TIDMWBS
RNS Number : 4127S
West Bromwich Building Society
30 November 2012
WEST BROMWICH BUILDING SOCIETY
Announcement of half-year results for the six months
ended 30 September 2012
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 strengthened from 13.3% at 31 March 2012 to 13.7%
- A reduction of 37% in credit impairment charges
- Attracted some 19,000 new customers, contributing to retail savings inflows of GBP1.0bn
- New market leading residential mortgage range introduced as
the Society seeks to re-establish its position as a significant
lender
- Low reliance placed on the wholesale markets, with 93% of
funding sourced from retail customers and residential mortgages
covered 1.27 times by retail deposits
- Liquidity balances maintained at a comfortable surplus above
the more rigorous requirements established for banks and building
societies since the credit crisis
- Satisfactory Group performance, with pre-tax losses from
continuing operations of GBP6.7m (30 September 2011: GBP5.0m)
Jonathan Westhoff, Chief Executive, commented:
We are making satisfactory progress against our Back to Basics
strategy and fulfilling our commitment to members to provide a
secure home for their savings and support their aspirations for
home ownership.
We continue to operate against a backdrop of economic
uncertainty, while the sustained low interest rate environment puts
pressure on interest margins and subsequently constrains our
overall financial performance.
Nevertheless we have achieved further improvements in our Core
Tier 1 capital ratio, which at 13.7% has more than doubled over the
last four years, and maintained a healthy liquidity position.
As a mutual organisation, we operate for the benefit of our
members and strive to deliver an exceptional service. We have
consistently offered attractive interest rates to savers throughout
the period, while the majority of mortgage customers have continued
to benefit from the record low Bank Rate.
We have delivered on our promise to increase the range and
quality of products for new borrowers. Substantial improvements to
our processing systems, coupled with a broad choice of market
leading mortgage deals through both direct and intermediary
channels, are helping us to re-establish a prominent position in
the marketplace.
Despite the challenges of the economic downturn, which show
little sign of abating even with the UK coming out of recession,
the West Brom is maintaining a clear focus on supporting members
with a traditional retail proposition that encompasses savings,
investments and prime residential mortgages.
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 2012
Chief Executive's BUSINESS Review
Performance
The West Brom continues to make solid progress with its Back to
Basics strategy, maintaining focus on the core building society
activities of retail savings, investments and prime residential
lending. This approach resulted in further improvements in key
capital ratios and, aligned with the maintenance of a healthy
liquidity position, continues to safeguard the stability of the
Society during this prolonged period of economic volatility.
The effects of a double-dip recession and an unprecedented low
interest rate environment, together with the planned de-risking of
the balance sheet, continue to delay the Society's return to
profitability. Reflecting continued pressure on margin, pre-tax
losses were GBP6.7m for the half year to 30 September 2012 (30
September 2011: GBP5.0m), including a GBP1.7m charge in respect of
Financial Services Compensation Scheme (FSCS) levy costs (30
September 2011: GBP1.3m).
The Society continues to operate against a backdrop of economic
uncertainty. While the UK economy may be starting to show signs of
recovery, the full impact of events in the Eurozone is not yet
known. The outcome of various initiatives to address the debt
crisis in the Euro area inevitably poses a risk to domestic
economic growth and, until these issues are resolved, the recovery
of the UK economy will remain uncertain.
Intense competition for retail funds persisted throughout the
period, with financial services providers seeking to maintain a low
reliance on a restricted and unpredictable wholesale market.
Notwithstanding the detrimental impact on interest margins and
overall profitability, the Society has consistently offered
attractive interest rates to savers, while the majority of its
mortgage customers have continued to benefit from the prevailing
low Bank Rate. These factors, combined with the cost of holding
high quality liquid assets, exerted significant pressure on
interest margins. As a result, the Society's net interest margin
for the period was 0.42%, down from 0.47% for the year ended 31
March 2012.
While the wholesale markets are considered to be a secondary
source of funding compared with retail deposits, balanced and
diverse funding is beneficial. In April 2012, reflecting this and
demonstrating market confidence in the Society, the West Brom
successfully raised GBP250m via a residential mortgage backed
securitisation transaction. Following the repayment of GBP500m
funding raised in 2009 under the Government's Credit Guarantee
Scheme, the non-retail funding ratio reduced to 7.1% (31 March
2012: 13.4%).
