TIDMWBS
RNS Number : 7531X
West Bromwich Building Society
28 November 2017
WEST BROMWICH BUILDING SOCIETY
Announcement of half-year results for the six months
to 30 September 2017
The West Brom today announces its half-year results for the six
months to 30 September 2017.
Key highlights:
- Profit before tax of GBP4.2m for the six months to 30
September 2017 (30 September 2016: loss of GBP23.7m)
- An uplift in the net interest margin to 0.98% (30 September 2016: 0.93%)
- Growth of 11% in prime residential mortgage balances to GBP2.6bn (31 March 2017: GBP2.3bn)
- GBP478m advanced for new mortgage lending (30 September 2016: GBP441m)
- Increased support for first time buyers, representing 28% of
all new lending during the period (30 September 2016: 20%)
- External recognition for our approach to people management
from Investors in People, receiving the Gold accreditation
standard.
Jonathan Westhoff, Chief Executive, commented:
I am pleased to report a period of solid progress for the
Society during which we have continued to support the financial
wellbeing of our membership. Profits achieved represented an 11%
improvement in underlying performance and will be used to deliver
further member benefits for savers and borrowers alike.
We have successfully increased new lending for home ownership
and channelled more than a quarter of these funds to help buyers
taking their first step onto the property ladder. There is still
demand for mortgages, with borrowers understandably favouring
longer term fixed rate products given that Bank Base Rate has
finally moved and future rises are to be expected.
While higher interest rates are a new experience for many
homeowners and therefore potentially unsettling, we believe
borrowers are generally well placed to cope financially. This is
supported by a reduction in the number of our residential mortgage
holders experiencing significant arrears.
Savers are no doubt welcoming some improvement in the market and
the opportunity to earn better returns on their investments. At the
West Brom we offer a wide range of savings products and our choice
of competitively priced fixed rate bonds and fixed rate ISAs have
proved particularly popular over recent months.
We remain committed to serving customers through our regional
branch network, however we also recognise the need to invest in our
technological capabilities. This is key to achieving future growth
and also plays an important part in our defence against the risk of
cyber-crime.
Although the West Brom operates a traditional building society
model built around the provision of savings, investments and
mortgages, we must still ensure we adapt to the changing trends in
how people view, manage and transact with their money.
It is this flexible and forward-thinking approach that puts us
in a strong position to deliver against our core objectives for the
remainder of the financial year, helping more members purchase
their own homes and plan for a secure future.
ENQUIRIES
The West Brom 0121 796 7785
Jonathan Westhoff - Chief Executive
Ashraf Piranie - Group Finance & Operations Director
West Bromwich Building Society
Condensed consolidated
half-yearly financial information
30 September 2017
Chief Executive's BUSINESS Review
Performance summary
I am pleased to announce the West Brom's results for the six
months ended 30 September 2017, a period of solid progress against
our traditional building society principles with an 11% growth in
prime owner occupied mortgage balances to GBP2.6bn.
In the first half of the year, the Group reported a statutory
and underlying profit before tax of GBP4.2m (30 September 2016:
statutory loss of GBP23.7m, underlying profit of GBP3.8m).
The results for the six months ended 30 September 2016 included
a charge of GBP27.5m in relation to the reimbursement of interest
charged on certain buy to let mortgages.
The table below is a comparison of the underlying performance,
excluding the impact of the buy to let reimbursement, which shows
that underlying net interest income and pre-tax profit have each
improved against the comparative period by 11%.
Half 1 2017/18 Half 1 2016/17
-------------------------------- -------------------------------
Buy Buy
to to
let let
As case As case
reported impact Underlying reported impact Underlying
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ---------- ------- ----------- --------- ------- -----------
Net interest income 28.4 - 28.4 26.8 (1.2) 25.6
Profit/(Loss)
before tax 4.2 - 4.2 (23.7) 27.5 3.8
--------------------- ---------- ------- ----------- --------- ------- -----------
Income statement
At GBP28.4m, net interest income was 6% higher than in the
comparative period (30 September 2016: GBP26.8m) reflecting an
uplift in net interest margin from 0.93% to 0.98%, as a result of
the positive impact of growth in residential lending balances and
the availability of funding via the Bank of England's Term Funding
Scheme. As a mutual, the strategy is not to maximise net interest
margin but to maintain it at a level which balances the immediate
and long-term benefits to both our borrowing and saving
members.
Fees, commissions and other operating income remained at similar
levels to the first half of 2016/17 and comprised income earned on
insurance, investment and protection products, together with rent
receivable on a portfolio of investment properties.
Management expenses for the first half of 2017/18 totalled
GBP25.8m (30 September 2016: GBP25.0m), increasing as a consequence
of higher depreciation charges as a result of investment in the
future of the Society, including the development of a more
efficient and resilient IT infrastructure. This strategic spending
contributed to a slight increase in the management expenses ratio
from 0.87% to 0.89%.
Positive house price movements delivered a GBP3.0m revaluation
gain on the Group's residential investment property portfolio (30
September 2016: GBP3.3m).
Impairment charges of GBP6.3m included GBP5.6m (30 September
2016: GBP3.8m) on the non-core commercial loan book, incorporating
an uplift in collective provisions to take account of uncertainties
in the market outlook. With arrears levels remaining low the
residential mortgage impairment charge was just GBP0.7m (30
September 2016: credit of GBP3.0m).
For the six months ended 30 September 2016, provisions for
liabilities of GBP29.3m included the charge of GBP27.5m in relation
to the reimbursement of interest charged on certain buy to let
mortgages. The 2017/18 half year provisions charge of GBP0.5m
solely comprised the Society's estimated share of Financial
Services Compensation Scheme (FSCS) costs, which fell from GBP1.3m
in the comparative period. The annual amounts levied on deposit
takers are primarily driven by interest on HM Treasury loans and
are therefore reducing in line with the repayment of these loans by
the FSCS.
In the previous financial year, the Society provided further for
expected Payment Protection Insurance (PPI) redress through to the
August 2019 deadline by which all complaints must be submitted. The
Society has continued to monitor the provision and concluded that,
as at 30 September 2017, no additional amounts were required to be
set aside (30 September 2016: GBP0.5m).
For the half year accounts, tax has been charged on the
statutory profit before tax at the UK standard rate of 19%. A full
review of the tax position of the Society and its subsidiaries will
be carried out at the year end date.
Balance sheet
Firm in its commitment to promote home ownership and the
objective to grow owner occupied residential lending, the Society
advanced GBP478m in the six month period (30 September 2016:
GBP441m), of which 28% (30 September 2016: 20%) was to first time
buyers.
High quality liquid assets are held, on and off-balance sheet,
such that the Society is positioned to meet its financial
obligations as they fall due under both normal and severe, but
plausible, stressed scenarios. The key regulatory measure of
liquidity is the Liquidity Coverage Ratio (LCR). At 139% (31 March
2017: 127%), the Group's LCR was considerably above the 90% current
minimum level set by the regulator.
