three years in the Group's total exposure to commercial lending. Whilst maintaining a prudent level of provisions against our commercial loans, we were able to reduce the level of impairment charges in the year to £6.2m (2010/11: £8.7m).

 

We intend to exit the residential letting operation - West Bromwich Homes - when market conditions are opportune.  However, the current state of the property market is not likely to lead to a portfolio sale in the near future.  Thanks to more efficient management the division reported a very pleasing increase in its underlying trading profit, to £0.6m (2010/11: £0.2m).

 

In terms of the Group's second charge mortgage business - Insignia - it was decided, in 2009, that we would not do any further lending.  Since then, careful management of the existing loans has seen balances reduce from £56.1m to £39.6m.

 

 

Moving ahead with confidence

 

A renewed emphasis on the Society's strengths as a traditional regionally-based building society does not preclude innovation and development. 

 

We have lived up to our promise of upgrading our branch network, and the feedback from staff and customers alike suggests the project has exceeded expectations.  The modernisation programme has given West Brom branches a vibrant profile that is more than a match for our competitors in high streets across the region. 

 

The Society took another step forward after completing the necessary work to re-establish ourselves in the prime residential mortgage market.  This involved the implementation of a new highly automated processing and support system, which is now live and enabling the delivery of a new range of mortgage products.

 

It is still very much our intention to relocate the Society to new head office premises.  Progress has been frustrating and negotiations with potential partners have been protracted.  However, we are clear that we will only sign up for premises that are right for our business and are in the best long-term interests of our members and staff.

 

Outlook - playing to our strengths

 

The overall economic situation both here in the UK and across much of Europe remains unsettled and it would be unwise to predict any immediate upturn.  This will have inevitable repercussions for the financial services sector, especially if Bank Rate remains at its all-time low level, and means that the Society's financial performance will continue to be constrained.

 

Our strengths are embodied in our Back to Basics strategy, which has produced a framework for stability and renewal.  The Society's performance over the last year does give some grounds for optimism, while the impressive modernisation of our branches and the re-establishment of the West Brom in the prime residential mortgage market are two noteworthy achievements that will stand us in good stead going forward.

 

 

Jonathan Westhoff

Chief Executive

31 May 2012

 

Income Statement



for the year ended 31 March 2012




Group

Group


2012

2011


 £m

 £m




Interest receivable and similar income

180.8

190.7

Interest expense and similar charges

(145.9)

(156.3)

Net interest receivable

34.9

34.4

Fees and commissions receivable

6.1

5.7

Other operating income

4.4

4.1

Total operating income

45.4

44.2

Fair value losses on financial instruments

(3.0)

(9.1)

Net realised profits from financial instruments

5.2

15.6

Total income

47.6

50.7

Administrative expenses - ongoing

(38.2)

(36.1)

Administrative expenses - restructuring

(0.1)

(0.3)

Depreciation and amortisation

(4.7)

(5.0)

Operating profit before impairments, provisions
and revaluation losses

4.6

9.3

Losses on investment properties

(1.0)

(1.9)

Impairment losses on loans and advances

(10.5)

(16.8)

Provisions for liabilities - FSCS Levy

(2.9)

(2.2)

Provisions for liabilities - other

0.3

(1.5)

Loss before tax

(9.5)

(13.1)

Taxation

0.3

3.4

Loss for the financial year from continuing operations

(9.2)

(9.7)

Discontinued operations



Loss from discontinued operations

                   -  

(0.7)

Loss for the financial year

(9.2)

(10.4)

 

 

Statement of Comprehensive Income



for the year ended 31 March 2012




 Group

 Group


2012

2011


 £m

 £m




Loss for the financial year

(9.2)

(10.4)

Other comprehensive income



Available for sale investments



   Valuation gain taken to equity

10.5

14.0

   Amounts transferred to Income Statement

(5.2)

(15.6)

Actuarial (loss)/gain on retirement benefit obligations

(4.3)

