TIDMWBS
RNS Number : 0249A
West Bromwich Building Society
27 May 2021
West Bromwich Building Society
Preliminary results announcement for the year ended 31 March
2021
Forward-Looking Statements
Statements in this document are forward-looking with respect to
plans, goals and expectations relating to the future financial
position, business performance and results of the West Brom.
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 including, amongst other things, UK domestic and global
economic business conditions, market-related risks such as
fluctuation in interest rates and exchange rates,
inflation/deflation, the impact of competition, changes in customer
preferences, risks concerning borrower credit quality, delays in
implementing proposals, the timing, impact and other uncertainties
of future acquisitions or other combinations within relevant
industries, the policies and actions of regulatory authorities, the
impact of tax or other legislation and other regulations in the
jurisdictions in which the West Brom operates. 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.
West Bromwich Building Society
Preliminary results announcement
for the year ended 31 March 2021
The West Brom today announces its results for the financial year
ended 31 March 2021 , reporting a pre-tax profit of GBP4.7m which
is after absorbing a significant impact from the potential economic
consequences of the COVID-19 pandemic lockdown.
Key highlights of the financial year include:
-- 38% increase in new mortgage lending to GBP784m (2019/20:
GBP569m) and GBP1.2bn in new applications (2019/20: GBP0.9bn).
-- 9% increase in residential owner occupied balances (2019/20:
3%) with 1 in 3 of all new mortgages helping support first-time
buyers (2019/20: c.1 in 2).
-- Rewarded savers with rates that were, on average, 41% above
those paid by the market(1) (2019/20: 49%); equivalent to an
additional GBP5.3m in interest (2019/20: GBP13.0m).
-- The first lender to design and launch a range of mortgages
specifically to help mortgage prisoners.
-- Demonstrated our resilience through the pandemic by remaining
open for business while providing consistently outstanding service
with our Net Promoter Score(R)(2) increasing to +76 (2019/20: +73)
and customer satisfaction maintained at 96%.
-- Improved statutory profit before tax of GBP4.7m (2019/20:
GBP1.5m), after making appropriate provisions to reflect the
impacts of the pandemic, with operating profit before provisions
increasing by 26% to GBP19.6m (2019/20: GBP15.5m) and a 50%
increase in underlying profit (profit before tax excluding one off
items and hedge ineffectiveness) to GBP2.4m.
-- Strong capital position maintained with a Common Equity Tier
1 (CET 1) capital ratio of 16.4% (2019/20: 15.9%) and a leverage
ratio of 6.8% (2019/20: 6.9%).
-- Further external recognition as the Best Regional Mortgage
Lender by Mortgage Finance Gazette and the Best Regular Savings
Provider by Moneynet.
-- Became one of first signatories of The Inclusive Economy
Partnership Code of Best Practice for Debt Collection &
Recovery.
-- Recognised for responsible business practices through
accreditation by the Good Business Charter.
(1) Average market rates sourced from Bank of England Bankstats
table A6.1
(2) Net Promoter Score and NPS are trademarks of Satmetrix
Systems, Inc., Bain & Company, Inc., and Fred Reichheld.
Jonathan Westhoff, Chief Executive, commented:
No one could have predicted that we would be reporting our
financial results in the midst of the global pandemic for the
second year running. Firstly I would like to thank colleagues for
their continued support in the delivery of the Society's Purpose to
members, and their hard work and resilience through this difficult
time. It is thanks to the commitment shown by the Society's people
that has enabled us to deliver a robust performance in a very
difficult operating environment.
The pandemic has highlighted the benefit of our mutual ethos and
enabled us to focus our efforts on supporting our members when they
needed us most. We have reconfigured our business model in ways
that would've seemed impossible under 'normal' circumstances,
providing much more flexibility and agility that ultimately
provides greater support to our members.
Throughout this difficult period, we have had three areas of
focus; prioritising the wellbeing of members, colleagues and
communities, remaining operationally and financially resilient, and
ensuring the Society's products, services and premises are safe and
accessible.
Prioritising the wellbeing of our members, colleagues and
communities
Members
Supporting our most financially vulnerable throughout this
period has been a key priority. Many members were worried about
their financial stability through the pandemic, and the Society
responded swiftly, developing a quick and easy online portal to
apply for a mortgage payment deferral period, enabling 5,570
deferrals in total. We're pleased to see that 99% have already
resumed payments, and for those who are still experiencing
financial difficulty, we have created a dedicated team who can
apply a range of measures to help borrowers get back on track.