As a traditional building society, the West Brom remains
primarily funded by retail savings balances and, at 30 September
2017, 80.0% (31 March 2017: 84.0%) of total shares and borrowings
were in the form of members' retail savings.
The Society, together with other financial services
institutions, has participated in Bank of England schemes which aim
to stimulate the mortgage markets by providing low cost term
funding to lenders.
Asset quality
Asset quality remained strong with residential mortgage arrears
falling from 0.81% at 31 March 2017 to just 0.67% at 30 September
2017, significantly below the market average. These percentages
report the proportion of residential loans in arrears by more than
three months. Only one loan originated since the West Brom's
re-entry to the mortgage market over five years ago met this
definition at the reporting date (31 March 2017: none).
The Group has made further progress in its objective to de-risk
the balance sheet. Non-core commercial lending balances have
reduced by GBP46m since the year end to GBP542m, of which GBP60m
(31 March 2017: GBP73m) was securitised, thereby transferring the
risk out of the Group and reducing its remaining exposure to
GBP482m. Provisions set aside for potential losses equated to 9.3%
of total commercial loan balances outstanding (31 March 2017:
6.7%).
Internal policy dictates that the Society's treasury investment
portfolio contains only instruments rated single A or better or
held with a Global Systemically Important Counterparty. The Group
has no exposure to non-UK sovereign debt or to any mortgage market
outside the UK. No impairment losses were incurred against treasury
assets during the current or preceding half year.
Capital
A financial institution holds capital as the ultimate protection
for depositors. Throughout the reporting period, the Society's
capital has been maintained at levels which comfortably exceed
minimum internal and regulatory requirements.
The following table illustrates the Group's capital ratios at 30
September 2017 and 31 March 2017, presented as currently calculated
under CRD IV transitional rules and also with the full impact of
CRD IV implementation:
Transitional Full implementation Transitional Full implementation
CRD of CRD CRD of CRD
IV rules IV IV rules IV
30-Sep-17 30-Sep-17 31-Mar-17 31-Mar-17
% % % %
Common Equity Tier
1 ratio 14.1 14.1 13.8 13.8
Tier 1 ratio 15.5 14.1 15.2 13.8
Total capital ratio 16.2 14.8 16.0 14.5
Leverage ratio 6.9 6.3 6.8 6.2
--------------------- ------------- -------------------- ------------- --------------------
The two key measures of capital, each being an indication of an
entity's financial resilience in terms of its ability to absorb
unexpected losses, are the Common Equity Tier 1 (CET1) and leverage
ratios.
There has been a strengthening of the CET1 ratio from 13.8% at
31 March 2017 to 14.1% at 30 September 2017, including unaudited
interim profits. The stable leverage ratio of 6.9% (31 March 2017:
6.8%) compares favourably with others in the sector and is
significantly above the current regulatory minimum.
In the last Annual Report and Accounts, it was communicated that
the Society was seeking clarification from the European Banking
Authority (EBA) on the capital treatment of Profit Participating
Deferred Shares (PPDS), in light of a challenge received from a
third party. The EBA's response is pending.
The Board remains of the view that the PPDS are eligible CET1
capital and has agreed with the regulator (the Prudential
Regulation Authority) that it is appropriate to continue to treat
PPDS as CET1. Were the EBA to determine that the PPDS do not meet
the criteria to be categorised as CET1, it is possible that the
Society would have to reduce the degree to which the PPDS would
count towards its CET1 by 50% immediately and thereafter by 10% per
annum on each 1 January. Under this scenario, the immediate impact
on the Society's CET1 ratio would be a reduction from 14.1% at 30
September 2017 to 10.8%. The total capital ratio of the Society
would be unchanged at 16.2% as at that date because the element of
PPDS that would be deemed not to qualify for CET1 would instead
qualify as Tier 2 capital.
Until confirmation is obtained from the EBA, the Board believes
that it is prudent to manage the Society so that it is protected
from the possibility of an unexpected outcome. To this end, the
Society continues to consider its options to help guard against the
possibility of the EBA deciding that the PPDS do not comply with
the criteria to qualify as CET1, including engaging as appropriate
with PPDS holders.
Currently, the Society applies the Standardised Approach and is
making significant progress on its regulatory project to move to
the Internal Ratings Based (IRB) Approach to calculating its
capital requirements for credit risk which commenced in October
2015.
Following a further assessment of the positive progress made to
date on the IRB project the Society's Board has re-affirmed its
commitment to the continued investment on the project and is
indicatively targeting a submission of its application for IRB
Permission to the Prudential Regulation Authority in 2018.
It is the Society's current expectation that, given the nature
of the Society's residential exposures, the capital required to
support its credit risk should reduce under the IRB Approach,
resulting in a positive impact on the Society's already robust
capital ratios.
Member value
The principles of mutuality have guided and shaped the West Brom
since its foundation in 1849. Mutuality means that all of our
decision-making and direction is driven by looking after the
interests of members.
Persistent low interest rates have contributed to creating great
deals for borrowers. We have offered a broad selection of
competitive products throughout the half year, with features such
as fees assisted legal services, free valuations and cashbacks, as
well as products catering for borrowers with lower deposits. We
have offered particularly competitive 5 year fixed rate mortgages
over the last six months, which have been very popular with those
customers seeking peace of mind at a time of uncertainty where
future interest rates are concerned.
In contrast, the prolonged low interest rate environment and the
availability of low cost funding to the sector, as a result of
government stimuli, have not been good news for savings rates.
While we were compelled to react to these market forces, our
depositing members continued to receive an average interest rate
above the average paid across the cash savings market, as a whole,
and we were delighted to receive a nomination in the Best Building
Society Savings Provider category at the 2017 Moneyfacts Awards. We
offer a wide range of savings products via branch, post and online
channels. Our fixed rate bonds and limited access accounts enable
savers to secure higher rates while instant access products give
greater flexibility where required. We welcomed the increase in the
annual ISA allowance to GBP20,000 from April 2017, improving
tax-efficient savings opportunities for our members.
The West Brom is dedicated to offering members a personally
relevant all-round service and does so in partnership with other
leading providers. We are one of the few high street financial
institutions providing access to independent financial advice,
which is delivered via our branches by experts from Wren
Sterling.
Producing the best results for our members means not only
offering the right products but striving for excellence in every
step of the customer journey. This continuous desire to improve saw
branch customers and callers to Customer Services rate us an
impressive 9 out of 10 for satisfaction. This has only been
achievable through the quality of our colleagues and we were
delighted to receive the Gold Investors in People accreditation
standard for the second time during the period.
The Society has various ways for members to tell us what they
think about our products and services. We have regular face-to-face
events such as Members' ViewPoint and our Annual General Meeting.
There are also satisfaction surveys and comment cards while the
innovation of our Customer Panel is a great example of how feedback
from members can help us develop better products and services which
meet their needs. Having concern for our members' needs goes hand
in hand with caring for the communities in which they live, whether
that be via charitable fundraising, affinity savings accounts or
staff volunteering.