0.7

Cash flow hedge gains/(losses) taken to equity

0.1

(0.3)

Tax on items taken directly to equity

(0.5)

1.1

Other comprehensive income for the financial year, net of tax

0.6

(0.1)

Total comprehensive income for the financial year

(8.6)

(10.5)

 

 

Statement of Financial Position



at 31 March 2012




 Group

 Group


2012

2011


 £m

 £m

Assets



Cash and balances with the Bank of England

              769.2

               385.4

Loans and advances to credit institutions

              117.5

               124.7

Investment securities

              924.5

               918.6

Derivative financial instruments

               64.5

                 73.4

Loans and advances to customers

           5,373.6

            5,880.1

Current tax assets

                   -  

                   1.9

Deferred tax assets

               25.7

                 23.8

Trade and other receivables

                 4.3

                   5.8

Intangible assets

                 7.5

                   7.2

Investment properties

              112.7

               113.7

Property, plant and equipment

               17.6

                 12.6

Retirement benefit assets

                   -  

                   1.8

Total assets

           7,417.1

            7,549.0

Liabilities



Shares

           5,672.8

            5,711.9

Amounts due to credit institutions

               48.6

                 64.3

Amounts due to other customers

              129.7

               131.6

Derivative financial instruments

              107.8

                 79.8

Debt securities in issue

              927.4

            1,025.3

Deferred tax liabilities

                 8.2

                   6.2

Trade and other payables

               19.9

                 18.6

Provisions for liabilities

                 6.4

                   6.8

Retirement benefit obligations

                 0.4

                    -  

Total liabilities

           6,921.2

            7,044.5

Equity



Profit participating deferred shares

              175.0

               177.3

Subscribed capital

               74.9

                 74.9

General reserves

              241.1

               251.3

Revaluation reserve

                 3.7

                   3.7

Available for sale reserve

                 1.2

                  (2.6)

Cash flow hedging reserve

                   -  

                  (0.1)

Total equity attributable to members

              495.9

               504.5

Total liabilities and equity

           7,417.1

            7,549.0




 

Included above are £262.8m of commercial mortgage balances held in two bankruptcy remote Special Purpose Entities (SPEs), Sandwell Commercial Finance No. 1 Plc (Sandwell 1) and Sandwell Commercial Finance No. 2 Plc (Sandwell 2). The Group's exposure to losses in Sandwell 1 and Sandwell 2 is capped by a first loss at £3.75m and £7.0m respectively.  Loans and advances to customers are shown net of provisions of £5.3m in Sandwell 1 and £15.2m in Sandwell 2. The excess over the first loss has been deducted from the carrying value of debt securities which funded the SPEs.   

 

 

Statement of Changes in Members' Interest

for the year ended 31 March 2012


Profit participating deferred shares

Subscribed capital

General reserves

Revaluation reserve

Available
for sale reserve

Cash flow hedging reserve

Total

Group

£m

£m

£m

£m

£m

£m

£m

At 1 April 2011

177.3

74.9

251.3

3.7

(2.6)

(0.1)

504.5

Loss for the financial year

(2.3)

(6.9)

(9.2)

Other comprehensive income for the period








Available for sale investments: valuation gain taken to equity

3.8

3.8

Actuarial loss on retirement benefit obligations

(3.3)

(3.3)

Cash flow hedge gains taken to equity

0.1

0.1

Total other comprehensive income

(3.3)

3.8

0.1

0.6

Total comprehensive income for the year

(2.3)

(10.2)

3.8

0.1

(8.6)

At 31 March 2012

175.0

74.9

241.1

3.7

1.2

495.9










Profit participating deferred shares

Subscribed capital

General reserves

Revaluation reserve

Available for sale reserve

Cash flow hedging reserve

Total

Group

£m

£m

£m

£m

£m

£m

£m

At 1 April 2010

179.9

74.9

258.5

3.8

(2.3)

0.2

515.0

Loss for the financial year

(2.6)

(7.8)

(10.4)

