TIDMWBS
RNS Number : 1001T
West Bromwich Building Society
30 November 2011
WEST BROMWICH BUILDING SOCIETY
Announcement of half-year results for the six months ended 30
September 2011
The West Brom today reports its half-year results, which show
how the Society, against a backdrop of general economic uncertainty
and challenging trading conditions, is making continued progress
with its Back to Basics strategy.
Key highlights:
- The Core Tier 1 capital ratio increased from 12.8% at 31 March 2011 to 13.1%
- Continued improvement in the Group's performance, with a
reduction in pre tax losses from continuing operations to GBP5.0m
(30 September 2010: GBP5.5m)
- A 50% reduction in the Society's underlying loss from
continuing operations, which is down from GBP11.3m to GBP5.7m
- Net interest income increased from GBP13.6m to GBP19.2m
- A reduction of 15% in credit impairment charges
- Savings members benefited from a range of market-leading
rates, with West Brom products appearing in the savings Best Buy
tables every week
- Attracted some 23,000 new customers, contributing to retail savings inflows of GBP1.2bn
- Low reliance placed on the wholesale markets, with 85.4% of
funding sourced from retail customers. This means residential
lending continues to be fully funded by retail balances
- Liquidity balances maintained at a comfortable surplus above
the more rigorous requirements established for banks and building
societies since the credit crisis
Jonathan Westhoff, Chief Executive, commented:
The West Brom's members can take considerable encouragement from
these half-year results, which show further progress in our Back to
Basics strategy.
A reduction in losses, coupled with an increasingly attractive
retail proposition for our members, has been achieved within an
uncertain and volatile wider economic environment.
Once again, the West Brom has increased its Core Tier 1 capital
ratio, to 13.1%, which is one of the highest ratios in the UK bank
and building society sector. This ensures the Society remains a
safe and secure home for members' money.
As a mutual organisation, we operate first and foremost for the
benefit of our members and the West Brom continues to provide an
exceptional service.
We have upheld the income of our savings members by maintaining
highly competitive interest rates, while the majority of mortgage
customers have benefited from the continued low Bank Rate.
Looking ahead, the condition of the financial markets in the UK
and overseas and the outlook for the economy as a whole will
undoubtedly present challenges for financial services providers and
many other businesses besides. The escalation of issues that have
emerged over recent months has highlighted the fragility of the
global recovery.
Crucially, the West Brom is well placed to meet these
challenges, with its strong capital ratios and an unwavering focus
on delivering the core building society activities of retail
savings, investments and prime residential lending.
We are also committed to improving our offer for members and
many are now benefiting from the extensive modernisation of our
branch network. Every branch is being dramatically improved,
enhancing service standards and projecting a confident image of the
West Brom as the leading building society in Birmingham and the
Black Country, and the sixth largest in the UK.
ENQUIRIES:
The West Brom: 0870 220 7785 Jonathan Westhoff - Chief
Executive
Mark Gibbard - Group Finance Director
West Bromwich Building Society
Condensed consolidated
half-yearly financial information
30 September 2011
Chief Executive's BUSINESS Review
Performance
The West Brom continued to make satisfactory progress despite
the uncertain and volatile economic environment. Group pre tax
losses from continuing operations were down to GBP5.0m for the half
year to 30 September 2011 (30 September 2010: GBP5.5m) and there
was a reduction in the underlying loss of circa 50% from the
GBP11.3m posted in the previous half year.
A reconciliation of underlying profit is shown in the table
below because we view a number of items as one-off and want to
demonstrate our underlying operating performance.
6 months 6 months Year
============================================ ================== ================ ================
ended ended ended
============================================ ================== ================ ================
30-Sep-11 30-Sep-10 31-Mar-11
============================================ ================== ================ ================
un-audited un-audited audited
============================================ ================== ================ ================
GBPm GBPm GBPm
============================================ ================== ================ ================
Reported loss before tax on continuing
operations (5.0) (5.5) (13.1)
============================================ ================== ================ ================
Reported loss from discontinued operations - (0.1) (0.7)
-------------------------------------------- ------------------ ---------------- ----------------
Total Group loss before tax (5.0) (5.6) (13.8)
============================================ ================== ================ ================
Net fair value movements 1.9 6.6 9.1
============================================ ================== ================ ================
Gains from sale of financial instruments (4.9) (13.9) (15.6)
============================================ ================== ================ ================
FSCS levy charge 1.3 1.3 2.2
============================================ ================== ================ ================
Restructuring costs - 0.2 1.8
============================================ ================== ================ ================
Other one-off costs 1.0 - -
============================================ ================== ================ ================
Discontinued operations - 0.1 0.7
-------------------------------------------- ------------------ ---------------- ----------------
Underlying loss before tax on continuing
operations (5.7) (11.3) (15.6)
-------------------------------------------- ------------------ ---------------- ----------------
The turbulence in the Eurozone continues and uncertainty over
the outlook for sovereign debt presents risks for the recovery of
the UK economy. Competition for retail funding has intensified with
many financial institutions reducing their reliance on the volatile
wholesale markets and looking to raise funds to repay Government
backed funding. This, combined with the current low Bank Rate, has
maintained persistent pressure on interest margins. Nevertheless,
the Society has sustained the progress made in the year to increase
net interest income to GBP19.2m (30 September 2010: GBP13.6m).
Slow economic growth, no movement in the Bank Rate, limited
market activity and the planned contraction of the balance sheet to
conserve capital for the benefit of the security of members' funds
have limited the opportunities for the Society to return to profit.
However, throughout the period the Society has upheld the income of
its savings members by maintaining highly competitive interest
rates, whilst the majority of its mortgage customers have benefited
from the continued low Bank Rate.