In response to the unprecedented challenges facing the UK
economy and financial services sector, the Bank of England has
initiated the Funding for Lending Scheme (FLS). The scheme aims to
support the recovery of the UK economy by offering funding to those
banks and building societies actively lending to UK households and
small/medium sized businesses. The West Brom has received
confirmation of its eligibility to participate in the scheme.
During the period, the Society launched a range of market
leading mortgage products, available through branches and direct
channels. These products are part of the Society's strategy to
support borrowers in their aspirations for home ownership, whilst
maintaining the principles of responsible lending.
Total administrative expenses for the period to 30 September
2012 decreased by 3.0% compared with the prior year, reflecting
tight cost control and efficiency improvements. The Society will
continue to invest in systems and resources as required for its
renewed mortgage market activities and planned move to a new head
office.
Residential mortgage arrears remained at a satisfactory level
given the challenging economic climate, rising levels of
unemployment, an appropriate forbearance strategy and a contracting
mortgage book. This robust performance 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 1.24% of the total book (31
March 2012: 1.12%), comfortably below the sector 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, which now stands at just GBP37.4m (31
March 2012: GBP39.6m).
The Society actively seeks to support those borrowers who are
experiencing genuine financial hardship, so enabling them to remain
in their homes so long as this is believed to be in their best
interests (i.e. where the loss to the customer is not expected to
increase over time).
The charge for impairment losses on loans and advances has
fallen significantly again, down 37% to GBP4.6m (30 September 2011:
GBP7.3m). Despite a fragile commercial property market, the
commercial work-out teams have strived to minimise potential losses
incurred, resulting in a marked reduction in net new provisions.
The underlying quality of the prime residential and buy-to-let
books remains strong. All portfolios are managed within a tight
risk framework and a prudent view is taken when determining
provision requirements.
Liquidity
Throughout the economic downturn, the West Brom has taken a
cautious approach to liquidity management. The liquidity ratio
reduced to 23.4% (31 March 2012: 27.6%), due to the Society holding
substantial additional liquidity at the financial year end in
preparation for the repayment, in April 2012, of GBP500m of
Government guaranteed funding. The quality of liquid assets is
strong, with 100% of treasury investment assets rated single A or
better. The Society has no direct exposure to the markets about
which the European governments have expressed concern, most notably
Greece, Ireland, Italy, Portugal and Spain or to any mortgage
market outside the UK. There have been no impairment charges
against any treasury investment assets during the period.
An analysis of the Group's liquidity position is shown
below:
30-Sep-12 30-Sep-11 31-Mar-12
GBPm % GBPm % GBPm %
Buffer liquidity
- Bank of England Reserve 309.9 23.3 468.4 35.3 760.9 42.0
- Supranationals 384.9 28.9 - - 350.3 19.3
- Treasury bills - - 1.7 0.1 - -
- Gilts - - 113.6 8.6 20.5 1.1
--------------------------------- -------- ------ ------------ ------ -------- ------
Total buffer liquidity 694.8 52.2 583.7 44.0 1,131.7 62.4
Other securities - rated single
A or better 434.8 32.6 663.5 50.1 553.4 30.6
Other securities - rated less
than single A - - 5.0 0.4 - -
Subsidiary / other liquidity 201.9 15.2 73.3 5.5 126.1 7.0
--------------------------------- -------- ------ ------------ ------ -------- ------
Total liquidity 1,331.5 100.0 1,325.5 100.0 1,811.2 100.0
--------------------------------- -------- ------ ------------ ------ -------- ------
Capital
Capital is held as the ultimate protection for depositors. The
Board sets the internal level of capital required in order to
exceed minimum regulatory requirements.
