TIDMWBS
RNS Number : 1146Y
West Bromwich Building Society
27 November 2014
WEST BROMWICH BUILDING SOCIETY
Announcement of half-year results for the six months
to 30 September 2014
The West Brom today announces its half-year results, reporting a
pre-tax profit of GBP6.0m for the six months to 30 September 2014
and a significant increase in residential mortgage lending.
Key highlights:
- Pre-tax profits of GBP6.0m for the six months to 30 September
2014 (30 September 2013 restated: loss of GBP7.6m)
- An improvement in the net interest margin to 1.05% (30 September 2013: 0.67%)
- Gross residential mortgage lending of GBP300m, which is more
than the total amount of lending for our last full financial year
(2013/14: GBP214m)
- Capital ratios which exceed regulatory requirements and position the Society for growth.
Jonathan Westhoff, Chief Executive, commented:
These results represent a significant year on year improvement
in our performance and it is pleasing to have maintained a
profitable position since our last year end.
The West Brom continues to deliver against its strategic
objectives, having achieved GBP300m in completed mortgage business
after just six months. We have broadened our mortgage product range
to offer options at a variety of deposit levels and introduced
incentives such as cash-back, free valuations and free legal
services, which have resulted in us featuring consistently in the
Best Buy rankings.
When the Society reduced its Standard Variable Rate in August to
a market leading 3.99%, this not only made us more competitive for
new borrowers, it immediately benefited existing borrowers as
well.
The West Brom remains a safe and secure home for members'
savings, with our Common Equity Tier 1 capital ratio consistently
strong at 13.4%. Our leverage ratio - another key measure of
financial stability - is 7.5%, one of the strongest amongst UK
banks and building societies.
The quality of our savings products has been recognised
nationally after we received a prestigious Moneyfacts award in the
category of Best No Notice Account Provider. Our aim is to deliver
the best returns we can to all savers and not favour new customers
with exclusive rates in preference to those who have stayed loyal
to the Society for many years.
Going forward there is much for us to be excited about, in
particular the construction of our new head office in West Bromwich
town centre which is due for completion next year. It will continue
to provide vital jobs in the town and ensure we have ample capacity
for future growth.
Of course we remain vigilant to the possibility of a slowdown in
the UK economic recovery, but we are well positioned to achieve our
current goals. The West Brom is proud of its traditional building
society values and fully focused on delivering the benefits of
mutuality to members.
ENQUIRIES:
The West Brom 0870 220 7785
Jonathan Westhoff - Chief Executive
Mark Gibbard - Group Finance Director
West Bromwich Building Society
Condensed consolidated
half-yearly financial information
30 September 2014
Chief Executive's BUSINESS Review
Performance
Profit before tax for the six months to 30 September 2014 was
GBP6.0m (30 September 2013 restated: loss of GBP7.6m) representing
a significant year on year improvement in performance.
The West Brom has continued to deliver against its strategic
objectives, achieving over GBP300m of gross residential lending in
the six months to 30 September 2014 which surpasses the GBP214m
reported for the full year to 31 March 2014.
At 13.4%, (31 March 2014: 13.4%) the Group's Common Equity Tier
1 capital ratio remains strong and evidences the Society's success
in de-risking the balance sheet to establish a secure platform for
growth. The leverage ratio - another key measure of financial
stability - at 7.5% is also unchanged from the March year end, and
remains one of the strongest amongst UK banks and building
societies.
Net interest margin grew to 1.05% (30 September 2013: 0.67%)
demonstrating an ongoing upward trend in core performance.
Competition for funding has softened over the past year, leading to
a reduction in our interest costs, but just over half of the margin
improvement has been due to the rate adjustment which was applied
to non-consumer buy to let mortgages held in the West Bromwich
Mortgage Company from 1 December 2013.
Positive house price movements in the period resulted in a
revaluation gain of GBP4.9m (30 September 2013: GBP2.0m) on the
West Bromwich Homes Limited portfolio of rental properties.
Management expenses for the six months to 30 September 2014 have
been held relatively flat, compared with the first half of 2013/14.
This has been achieved whilst investing in the modernisation of the
entire branch network and updating lending systems. The Society is
also looking forward to completion of a new Head Office building in
2015. This cost control has been achieved as we have continued to
maintain a clear focus on operational efficiencies, and the
investments themselves are important in delivering this.
The management expenses ratio of 0.81% (30 September 2013:
0.75%) has increased year on year as, although expenditure has been
contained, there has been a reduction in the average assets, which
are the denominator in this ratio.
The West Brom takes its obligations as a responsible lender very
seriously. The Society works to support those borrowers
experiencing financial difficulties by offering, wherever possible,
sustainable arrangements which reduce the level of debt over time.
The arrears performance, taking into account careful forbearance
measures and economic factors such as slow wage growth, remains
encouraging with just 1.76% of residential mortgages in arrears by
more than three months at 30 September 2014 (31 March 2014: 1.74%).
All lending undertaken since the Society re-entered the mortgage
market two years ago has met strict affordability assessments, with
no accounts at three months or more in arrears at 30 September
2014.