In recognition of our products and achievements, we were very
proud to be Highly Commended in the categories of Best Regional
Building Society and Community Services in the recent Mortgage
Finance Gazette Awards.
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 Board's agreed risk appetite.
The Society's activities are governed by its constitution,
principles and values. The Directors have also agreed a set of
statements which describe the Board's risk appetite in terms of a
number of principal risk categories: business, credit, capital,
liquidity, market, basis, operational, retail conduct, pension
liability and information (the Society's Risk Appetite
Statements).
These Risk Appetite Statements drive corporate planning
activity, including capital and liquidity planning, as well as
providing the basis for key risk measures.
The principal risks and uncertainties which could influence the
Society's long-term performance, together with the Society's
approach to managing them, remain as outlined on pages 23 to 27 of
the Annual Report and Accounts for the year ended 31 March 2017.
There have been no significant changes in the Society's approach to
risk management during the six months ended 30 September 2017 and
none are anticipated for the remainder of the financial year.
The main areas of uncertainty impacting the West Brom, and
common to most UK financial services providers, are described
within the Outlook section below.
Outlook
Early Brexit discussions have done little to alleviate market
uncertainty. Following an indecisive result to the snap general
election, there is a real possibility that the UK government,
although currently optimistic, will be unable to negotiate a trade
deal with the EU, an eventuality with, as yet, unknown
consequences.
Despite the doubt enshrouding the overall economy, the
residential mortgage markets appear reasonably buoyant. Whilst the
Term Funding Scheme (TFS), launched in 2016/17, has supported the
market by providing low cost four year funding, it has contributed
to highly competitive mortgage pricing. After the TFS closes to new
commitments this financial year, the markets will need to adjust to
the removal of this Bank of England stimulus. The Society will
continue to monitor developments in this area and consider the
impact on its lending and funding plans.
The non-core commercial loan book has historically proven
sensitive to a downturn in the economic environment. While the
Group's exposure to this sector is steadily reducing, there remains
the risk of further commercial impairment provision
requirements.
Residential borrowers have experienced a squeeze on earnings,
with inflation outstripping wage increases, and the first interest
rate rise in over 10 years to 0.5% in November 2017. The markets
anticipate that rates will rise further, albeit following a gradual
upward trend. The West Brom's residential mortgage portfolios are
of a high credit quality and therefore able to withstand some
deterioration in economic conditions before losses are incurred.
The new accounting standard IFRS 9 'Financial Instruments', which
the Group will apply from 1 April 2018, encapsulates a range of
economic scenarios in its determination of impairment provision
requirements which must be recognised on an expected, rather than
incurred, loss basis. An intended consequence of IFRS 9 is that
banks and building societies will recognise credit losses earlier
than under current accounting standards. The Society's IFRS 9
project is progressing to timetable.
The Society recognises the ongoing need to invest in its
technological capabilities. Technology is fundamental to delivering
growth, excellent customer service and a robust defence against
cyber risks.
Against the recent backdrop of low interest rates, political
upheaval and economic uncertainty the West Brom has demonstrated
the ability to grow its prime residential mortgage book, exit
non-core activities in a controlled manner, deliver healthy and
sustainable underlying profits, invest in the future and
comfortably meet all regulatory capital and liquidity requirements.
The Society will move forward with each of these critical
objectives for the remainder of the financial year maintaining
emphasis, as always, on helping more borrowers to purchase their
own homes and enabling savers to prepare and plan for a secure
future.
Jonathan Westhoff
Chief Executive
Forward looking statements
Certain statements in this half-yearly report are forward
looking. Although the West Brom believes that the expectations
reflected in these forward looking statements are reasonable, we
can give no assurance that these expectations will prove to be an
accurate reflection of actual results. By their nature, all forward
looking statements involve risk and uncertainty because they relate
to future events and circumstances that are beyond the control of
the West Brom. As a result, the West Brom's actual future financial
condition, business performance and results may differ materially
from the plans, goals and expectations expressed or implied in
these forward looking statements. Due to such risks and
uncertainties the West Brom cautions readers not to place undue
reliance on such forward looking statements. We undertake no
obligation to update any forward looking statements whether as a
result of new information, future events or otherwise.
Condensed consolidated half-yearly Income Statement
for the six months ended 30 September 2017
6 months 6 months Year
ended ended ended
30-Sep-17 30-Sep-16 31-Mar-17
unaudited unaudited audited
Notes GBPm GBPm GBPm
Interest receivable and similar
income 48.7 57.5 108.9
Interest expense and similar
charges (20.3) (30.7) (53.6)
Net interest receivable 28.4 26.8 55.3
Fees and commissions receivable 1.2 1.2 2.7
Other operating income 1.9 2.1 4.1
Fair value gains/(losses) on
financial instruments 2.3 (2.3) (0.2)
Net realised profits - 0.3 0.5
Total income 33.8 28.1 62.4
Administrative expenses (22.1) (22.0) (44.4)
Depreciation and amortisation 10 (3.7) (3.0) (5.7)
Operating profit before revaluation
gains, impairment and provisions 8.0 3.1 12.3
Gains on investment properties 11 3.0 3.3 5.4
Impairment on loans and advances 6 (6.3) (0.8) (7.6)
Provisions for liabilities 7 (0.5) (29.3) (29.9)
Profit/(Loss) before tax 4.2 (23.7) (19.8)
Taxation (0.8) (6.8) (6.0)
Profit/(Loss) for the period 3.4 (30.5) (25.8)
------------------------------------- ------ ------------------ ---------- ----------
Condensed consolidated half-yearly Statement of Comprehensive
Income
for the six months ended 30 September 2017
6 months 6 months Year
ended ended ended
30-Sep-17 30-Sep-16 31-Mar-17
unaudited unaudited audited
GBPm GBPm GBPm
Profit/(Loss) for the period 3.4 (30.5) (25.8)
-------------------------------------- ---------------- ---------------- -----------------
Other comprehensive income
Items that may subsequently be
reclassified to profit or loss
Available for sale investments
Valuation (losses)/gains taken
to equity (0.2) 0.6 0.5
Amounts transferred to Income