The following table shows the composition of regulatory capital
and the capital ratios at 30 September 2012, 30 September 2011 and
31 March 2012 respectively:
30-Sep-12 30-Sep-11 31-Mar-12
Basel II Basel II Basel II
Standardised Standardised Standardised
GBPm GBPm GBPm
Tier 1
General reserves 237.3 248.5 241.1
Permanent interest bearing shares
(note 1) 74.9 74.9 74.9
Profit participating deferred shares 173.7 176.4 175.0
Intangible assets (note 2) (6.9) (8.0) (7.5)
Deductions from Tier 1 capital (note
3) (4.5) (4.8) (3.5)
------------------------------------------ ------------- -------------------- -------------
474.5 487.0 480.0
------------------------------------------ ------------- -------------------- -------------
Tier 2
Revaluation reserve 3.7 3.7 3.7
Collective impairment allowance 18.9 20.3 24.1
Contingency against collective provision
add-back (note 4) (7.5) (5.8) (10.2)
Deductions from Tier 2 capital (note
3) (1.8) (4.2) (3.5)
------------------------------------------ ------------- -------------------- -------------
13.3 14.0 14.1
------------------------------------------ ------------- -------------------- -------------
Total capital 487.8 501.0 494.1
------------------------------------------ ------------- -------------------- -------------
Risk weighted assets - Pillar 1
Retail mortgages 1,614.0 1,747.1 1,676.3
Commercial loans 925.4 1,021.3 957.6
Treasury 136.9 111.3 151.1
Other 160.5 157.3 157.4
Market risk 10.4 2.1 12.9
Operational risk 70.0 94.8 94.8
------------------------------------------ ------------- -------------------- -------------
2,917.2 3,133.9 3,050.1
------------------------------------------ ------------- -------------------- -------------
% % %
Key capital ratios (note 5)
Core Tier 1 ratio 13.7 13.1 13.3
Tier 1 ratio 16.3 15.5 15.7
Solvency ratio 16.7 16.0 16.2
------------------------------------------ ------------- -------------------- -------------
Notes
1. Permanent interest bearing shares include any 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 Core Tier 1 ratio increased further to 13.7% (31 March 2012:
13.3%), remaining one of the highest in the UK bank and building
society sector,and has more than doubled over the last four years
(6.8% in 2008). This capital ratio improvement has been achieved by
a managed reduction in risk weighted assets, down 7% in the last 12
months to GBP2.9bn.
Principal risks and uncertainties
Effective management of risks and opportunities is essential to
achieving the Society's strategic objectives. The Society aims to
manage effectively all of the risks that arise from its activities
and believes that its approach to risk management reflects an
understanding of actual and potential risk exposures, the
quantification of the impact of such exposures and the development
and implementation of appropriate controls to manage these
exposures within the Society's agreed risk appetite.
The principal risks and uncertainties which could impact the
Society's long-term performance remain those outlined on pages 17
to 20 of the Annual Report and Accounts for the year ended 31 March
2012.
Outlook
Whilst the UK economy recently emerged from its second recession
in three years, the full impact of events in the Eurozone is not
yet known. This leaves a high degree of uncertainty with respect to
current and future market conditions. The low interest rate
environment in the UK looks set to continue, maintaining pressure
on interest margins and thereby constraining the Society's future
financial performance.
Mortgage markets are expected to be subdued for the remainder of
the financial year, although the Funding for Lending Scheme (FLS)
launched by the Bank of England will seek to stimulate lending to
the real economy by providing qualifiying banks and building
societies with cost-effective funding. The West Brom will determine
its level of participation in the scheme, as part of the overall
funding strategy, with the overarching goal of delivering true
benefit to members.
Whilst the credit quality of the Society's residential mortgages
remains sound, and able to withstand a level of reversal in the
UK's economic recovery, the commercial portfolio is more
susceptible to shocks and further provisioning for potential losses
is likely.
The Society has a direct exposure to house price movements
through its subsidiary West Bromwich Homes Limited, a residential
investment company. Whilst house prices have remained relatively
stable over the past year, the Society would incur a reduction in
the value of its housing stock of circa GBP1.1m for every 1% fall
in house prices. There is a range of views among market
commentators, reflecting uncertainty in the outlook.
The industry faces a period of substantial regulatory change.
The Government recently outlined its proposals on the regulation of
building societies in a consultation paper, 'The future of building
societies'. In 2013, the Financial Services Authority (FSA) will be
replaced by two new bodies: the Prudential Regulation Authority
(PRA) and Financial Conduct Authority (FCA) and the Basel III
legislative framework on capital requirements comes into effect.
The Society is constantly monitoring developments and is,
therefore, in a position to respond positively to anticipated
regulatory change.
The Society remains committed to the principles of mutuality,
providing a secure home for members' savings and supporting their
home ownership aspirations. This commitment is integral to the Back
to Basics strategy against which the Society continues to make
steady progress.