Total administrative expenses increased year on year by 11.6%
reflecting the Society's investment in people and systems required
to facilitate the controlled run-off of all legacy issues
identified as part of our Back to Basics strategy. The annualised
management expenses ratio has increased from 0.52% for the year to
31 March 2011 to 0.63% for the period to 30 September 2011,
primarily as a result of the measured reduction in the balance
sheet and certain one-off costs. Further investment in systems and
resources is likely to enhance the West Brom's process automation
and re-establish the Society's position in the residential mortgage
market.
Residential mortgage arrears were maintained at a low level,
especially when considering the increasing trend in unemployment
and the slow recovery of the economy. This has been driven by
focused credit risk management and collections activity. The number
of core residential mortgages (excluding the closed second charge
mortgage book) where the arrears balance was greater than 2.5% of
total outstanding balances represented just 1.10% of the total book
(31 March 2011: 1.04%), well below the industry average. As part of
the Back to Basics strategy, the Society ceased lending through its
second charge business and is continuing to manage down its
remaining limited exposure.
For those borrowers who are experiencing a period of financial
difficulty, we continue to offer support to ensure that, wherever
it is viable, they can remain in their homes. This continues to be
evidenced by the number of properties in possession, which has
reduced in the last six months by 15% (from 74 to 63), representing
just 0.13% of residential loans.
We manage both the residential and commercial property
portfolios within a very tight risk framework, constantly looking
to enhance our collection capabilities and credit risk management
practices and we have continued to make prudent provisions where we
have identified any emerging difficulties. The commercial property
sector has struggled in the current challenging operating
environment and, until the economy experiences sustained recovery,
it looks likely to continue that way. However, the combination of
our commercial lending "work-out" teams and risk division has
delivered a further reduction in the charge for potential bad debts
which reduced to GBP7.3m (30 September 2010: GBP8.6m).
Liquidity
The Group has maintained high quality liquid assets throughout
the economic downturn and, as at 30 September 2011, the Group's
liquidity ratio stood at 21.0% (30 September 2010: 20.5%). The
prime focus during the last 12 months has been on enhancing the
quality of the liquid assets held to ensure they are realisable in
times of market-wide stress. The Group has no sovereign debt
exposure in its liquidity portfolio to any of Greece, Ireland,
Italy, Portugal or Spain. No impairment charges were required
against any treasury investment assets in the period. An analysis
of the Group's liquidity position is shown below.
30-Sep-11 30-Sep-10 31-Mar-11
GBPm % GBPm % GBPm %
Buffer liquidity
- Bank of England Reserve 468.4 35.3 287.5 20.5 377.6 26.5
- Treasury Bills 1.7 0.1 71.2 5.1 149.6 10.5
- Gilts 113.6 8.6 109.9 7.8 142.5 10.0
------------------------------ ------------ ------ ----------- ------ ----------- ------
Total buffer liquidity 583.7 44.0 468.6 33.4 669.7 47.0
Other securities - rated
single A or better 663.5 50.1 780.4 55.6 598.1 41.8
Other securities - rated
less than single A 5.0 0.4 10.0 0.7 58.2 4.0
Subsidiary / other liquidity 73.3 5.5 144.8 10.3 102.7 7.2
------------------------------ ------------ ------ ----------- ------ ----------- ------
Total liquidity 1,325.5 100.0 1,403.8 100.0 1,428.7 100.0
------------------------------ ------------ ------ ----------- ------ ----------- ------
Capital
Capital is held as the ultimate protection for depositors. The
Board sets its risk appetite such that the Society's capital will
exceed those minimum regulatory requirements set out by the rules
and guidance issued by the Financial Services Authority (FSA).
30-Sep-11 30-Sep-10 31-Mar-11
Basel Basel Basel
II II II
Standardised Standardised Standardised
GBPm GBPm GBPm
Tier 1
General reserve 248.5 255.5 251.3
Permanent interest bearing
shares (Note 1) 74.9 74.9 74.9
Profit participating deferred
shares 176.4 178.9 177.3
Intangible assets (Note 2) (8.0) (7.2) (9.0)
Deductions from Tier 1 capital
(Note 3) (4.8) (4.9) (4.3)
--------------------------------- -------------------- -------------------- --------------------
487.0 497.2 490.2
--------------------------------- -------------------- -------------------- --------------------
Tier 2
Revaluation reserve 3.7 3.8 3.7
Collective impairment allowance 20.3 18.4 18.9
Contingency against collective
provision add back (Note 4) (5.8) - (4.4)
Deductions from Tier 2 capital
(Note 3) (4.2) (4.9) (4.3)
--------------------------------- -------------------- -------------------- --------------------
14.0 17.3 13.9
--------------------------------- -------------------- -------------------- --------------------
Total capital 501.0 514.5 504.1
--------------------------------- -------------------- -------------------- --------------------
Risk weighted assets - Pillar
1
Retail mortgages 1,747.1 1,861.8 1,817.4
Commercial loans 1,021.3 1,157.9 1,037.1
Treasury 111.3 143.2 106.1
Other 157.3 161.7 155.8
Market risk 2.1 26.2 3.6
Operational risk 94.8 120.6 120.6
--------------------------------- -------------------- -------------------- --------------------
3,133.9 3,471.4 3,240.6
--------------------------------- -------------------- -------------------- --------------------
Key capital ratios
Total capital 501.0 514.5 504.1
Core Tier 1 (%) (Note 5) 13.1 12.2 12.8
Tier 1 ratio (%) (Note 5) 15.5 14.3 15.1
Total capital (%) (Note 5) 16.0 14.8 15.6
--------------------------------- -------------------- -------------------- --------------------
Notes
1. Permanent interest bearing shares include any fair value
adjustments and adjustments for unamortised premiums and
discounts.
