West.brom 6.15% Regulatory News (WBS)

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 SocietyPreliminary 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 £4.7m 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 £784m (2019/20: £569m) and £1.2bn in new applications (2019/20: £0.9bn).

· 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 market1 (2019/20: 49%); equivalent to an additional £5.3m in interest (2019/20: £13.0m).

· 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®2 increasing to +76 (2019/20: +73) and customer satisfaction maintained at 96%.

· Improved statutory profit before tax of £4.7m (2019/20: £1.5m), after making appropriate provisions to reflect the impacts of the pandemic, with operating profit before provisions increasing by 26% to £19.6m (2019/20: £15.5m) and a 50% increase in underlying profit (profit before tax excluding one off items and hedge ineffectiveness) to £2.4m.

· 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 £784m (2019/20: £569m) and we received £1.2bn in new applications (2019/20: £0.9bn). 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 rate1, an interest rate benefit of circa £5.3m 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 £34,000 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 £4.7m (2019/20: £1.5m). 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 £19.6m (2019/20: £15.5m). 

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 £700.

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 rate1, an interest rate benefit of circa £5.3m 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 colleagues

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 communities

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 £34,000 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 £784m, 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 affordability, 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 £700.

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

Through 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 through 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®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 £19.6m (2019/20: £15.5m). 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 £4.8m (31 March 2020: £2.9m). 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 £4.7m (2019/20: £1.5m) with underlying profit adjusted for one off items and hedge ineffectiveness also increased to £2.4m (2019/ 20: £1.6m).

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 Board 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 people 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

27 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.

Statement of Financial Position

At 31 March 2021

Statement of Changes in Members' Interests and Equity

for the year ended 31 March 2021

The Group is required to maintain certain mandatory balances with the Bank of England which, at 31 March 2021, amounted to £11.8m (2019/20: £11.3m). The movement in these balances is included within cash flows from operating activities.