Throughout the pandemic, we have been determined to deliver our
Purpose, centered on the promotion of homeownership. This
determination has seen our new residential lending increase by 38%
to GBP784m (2019/20: GBP569m) and we received GBP1.2bn in new
applications (2019/20: GBP0.9bn). Whilst at the start of the
pandemic we took a responsible approach by limiting the amount of
high loan to value (LTV) lending, in total a third of our new
mortgage lending has been to first-time buyers. This segment is at
the heart of our Purpose, and we have recently launched a range of
95% LTV products to provide more options for those looking to
achieve the dream of homeownership.
One group that has been hit hard by the pandemic is savers. That
said, for many the impact of the pandemic will have reaffirmed the
importance of having a savings buffer, and the Society has welcomed
4,513 new savers, and was recognised by MoneyNet as the Best
Regular Savings Provider. Despite the Bank of England Base Rate
being at an all-time low of 0.10% for the entire financial year,
the Society has continued to pay rates of interest which are on
average 41% higher than the equivalent market rate(1) , an interest
rate benefit of circa GBP5.3m in monetary terms.
Colleagues
As well as looking after our members, it has been equally
important to look after the wellbeing of our colleagues during this
difficult time. We have not placed any colleagues on furlough, made
any redundancies as a result of the pandemic, or reduced pay even
when there has been a reduction in working hours. We have supported
homeworking throughout and will continue to apply agile working
following the pandemic, as it is evident that our business model
can successfully adapt to accommodate more flexibility.
Communities
As a mutual business, supporting the communities in which we
operate is a core part of our ethos. Whilst fundraising and
volunteering have been difficult in the past year, we have still
been able to support groups most in need as a result of the
pandemic. This included a GBP34,000 donation to local food banks,
as well as donations to West Midlands Air Ambulance and Birmingham
Children's Hospital. Many of our colleagues also supported key
workers with care packages delivered to hospitals around the Black
Country, for both patients and NHS staff.
Remaining operationally and financially resilient
It is thanks to the hard work of colleagues that today the
Society reports an increased level of profitability before tax, at
GBP4.7m (2019/20: GBP1.5m). This has been achieved while increasing
the level of provisions recorded in anticipation of the full impact
of the pandemic on borrowers, as government support begins to
unwind. Operating profit, which is before provision charges on
residential and commercial real estate lending increased by 26% to
GBP19.6m (2019/20: GBP15.5m).
Despite the number of borrowers who asked for our support under
the option to defer their mortgage payments, we have continued to
maintain arrears rates at levels well below industry averages. Core
residential arrears stood at 0.43% on 31 March 2021, compared to
the UK Finance average of 0.85%.
As well as this, the Society's Common Equity Tier 1 ratio (CET
1), which measures the strength of the Society's capital, has
remained strong at 16.4%. As a comparison, during the financial
crisis 2008/2009, the Society's CET 1 ratio was at 6.8%,
demonstrating the capital that has been built up to cope with
economic shocks.
Ensuring the Society's products, services and premises are safe
and accessible
Given the role of building society staff as part of the
keyworker group, the Society's premises have been operational
throughout the pandemic, and we had a responsibility to make these
settings safe for both colleagues and customers to help stop the
spread of the virus. Our head office and all 36 branches have all
been certified as COVID-19 safe, with measures including social
distancing, increased cleaning schedules, and colleagues required
to wear face coverings as appropriate.
As well as supporting our vulnerable customers, another group we
have supported is mortgage prisoners. In September, we became the
first lender to adopt the new modified affordability rules, which
enabled us to launch a specific range of products to help those
borrowers. The financial benefit for those have taken advantage of
our initiative have been significant, with borrowers receiving
monthly reductions of up to GBP700.
What does the future hold?
As a result of the pandemic, we have been analysing our current
operating model and taking learnings from how the Society has
performed over the past 12 months to shape how we move forward. We
are looking at our internal working arrangements with colleagues
with a view to offer more flexibility post-pandemic, tailored to
colleagues' roles and commitments.
For members, we have learned that introducing digital platforms
to manage accounts has provided a good option for times when they
are unable to contact us through other channels. This year we
introduced a new mortgage portal to enable members to manage their
mortgage online, and made good progress in the development of our
new digital savings platform.
As part of this analysis, we have also been reviewing our
customers' needs and demands for our services within the branch
network set up. Through this, we identified two branches that have
leases that will now end in September, Birmingham and Merry Hill,
given the high operating costs of both, especially as these
branches are predominantly used as secondary to the member's main
branch. We have written to customers informing them of the change
and we are still operational in these branches until the end of
August.