2. Intangible assets do not qualify as capital for regulatory purposes.
3. Certain deductions from capital are required to be allocated
50% to Tier 1 and 50% to Tier 2 capital. Other deductions are Tier
specific.
4. Deduction from the collective provision add back reflecting
the proportion of the provision that is disallowable for capital
purposes.
5. Calculated as relevant capital divided by risk weighted
assets. Core Tier 1 represents Tier 1 capital excluding Permanent
interest bearing shares.
The Society's Core Tier 1 ratio remained strong at 13.1% (31
March 2011: 12.8%), one of the highest ratios in the UK bank and
building society sector, and the Tier 1 ratio was 15.5% (31 March
2011: 15.1%). Our Core Tier 1 ratio has now almost doubled over the
last three years (6.8% in 2008). This strengthening in the capital
ratio has been achieved as a result of our ongoing strategy to
deliver a managed reduction in risk weighted assets, down 10% in
the last 12 months to GBP3.1bn.
Principal Risks and Uncertainties
Across the Group, strategic, operational and financial risks are
identified and, where necessary, actions are taken to mitigate
those risks. The Group Risk Committee, which meets at least
quarterly, is responsible for reviewing these risks. The principal
risks and uncertainties which could have an impact on the Group's
long-term performance remain those outlined on pages 14 to 17 of
the 2011 Annual Report and Accounts.
For the remainder of the current financial year, the principal
risks and uncertainties faced by the Group are associated with the
current condition of the financial markets, both in the UK and
internationally, and the outlook for the economy as a whole. The
key risks are the continuing difficulties in the commercial
property sector, the potential impact on impairment charges of a
sudden further downturn in this sector driven by increasing
unemployment and, the impact on the net interest margin of rates
offered to attract and retain retail savers at a time when a large
element of our residential loans are linked to the historically low
level of the Bank Rate.
Given the difficult wholesale market conditions and the
increasing uncertainty in the Eurozone the risk of competition for
retail savings balances is likely to intensify in 2012. The Society
has focused on close management of its liquidity requirements
during the last six months as demonstrated by its ability to repay
certain Government supported funding early while maintaining both
the quality and level of its liquidity. This funding was introduced
by the Bank of England as a temporary support to many banks and
building societies.
In respect of residential housing, evidence appears to suggest
that the initial recovery in the housing market may have stalled.
In its planning, the Board has remained cautious as to the
sustainability of the earlier signs of improvement and the recent
upward trend in unemployment.
The original terms of the Financial Services Compensation Scheme
(FSCS) funding, in respect of the bailout of Bradford & Bingley
plc, are due to mature in the near future. As yet, the details of
the next phase of funding this loss are unknown. Should they be
more costly than those put in place for the first three year term,
there would be an impact on the contribution required from building
societies, including the West Brom, to pay for this bailout.
Prospects
There is still a strong degree of uncertainty as the economy
strives to recover from the deepest recession of modern times.
Further rises in unemployment are to be expected, a resurgence of
activity in the property market seems some way off and we do not
expect an increase in interest rates in the near future. Whilst low
interest rates offer some relief to residential mortgage borrowers,
the adverse impact on the Society's interest margin will
remain.
Jonathan Westhoff
Chief Executive
Certain statements in this half-year report are forward-looking.
Although the Group believes that the expectations reflected in
these forward-looking statements are reasonable, it can give no
assurance that these expectations will prove to have been correct.
Because these statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by
these forward-looking statements.
The Group undertakes no obligation to update any forward-looking
statements whether as a result of new information, future events or
otherwise.
IAS34.21 is not of relevance to the Group activities, as these
activities are not highly seasonal.
There were no material related party transactions during the
reporting period covered by this document.
Condensed consolidated half-yearly income statement
for the six months ended 30 September 2011
6 months 6 months Year
ended ended ended
30-Sep-11 30-Sep-10 31-Mar-11
un-audited un-audited audited
GBPm GBPm GBPm
Interest receivable and similar
income 92.0 102.6 214.1
Interest expense and similar
charges (72.8) (89.0) (179.7)
Net interest receivable 19.2 13.6 34.4
Fees and commissions receivable 2.0 0.9 5.7
Other operating income 3.5 3.1 4.1
Total operating income 24.7 17.6 44.2
Fair value losses on financial
instruments (1.9) (6.6) (9.1)
Net realised profits 4.9 13.9 15.6
Total income 27.7 24.9 50.7
Administrative expenses - ongoing (20.8) (18.3) (36.1)
Administrative expenses - restructuring - (0.2) (0.3)
Depreciation and amortisation (2.3) (2.2) (5.0)
Operating profit before impairments,
provisions and revaluation gains
or losses 4.6 4.2 9.3
Losses on investment properties (1.0) - (1.9)
Impairment losses on loans and
advances (7.3) (8.6) (16.8)