Statement - (0.3) (0.5)
Cash flow hedge gains/(losses)
taken to equity 2.5 (0.6) (0.5)
Taxation (0.4) - 0.1
Items that will not subsequently
be reclassified to profit or loss
Gains on revaluation of land and
buildings - - 0.6
Actuarial losses on defined benefit
obligations - - (10.4)
Amortisation of original discount
on subscribed capital - - 0.1
Taxation - - 1.7
-------------------------------------- ---------------- ---------------- -----------------
Other comprehensive income for
the period, net of tax 1.9 (0.3) (8.4)
-------------------------------------- ---------------- ---------------- -----------------
Total comprehensive income for
the period 5.3 (30.8) (34.2)
-------------------------------------- ---------------- ---------------- -----------------
As a percentage of mean total
assets % % %
Profit/(Loss) for the period 0.06 (0.53) (0.44)
Management expenses (annualised) 0.89 0.87 0.86
-------------------------------------- ---------------- ---------------- -----------------
Condensed consolidated half-yearly Statement of Financial
Position
at 30 September 2017
30-Sep-17 30-Sep-16 31-Mar-17
unaudited unaudited audited
Notes GBPm GBPm GBPm
Assets
Cash and balances with
the Bank of England 212.4 145.5 294.8
Loans and advances to credit
institutions 143.8 198.6 174.0
Investment securities 316.0 380.8 385.0
Derivative financial instruments 11.2 8.2 6.3
Loans and advances to customers 8 4,866.3 4,816.2 4,776.5
Deferred tax assets 15.0 14.4 16.4
Trade and other receivables 3.3 3.9 3.5
Intangible assets 10 13.7 9.6 13.3
Investment properties 11 131.6 126.9 128.9
Property, plant and equipment 10 31.1 31.9 32.1
Retirement benefit assets - 0.7 -
----------------------------------- ----- ---------------------- --------- -----------
Total assets 5,744.4 5,736.7 5,830.8
----------------------------------- ----- ---------------------- --------- -----------
Liabilities
Shares 9 4,160.0 4,398.9 4,427.3
Amounts due to credit institutions 683.9 279.0 450.3
Amounts due to other customers 189.2 179.0 132.7
Derivative financial instruments 53.0 89.8 69.0
Debt securities in issue 12 169.3 306.3 263.2
Deferred tax liabilities 4.9 5.4 5.0
Trade and other payables 7.7 8.5 10.2
Provisions for liabilities 7 2.5 2.9 3.1
Retirement benefit obligations 5.1 - 6.5
----------------------------------- ----- ---------------------- --------- -----------
Total liabilities 5,275.6 5,269.8 5,367.3
----------------------------------- ----- ---------------------- --------- -----------
Equity
Profit participating deferred
shares 13 173.8 171.9 173.0
Subscribed capital 15 75.0 74.9 75.0
General reserves 213.7 216.4 211.0
Revaluation reserve 3.4 3.4 3.5
Available for sale reserve 1.5 1.2 1.7
Cash flow hedging reserve 1.4 (0.9) (0.7)
----------------------------------- ----- ---------------------- --------- ---------
Total equity attributable
to members 468.8 466.9 463.5
----------------------------------- ----- ---------------------- --------- ---------
Total liabilities and equity 5,744.4 5,736.7 5,830.8
----------------------------------- ----- ---------------------- --------- ---------
As a percentage of shares % % %
and borrowings
Gross capital 9.3 9.6 9.3
Free capital 6.3 6.6 6.2
Total liquidity 13.4 14.9 17.0
----------------------------------- ----- ---------------------- --------- ---------
Condensed consolidated Statement of Changes in Members'
Interest
for the six months ended 30 September 2017
6 months ended 30 September 2017
(unaudited)
Profit Available Cash
participating for flow
deferred Subscribed General Revaluation sale hedging
shares capital reserves reserve reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2017 173.0 75.0 211.0 3.5 1.7 (0.7) 463.5
Profit for the
period 0.8 - 2.6 - - - 3.4
Other
comprehensive
income for the
period
Realisation of
previous
revaluation
gains - - 0.1 (0.1) - - -
Available for
sale
investments:
current
period
movement net
of tax - - - - (0.2) - (0.2)
Cash flow
hedge gains - - - - - 2.1 2.1
Total other
comprehensive
income - - 0.1 (0.1) (0.2) 2.1 1.9
--------------- -------------- ----------- --------- ------------ ---------- -------- -------
Total
comprehensive
income for
the period 0.8 - 2.7 (0.1) (0.2) 2.1 5.3
--------------- -------------- ----------- --------- ------------ ---------- -------- -------
At 30
September
2017 173.8 75.0 213.7 3.4 1.5 1.4 468.8
--------------- -------------- ----------- --------- ------------ ---------- -------- -------
6 months ended
30
September 2016
(unaudited)
Profit Available Cash
participating for flow
deferred Subscribed General Revaluation sale hedging
shares capital reserves reserve reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2016 179.5 74.9 239.3 3.4 0.9 (0.3) 497.7
Loss for the
period (7.6) - (22.9) - - - (30.5)
Other
comprehensive
income for the
period
Available for
sale
investments:
current
period
movement net
of tax - - - - 0.3 - 0.3
Cash flow
hedge losses - - - - - (0.6) (0.6)
--------------- -------------- ----------- --------- ------------ ---------- -------- -------
Total other
comprehensive
income - - - - 0.3 (0.6) (0.3)
--------------- -------------- ----------- --------- ------------ ---------- -------- -------
Total
comprehensive
income for
the period (7.6) - (22.9) - 0.3 (0.6) (30.8)
--------------- -------------- ----------- --------- ------------ ---------- -------- -------
At 30
September
2016 171.9 74.9 216.4 3.4 1.2 (0.9) 466.9
--------------- -------------- ----------- --------- ------------ ---------- -------- -------
Year ended 31 March 2017
(audited)
Profit Available Cash
participating for flow
deferred Subscribed General Revaluation sale hedging
shares capital reserves reserve reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April 2016 179.5 74.9 239.3 3.4 0.9 (0.3) 497.7
Loss for the period (6.5) - (19.3) - - - (25.8)
Other comprehensive income
for the period
Amortisation of original
discount on subscribed
capital - 0.1 - - - - 0.1
Available for sale
investments:
reallocation of tax* - - (0.8) - 0.8 - -
Actuarial losses on defined
benefit obligations - - (8.5) - - - (8.5)
Gains on revaluation
of land and buildings - - - 0.4 - - 0.4
Realisation of previous
revaluation gains - - 0.3 (0.3) - - -
Cash flow hedge losses - - - - - (0.4) (0.4)
Total other comprehensive
income - 0.1 (9.0) 0.1 0.8 (0.4) (8.4)
------------------------------ --------------- ----------- ---------- ------------ ---------- --------- -------
Total comprehensive income
for the period (6.5) 0.1 (28.3) 0.1 0.8 (0.4) (34.2)
------------------------------ --------------- ----------- ---------- ------------ ---------- --------- -------
At 31 March 2017 173.0 75.0 211.0 3.5 1.7 (0.7) 463.5
------------------------------ --------------- ----------- ---------- ------------ ---------- --------- -------
* Tax in relation to available for sale investments has been
reallocated to reflect the underlying transactions.
Under the terms of the profit participating deferred shares
(PPDS), 25% of the annual post-tax profits or losses are allocated
against the PPDS reserve.