We recognise that there will always be a need for branches and
some customers prefer coming to see us to get support with their
savings or mortgages. Therefore we are committed to having a branch
network accessible for these customers, whilst increasing support
for those who want to connect with us through other channels, and
will continue to review our operating model to ensure we're meeting
all customer needs.
As we seemingly are moving into the 'post-pandemic' world, we
know there will be more challenges this year as we return to a form
of normal. If we have learnt anything from the past 12 months, it
is how resilient the Society is, which is largely down to the
commitment and hard work of colleagues, and how we can provide the
benefits of mutuality to our members to support them during the
most unprecedented times. We have confidence that the Society is in
a strong position to weather any future challenges, and this year
we will continue to make decisions with our saving and borrowing
members at heart.
ENQUIRIES:
The West Brom 0121 796 7785
Ashraf Piranie
Group Finance & Operations Director
(1) Average market rates sourced from Bank of England Bankstats
table A6.1
Chief Executive's Review
A Purpose-led performance
I would like to start this report by saying thank you to all
colleagues who have supported the delivery of the Society's Purpose
to members through the pandemic. It is the extraordinary levels of
hard work and commitment shown by the Society's people that have
helped deliver a robust performance in a very difficult operating
environment.
As I covered in detail in both my report 12 months ago and again
at the release of our half year results in November, the
exceptional challenges presented by the pandemic have required the
Society to operate in a very different way to at any time in its
172 year history. However, for a Purpose-led organisation like the
West Brom, while the way in which we operate has had to change
fundamentally, supporting the financial wellbeing of members
remained our focus.
The backdrop of the pandemic and its economic consequences make
the achievements detailed in this report even more satisfying.
Services to members have been maintained, lending for home
ownership increased, average savings rates paid remained at well
above market averages and profitability improved after making
increased provisions to reflect the considerable uncertainty around
the speed and extent of economic recovery.
Alongside these achievements the Society has continued to
receive considerable external recognition for the strength of our
mortgage and savings product ranges, for being a responsible
business and employer, while also making a considerable
contribution to the communities we serve and causes most in
need.
The Society's approach to the pandemic has been to deliver
against three areas of focus:
-- Prioritising the wellbeing of our members, colleagues and communities;
-- Ensuring the Society's products, services and premises are safe and accessible; and
-- Remaining operationally and financially resilient.
Taken together, the performance across these areas demonstrates
how the Society has continued to deliver its Purpose to members
through the year. This report will focus on our activities within
these areas.
Prioritising the wellbeing of our members, colleagues and
communities
At its heart the pandemic is a tragic human crisis, one which
has and will continue to affect people and which, despite the
success of the vaccination programme, will in all likelihood
continue to be a challenge in the next few years as the scientists
continue to find solutions to future variants and we all adapt to
minimising the spread. This does mean that many of the actions we
have taken to protect the wellbeing of our colleagues, members and
communities are likely to be required going forward.
For members
From the outset of the pandemic the Society acted quickly to
support borrowers whose income had been adversely affected, to
defer mortgage payments. Given the enormous level of demand, it was
crucial for this process to be as easy as possible, while at the
same time providing all necessary information. The Society has
continued to work hard throughout the year to ensure this simple
online process has remained up to date as new guidance has emerged.
In total the Society granted deferrals to some 5,570 borrowers
representing 14% of all residential mortgages. Given the
significant level of worry that a drop in income and inability to
meet payments can cause, it is pleasing to see that 99% of these
borrowers have now resumed paying with only 0.5% of all residential
lending remaining in a deferral period at 31 March 2021.
For those borrowers who have been unable to recommence payments,
the Society continues to apply a compassionate, flexible and fair
approach, with all borrower circumstances reviewed individually and
support teams able to apply a wide range of measures to help
borrowers get back on track. In line with the industry wide
moratorium on possessions no repossessions have been made in
respect of borrowers who have fallen behind with payments during
the pandemic, with the Society committed to only pursuing this
action where it is in the interest of borrowers, so not to erode
equity, provided all other reasonable attempts to rectify the
position have been explored. In recognising that challenges will
continue, and there will regrettably be financial pressures on some
borrowing members, the Society became part of the first group of
financial organisations to commit to The Code of Best Practice for
Debt Collection and Recovery, the aim of which is to ensure that
borrowers can feel confident that they will be fully supported
should they encounter financial stress.