Jonathan Westhoff
Chief Executive
Certain statements in this half-year report are forward-looking.
Although the Board 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 Board 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 2012
6 months 6 months Year
ended ended ended
30-Sep-12 30-Sep-11 31-Mar-12
un-audited un-audited audited
GBPm GBPm GBPm
Interest receivable and similar income 84.9 92.0 180.8
Interest expense and similar charges (70.1) (72.8) (145.9)
Net interest receivable 14.8 19.2 34.9
Fees and commissions receivable 2.1 2.0 6.1
Other operating income 3.2 3.5 4.4
Total operating income 20.1 24.7 45.4
Fair value losses on financial instruments (1.0) (1.9) (3.0)
Net realised profits 2.8 4.9 5.2
Total income 21.9 27.7 47.6
Administrative expenses - ongoing (20.1) (20.8) (38.2)
Administrative expenses - restructuring - - (0.1)
Depreciation and amortisation (2.3) (2.3) (4.7)
Losses on investment properties - (1.0) (1.0)
Impairment losses on loans and advances (4.6) (7.3) (10.5)
Provisions for liabilities - FSCS Levy (1.7) (1.3) (2.9)
Provisions for liabilities - other 0.1 - 0.3
Loss before tax (6.7) (5.0) (9.5)
Taxation 1.6 1.3 0.3
Loss for the period (5.1) (3.7) (9.2)
-------------------------------------------- ----------- ----------- ----------
Condensed consolidated half-yearly statement of comprehensive
income
for the six months ended 30 September 2012
6 months 6 months Year
ended ended ended
30-Sep-12 30-Sep-11 31-Mar-12
un-audited un-audited audited
GBPm GBPm GBPm
Loss for the period (5.1) (3.7) (9.2)
-------------------------------------------------- ----------- ------------ --------------
Other comprehensive income
Available for sale investments:
Valuation gain taken to equity 12.8 6.5 10.5
Amounts transferred to income statement (2.0) (4.9) (5.2)
Actuarial loss on retirement benefit obligations - - (4.3)
Cash flow hedge gains taken to equity - 0.1 0.1
Tax on items taken directly to equity (2.6) (0.5) (0.5)
-------------------------------------------------- ----------- ------------ --------------
Other comprehensive income for the period,
net of tax 8.2 1.2 0.6
-------------------------------------------------- ----------- ------------ --------------
Total comprehensive income for the period 3.1 (2.5) (8.6)
-------------------------------------------------- ----------- ------------ --------------
As a percentage of mean total assets
Loss for the period (0.07%) (0.05%) (0.12%)
Management expenses (annualised) 0.63% 0.63% 0.57%
Condensed consolidated half-yearly statement of financial
position
at 30 September 2012
30-Sep-12 30-Sep-11 31-Mar-12
un-audited un-audited audited
Notes GBPm GBPm GBPm
Assets
Liquid assets 1,331.5 1,325.5 1,811.2
Derivative financial instruments 50.8 66.0 64.5
Loans and advances to customers 7 5,165.4 5,670.4 5,373.6
Intangible assets 9 6.9 6.2 7.5
Investment properties 10 112.7 112.7 112.7
Fixed assets 9 17.4 15.0 17.6
Other assets 33.0 31.5 30.0
Retirement benefit assets 0.4 1.8 -
Total assets 6,718.1 7,229.1 7,417.1
------------------------------------------ ------ --------------- --------------- -------------
Liabilities
Shares 8 5,283.0 5,392.2 5,672.8
Other borrowings 199.4 234.6 178.3
Derivative financial instruments 120.7 116.9 107.8
Debt securities in issue 11 583.5 955.0 927.4
Other liabilities 32.5 28.4 34.5
Retirement benefit obligations - - 0.4
Total liabilities 6,219.1 6,727.1 6,921.2
------------------------------------------ ------ --------------- --------------- -------------
Equity
Profit participating deferred shares 12 173.7 176.4 175.0
Subscribed capital 14 74.9 74.9 74.9
General reserves 237.3 248.5 241.1
Revaluation reserve 3.7 3.7 3.7
Available for sale reserve 9.4 (1.5) 1.2
Total equity attributable to members 499.0 502.0 495.9
------------------------------------------ ------ --------------- --------------- -------------
Total liabilities and equity 6,718.1 7,229.1 7,417.1
------------------------------------------ ------ --------------- --------------- -------------
As a percentage of shares and borrowings
Gross capital 8.8% 8.0% 7.6%
Free capital 6.7% 6.2% 5.8%
Total liquidity 23.4% 21.0% 27.6%
Condensed consolidated statement of changes in members'
interests
for the six months ended 30 September 2012
6 months ended 30 September 2012 (un-audited)
Profit Cash