Condensed consolidated half-yearly Statement of Cash Flows
for the six months ended 30 September 2017
6 months 6 months Year
ended ended ended
30-Sep-17 30-Sep-16 31-Mar-17
unaudited unaudited audited
GBPm GBPm GBPm
Net cash (outflow)/inflow from
operating activities (below) (91.9) (40.0) 138.7
-------------------------------------- ----------------- ----------------- -----------------
Cash flows from investing activities
Purchase of investment securities (37.8) (115.5) (230.4)
Proceeds from disposal of investment
securities 124.8 118.0 213.1
Proceeds from disposal of investment
properties 0.3 0.1 0.2
Purchase of property, plant
and equipment and intangible
assets (2.9) (2.9) (9.6)
Proceeds from disposal of property,
plant and equipment - 0.5 0.5
Net cash flows from investing
activities 84.4 0.2 (26.2)
-------------------------------------- ----------------- ----------------- -----------------
Cash flows from financing activities
Repayment of mortgage backed
loan notes (86.9) (62.7) (106.0)
Net cash flows from financing
activities (86.9) (62.7) (106.0)
-------------------------------------- ----------------- ----------------- -----------------
Net (decrease)/increase in
cash and cash equivalents (94.4) (102.5) 6.5
Cash and cash equivalents at
beginning of period 475.3 468.8 468.8
-------------------------------------- ----------------- ----------------- -----------------
Cash and cash equivalents at
end of period 380.9 366.3 475.3
-------------------------------------- ----------------- ----------------- -----------------
For the purposes of the cash flow statement, cash and cash
equivalents comprise the following balances with less than 90 days
maturity:
30-Sep-17 30-Sep-16 31-Mar-17
unaudited unaudited audited
GBPm GBPm GBPm
Cash and cash equivalents
Cash in hand (including Bank
of England Reserve account) 205.4 138.4 287.6
Loans and advances to credit
institutions 143.8 198.6 174.0
Investment securities 31.7 29.3 13.7
------------------------------ ---------------- ---------------- ----------------
380.9 366.3 475.3
----------------------------- ---------------- ---------------- ----------------
The Group is required to maintain certain mandatory balances
with the Bank of England which, at 30 September 2017, amounted to
GBP7.0m (30 September 2016: GBP7.1m and 31 March 2017: GBP7.2m).
The movement in these balances is included within cash flows from
operating activities.
Condensed consolidated half-yearly Statement of Cash Flows
(continued)
for the six months ended 30 September 2017
6 months 6 months Year
ended ended ended
30-Sep-17 30-Sep-16 31-Mar-17
unaudited unaudited audited
GBPm GBPm GBPm
Cash flows from operating
activities
Profit/(Loss) on ordinary
activities before tax from
continuing activities 4.2 (23.7) (19.8)
Movement in prepayments and
accrued income 0.3 (1.2) (0.8)
Movement in accruals and
deferred income (2.0) (4.9) (2.6)
Impairment on loans and advances 6.3 0.8 7.6
Depreciation and amortisation 3.7 3.0 5.7
Revaluation of investment
properties (3.0) (3.3) (5.4)
Movement in provisions for
liabilities (0.6) 0.2 0.4
Movement in derivative financial
instruments (20.9) 13.4 (5.5)
Movement in fair value adjustments 8.0 (13.3) (0.7)
Movement in subscribed capital - - 0.1
Change in retirement benefit
obligations (1.4) 0.1 (3.1)
(5.4) (28.9) (24.1)
Cash flows from operating activities
before changes in operating assets
and liabilities
Movement in loans and advances
to customers (111.2) (64.6) (47.7)
Movement in loans and advances
to credit institutions 0.2 (0.4) (0.5)
Movement in shares (264.8) 13.7 45.7
Movement in deposits and
other borrowings 290.1 42.0 167.0
Movement in trade and other
receivables (0.1) - -
Movement in trade and other
payables (0.7) (1.8) (1.7)
Net cash (outflow)/inflow
from operating activities (91.9) (40.0) 138.7
-------------------------------------- ----------------- ------------------ ------------------
Notes to condensed consolidated half-yearly financial
information
for the six months ended 30 September 2017
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
2017 has been delivered to the Financial Conduct Authority and the
relevant information in this report has been extracted from these
statutory accounts. These accounts have been reported on by the
Group's auditor and the report of the auditor was (i) unqualified,
and (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their
report.
The consolidated half-yearly financial information for the six
months to 30 September 2017 and 30 September 2016 is unaudited and
has not been reviewed by the Group's auditor.
2 Basis of preparation
This condensed consolidated half-yearly financial report for the
six months ended 30 September 2017 has been prepared in accordance
with the Disclosure and Transparency Rules of the Financial Conduct
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 2017, which have
been prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union.
3 Going concern
Details of the Group's objectives, policies and processes for
managing its exposure to risk are contained in the Risk Management
Report of the 2017 Annual Report and Accounts. The Directors also
include a statement in the Directors' Report in respect of going
concern on page 32 of the 2017 Annual Report and Accounts.
The Directors have reviewed the plans and forecasts for the
Group giving consideration to liquidity and capital adequacy, with
due regard given to the economic outlook and the third party
challenge over the eligibility of the Society's profit
participating deferred shares to be treated as Common Equity Tier 1
capital. The Directors consider the Group has adequate liquidity to
meet both the normal demands of the business and the requirements
which might arise in stressed circumstances for the foreseeable
future. Accordingly they continue to adopt the going concern basis
in preparing these half-yearly financial results.
4 Accounting policies
The accounting policies adopted by the Group in the preparation
of its 2017 Interim Financial Report are consistent with those
disclosed in the Annual Report and Accounts for the year ended 31
March 2017. There were no new or amended accounting standards in
the period which had a material impact on the interim financial
statements.
Of the new or amended accounting standards issued but not
effective for the six months ended 30 September 2017, the most
significant is IFRS 9 'Financial Instruments', which will be
adopted in the Group financial statements for the year ended 31
March 2019.The standard introduces new rules for classification and
measurement, impairment and hedge accounting for financial
instruments. It substantially changes the methodology for
calculating loan loss provisions, moving from an incurred to
expected credit loss approach and requiring the incorporation of
multiple, probability-weighted outcomes including forecasts of
future economic conditions.
The Group's IFRS 9 implementation project is progressing to
timetable with a number of updates made to the Society's systems
and business processes. New models, built to meet the expected
credit loss requirements defined in the standard, have been tested
and will be subject to parallel running during the second half of
the year with supporting governance created to ensure that the
models and integral assumptions are properly controlled.
It is not considered appropriate to quantify the financial
impact of implementing IFRS 9 in this interim report, as the effect
is highly dependent on the portfolios and economic view as at the
date of transition. Further details on IFRS 9 can be found on pages
55 to 56 of the Annual Report and Accounts for the year ended 31
March 2017.
5 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 assessing their performance.
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, finance, treasury services, human
resources and computer services, none of which constitute a
separately reportable segment.
There were no changes to reportable segments during the
period.
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 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 does not consider its operations to be cyclical or
seasonal in nature.
