West.brom 6.15% Regulatory News (WBS)

West Bromwich Building Society

Preliminary results announcement for the year ended 31 March 2012

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

Key highlights from the 2011/12 financial year include:

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

- Strong levels of high quality liquidity balances maintained

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

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

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

- A reduction of 38% in credit impairment charges

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

Jonathan Westhoff, Chief Executive, commented:

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

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

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

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

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

31 May 2012

Enquiries:

The West Brom 0870 220 7785Jonathan Westhoff - Chief Executive

Mark Gibbard - Group Finance Director

Chief Executive's Review

Performance

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

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

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

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

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

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

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

Non-core activities

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

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

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

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

Moving ahead with confidence

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

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

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

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

Outlook - playing to our strengths

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

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

Jonathan Westhoff

Chief Executive

31 May 2012

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