For many, the impact of the pandemic will have reaffirmed the
importance of having an appropriate savings buffer to cover
expenses, in unforeseen circumstances. With access to savings
helping to support financial resilience and financial wellbeing, it
is pleasing to see that across the year we have welcomed 4,513 new
savers and have been recognised by Moneynet as the best regular
savings provider. Aligned to our Purpose, the Society's range of
savings accounts offers security of deposit alongside a good rate
of return. While the latter has inevitably been challenged by the
record low Bank Rate, the Society has continued to pay rates of
interest which are on average 41% higher than the equivalent market
rate (1) , an interest rate benefit of circa GBP5.3m in monetary
terms. Moving forward, the Society remains committed to supporting
people to save in order to build financial resilience.
With the impacts of the pandemic often felt hardest amongst the
most vulnerable, the Society has continued to take proactive action
by offering targeted support to vulnerable members whether that be
in how specific circumstances and requests are dealt with, or
simply through a phone call to let our most vulnerable members know
how the Society can support their individual needs.
For c olleagues
As a responsible employer, ensuring the wellbeing of colleagues
through the pandemic has remained a top priority. The Society has
delivered on all of its commitments by not placing any employees on
furlough, making no redundancies as a result of the pandemic and
ensuring no reduction in pay despite, in many cases, colleagues
working significantly reduced hours to minimise the risk of
customers or colleagues coming into contact with the virus.
The Society has continued to support colleagues to cope with the
isolating impacts of the pandemic offering a wide range of
activities targeted at improving both mental and physical
wellbeing. Our programme of virtual wellness classes, led by
trained and qualified instructors, has included mindfulness
sessions, yoga and high intensity workouts. In total 37 classes
have taken place, attended by over 574 colleagues.
I am proud to say that the sum of these efforts has been
reflected in our latest staff survey with over 90% of colleagues
feeling supported by the Society through the pandemic.
For c ommunities
The Society's commitment to the communities it serves goes well
beyond our annual fundraising efforts. I would like to draw special
attention to our 'Big Shop' initiative which, through a targeted
range of fundraising activities and significant support from
members, helped raise a total of GBP34,000 for three local
foodbanks. The money raised allowed the Society to order stock
which was distributed equally to spread vital help to the
communities we serve.
Ensuring the Society's products, services and premises are safe
and accessible
Given the nature of the public health crisis and the role of
building society staff as part of the key worker group, it has been
imperative for the Society to ensure its products, services and
premises remain safe and accessible through the pandemic. The
Society's facilities teams have worked hard to ensure our head
office site and our network of 36 branches are COVID-19 secure, and
in cases where we have been advised that there may have been a risk
of the virus having been present, have immediately treated the
affected area or premises to remove the threat.
With our Purpose centred on the promotion of home ownership, we
have been determined to support the housing market ever since we
entered into the first period of lockdown. This support has seen
our new residential lending increase to GBP784m, a 38% increase
year on year, contributing to a 9% increase in owner occupied loans
outstanding. This impressive performance has included a notable
contribution to first-time buyers, with the Society supporting
2,051 borrowers to purchase their own home during this
extraordinary period. Again, allied to our Purpose, this increase
in lending has been completed responsibly, with agile changes made
to lending policies to reflect changes in borrower risk profiles,
with loan to values (LTVs) limited in some instances. By way of
comparison, the average LTV across new lending through the last 12
months has reduced to 66% from 76%.
In September we became the first lender to adopt the new
regulations for modified a ffordability, which meant we could
launch a range of products specifically to enable those borrowers
who had found themselves trapped in unnecessarily expensive
mortgages due to changes in regulation following the financial
crisis over 12 years ago, known as mortgage prisoners, to have a
much lower cost option. Despite the estimated number of borrowers
held by inactive lenders being around 250,000, many of whom will be
classed as mortgage prisoners, we have seen only modest take up,
which underlines the need for perhaps even greater public
awareness. We will continue to work with others to this end. In our
experience, reductions to monthly costs can be in excess of
GBP700.
I am proud to say that this steadfast commitment to promoting
homeownership through the pandemic has been recognised through two
external accolades - for the third year in a row, we earned a top
five star rating in the Financial Adviser Service Awards, and being
recognised as Best Regional Building Society by Mortgage Finance
Gazette. I would like to take this opportunity to thank personally
all the Society's intermediary, lending, product and risk teams for
their exceptional levels of hard work and commitment to deliver
this performance, allowing us to carry an equally strong pipeline
of new applications into 2021/22.