6 months ended 30 September Consolidation Total
2017 (unaudited) Retail Commercial Property adjustments Group
GBPm GBPm GBPm GBPm GBPm
Income
Interest receivable and
similar income 50.6 5.3 - (7.2) 48.7
Interest expense and similar
charges (19.7) (6.3) (1.5) 7.2 (20.3)
---------------------------------- ------- ---------- -------- ------------- -------
Net interest receivable/(expense) 30.9 (1.0) (1.5) - 28.4
Fees and commissions receivable 1.2 - - - 1.2
Other operating (expense)/income (0.1) - 2.0 - 1.9
Fair value (losses)/gains
on financial instruments (0.4) 2.7 - - 2.3
---------------------------------- ------- ---------- -------- ------------- -------
Total income/(expense) 31.6 1.7 0.5 - 33.8
Administrative expenses (21.3) (0.7) (0.1) - (22.1)
Depreciation and amortisation (3.7) - - - (3.7)
---------------------------------- ------- ---------- -------- ------------- -------
Operating profit/(loss)
before revaluation gains,
impairment and provisions 6.6 1.0 0.4 - 8.0
Gains on investment properties - - 3.0 - 3.0
Impairment on loans and
advances (0.7) (5.6) - - (6.3)
Provisions for liabilities (0.5) - - - (0.5)
---------------------------------- ------- ---------- -------- ------------- -------
Profit/(Loss) before tax 5.4 (4.6) 3.4 - 4.2
---------------------------------- ------- ---------- -------- ------------- -------
Total assets 5,677.3 491.9 134.2 (559.0) 5,744.4
---------------------------------- ------- ---------- -------- ------------- -------
Total liabilities 5,217.4 544.6 124.4 (610.8) 5,275.6
---------------------------------- ------- ---------- -------- ------------- -------
Capital expenditure 3.1 - - - 3.1
---------------------------------- ------- ---------- -------- ------------- -------
6 months ended 30 September Consolidation Total
2016 (unaudited) Retail Commercial Property adjustments Group
GBPm GBPm GBPm GBPm GBPm
Income
Interest receivable and
similar income 57.5 8.3 - (8.3) 57.5
Interest expense and similar
charges (30.0) (7.5) (1.6) 8.4 (30.7)
---------------------------------- ------- ---------- -------- ------------- -------
Net interest receivable/(expense) 27.5 0.8 (1.6) 0.1 26.8
Fees and commissions receivable 1.2 - - - 1.2
Other operating (expense)/income (0.1) - 2.2 - 2.1
Fair value (losses)/gains
on financial instruments (3.1) 0.1 - 0.7 (2.3)
Net realised profits 0.3 - - - 0.3
---------------------------------- ------- ---------- -------- ------------- -------
Total income 25.8 0.9 0.6 0.8 28.1
Administrative expenses (21.1) (0.8) (0.1) - (22.0)
Depreciation and amortisation (3.0) - - - (3.0)
---------------------------------- ------- ---------- -------- ------------- -------
Operating profit before
revaluation gains, impairment
and provisions 1.7 0.1 0.5 0.8 3.1
Gains on investment properties - - 3.3 - 3.3
Impairment on loans and
advances 3.0 (3.8) - - (0.8)
Provisions for liabilities (29.3) - - - (29.3)
---------------------------------- ------- ---------- -------- ------------- -------
(Loss)/Profit before tax (24.6) (3.7) 3.8 0.8 (23.7)
---------------------------------- ------- ---------- -------- ------------- -------
Total assets 5,927.0 520.9 131.2 (842.4) 5,736.7
---------------------------------- ------- ---------- -------- ------------- -------
Total liabilities 5,447.1 619.5 89.4 (886.2) 5,269.8
---------------------------------- ------- ---------- -------- ------------- -------
Capital expenditure 2.9 - - - 2.9
---------------------------------- ------- ---------- -------- ------------- -------
Year ended 31 March 2017 Consolidation Total
(audited) Retail Commercial Property adjustments Group
GBPm GBPm GBPm GBPm GBPm
Income
Interest receivable and
similar income 107.2 18.2 - (16.5) 108.9
Interest expense and similar
charges (52.4) (14.8) (2.9) 16.5 (53.6)
---------------------------------- ------- ---------- -------- ------------- -------
Net interest receivable/(expense) 54.8 3.4 (2.9) - 55.3
Fees and commissions receivable 2.7 - - - 2.7
Other operating income 37.5 - 4.1 (37.5) 4.1
Fair value (losses)/gains
on financial instruments (0.3) 0.1 - - (0.2)
Net realised profits 0.5 - - - 0.5
---------------------------------- ------- ---------- -------- ------------- -------
Total income 95.2 3.5 1.2 (37.5) 62.4
Administrative expenses (42.5) (1.7) (0.2) - (44.4)
Depreciation and amortisation (5.7) - - - (5.7)
---------------------------------- ------- ---------- -------- ------------- -------
Operating profit before
revaluation gains, impairment
and provisions 47.0 1.8 1.0 (37.5) 12.3
Gains on investment properties - - 5.4 - 5.4
Impairment on loans and
advances 3.5 (11.1) - - (7.6)
Provisions for liabilities (67.4) - - 37.5 (29.9)
---------------------------------- ------- ---------- -------- ------------- -------
(Loss)/Profit before tax (16.9) (9.3) 6.4 - (19.8)
---------------------------------- ------- ---------- -------- ------------- -------
Total assets 5,744.3 548.8 132.1 (594.4) 5,830.8
---------------------------------- ------- ---------- -------- ------------- -------
Total liabilities 5,295.2 588.6 125.8 (642.3) 5,367.3
---------------------------------- ------- ---------- -------- ------------- -------
Capital expenditure 9.0 - - - 9.0
---------------------------------- ------- ---------- -------- ------------- -------
6 Allowance for losses on loans and advances to customers
6 months 6 months Year
ended ended ended
30-Sep-17 30-Sep-16 31-Mar-17
unaudited unaudited audited
GBPm GBPm GBPm
Impairment charge for the period 6.3 0.8 7.6
----------------------------------- --------- --------- ---------
Impairment provision at end
of period
Loans fully secured on residential
property 16.4 17.4 16.3
Loans fully secured on land 50.6 42.6 39.4
----------------------------------- --------- --------- ---------
Total 67.0 60.0 55.7
----------------------------------- --------- --------- ---------
7 Provisions for liabilities
6 months ended 30 September Buy
2017 (unaudited) to
let FSCS Other Total
GBPm GBPm GBPm GBPm
At beginning
of period - 0.8 2.3 3.1
Utilised in
the period - (0.9) (0.2) (1.1)
Charge for
the period - 0.5 - 0.5
At end of
period - 0.4 2.1 2.5
------------------------------- --- ------- ------ ------ -------
6 months ended 30 September Buy
2016 (unaudited) to
let FSCS Other Total
GBPm GBPm GBPm GBPm
At beginning
of period - 1.4 1.3 2.7
Utilised in
the period (27.5) (1.4) (0.2) (29.1)
Charge for the
period 27.5 1.3 0.5 29.3
At end of
period - 1.3 1.6 2.9
------------------------------ ---- ------- ------ ------ -------
Year ended 31 March Buy
2017 (audited) to
let FSCS Other Total
GBPm GBPm GBPm GBPm
At beginning
of period - 1.4 1.3 2.7
Utilised in
the period (27.5) (1.4) (0.6) (29.5)
Charge for the
period 27.5 0.8 1.6 29.9
At end of
period - 0.8 2.3 3.1
------------------------------ ---- ------- ------ ------ -------
Financial Services Compensation Scheme (FSCS)
In common with all regulated UK deposit takers, the Society pays
levies to the FSCS. The provision at 30 September 2017 was
calculated based on the Society's share of protected deposits and
the FSCS estimate of total management expenses for the scheme year,
which reduced significantly following the sale of certain Bradford
& Bingley assets, enabling a substantial repayment of the loan
from HM Treasury to the FSCS.