Other comprehensive income for the period








Available for sale investments: valuation loss taken to equity

(0.3)

(0.3)

Realisation of previous revaluation gains

0.1

(0.1)

Actuarial gain on retirement benefit obligations

0.5

0.5

Cash flow hedge losses taken to equity

(0.3)

(0.3)

Total other comprehensive income

0.6

(0.1)

(0.3)

(0.3)

(0.1)

Total comprehensive income for the year

(2.6)

(7.2)

(0.1)

(0.3)

(0.3)

(10.5)

At 31 March 2011

177.3

74.9

251.3

3.7

(2.6)

(0.1)

504.5

 

 

Statement of Cash Flows



for the year ended 31 March 2012




Group

Group


2012

2011


 £m

 £m




Net cash inflow/(outflow) from operating activities (see below)

465.8

(368.8)

Cash flows from investing activities



Purchase of investment securities

(2,018.8)

(3,756.7)

Proceeds from disposal of investment securities

2,201.4

3,781.9

Purchase of property, plant and equipment and intangible assets

(10.3)

(4.4)

Proceeds from disposal of property, plant and equipment

0.2

1.7

Purchase of investment property

(0.3)

Proceeds from disposal of investment properties

0.7

Net cash flows from investing activities

172.5

22.9

Cash flows from financing activities



Net (repayment)/issue of other debt securities

(27.6)

216.0

Repayment of mortgage backed loan notes

(52.1)

(63.1)

Net cash flows from financing activities

(79.7)

152.9

Net increase/(decrease) in cash

558.6

(193.0)

Cash and cash equivalents at beginning of year

575.2

768.2

Cash and cash equivalents at end of year

1,133.8

575.2





Group

Group


2012

2011


 £m

 £m

Analysis of cash balances



Cash in hand (including Bank of England reserve account)

763.7

379.6

Loans and advances to credit institutions

116.1

124.7

Investment securities

254.0

70.9


1,133.8

575.2





Group

Group


2012

2011


 £m

 £m

Cash flows from operating activities



Loss on ordinary activities before tax from continuing activities

(9.5)

(13.1)

Loss on ordinary activities before tax from discontinued activities

(0.7)

Movement in prepayments and accrued income

(0.8)

0.4

Movement in accruals and deferred income

4.3

(3.1)

Impairment losses on loans and advances

10.5

16.8

Depreciation and amortisation

4.7

5.0

Disposal of fixed assets and investment properties

(0.4)

Revaluations of investment properties, land and buildings

1.0

1.9

Movement in provisions for liabilities

(0.4)

0.8

Movement in derivative financial instruments

36.9

(11.9)

Movement in fair value adjustments

(15.0)

11.9

Change in retirement benefit obligations

(2.1)

(3.1)

Cash flows from operating activities before changes in operating assets and liabilities

29.6

4.5

Movement in loans and advances to customers

517.1

518.0

Movement in loans and advances to credit institutions

(1.1)

Movement in shares

(38.1)

(831.8)

Movement in deposits and other borrowings

(42.8)

(70.4)

Movement in trade and other receivables

2.3

(0.2)

Movement in trade and other payables

(3.3)

11.1

Tax received

2.1

Net cash inflow/(outflow) from operating activities

465.8

(368.8)

 

 

Ratios



for the year ended 31 March 2012

Group

Statutory


2012

limit


 %

%




Lending limit

               19.1

                 25.0

Funding limit

               13.4

                 50.0





Group

Group


2012

2011


 %

 %

As a percentage of shares and borrowings:



  Gross capital

7.57

7.58

  Free capital

5.83

5.86

  Liquid assets

27.64

21.47

As a percentage of mean total assets:



  Loss for the financial year

(0.12)

(0.13)

  Management expenses

0.57

0.52




Core liquidity buffer as a percentage of total liquidity

62.4

47.0

Solvency ratio

16.2

15.6

Tier 1 capital ratio

15.7

15.1

Core Tier 1 capital ratio

13.3

12.8




 

 


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