Remaining operationally and financially resilient
T hrough the pandemic the Society has continued to operate as a
financially secure and operationally resilient building society.
This resilience is a product of a decade long programme to improve
risk management capability, reduce legacy balance sheet risk,
increase Purpose-led lending, ensure strong levels of capital
coverage across exposure classes and to develop operational
contingency plans so that when unforeseen events do occur, the
Society has the capability to respond. These developments have
underpinned our performance th rough this period of stress and have
allowed the Society to continue to lend responsibly in support of
the UK housing market and wider economy.
The Society has demonstrated its operational resilience by
maintaining access to all essential member services throughout the
period, with only a number of changes to operating hours to reflect
an understandable reduction in demand for some services during
periods of lockdown, as well of course as the determination to
manage the risk of the virus spreading through any location. This
continuity of service has been supported by the transition to
remote working for over 85% of head office colleagues enabled by
the enormous work of our IT teams to develop remote working
technologies with the number of laptop users increased by over
140%.
In terms of customer outcomes, it is pleasing to see that the
shift to a largely remote operating model has not resulted in a
deterioration of the outstanding level of service the Society
prides itself on, with our Net Promoter Score(R) (2) (NPS),
measuring how likely our members are to recommend us, increased to
+76 and customer satisfaction maintained at equally impressive
levels ( 96%).
As important as the Society's operational response to the crisis
has been the resilience of the financial position. The Society's
Liquidity Coverage Ratio has been maintained at over 150%
throughout the financial year with a CET 1 ratio of 16.4% reported
at 31 March 2021. Both of these measures are reported at levels
well above the respective regulatory minimum.
To allow the Society to grow and invest in its future it remains
important that we deliver sustainable levels of profitability.
Despite incurring increased costs as a result of the pandemic the
Society is able to report a 26% increase in operating profit, which
is before provision charges on residential and commercial real
estate lending, to GBP19.6m (2019/20: GBP15.5m). In extraordinary
times such as these, operating profit remains an important
indicator of underlying business performance.
As I reported last year, the Society continues to make
appropriate provisions to reflect the impact of the pandemic across
its lending portfolio. By far the most material of these being
provisions to reflect the sensitivity of legacy commercial
exposures to changes in the wider economic climate. While
associated balances have reduced by 77% from their peak, given the
variability in economic outlook, the Society has again taken
responsible steps to increase levels of provision cover to 23% of
associated balances.
The level of residential provision has also increased to GBP4.8m
(31 March 2020: GBP2.9m). The increase is driven by the impact of
worsening macroeconomic scenarios together with an overlay in
respect of the increased risk of default and reduced property
values on flats where combustible materials may be present.
Once movements in provisions and other items are accounted for,
including revaluation gains in respect of the portfolio of
investment properties held by the Society in its capacity as a
responsible landlord, I am pleased to report an improved level of
statutory profit before tax of GBP4.7m (2019/20: GBP1.5m) with
underlying profit adjusted for one off items and hedge
ineffectiveness also increased to GBP2.4m (2019/ 20: GBP1.6m).
Engagement through the pandemic
The Society prides itself on the extent to which stakeholder
views are considered within the decisions of the Board. Both our
Member and Employee Councils have continued to meet virtually and
have provided much valued input on B oard topics covering our
proposed use of the Dormant Accounts Scheme, executive
remuneration, the response to COVID-19, support for vulnerable
customers, our newly launched Member Commitments and our new
savings platform.
Commitment to responsible business
While I have already covered the Society's unwavering focus on
colleague wellbeing through the pandemic, I feel it is important to
draw attention to three key developments that evidence the
Society's long-term commitment to its people.
In May the Society became the first financial services firm to
receive accreditation by the Good Business Charter, which seeks to
acknowledge and encourage responsible business practice. The
Charter covers a range of criteria such as prioritising employee
wellbeing, fair tax compliance, care for the environment, and
treatment of customers and suppliers. I believe firmly that this
accreditation evidences the Society's commitment to being a
responsible business that takes the wellbeing of its employees
seriously.
In an extension to our commitment to creating a diverse and
inclusive workforce in all respects, in October the Society became
a signatory of the Race at Work Charter, consisting of five
principles to ensure organisations address the barriers to ethnic
minority recruitment and progression. To support existing
disclosures around the Society's gender pay gap, we will also
commit to publishing details of our ethnicity pay gap and the work
we are doing to tackle unfair elements of pay disparity where these
exist.