Provisions for liabilities -
FSCS Levy (1.3) (1.3) (2.2)
Provisions for liabilities -
other - 0.2 (1.5)
Loss before tax (5.0) (5.5) (13.1)
Taxation 1.3 1.6 3.4
Loss for the period from continuing
operations (3.7) (3.9) (9.7)
----------------------------------------- ----------- ----------- ----------
Discontinued operations
Loss from discontinued operations - (0.1) (0.7)
Loss for the period (3.7) (4.0) (10.4)
----------------------------------------- ----------- ----------- ----------
Condensed consolidated half-yearly statement of comprehensive
income
for the six months ended 30 September 2011
6 months 6 months Year
ended ended ended
30-Sep-11 30-Sep-10 31-Mar-11
un-audited un-audited audited
GBPm GBPm GBPm
Loss for the period (3.7) (4.0) (10.4)
-------------------------------------- ------------ ------------- -------------
Other comprehensive income:
Available for sale investments:
valuation gain/(loss) taken
to equity 1.6 5.4 (1.6)
Losses on revaluation of properties - - -
Actuarial gain on retirement
benefit obligations - - 0.7
Cash flow hedge gains/(losses)
taken to equity 0.1 (0.2) (0.3)
Tax on items taken directly
to equity (0.5) (1.4) 1.1
-------------------------------------- ------------ ------------- -------------
Other comprehensive income/(expense)
for the period, net of tax 1.2 3.8 (0.1)
Total comprehensive income for
the period (2.5) (0.2) (10.5)
-------------------------------------- ------------ ------------- -------------
As a percentage of mean total
assets
Loss for the period (0.05%) (0.05%) (0.13%)
Management expenses (annualised) 0.63% 0.51% 0.52%
Condensed consolidated half-yearly statement of financial
position
at 30 September 2011
30-Sep-11 30-Sep-10 31-Mar-11
un-audited un-audited audited
Notes GBPm GBPm GBPm
Assets
Liquid assets 1,325.5 1,403.8 1,428.7
Derivative financial instruments 66.0 84.2 73.4
Loans and advances to customers 7 5,670.4 6,169.4 5,880.1
Intangible assets 9 6.2 7.2 7.2
Investment properties 10 112.7 115.7 113.7
Fixed assets 9 15.0 13.0 12.6
Other assets 31.5 37.0 31.5
Retirement benefit assets 1.8 - 1.8
Held for sale - 1.0 -
Total assets 7,229.1 7,831.3 7,549.0
---------------------------------- ------ ---------------- ------------ -------------
Liabilities
Shares 8 5,392.2 6,098.5 5,711.9
Other borrowings 234.6 221.3 195.9
Derivative financial instruments 116.9 121.0 79.8
Debt securities in issue 11 955.0 846.9 1,025.3
Other liabilities 28.4 26.4 31.6
Retirement benefit obligations - 2.0 -
Held for sale - 0.4 -
Total liabilities 6,727.1 7,316.5 7,044.5
---------------------------------- ------ ---------------- ------------ -------------
Equity
Profit participating deferred
shares 12 176.4 178.9 177.3
Subscribed capital 14 74.9 74.9 74.9
General reserves 248.5 255.5 251.3
Revaluation reserve 3.7 3.8 3.7
Available for sale reserve (1.5) 1.6 (2.6)
Cashflow reserve - 0.1 (0.1)
Total equity attributable
to members 502.0 514.8 504.5
---------------------------------- ------ ---------------- ------------ -------------
Total liabilities and equity 7,229.1 7,831.3 7,549.0
---------------------------------- ------ ---------------- ------------ -------------
As a percentage of shares
and borrowings
Gross capital 8.0% 7.5% 7.6%
Free capital 6.2% 5.9% 5.9%
Total liquidity 21.0% 20.5% 21.5%
Condensed consolidated statement of changes in members'
interests
for the six months ended 30 September 2011
6 months ended 30 September 2011 (un-audited)
Profit Available Cash
participating for flow
deferred Subscribed General sale hedging Revaluation
shares capital reserve reserve reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance as
at 1 April
2011 177.3 74.9 251.3 (2.6) (0.1) 3.7 504.5
Comprehensive
(expense) /
income for
the period (0.9) (1) - (2.8) 1.1 0.1 - (2.5)
Interest on
subscribed
capital - - - - - - -
------------------ --------------- ---- ----------- --------- ---------- --------- ------------ ------
Balance as
at 30 September
2011 176.4 74.9 248.5 (1.5) - 3.7 502.0
------------------ --------------- ---- ----------- --------- ---------- --------- ------------ ------
6 months ended 30 September 2010 (un-audited)
Profit Available Cash
participating for flow
deferred Subscribed General sale hedging Revaluation
shares capital reserve reserve reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance as
at 1 April
2010 179.9 74.9 258.5 (2.3) 0.2 3.8 515.0
Comprehensive
(expense) /
income for
the period (1.0) (1) - (3.0) 3.9 (0.1) - (0.2)
------------------ --------------- ---- ----------- --------- ---------- --------- ------------ ------
Balance as
at 30 September
2010 178.9 74.9 255.5 1.6 0.1 3.8 514.8
------------------ --------------- ---- ----------- --------- ---------- --------- ------------ ------
12 months ended 31 March 2011 (audited)
Profit Available Cash
participating for flow
deferred Subscribed General sale hedging Revaluation
shares capital reserve reserve reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance as
at 1 April
2010 179.9 74.9 258.5 (2.3) 0.2 3.8 515.0
Issue of equity
instrument - - - - - - -
Comprehensive
expense for
the period (2.6) (1) - (7.2) (0.3) (0.3) (0.1) (10.5)
----------------- --------------- ---- ----------- --------- ---------- --------- ------------ -------
Balance as
at 31 March
2011 177.3 74.9 251.3 (2.6) (0.1) 3.7 504.5
----------------- --------------- ---- ----------- --------- ---------- --------- ------------ -------
Note 1: Under the terms of the Profit participating deferred
shares (PPDS), 25% of the annual post tax profits or (losses) will
be allocated against the PPDS reserve.