participating Available flow
deferred Subscribed General Revaluation for sale hedging
shares capital reserves reserve reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2012 175.0 74.9 241.1 3.7 1.2 - 495.9
Comprehensive income
for the period (1.3) - (3.8) - 8.2 - 3.1
At 30 September
2012 173.7 74.9 237.3 3.7 9.4 - 499.0
---------------------- --------------- ----------- ---------- ------------ ---------- --------- ------
6 months ended 30 September 2011 (un-audited)
Profit Cash
participating Available flow
deferred Subscribed General Revaluation for sale hedging
shares capital reserves reserve reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2011 177.3 74.9 251.3 3.7 (2.6) (0.1) 504.5
Comprehensive income
for the period (0.9) - (2.8) - 1.1 0.1 (2.5)
---------------------- --------------- ----------- ---------- ------------ ---------- --------- ------
At 30 September
2011 176.4 74.9 248.5 3.7 (1.5) - 502.0
---------------------- --------------- ----------- ---------- ------------ ---------- --------- ------
Year ended 31 March 2012 (audited)
Profit Cash
participating Available flow
deferred Subscribed General Revaluation for sale hedging
shares capital reserves reserve reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2011 177.3 74.9 251.3 3.7 (2.6) (0.1) 504.5
Comprehensive
income for the
period (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
------------------ --------------- ----------- ---------- ------------ ---------- --------- ------
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 flows
for the six months ended 30 September 2012
6 months 6 months Year
ended ended ended
30-Sep-12 30-Sep-11 31-Mar-12
un-audited un-audited audited
GBPm GBPm GBPm
Cash flows from operating activities
Operating loss before tax (6.7) (5.0) (9.5)
Depreciation and amortisation 2.3 2.3 4.7
Movement in other assets (3.0) - 1.5
Movement in other liabilities (2.0) (3.2) 0.6
Movement in loans and advances to customers 208.2 209.7 527.6
Movement in shares (389.8) (319.7) (38.1)
Movement in deposits and other borrowings 21.1 38.7 (42.8)
Movement in derivative financial instruments 26.6 44.5 36.9
Tax received - 0.2 2.1
Other movements 30.2 (2.1) (17.2)
Net cash flows from operating activities (113.1) (34.6) 465.8
Net cash flows from investing activities 14.2 281.1 172.5
Net cash flows from financing activities (364.9) (72.3) (79.7)
Net movement in cash (463.8) 174.2 558.6
Cash and cash equivalents at beginning
of period 1,133.8 575.2 575.2
---------------------------------------------- ---------------- -------------- -------------
Cash and cash equivalents at end of period 670.0 749.4 1,133.8
---------------------------------------------- ---------------- -------------- -------------
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-12 30-Sep-11 31-Mar-12
un-audited un-audited audited
GBPm GBPm GBPm
Cash in hand (including Bank of England
reserve account) 318.5 470.4 763.7
Loans and advances to credit institutions 193.2 97.7 116.1
Investment securities 158.3 181.3 254.0
670.0 749.4 1,133.8
------------------------------------------- ------------- ------------ ------------
The Group is required to maintain certain mandatory balances
with the Bank of England which, at 30 September 2012, amounted to
GBP5.7m (30 September 2011: GBP5.6m and 31 March 2012: GBP5.5m).
The movement in these balances is included within cash flows from
operating activities.
Notes to condensed consolidated half-yearly financial
information
for the six months ended 30 September 2012
1 General information
These half-yearly 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
2012 has been delivered to the Financial Services Authority and the
relevant 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 half-yearly financial information for the six
months to 30 September 2012 and 30 September 2011 is un-audited 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 2012 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 2012,
which have been prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
3 Accounting policies
The accounting policies adopted by the Group in the preparation
of its 2012 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 2013 are consistent with those disclosed
in the Annual Report and Accounts for the year ended 31 March
2012.