Finally, the Society received for the third time a gold
accreditation from Investors in People, recognised around the world
as the global benchmark for organisations that invest in and manage
the development of their people. It was particularly pleasing to
see the indicator associated with how our colleagues live the
Society's values and behaviours improve from previous assessments,
given the work we have done to reinvigorate this framework over the
last 18 months.
Outlook
The uncertainties for the economy over the next five years
remain considerable. With the remarkable success of the vaccine
rollout programme there is now, I believe, cause for at least a
level of short-term optimism as families meet, businesses reopen
and life begins, cautiously, to return to a new version of normal.
However, it is likely that this new normal will include learning to
live with the virus in terms of new variants which may cause some
future interruptions to the economy as further development of
vaccines is required and maybe some form of local restrictions on
movement from time to time.
As this transition out of lockdown progresses, it is perhaps
inevitable that increases in unemployment are expected as
government support schemes unwind and businesses adapt to new ways
of operating. The Society stands ready to support any borrowers
affected by a drop in income as it has done throughout the
pandemic.
In terms of interest rates, while the prospect of negative rates
seems to be cooling somewhat, given the enormous levels of
government borrowing through the pandemic, the period of ultra-low
rates looks set to continue, subject of course to any unforeseen
economic conditions arising out of the actions taken to manage the
economy throughout the pandemic.
While this environment will present all too familiar challenges
for savers, the Society will continue to develop its proposition to
support people to save and to build financial resilience. This
includes the development of our new online savings platform which
will help support and grow the next generation of savers.
The resilience demonstrated by the Society through the pandemic
is testament to the developments made over the last decade to
become the Purpose-led building society we are today. A journey
that has been guided by the significant contribution made by our
outgoing Chair Mark Nicholls who, due to unexpected personal
circumstances, made the decision to retire early in March 2021. I
would like to thank Mark, on behalf of all my colleagues, for his
contribution and for the unwavering support and guidance provided
to myself and the Board. I would also like to take this opportunity
to welcome the Society's new Chair, John Maltby. I know John is
committed to continuing our development as an independent
Purpose-led building society.
While the pandemic has taught us all many new lessons, it has
also acted to reinforce the fundamental importance and value of the
Society's proposition to members. Never has it been so important to
have a place to call home or a level of savings to guard against
unforeseen circumstances. Fundamental needs with an integral link
to our financial wellbeing that will remain as relevant tomorrow as
they do today.
As I said in opening, the performance the Society has delivered
over the last 12 months is one that we can all take pride in -
colleagues and members alike. Never in the Society's 172 year
history have its people been challenged to deliver on its Purpose
to members in such extraordinary circumstances. It is this
combination of Purpose and p eople that will remain fundamental to
the continued success of the Society as we look to grow and invest
for generations to come.
In closing I would like to thank, on behalf of all Society
colleagues, all of our members for their continued support through
the last 12 months.
Jonathan Westhoff
Chief Executive
2 7 May 2021
(1) Average market rates sourced from Bank of England Bankstats
table A6.1
(2) Net Promoter Score and NPS are trademarks of Satmetrix
Systems, Inc., Bain & Company, Inc., and Fred Reichheld.