Condensed consolidated half-yearly statement of cash flow
for the six months ended 30 September 2011
6 months 6 months Year
ended ended ended
30-Sep-11 30-Sep-10 31-Mar-11
un-audited un-audited audited
GBPm GBPm GBPm
Cash flows from operating activities
Operating loss before tax (5.0) (5.5) (13.1)
-------------------------------------- -------------- -------------- ------------
Adjustments for:
Depreciation and amortisation 2.3 2.2 5.0
Movement in other assets - (8.8) 0.2
Movement in other liabilities (3.2) (2.3) 5.7
Net decrease in loans and advances
made to customers 209.7 267.6 534.8
Net decrease in shares (319.7) (445.6) (831.8)
Net movement in other borrowings 38.7 (15.6) (70.4)
Net movement in debt securities
in issue -
Net movement in derivative financial
instruments 44.5 18.5 (11.9)
Other movements (2.1) (5.8) 12.7
Net cash flows from operating
activities (34.8) (195.3) (368.8)
Taxation 0.2 - -
Net cash flows from investing
activities 281.1 (26.1) 22.9
Net cash flows from financing
activities (72.3) (53.5) 152.9
Net movement in cash 174.2 (274.9) (193.0)
Cash and cash equivalents at
the beginning of the period 575.2 768.2 768.2
-------------------------------------- -------------- -------------- ------------
Cash and cash equivalents at
the end of the period 749.4 493.3 575.2
-------------------------------------- -------------- -------------- ------------
For the purposes of the cash flow statement, cash and cash
equivalents comprise the following balances with less than 90 days
original maturity:
Cash and cash equivalents 30-Sep-11 30-Sep-10 31-Mar-11
GBPm GBPm GBPm
Cash in hand including Bank
of England reserve account 470.4 2.0 379.6
Loans and advances to credit
institutions 97.7 372.9 124.7
Investment securities 181.3 118.4 70.9
749.4 493.3 575.2
------------------------------ ------------ ------------- -----------
The Group is required to maintain balances with the Bank of
England which, at 30 September 2011, amounted to GBP5.6 million (30
September 2010: GBP6.0m and 31 March 2011: GBP5.8m). The movement
in this balance is included within loans and advances to credit
institutions.
Notes to condensed consolidated half-yearly financial
information
for the six months ended 30 September 2011
1 General information
These interim financial results do not constitute statutory
accounts as defined in section 81A of the Building Societies Act
1986. A copy of the statutory accounts for the year to 31 March
2011 has been delivered to the Registrar of Companies and the
information in this report has been extracted from these statutory
accounts. Those accounts have been reported on by the Group's
auditors and the report of the auditors was (i) unqualified, and
(ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report.
The consolidated interim financial information for the six
months to 30 September 2011 and 30 September 2010 is unaudited and
has not been reviewed by the Group's auditors.
2 Basis of preparation
This condensed consolidated half-yearly financial report for the
half-year ended 30 September 2011 has been prepared in accordance
with the Disclosure and Transparency Rules of the Financial
Services Authority and with IAS 34, 'Interim financial reporting'
as adopted by the European Union. The half-yearly condensed
consolidated financial report should be read in conjunction with
the Annual Report and Accounts for the year ended 31 March 2011,
which have been prepared in accordance with IFRSs as adopted by the
European Union.
3 Accounting policies
The accounting policies adopted by the Group in the preparation
of its 2011 half-yearly financial report and those which the Group
currently expects to adopt in its Annual Report and Accounts for
the year ending 31 March 2012 are consistent with those disclosed
in the Annual Report and Accounts for the year ended 31 March
2011.
During the period to 30 September 2011, the Group has not
adopted any new or amended accounting standards which have had a
material impact on these interim condensed consolidated financial
statements.
4 Business segments
Operating segments are reported in accordance with the internal
reporting provided to the Group Board (the chief operating
decision-maker), which is responsible for allocating resources to
the reportable segments and assesses its performance. All operating
segments used by the Group meet the definition of a reportable
segment under IFRS 8.
The Group has three main business segments:
- Retail - incorporating residential lending, savings,
investment and protection;
- Commercial - primarily representing loans for commercial
property investment; and
- Property - a portfolio of residential properties for rent
Central Group operations have been included in Retail and
comprise risk management, funding, treasury services, human
resources and providing computer services, none of which constitute
a separately reportable segment and business activity from head
office.
As the Group's segment operations are all financial with a
majority of revenues deriving from interest, and the Group Board
relies primarily on net interest revenue to assess the performance
of the segment, the total interest income and expense for all
reportable segments is presented on a net basis. There were no
changes in the reportable segments during the year.
Transactions between the business segments are carried out at
arm's length. The revenue from external parties reported to the
Group Board is measured in a manner consistent with that in the
consolidated Income Statement.
Funds are ordinarily allocated between segments, resulting in
funding cost transfers disclosed in intra-segment net interest
income. Interest charged for these funds is based on the Group's
cost of capital. Central administrative costs are also allocated
between segments and are disclosed in intra-segment admin expenses.
There are no other material items of income or expense between the
business segments.
The Group's management reporting is based on a measure of
operating profit comprising net interest income, loan impairment
charges, net fee and commission income, other income, depreciation
and administrative expenses. This measurement basis excludes the
effects of non-recurring expenditure from the operating segments
such as restructuring costs, legal expenses and goodwill
impairments when the impairment is the result of an isolated,
non-recurring event.
As the Group Board reviews operating profit, the results of
discontinued operations are not included in the measure of
operating profit.
The information provided about each segment is based on the
internal reports about segment income or expense, assets,
liabilities and other information, which are regularly reviewed by
the Group Board. Segment assets and liabilities comprise operating
assets and liabilities, being the majority of the Statement of
Financial Position, but exclude items such as taxation.
No segment information is presented on geographical lines,
because substantially all of the Group's activities are in the
United Kingdom.