During the period to 30 September 2012, the Group has not
adopted any new or amended accounting standards which have had a
material impact on these half-yearly condensed consolidated
financial statements.
4 Business segments
Following the management approach of IFRS 8, 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 their 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,
investments 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.
Transactions between the business segments are carried out at
arm's length. The revenue from external parties reported to the
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 inter-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 inter-segment administrative
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 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.
6 months ended 30 September 2012 (un-audited)
Total
Retail Commercial Property Eliminations Group
GBPm GBPm GBPm GBPm GBPm
Income
Interest receivable and similar
income 83.1 25.3 - (23.5) 84.9
Interest expense and similar
charges (67.7) (24.3) (1.6) 23.5 (70.1)
Fees and commissions receivable 2.1 - - - 2.1
Other operating income 0.5 0.9 2.0 (0.2) 3.2
Fair value losses on financial
instruments (1.0) - - - (1.0)
Net realised profits 2.8 - - - 2.8
Total income 19.8 1.9 0.4 (0.2) 21.9
Administrative expenses (18.5) (1.8) - 0.2 (20.1)
Depreciation and amortisation (2.3) - - - (2.3)
--------------------------------- -------- ----------- --------- ------------- --------
Impairment losses on loans
and advances (1.8) (2.8) - - (4.6)
Provisions for contingent
liabilities and commitments (1.6) - - - (1.6)
--------------------------------- -------- ----------- --------- ------------- --------
(Loss)/Profit before tax (4.4) (2.7) 0.4 - (6.7)
--------------------------------- -------- ----------- --------- ------------- --------
Total assets 6,431.8 1,069.7 113.7 (897.1) 6,718.1
--------------------------------- -------- ----------- --------- ------------- --------
Total liabilities 5,912.4 1,112.9 92.7 (898.9) 6,219.1
--------------------------------- -------- ----------- --------- ------------- --------
Capital expenditure 1.7 - - - 1.7
--------------------------------- -------- ----------- --------- ------------- --------
6 months ended 30 September 2011 (un-audited)
Total
Retail Commercial Property Eliminations Group
GBPm GBPm GBPm GBPm GBPm
Income
Interest receivable and similar
income 91.0 29.3 - (28.3) 92.0
Interest expense and similar
charges (70.3) (29.2) (1.6) 28.3 (72.8)
Fees and commissions receivable 2.0 - - - 2.0
Other operating income 0.8 1.0 1.9 (0.2) 3.5
Fair value losses on financial
instruments (1.9) - - - (1.9)
Net realised profits 4.9 - - - 4.9
Total income 26.5 1.1 0.3 (0.2) 27.7
Administrative expenses (20.3) (0.7) - 0.2 (20.8)
Depreciation and amortisation (2.3) - - - (2.3)
--------------------------------- ------------- ----------------- ------------- ----------------- ---------
Losses on investment properties - - (1.0) - (1.0)
Impairment losses on loans
and advances (2.1) (5.2) - - (7.3)
Provisions for contingent
liabilities and commitments (1.3) - - - (1.3)
--------------------------------- ------------- ----------------- ------------- ----------------- ---------
Profit/(Loss) before tax 0.5 (4.8) (0.7) - (5.0)
--------------------------------- ------------- ----------------- ------------- ----------------- ---------
Total assets 6,926.4 1,232.1 112.9 (1,042.3) 7,229.1
--------------------------------- ------------- ----------------- ------------- ----------------- ---------
Total liabilities 6,404.1 1,274.0 92.7 (1,043.7) 6,727.1
--------------------------------- ------------- ----------------- ------------- ----------------- ---------
Capital expenditure 3.7 - - - 3.7
--------------------------------- ------------- ----------------- ------------- ----------------- ---------
Year ended 31 March 2012 (audited)
Total
Retail Commercial Property Eliminations Group
GBPm GBPm GBPm GBPm GBPm
Income
Interest receivable and similar