Income Statement
for the year ended 31 March
2021 Group Group
2021 2020
GBPm GBPm
Interest receivable and similar income
Calculated using the effective interest
method 99.4 118.6
On instruments measured at fair value through
profit or loss (15.2) (4.5)
---------------------------------------------------------- -------- --------------
Total interest receivable and similar income 84.2 114.1
Interest expense and similar charges (26.5) (55.0)
---------------------------------------------------------- -------- --------------
Net interest receivable 57.7 59.1
Fees and commissions receivable 2.0 2.3
Other operating income 3.7 4.0
Fair value gains/( losses ) on financial
instruments 3.4 (8.5)
Gain on deconsolidation of commercial securitisations - 5.3
Write down of goodwill - (0.5)
---------------------------------------------------------- -------- --------------
Total income 66.8 61.7
Administrative expenses (39.1) (38.2)
Depreciation and amortisation (8.1) (8.0)
---------------------------------------------------------- -------- --------------
Operating profit before revaluation gains,
impairment and provisions 19.6 15.5
Gains on investment properties 4.0 4.2
Impairment on loans and advances (18.8) (17.5)
Provisions for liabilities (0.1) (0.7)
---------------------------------------------------------- -------- --------------
Profit before tax 4.7 1.5
Taxation 0.4 -
----------------------------------------------------------
Profit for the financial year 5.1 1.5
========================================================== ======== ==============
Statement of Comprehensive Income
for the year ended 31 March 2021 Group Group
2021 2020
GBPm GBPm
Profit for the financial year 5.1 1.5
----------------------------------------------------- -------- -------
Other comprehensive income
Items that may subsequently be reclassified
to profit or loss
Fair value through other comprehensive income
investments
Valuation gains/( losses ) taken to equity 3.7 (2.2)
Taxation (0.7) 0.4
Items that will not subsequently be reclassified
to profit or loss
Actuarial losses on defined benefit obligations (0.3) (0.7)
Taxation 0.1 0.3
----------------------------------------------------- -------- -------
Other comprehensive income for the financial
year, net of tax 2.8 (2.2)
----------------------------------------------------- --------
Total comprehensive income for the financial
year 7.9 (0.7)
===================================================== ======== =======
Statement of Financial Position
At 31 March 2021
Group Group
2021 2020
GBPm GBPm
Assets
Cash and balances with the Bank of England 316.5 263.5
Loans and advances to credit institutions 107.3 123.6
Investment securities 276.5 285.3
Derivative financial instruments 6.5 4.5
Loans and advances to customers 4,852.3 4,691.6
Current tax assets 0.2 0.4
Deferred tax assets 21.3 20.4
Trade and other receivables 2.6 4.1
Intangible assets 16.3 16.3
Investment properties 143.0 138.9
Property, plant and equipment 24.9 28.2
Retirement benefit asset 1.1 -
Total assets 5,768.5 5,576.8
================================================== ===================== ================
Liabilities
Shares 4,234.1 3,846.1
Amounts due to credit institutions 751.8 883.8
Amounts due to other customers 90.9 94.6
Derivative financial instruments 40.5 54.2
Debt securities in issue 217.9 266.3
Deferred tax liabilities 7.6 6.7
Trade and other payables 12.4 15.2
Provisions for liabilities 0.6 0.6
Retirement benefit obligations - 2.7
Subordinated liabilities 22.8 22.8
Total liabilities 5,378.6 5,193.0
Members' interests and equity
Core capital deferred shares 127.0 127.0
Subscribed capital 7.8 8.9
General reserves 250.7 246.5
Revaluation reserve 3.3 3.3
Fair value reserve 1.1 (1.9)
-------------------------------------------------- --------------------- ----------------
Total members' interests and equity 389.9 383.8
Total members' interests, equity and liabilities 5,768.5 5,576.8
================================================== ===================== ================
Statement of Changes in Members' Interests and Equity
for the year ended 31 March 2021
Core
capital
deferred Subscribed General Revaluation Fair value
shares capital reserves reserve reserve Total
Group GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2020 127.0 8.9 246.5 3.3 (1.9) 383.8
Profit for the
financial
year - - 5.1 - - 5.1
Other
comprehensive
income
for the year
(net of tax)
Retirement
benefit
obligations - - (0.2) - - (0.2)
Fair value
through other
comprehensive
income
investments - - - - 3.0 3.0
Total other
comprehensive
income - - (0.2) - 3.0 2.8
--------------- ---------- ----------- ----------- ------------ ----------- ------
Total
comprehensive
income
for the year - - 4.9 - 3.0 7.9
Distribution
to the
holders
of core
capital
deferred
shares - - (1.3) - - (1.3)
--------------- ---------- ----------- ----------- ------------ ----------- ------
Buyback and
cancellation
of
subscribed
capital - (1.1) 0.6 - - (0.5)
--------------- ---------- ----------- ----------- ------------ ----------- ------
At 31 March
2021 127.0 7.8 250.7 3.3 1.1 389.9
=============== ========== =========== =========== ============ =========== ======
Core
capital