6 months ended 30 September 2011 (un-audited)
Discontinued
operations
Continuing (Mortgage Total
Retail Commercial Property Eliminations operations Broking) Group
GBPm GBPm GBPm GBPm GBP'm GBP'm GBP'm
Income
Interest
receivable
and similar
income 115.7 29.6 - (53.3) 92.0 - 92.0
Interest
payable and
similar charges (95.0) (29.5) (1.6) 53.3 (72.8) - (72.8)
Fees and
commissions
receivable 2.0 - - - 2.0 - 2.0
Fair value
losses on
financial
instruments (1.9) - - - (1.9) - (1.9)
Net realised
profits 4.9 - - - 4.9 - 4.9
Other operating
income/(expense) 0.8 1.0 1.9 (0.2) 3.5 - 3.5
------------------ ------------- ----------------- ------------- ----------------- -------------- ------------- ---------
Total operating
income/(expense) 26.5 1.1 0.3 (0.2) 27.7 - 27.7
Administrative
expenses (20.3) (0.7) - 0.2 (20.8) - (20.8)
Depreciation
and amortisation (2.3) - - - (2.3) - (2.3)
------------------ ------------- ----------------- ------------- ----------------- -------------- ------------- ---------
Operating
profit before
provisions 3.9 0.4 0.3 - 4.6 - 4.6
Losses on
investment
properties - - (1.0) - (1.0) - (1.0)
Impairment
losses on
loans and
advances (2.1) (5.2) - - (7.3) - (7.3)
Provisions
for contingent
liabilities
and commitments (1.3) - - - (1.3) - (1.3)
------------------ ------------- ----------------- ------------- ----------------- -------------- ------------- ---------
Profit/(Loss)
before tax 0.5 (4.8) (0.7) - (5.0) - (5.0)
------------------ ------------- ----------------- ------------- ----------------- -------------- ------------- ---------
Total assets 9,347.7 1,241.3 112.9 (3,472.8) 7,229.1 - 7,229.1
------------------ ------------- ----------------- ------------- ----------------- -------------- ------------- ---------
Total liabilities 8,824.6 1,283.2 92.7 (3,473.4) 6,727.1 - 6,727.1
------------------ ------------- ----------------- ------------- ----------------- -------------- ------------- ---------
Capital
expenditure 3.7 - - - 3.7 - 3.7
------------------ ------------- ----------------- ------------- ----------------- -------------- ------------- ---------
6 months ended 30 September 2010 (un-audited)
Discontinued
operations
Continuing (Mortgage Total
Retail Commercial Property Eliminations operations Broking) Group
GBPm GBPm GBPm GBPm GBP'm GBP'm GBP'm
Income
Interest
receivable
and similar
income 132.9 32.7 - (63.0) 102.6 - 102.6
Interest
payable and
similar charges (116.7) (33.5) (1.8) 63.0 (89.0) - (89.0)
Fees and
commissions
receivable 0.9 - - - 0.9 0.5 1.4
Fees and
commissions
payable - - - - - (0.4) (0.4)
Fair value
losses on
financial
instruments (6.6) - - - (6.6) - (6.6)
Net realised
profits 13.9 - - - 13.9 - 13.9
Other operating
income/(expense) 0.8 0.6 1.9 (0.2) 3.1 - 3.1
------------------ ------------ ---------------- ------------- ------------------- ---------------- -------------------- -----------
Total operating
income/(expense) 25.2 (0.2) 0.1 (0.2) 24.9 0.1 25.0
Administrative
expenses (17.9) (0.7) (0.1) 0.2 (18.5) (0.2) (18.7)
Depreciation
and amortisation (2.2) - - - (2.2) - (2.2)
Impairment
of investments - - - - - - -
------------------ ------------ ---------------- ------------- ------------------- ---------------- -------------------- -----------
Operating
profit/(loss)
before
provisions 5.1 (0.9) - - 4.2 (0.1) 4.1
Impairment
losses on
loans and
advances (3.8) (4.8) - - (8.6) - (8.6)
Provisions
for contingent
liabilities
and commitments (1.1) - - - (1.1) - (1.1)
------------------ ------------ ---------------- ------------- ------------------- ---------------- -------------------- -----------
Profit/(Loss)
before tax 0.2 (5.7) - - (5.5) (0.1) (5.6)
------------------ ------------ ---------------- ------------- ------------------- ---------------- -------------------- -----------
Total assets 9,954.6 1,459.3 120.5 (3,704.1) 7,830.3 1.0 7,831.3
------------------ ------------ ---------------- ------------- ------------------- ---------------- -------------------- -----------
Total liabilities 9,436.4 1,486.1 98.8 (3,706.7) 7,314.6 1.9 7,316.5
------------------ ------------ ---------------- ------------- ------------------- ---------------- -------------------- -----------
Capital
expenditure 0.8 - - - 0.8 - 0.8
------------------ ------------ ---------------- ------------- ------------------- ---------------- -------------------- -----------
Year ended 31 March 2011 (audited)
Discontinued
operations
Continuing (Mortgage Total
Retail Commercial Property Eliminations operations Broking) Group
GBPm GBPm GBPm GBPm GBP'm GBP'm GBP'm
Income
Interest
receivable
and similar
income 218.6 57.7 - (62.2) 214.1 - 214.1
Interest
payable and
similar charges (174.8) (63.5) (3.4) 62.0 (179.7) - (179.7)
Fees and
commissions
receivable 5.0 0.7 - - 5.7 0.5 6.2
Fees and
commissions
payable - - - - - (0.4) (0.4)
Fair value
losses on
financial
instruments (9.5) 0.4 - - (9.1) - (9.1)
Net realised
profits 15.6 - - - 15.6 - 15.6
Other operating
income/(expense) 1.2 0.7 3.7 (1.5) 4.1 0.8 4.9
------------------ ---------- ------------------ ------------ ------------------- ---------------- ------------------- ----------
Total operating
income/(expense) 56.1 (4.0) 0.3 (1.7) 50.7 0.9 51.6
Administrative
expenses (34.8) (3.0) (0.1) 1.5 (36.4) (0.2) (36.6)
Depreciation
and amortisation (5.0) - - - (5.0) - (5.0)
Impairment
of investments - - - - - (1.4) (1.4)
------------------ ---------- ------------------ ------------ ------------------- ---------------- ------------------- ----------
Operating
profit/(loss)
before