income 183.7 52.9 - (55.8) 180.8
Interest expense and similar
charges (140.7) (57.8) (3.1) 55.7 (145.9)
Fees and commissions receivable 5.4 0.7 - - 6.1
Other operating income 1.4 0.7 3.8 (1.5) 4.4
Fair value losses on financial
instruments (2.9) (0.2) - 0.1 (3.0)
Net realised profits 5.2 - - - 5.2
Total income/(expense) 52.1 (3.7) 0.7 (1.5) 47.6
Administrative expenses (36.2) (3.7) (0.1) 1.7 (38.3)
Depreciation and amortisation (4.7) - - - (4.7)
--------------------------------- -------- ----------- --------- ------------- --------
Losses on investment properties - - (1.0) - (1.0)
Impairment losses on loans
and advances (4.3) (6.2) - - (10.5)
Provisions for contingent
liabilities and commitments (2.6) - - - (2.6)
--------------------------------- -------- ----------- --------- ------------- --------
Profit/(Loss) before tax 4.3 (13.6) (0.4) 0.2 (9.5)
--------------------------------- -------- ----------- --------- ------------- --------
Total assets 8,187.7 1,116.4 111.3 (1,998.3) 7,417.1
--------------------------------- -------- ----------- --------- ------------- --------
Total liabilities 7,657.2 1,170.4 90.4 (1,996.8) 6,921.2
--------------------------------- -------- ----------- --------- ------------- --------
Capital expenditure 10.2 - - - 10.2
--------------------------------- -------- ----------- --------- ------------- --------
5 Allowance for losses on loans and advances to customers
6 months 6 months Year
ended ended ended
30-Sep-12 30-Sep-11 31-Mar-12
un-audited un-audited audited
GBPm GBPm GBPm
Impairment charge for the period 4.6 7.3 10.5
------------------------------------ -------------- -------------- --------------
Impairment provision at end of
period
Loans fully secured on residential
property 40.7 40.4 40.5
Other loans 54.8 50.8 58.2
95.5 91.2 98.7
------------------------------------ -------------- -------------- --------------
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-12 30-Sep-11
un-audited un-audited
Onerous Onerous
FSCS contracts Total FSCS contracts Total
GBPm GBPm GBPm GBPm GBPm GBPm
At beginning of period 5.2 1.2 6.4 4.6 2.2 6.8
Utilised in the period (1.9) (0.2) (2.1) (2.2) (0.2) (2.4)
Charge for the period 1.7 - 1.7 1.3 - 1.3
At end of period 5.0 1.0 6.0 3.7 2.0 5.7
------------------------ ---------- --------------- ------------ ---------- --------------- ------------
Year
ended
31-Mar-12
audited
Onerous
FSCS contracts Total
GBPm GBPm GBPm
At beginning of period 4.6 2.2 6.8
Utilised in the period (2.3) (0.7) (3.0)
Charge/(Release) for
the period 2.9 (0.3) 2.6
At end of period 5.2 1.2 6.4
------------------------ ---------- ---------------- ------------
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 FSCS has met, or will meet, the claims by way of loans
received from HM Treasury (HMT). The terms of these loans are
interest only for the first three years, and the FSCS seeks to
recover the interest cost, together with ongoing management
expenses, through levies on member firms over this period.
Subsequently, should there be insufficient funds from the
realisation of the failed banks' assets to fully extinguish the
FSCS' loans from HMT, this may result in the FSCS raising a
compensation levy on member firms. The three year initial term
expired in September 2011 and, in March 2012, the FSCS and HMT
agreed terms for refinancing the loans.
The agreement by the FSCS not to charge Compensation Cost Levy
for three years is at an end and there exists the possibility that
compensation for losses suffered could be levied in the scheme year
commencing 1 April 2013.
The Society's FSCS provision reflects market participation up to
the reporting date. The GBP5.0m provision relates to the estimated
levy for the scheme year 2012/13 and half the expected charge for
the 2013/14 scheme year. These amounts were calculated on the basis
of the Society's actual and expected share of protected deposits at
the reference dates, taking into account the FSA's estimate of
total management expense levies and probable compensation payments
for each scheme year.