deferred Subscribed General Revaluation Fair value
shares capital reserves reserve reserve Total
Group GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2019 127.0 8.9 246.0 3.3 (0.1) 385.1
Profit for the
financial
year - - 1.5 - - 1.5
Other
comprehensive
income
for the year
(net of tax)
Retirement
benefit
obligations - - (0.4) - - (0.4)
Fair value
through other
comprehensive
income
investments - - - - (1.8) (1.8)
Total other
comprehensive
income - - (0.4) - (1.8) (2.2)
--------------- ---------- ----------- ----------- ------------ ----------- ------
Total
comprehensive
income
for the year - - 1.1 - (1.8) (0.7)
Distribution
to the
holders
of core
capital
deferred
shares - - (0.6) - - (0.6)
At 31 March
2020 127.0 8.9 246.5 3.3 (1.9) 383.8
=============== ========== =========== =========== ============ =========== ======
Statement of Cash Flows
for the year ended 31 March 2021 2021 2020
GBPm GBPm
Net cash inflow from operating activities
(below) 82.5 140.3
----------------------------------------------------------------------- ---------- -----------
Cash flows from investing activities
Purchase of investment securities (37.5) (121.8)
Proceeds from disposal of investment securities 54.0 124.7
Proceeds from disposal of investment properties 0.2 -
Purchase of property, plant and equipment
and intangible assets (5.2) (5.6)
Proceeds from disposal of property, plant
and equipment - 0.7
Net cash flows from investing activities 11.5 (2.0)
----------------------------------------------------------------------- ---------- -----------
Cash flows from financing activities
Repayment of debt securities in issue (49.2) (57.5)
Interest paid on subordinated liabilities (2.5) (2.5)
Payment of lease liabilities (0.5) (0.6)
Distribution to the holders of core capital
deferred shares (1.3) (0.6)
Buyback and cancellation of subscribed
capital (0.3) -
----------------------------------------------------------------------- ---------- -----------
Net cash flows from financing activities (53.8) (61.2)
----------------------------------------------------------------------- ---------- -----------
Net increase in cash 40.2 77.1
Cash and cash equivalents at beginning
of year 375.8 298.7
Cash and cash equivalents at end of year 416.0 375.8
======================================================================= ========== ===========
For the purposes of the Statement of Cash Flows, cash
and cash equivalents comprise the following balances with
less than 90 days' original maturity:
Group Group
2021 2020
GBPm GBPm
Analysis of cash and cash equivalents
Cash in hand (including Bank of England
Reserve account) 304.7 252.2
Loans and advances to credit institutions 107.3 123.6
Investment securities 4.0 -
416.0 375.8
======================================================================= ========== ===========
The Group is required to maintain certain mandatory balances
with the Bank of England which, at 31 March 2021, amounted to
GBP11.8m (2019/20: GBP11.3m). The movement in these balances is
included within cash flows from operating activities.
Group Group
2021 2020
GBPm GBPm
Cash flows from operating activities
Profit before tax 4.7 1.5
Adjustments for non-cash items included
in profit before tax
Impairment on loans and advances 18.8 17.5
Depreciation and amortisation 8.1 8.0
Disposal of property, plant and equipment - (0.2)
Revaluations of investment properties (4.0) (4.2)
Gain on deconsolidation of commercial
securitisations - (5.3)
Write down of goodwill - 0.5
Changes in provisions for liabilities 0.1 (0.8)
Interest on subordinated liabilities 2.5 2.5
Fair value losses on equity release portfolio 0.2 0.1
Interest paid on lease liabilities 0.1 0.1
Changes in fair value 13.6 3.4
----------------------------------------------- -------- --------
44.1 23.1
Changes in operating assets and liabilities
Loans and advances to customers (193.3) 31.3
Loans and advances to credit institutions (0.5) (2.5)
Derivative financial instruments (15.7) 20.2
Shares 388.0 (145.1)
Deposits and other borrowings (134.9) 216.8
Trade and other receivables 1.5 (0.4)
Trade and other payables (2.3) 0.9
Retirement benefit obligations (4.1) (2.9)
Subscribed capital (0.3) -
Tax paid - (1.1)
----------------------------------------------- -------- --------
Net cash inflow from operating activities 82.5 140.3
=============================================== ======== ========
Ratios
for the year ended 31 March 2021 Group Statutory
2021 limit
% %
Lending limit 7.1 25.0
Funding limit 16.6 50.0
------------------------------------------- ------ ----------
Group Group
2021 2020
% %
As a percentage of shares and borrowings:
Gross capital 7.79 7.99
Free capital 4.32 4.38
Liquid assets 13.23 13.21
As a percentage of mean total assets:
Profit for the financial year 0.09 0.03
Net interest margin 1.02 1.06
Management expenses 0.83 0.83
------------------------------------------- ------ ----------
Group Group
2021 2020
% %
Common Equity Tier 1 capital ratio 16.4 15.9
Common Equity Tier 1 capital ratio before
IFRS 9 transitional relief 15.3 15.0
------------------------------------------- ------ ----------
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END
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