provisions 16.3 (7.0) 0.2 (0.2) 9.3 (0.7) 8.6
Losses on
investment
properties - - (1.9) - (1.9) - (1.9)
Impairment
losses on
loans and
advances (8.1) (8.7) - - (16.8) - (16.8)
Provisions
for contingent
liabilities
and commitments (3.7) - - - (3.7) - (3.7)
------------------ ---------- ------------------ ------------ ------------------- ---------------- ------------------- ----------
Profit/(Loss)
before tax 4.5 (15.7) (1.7) (0.2) (13.1) (0.7) (13.8)
------------------ ---------- ------------------ ------------ ------------------- ---------------- ------------------- ----------
Total assets 8,264.5 1,295.5 117.1 (2,128.1) 7,549.0 - 7,549.0
------------------ ---------- ------------------ ------------ ------------------- ---------------- ------------------- ----------
Total liabilities 7,741.4 1,344.2 94.2 (2,135.3) 7,044.5 - 7,044.5
------------------ ---------- ------------------ ------------ ------------------- ---------------- ------------------- ----------
Capital
expenditure 4.4 - 0.3 - 4.7 - 4.7
------------------ ---------- ------------------ ------------ ------------------- ---------------- ------------------- ----------
5 Allowance for losses on loans and advances to customers
6 months 6 months Year
ended ended ended
30-Sep-11 30-Sep-10 31-Mar-11
un-audited un-audited audited
GBPm GBPm GBPm
Impairment charge for the
period 7.3 8.6 16.8
Impairment provision at
the end of the period
Loans fully secured on residential
property 40.4 38.9 38.9
Other loans 50.8 49.1 52.3
91.2 88.0 91.2
------------------------------------ -------------- ----------- --------------
These provisions are deducted from the appropriate asset values
in the Statement of financial position.
6 Provisions for liabilities
6 months 6 months
ended ended
30-Sep-11 30-Sep-10
un-audited un-audited
Onerous Onerous
FSCS contracts Total FSCS contracts Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 4.6 2.2 6.8 4.7 1.3 6.0
Utilised in the
period (2.2) (0.2) (2.4) (2.3) - (2.3)
Charge/(release)
for the period 1.3 - 1.3 1.3 (0.2) 1.1
At period end 3.7 2.0 5.7 3.7 1.1 4.8
------------------ ---------- --------------- ------------ ------------ ---------------- ------------
Year
ended
31-Mar-11
audited
Onerous
FSCS contracts Total
GBPm GBPm GBPm
At 1 April 4.7 1.3 6.0
Utilised in the
period (2.3) (0.6) (2.9)
Charge for the
period 2.2 1.5 3.7
- - -
----------------- ----------- ---------------- -------------
At period end 4.6 2.2 6.8
----------------- ----------- ---------------- -------------
Financial Services Compensation Scheme (FSCS)
In common with all regulated UK deposit takers, the Society pays
levies to the Financial Services Compensation Scheme (FSCS) to
enable the FSCS to meet claims against it. The FSCS levy consists
of two parts - a management expenses levy and a compensation levy.
The management expenses levy covers the costs of running the scheme
and the compensation levy covers the amount of compensation the
scheme pays, net of any recoveries it makes using the rights that
have been assigned to it.
The Society FSCS provision reflects market participation up to
the reporting date. The GBP3.7m provision relates to the estimated
management expense levy for the scheme year 2011/12 and half of the
scheme year 2012/13. This amount was calculated on the basis of the
Society's current share of protected deposits taking into account
the FSA's estimate of total management expense levies for the
scheme years 2011/12 and 2012/13 and assuming that levies for
subsequent years are at similar levels. The provision does not
include any estimate for management expense levies for future
scheme years or for compensation levies which may arise.
Onerous contracts
The provision for onerous contracts covers the loss anticipated
in connection with future lease expenses from non-cancellable lease
commitments in branches that the Society has, as part of its branch
restructure, decided are no longer required.
7 Loans and advances to customers
30-Sep-11 30-Sep-10 31-Mar-11
un-audited un-audited audited
GBPm GBPm GBPm
Loans and receivables
Loans fully secured on residential
property 4,499.5 4,852.0 4,692.5
Other loans
Loans fully secured on land 1,169.4 1,298.6 1,193.7
Other loans 0.2 0.2 0.2
5,669.1 6,150.8 5,886.4
At fair value through profit
and loss
Other loans
Loans fully secured on land 92.5 106.6 84.9
5,761.6 6,257.4 5,971.3
------------------------------------ ----------- ----------- ----------
Less: impairment provisions (91.2) (88.0) (91.2)
5,670.4 6,169.4 5,880.1
------------------------------------ ----------- ----------- ----------
Included within loans and advances to customers are GBP278.3m
(30 September 2010: GBP340.0m) of commercial mortgage balances that
the Group has sold to bankruptcy remote special purpose entities
(SPEs). The purchase price paid for these commercial mortgages is
dependent upon their future performance within the SPEs. The SPEs
have been funded by issuing Commercial Mortgage Backed Securities
(CMBS).
The Group has made subordinated loans to these SPEs to provide
some level of credit enhancement to the MBS. In future periods the
Group will earn interest income on the subordinated loans, fees for
managing the loans and will earn deferred consideration once the
cash flows generated by the SPEs have been used to pay interest and
capital to the holders of the CMBS. Since the Group maintains
substantially all of the risks and rewards emanating from the
commercial mortgages, they have been retained on the Group's
Statement of Financial Position in accordance with IAS 39.