The provision does not include any estimate for levies for
scheme years after 2013/14 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-12 30-Sep-11 31-Mar-12
un-audited un-audited audited
GBPm GBPm GBPm
Loans and receivables
Loans fully secured on residential property 4,158.4 4,499.5 4,319.9
Other loans
Loans fully secured on land 1,023.8 1,169.4 1,062.8
Other loans 0.1 0.2 0.2
5,182.3 5,669.1 5,382.9
At fair value through profit and loss
Other loans
Loans fully secured on land 78.6 92.5 89.4
5,260.9 5,761.6 5,472.3
--------------------------------------------- ----------- ----------- ----------
Less: impairment provisions (95.5) (91.2) (98.7)
5,165.4 5,670.4 5,373.6
--------------------------------------------- ----------- ----------- ----------
Included within loans and advances to customers are GBP372.3m
(30 September 2011: GBP453.9m) of commercial mortgage balances and
GBP1,276.4m (30 September 2011: GBP981.5m) of residential mortgage
balances that the Group has sold to bankruptcy remote special
purpose entities (SPEs). The SPEs have been funded by issuing
mortgage backed securities (MBSs) of which loan notes totalling
GBP1,268.6m (30 September 2011: GBP1,169.3m) are held by the
Group.
The Group has made subordinated loans to the SPEs to provide
some level of credit enhancement to the MBSs. In future periods the
Group will earn interest income on the subordinated loans and fees
for managing the loans. The Group 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 MBSs. Since the Group
maintains substantially all of the risks (key risk being an
exposure to credit risk through the subordinated loan agreements)
and rewards emanating from the mortgages, they have been retained
on the Group's statement of financial position in accordance with
IAS 39.
8 Shares
30-Sep-12 30-Sep-11 31-Mar-12
un-audited un-audited audited
GBPm GBPm GBPm
Held by individuals 5,281.9 5,391.0 5,671.7
Other shares 1.1 1.2 1.1
5,283.0 5,392.2 5,672.8
--------------------- ----------- ----------- ----------
9 Property, plant, equipment and intangible assets
Tangible and
intangible
assets
6 months ended 30 September 2012 (un-audited) GBPm
Net book value at 1 April 2012 25.1
Additions 1.7
Disposals (0.2)
Depreciation, amortisation, impairment and other
movements (2.3)
-------------------------------------------------- ---------------
Net book value at 30 September 2012 24.3
-------------------------------------------------- ---------------
Tangible and
intangible
assets
6 months ended 30 September 2011 (un-audited) GBPm
Net book value at 1 April 2011 19.8
Additions 3.7
Disposals -
Depreciation, amortisation, impairment and other
movements (2.3)
-------------------------------------------------- ---------------
Net book value at 30 September 2011 21.2
-------------------------------------------------- ---------------
Tangible and
intangible
assets
Year ended 31 March 2012 (audited) GBPm
Net book value at 1 April 2011 19.8
Additions 10.2
Disposals (0.2)
Depreciation, amortisation, impairment and other
movements (4.7)
-------------------------------------------------- ---------------
Net book value at 31 March 2012 25.1
-------------------------------------------------- ---------------
Capital commitments
The Group has placed contracts amounting to a total of GBP0.5m
(30 September 2011: GBP1.7m) for future expenditure that was not
provided in the financial statements.
10 Investment properties
6 months 6 months Year
ended ended ended
30-Sep-12 30-Sep-11 31-Mar-12
un-audited un-audited audited
GBPm GBPm GBPm
Valuation
At beginning of period 112.7 113.7 113.7
Net losses from fair value adjustments - (1.0) (1.0)
At end of period 112.7 112.7 112.7
---------------------------------------- --------------- -------------- --------------
11 Debt securities in issue
30-Sep-12 30-Sep-11 31-Mar-12
un-audited un-audited audited
GBPm GBPm GBPm
GBP medium term notes 3.0 3.0 3.0
Certificates of deposit 2.0 1.5 4.0
Other debt securities 200.9 679.2 695.0
Non-recourse finance on securitised
advances 377.6 271.3 225.4
------------------------------------- ----------- ----------- ----------
583.5 955.0 927.4
------------------------------------- ----------- ----------- ----------
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-12 30-Sep-11 31-Mar-12
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
At beginning of period (9.1) (6.8) (6.8)
Share of loss for the period (1.3) (0.9) (2.3)
----------------------------------- --------------- --------------- ----------------
(10.4) (7.7) (9.1)
----------------------------------- --------------- --------------- ----------------
Net value at end of period 173.7 176.4 175.0
----------------------------------- --------------- --------------- ----------------
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 have 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 2012.
14 Subscribed capital
30-Sep-12 30-Sep-11 31-Mar-12
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, with the exception of
holders of profit participating deferred shares (PPDS) with which
the PIBS rank 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 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 half-yearly 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 2012.
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 WGGRAGUPPURU
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