Buy to let provision
In December 2013, West Bromwich Mortgage Company (the Company)
chose to vary the interest rate margin charged for certain
multi-property landlords in line with the terms and conditions of
their buy to let mortgages. Certain impacted parties initiated
legal proceedings against the Company to challenge this increase.
Following a successful defence of this challenge in the High Court
a final judgement was made in the Court of Appeal in June 2016
which ruled against the Company. During 2016/17, the interest rate
variation applied since December 2013 was refunded in full to all
buy to let borrowers affected.
Other provisions
Other provisions primarily relate to Payment Protection
Insurance (PPI) redress and represent the amounts expected to be
settled based on the Financial Conduct Authority (FCA) introduced
deadline of 29 August 2019. Following the Supreme Court's decision
in the case of Plevin v Paragon Personal Finance Limited, the FCA
has sought to define circumstances whereby the levels of commission
earned on PPI sales gave rise to a potentially 'unfair
relationship'. Other provisions include the Society's expected
obligations under these new FCA rules and guidelines.
8 Loans and advances to customers
30-Sep-17 30-Sep-16 31-Mar-17
unaudited unaudited audited
GBPm GBPm GBPm
Loans and
receivables
Loans fully secured
on residential property 4,410.8 4,242.1 4,253.8
Other loans
Loans fully secured
on land 474.3 542.8 506.7
Other loans - 0.1 -
4,885.1 4,785.0 4,760.5
At fair value
through profit
or loss
Other loans
Loans fully secured
on land 12.2 18.8 17.8
4,897.3 4,803.8 4,778.3
Fair value adjustment
for hedged risk 36.0 72.4 53.9
Less: impairment
provisions (67.0) (60.0) (55.7)
4,866.3 4,816.2 4,776.5
------------------------- --------------- --------------- ----------------
Included within loans and advances to customers are GBP541.9m
(31 March 2017: GBP587.5m) of commercial lending balances of which
GBP60.3m (31 March 2017: GBP73.4m) have been sold by the Group to
bankruptcy remote structured entities. A further GBP841.6m (31
March 2017: GBP1,012.6m) of residential mortgage balances, included
within loans and advances to customers, have also been sold by the
Group to structured entities. The structured entities have been
funded by issuing mortgage backed securities (MBSs) of which
GBP721.4m (31 March 2017: GBP810.5m) are held by the Society.
9 Shares
30-Sep-17 30-Sep-16 31-Mar-17
unaudited unaudited audited
GBPm GBPm GBPm
Held by individuals 4,158.3 4,391.2 4,423.2
Other shares 1.1 1.1 1.1
Fair value adjustment for
hedged risk 0.6 6.6 3.0
-------------------------- --------- --------- ---------
4,160.0 4,398.9 4,427.3
-------------------------- --------- --------- ---------
10 Property, plant, equipment and intangible assets
Intangible Tangible
assets assets
6 months ended 30 September 2017
(unaudited) GBPm GBPm
Net book value at 1 April 2017 13.3 32.1
Additions 1.8 1.3
Depreciation, amortisation, impairment
and other movements (1.4) (2.3)
--------------------------------------- --------------- -------------
Net book value at 30 September 2017 13.7 31.1
--------------------------------------- --------------- -------------
Intangible Tangible
assets assets
6 months ended 30 September 2016
(unaudited) GBPm GBPm
Net book value at 1 April 2016 8.2 33.9
Additions 2.8 0.1
Disposals - (0.5)
Depreciation, amortisation, impairment
and other movements (1.4) (1.6)
--------------------------------------- --------------- -------------
Net book value at 30 September 2016 9.6 31.9
--------------------------------------- --------------- -------------
Intangible Tangible
assets assets
Year ended 31 March 2017 (audited) GBPm GBPm
Net book value at 1 April 2016 8.2 33.9
Additions 7.8 1.2
Disposals - (0.6)
Revaluation - 0.6
Depreciation, amortisation, impairment
and other movements (2.7) (3.0)
--------------------------------------- --------------- -------------
Net book value at 31 March 2017 13.3 32.1
--------------------------------------- --------------- -------------
Capital commitments
The Group has placed contracts amounting to a total of GBP0.3m
(31 March 2017: GBP0.3m) for future expenditure that was not
provided in the financial statements.
11 Investment properties
6 months 6 months Year
ended ended ended
30-Sep-17 30-Sep-16 31-Mar-17
unaudited unaudited audited
GBPm GBPm GBPm
Valuation
At beginning of period 128.9 123.7 123.7
Disposals (0.3) (0.1) (0.2)
Revaluation gains 3.0 3.3 5.4
At end of period 131.6 126.9 128.9
----------------------- --------- --------- ---------
12 Debt securities in issue
30-Sep-17 30-Sep-16 31-Mar-17
unaudited unaudited audited
GBPm GBPm GBPm
Non-recourse finance on securitised
advances 169.3 306.3 263.2
------------------------------------ --------- --------- ---------
The non-recourse finance comprises mortgage backed floating rate
notes (the Notes) secured over portfolios 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.
13 Profit participating deferred shares
30-Sep-17 30-Sep-16 31-Mar-17
unaudited unaudited 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 (11.1) (4.6) (4.6)
Share of profit/(loss) for
the period 0.8 (7.6) (6.5)
---------------------------------- --------- --------- ---------
(10.3) (12.2) (11.1)
---------------------------------- --------- --------- ---------
Net value at end of period 173.8 171.9 173.0
---------------------------------- --------- --------- ---------
The profit participating deferred shares (PPDS) are entitled to
receive a distribution, at the discretion of the Society, of up to
25% of the Group'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.
14 Related party transactions
Related party transactions for the six months to 30 September
2017 are within the normal course of business and of a similar
nature to those for the last financial year, full details of which
are disclosed in the Annual Report and Accounts for the year ended
31 March 2017.
15 Subscribed capital
30-Sep-17 30-Sep-16 31-Mar-17
unaudited unaudited audited
GBPm GBPm GBPm
Permanent interest bearing
shares 75.0 74.9 75.0
--------------------------- -------------- --------- ---------
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.
16 Financial instruments
Fair values of financial assets and financial liabilities
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The Group determines
fair values by the following three tier valuation hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2: Valuation techniques where all inputs are taken from
observable market data, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
Level 3: Valuation techniques where significant inputs are not
based on observable market data.
Valuation techniques include net present value and discounted
cash flow models, comparison to similar instruments for which
market observable prices exist and other valuation models.