8 Shares
30-Sep-11 30-Sep-10 31-Mar-11
un-audited un-audited audited
GBPm GBPm GBPm
Held by individuals 5,391.0 6,097.2 5,710.7
Other shares 1.2 1.3 1.2
5,392.2 6,098.5 5,711.9
--------------------- ----------- ----------- ----------
9 Property, plant, equipment and intangible assets
Tangible
and
intangible
assets
6 months ended 30 September 2011 (un-audited) GBPm
Opening net book amount 1 April 2011 19.8
Additions 3.7
Disposals -
Depreciation, amortisation, impairment
and other movements (2.3)
----------------------------------------------- ---------------
Closing net book amount 30 September 2011 21.2
----------------------------------------------- ---------------
Tangible
and
intangible
assets
6 months ended 30 September 2010 (un-audited) GBPm
Opening net book amount 1 April 2010 21.8
Additions 0.8
Disposals (0.1)
Depreciation, amortisation, impairment
and other movements (2.3)
----------------------------------------------- ---------------
Closing net book amount 30 September 2010 20.2
----------------------------------------------- ---------------
Tangible
and
intangible
assets
Year ended 31 March 2011 (audited) GBPm
Opening net book amount 1 April 2010 21.8
Additions 4.4
Disposals (1.4)
Depreciation, amortisation, impairment
and other movements (5.0)
----------------------------------------------- ---------------
Closing net book amount 31 March 2011 19.8
----------------------------------------------- ---------------
Capital commitments
The Group had placed contracts amounting to a total of GBP1.7m
(30 September 2010: GBPnil) for future expenditure that was not
provided in the financial statements.
10 Investment properties
6 months 6 months Year
ended ended ended
30-Sep-11 30-Sep-10 31-Mar-11
un-audited un-audited audited
GBPm GBPm GBPm
Cost or valuation
At 1 April 113.7 116.0 116.0
Additions - acquisitions - - 0.3
Disposals - (0.3) (0.7)
Net losses from fair value
adjustments (1.0) - (1.9)
At period end 112.7 115.7 113.7
---------------------------- ------------------ ----------------- ----------------
11 Debt securities in issue
30-Sep-11 30-Sep-10 31-Mar-11
un-audited un-audited audited
GBPm GBPm GBPm
EURO medium term notes - 12.9 13.2
GBP medium term notes 3.0 3.0 3.0
Certificates of deposit 1.5 6.0 9.0
Other debt securities 679.2 497.2 722.6
Non recourse finance on securitised
advances 271.3 327.8 277.5
------------------------------------- ------------------ ----------- ----------
955.0 846.9 1,025.3
------------------------------------- ------------------ ----------- ----------
The non-recourse finance comprises mortgage backed floating rate
notes (the Notes) secured over a portfolio of mortgage loans
secured by first charges over residential and commercial properties
in the United Kingdom. Prior to redemption of the Notes on the
final interest payment date, the Notes will be subject to mandatory
and/or optional redemption in certain circumstances, on each
interest payment date.
12 Profit participating deferred shares
30-Sep-11 30-Sep-10 31-Mar-11
un-audited un-audited audited
GBPm GBPm GBPm
----------------------------------- --------------- --------------- ----------------
Book value
Nominal value 182.5 182.5 182.5
Cumulative fair value adjustments
at date of transition 3.8 3.8 3.8
Capitalised issue costs (2.2) (2.2) (2.2)
----------------------------------- --------------- --------------- ----------------
184.1 184.1 184.1
----------------------------------- --------------- --------------- ----------------
Cumulative reserve deficit
Brought forward (6.8) (4.2) (4.2)
Share of loss for the period (0.9) (1.0) (2.6)
----------------------------------- --------------- --------------- ----------------
Carried forward (7.7) (5.2) (6.8)
----------------------------------- --------------- --------------- ----------------
Total Profit participating
deferred shares 176.4 178.9 177.3
----------------------------------- --------------- --------------- ----------------
The Profit participating deferred shares (PPDS) are entitled to
receive a distribution, at the discretion of the Society, of up to
25% of the Society's post-tax profits in the future (calculated
prior to payment of the PPDS dividend). No such distribution may be
made if the cumulative reserves are in deficit.
13 Related party transactions
There has been no changes to the nature of related party
transactions entered into since the last Annual Report. There were
no material related party transactions in the half-year to 30
September 2011.
14 Subscribed capital
30-Sep-11 30-Sep-10 31-Mar-11
un-audited un-audited audited
GBPm GBPm GBPm
Permanent interest bearing
shares 74.9 74.9 74.9
74.9 74.9 74.9
---------------------------- ----------- ----------- ----------
In a winding up or dissolution of the Society the claims of the
holders of Permanent interest bearing shares (PIBS) would rank
behind all other creditors of the Society, other than the holders
of PPDS with which the PIBS rate pari-passu, and the claims of
members holding shares as to principal and interest. The holders of
PIBS are not entitled to any share in any final surplus upon
winding up or final dissolution of the Society.
With respect to future interest payments, as a condition of the
PPDS, the Society has undertaken to pay an amount which, when
annualised, represents the lower of: 6.15% of the outstanding
principal amount of the PIBS and the dividend yield attributable to
the PPDS with respect to the prior financial year ending 31 March
whose payment is at the discretion of the Society.
15 Statement of directors' responsibilities
The directors confirm that this condensed set of financial
statements has been prepared in accordance with IAS 34 as adopted
by the European Union, and that the interim management report
herein includes a fair review of the information required by DTR
4.2.7R and DTR 4.2.8R.
The directors of West Bromwich Building Society are listed in
the West Bromwich Building Society Annual Report for the year ended
31 March 2011.
By order of the Board
Jonathan Westhoff
Chief Executive
Mark Gibbard
Group Finance Director
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR WGGRGGUPGGQU
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