Assumptions and market observable inputs used in valuation
techniques include risk-free and benchmark interest rates, equity
index prices and expected price volatilities. The objective of
valuation techniques is to arrive at a fair value determination
that reflects the price of the financial instrument at the
reporting date that would have been determined by market
participants acting at arm's length. Observable prices are those
that have been seen either from counterparties or from market
pricing sources including Bloomberg. The use of these depends upon
the liquidity of the relevant market.
Financial assets and financial liabilities held at amortised
cost
The tables below show the fair values of the Group's financial
assets and liabilities held at amortised cost in the Statement of
Financial Position, analysed according to the fair value hierarchy
described above.
6 months ended 30 September Fair Fair Fair Fair
2017 (unaudited) Carrying value value value value
Level Level Level
value 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm
Financial assets
Cash and balances with
the Bank of England 212.4 212.4 - - 212.4
Loans and advances to credit
institutions 143.8 - 143.8 - 143.8
Loans and advances to customers 4,854.1 - - 4,940.1 4,940.1
----------------------------------- ------------ --------------- --------------- --------------- ------------
5,210.3 212.4 143.8 4,940.1 5,296.3
----------------------------------- ------------ --------------- --------------- --------------- ------------
Financial liabilities
Shares 4,160.0 - - 4,140.0 4,140.0
Amounts due to credit institutions 683.9 - 683.9 - 683.9
Amounts due to other customers 189.2 - 189.2 - 189.2
Debt securities in issue 152.7 143.5 7.2 - 150.7
----------------------------------- ------------ --------------- --------------- --------------- ------------
5,185.8 143.5 880.3 4,140.0 5,163.8
----------------------------------- ------------ --------------- --------------- --------------- ------------
6 months ended 30 September Fair Fair Fair Fair
2016 (unaudited) Carrying value value value value
Level Level Level
value 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm
Financial assets
Cash and balances with
the Bank of England 145.5 145.5 - - 145.5
Loans and advances to credit
institutions 198.6 - 198.6 - 198.6
Loans and advances to customers 4,797.7 - - 4,755.5 4,755.5
----------------------------------- ------------ --------------- --------------- --------------- ------------
5,141.8 145.5 198.6 4,755.5 5,099.6
----------------------------------- ------------ --------------- --------------- --------------- ------------
Financial liabilities
Shares 4,398.9 - - 4,390.4 4,390.4
Amounts due to credit institutions 279.0 - 279.0 - 279.0
Amounts due to other customers 179.0 - 179.0 - 179.0
Debt securities in issue 288.5 272.7 8.1 - 280.8
----------------------------------- ------------ --------------- --------------- --------------- ------------
5,145.4 272.7 466.1 4,390.4 5,129.2
----------------------------------- ------------ --------------- --------------- --------------- ------------
Year ended 31 March 2017 Fair Fair Fair Fair
(audited) Carrying value value value value
Level Level Level
value 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm
Financial assets
Cash and balances with
the Bank of England 294.8 294.8 - - 294.8
Loans and advances to credit
institutions 174.0 - 174.0 - 174.0
Loans and advances to customers 4,758.2 - - 4,790.0 4,790.0
----------------------------------- ------------ --------------- --------------- --------------- ------------
5,227.0 294.8 174.0 4,790.0 5,258.8
----------------------------------- ------------ --------------- --------------- --------------- ------------
Financial liabilities
Shares 4,427.3 - - 4,416.6 4,416.6
Amounts due to credit institutions 450.3 - 450.3 - 450.3
Amounts due to other customers 132.7 - 132.7 - 132.7
Debt securities in issue 245.8 230.0 8.2 - 238.2
----------------------------------- ------------ --------------- --------------- --------------- ------------
5,256.1 230.0 591.2 4,416.6 5,237.8
----------------------------------- ------------ --------------- --------------- --------------- ------------
a) Loans and advances to customers
The fair value of loans and advances to customers has been
determined taking into account factors such as impairment and
interest rates. The fair values have been calculated on a product
basis and as such do not necessarily represent the value that could
have been obtained for a portfolio if it were sold at 30 September
2017.
b) Shares and borrowings
The estimated fair value of deposits with no stated maturity,
which includes non-interest bearing deposits, is the amount
repayable on demand. The estimated fair value of fixed
interest-bearing deposits and other borrowings without quoted
market price is based on discounted cash flows using interest rates
for new deposits with similar remaining maturity. The fair values
have been calculated on a product basis and as such do not
necessarily represent the value that could have been obtained for a
portfolio if it were sold at 30 September 2017.
c) Debt securities in issue
The aggregate fair values are calculated based on quoted market
prices. For those notes where quoted market prices are not
available, a discounted cash flow model is used based on a current
yield curve appropriate for the remaining term to maturity.
Financial assets and financial liabilities held at fair value
through profit or loss
The tables below show the fair values of the Group's financial
assets and liabilities held at fair value in the Statement of
Financial Position, analysed according to the fair value hierarchy
described previously.
6 months ended 30 September Level Level
2017 (unaudited) 1 2 Total
GBPm GBPm GBPm
Financial assets
Investment securities 316.0 - 316.0
Derivative financial instruments - 11.2 11.2
Loans and advances to customers - 12.2 12.2
316.0 23.4 339.4
--------------------------------- --------------- --------------- -------------
Financial liabilities
Derivative financial instruments - 53.0 53.0
Debt securities in issue - 16.6 16.6
- 69.6 69.6
--------------------------------- --------------- --------------- -------------
6 months ended 30 September Level Level
2016 (unaudited) 1 2 Total
GBPm GBPm GBPm
Financial assets
Investment securities 378.8 2.0 380.8
Derivative financial instruments - 8.2 8.2
Loans and advances to customers - 18.5 18.5
378.8 28.7 407.5
--------------------------------- --------------- --------------- ---------------
Financial liabilities
Derivative financial instruments - 89.8 89.8
Debt securities in issue - 17.8 17.8
- 107.6 107.6
--------------------------------- --------------- --------------- ---------------
Level Level
Year ended 31 March 2017 (audited) 1 2 Total
GBPm GBPm GBPm
Financial assets
Investment securities 385.0 - 385.0
Derivative financial instruments - 6.3 6.3
Loans and advances to customers - 18.3 18.3
385.0 24.6 409.6
----------------------------------- --------------- --------------- ---------------
Financial liabilities
Derivative financial instruments - 69.0 69.0
Debt securities in issue - 17.4 17.4
- 86.4 86.4
----------------------------------- --------------- --------------- ---------------
17 Statement of Directors' responsibilities
The Directors confirm that this condensed set of financial
statements has been prepared in accordance with IAS 34 'Interim
Financial Reporting' 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 2017. Subsequent to the publication of the Annual Report,
Claire Hafner resigned from the Board on 27 July 2017.
Signed on behalf of the Board of Directors:
Jonathan Westhoff Ashraf Piranie
Chief Executive Group Finance & Operations Director
28 November 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BXBDBUUDBGRI
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November 28, 2017 08:58 ET (13:58 GMT)
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