The underlying level of impairment costs is a combination of the
impairment figure shown in the Income Statement and the fair value
movement of the derivative financial instruments held in respect of
non-performing commercial loans (analysed in the segmental analysis
in note 4). The underlying impairment on loans and advances fell
from GBP8.1m for the six months to 30 September 2013 to GBP6.2m,
comprising GBP0.3m residential provisions charges (30 September
2013: GBP1.8m), GBP1.5m commercial impairment (30 September 2013:
GBP10.0m) and GBP4.4m of adverse derivative fair value movements in
relation to non-performing commercial loans (30 September 2013:
GBP3.7m favourable).
Residential impairment charges have benefited from the overall
quality of the loan book, increases in property values and the
Society's decision to reduce its Standard Variable Rate (SVR).
A combination of the modest improvement in economic conditions
through 2014 and close account management also led to some
improvement in underlying commercial impairment charges. Whilst
this has been the case for the last 6 months, experience has shown
that the performance of a commercial loan book can deteriorate
relatively quickly in response to any level of economic downturn
and the Board has therefore maintained its prudent approach to
provisioning. At 30 September 2014, funds set aside for potential
losses equated to 6.6% of total commercial loan balances (31 March
2014: 6.2%).
Member value
The Board's goal is to balance the provision of long-term member
value with its commitment to offering a range of competitive
mortgage, investment and savings products and excellent service
standards.
In addition to its recent reduction in SVR, the Society has
firmly re-established itself as a mortgage provider, with a product
range that has consistently attracted Best Buy coverage.
In the six months to 30 September 2014, the West Brom has
continued to look after its saving members, increasing rates on
those accounts most affected by falling interest rates and
maintaining a regular presence in the Best Buy tables. When the ISA
limit increased in July 2014, members with fixed rate ISAs opened
in 2014/15 were allowed to make additional deposits for a three
month period, ensuring they did not miss the chance to increase
their tax-free savings.
The Society's commitment to quality and choice was recognised on
the national stage with the West Brom winning Best No Notice
Account Provider, and being shortlisted in four other categories,
at the prestigious annual Moneyfacts Awards.
Funding
In line with the traditional building society model, retail
savings are the main component of the West Brom's funding base. At
30 September 2014, 81.3% (31 March 2014: 83.5%) of total shares and
borrowings were in the form of members' retail deposits.
Savings rates remained suppressed for the first half of 2014/15
as lenders continued to have access to relatively low cost funding,
partly as a result of government initiatives. While the easing of
competition in the retail savings markets has contributed to an
improvement in net interest margin, the West Brom has endeavoured
to support its saving members by continually offering a range of
attractive products which meet their needs.
Liquidity
The West Brom manages its liquidity position to meet all
regulatory and internal requirements without holding excess funds,
which would have an adverse impact on interest margins due to the
low returns generated by holding liquid assets.
Following the introduction of the government's Funding for
Lending Scheme (FLS), additional regulatory liquidity is available
to lending institutions - which hold eligible collateral for
security - in the form of treasury bills. The treasury bills,
although they provide a very ready source of liquidity, do not
appear on the balance sheet unless drawn against to raise wholesale
funding. Thus the Society's liquidity ratio of 15.8% as at 30
September 2014 (31 March 2014: 17.2%) does not provide a complete
picture of its liquidity resources.
At 30 September 2014 and 31 March 2014, all of the Society's
treasury investments were rated single A or better with no exposure
to any non-UK sovereigns or mortgage markets. There were no
impairment charges against liquid assets during the current or
comparative periods.
The table below shows an analysis of the Group's liquidity
portfolio:
30-Sep-14 30-Sep-13 31-Mar-14
GBPm % GBPm % GBPm %
Buffer liquidity
- Bank of England Reserve 121.2 16.9 193.0 20.3 126.0 16.4
- Supranationals 87.3 12.1 200.1 21.1 127.5 16.6
---------------------------- ------ ------ ------ ------ ------ ------
Total buffer liquidity 208.5 29.0 393.1 41.4 253.5 33.0
Other securities - rated
single A or better 316.2 44.0 357.4 37.6 334.1 43.6
Subsidiary/other liquidity 194.4 27.0 199.1 21.0 179.7 23.4
---------------------------- ------ ------ ------ ------ ------ ------
Total liquidity 719.1 100.0 949.6 100.0 767.3 100.0
---------------------------- ------ ------ ------ ------ ------ ------
Capital
Capital is held to provide protection for depositors at levels
which exceed internal and minimum regulatory requirements at all
times.
The following table shows the Group's capital ratios at 30
September 2014 and 31 March 2014:
Transitional Full implementation Transitional Full implementation
CRD IV rules of CRD IV CRD IV rules of CRD IV
30-Sep-14 30-Sep-14 31-Mar-14 31-Mar-14
% % % %
Common Equity
Tier 1 (as a percentage
of RWA) 13.4 14.2 13.4 14.3
Tier 1 (as a percentage
of RWA) 15.6 14.2 15.7 14.3
Total capital
(as a percentage
of RWA) 16.2 14.8 16.2 14.9
Leverage ratio 7.5 6.8 7.5 6.9
-------------------------- -------------- -------------------- -------------- --------------------
The two key measures of capital, under the legislative reforms
introduced in 2014 to strengthen regulatory standards on capital
adequacy, are the Common Equity Tier 1 (CET1) and leverage ratios,
both currently calculated under transitional rules.
Each of the Society's capital ratios exceeds regulatory
requirements. At 7.5% (31 March 2014: 7.5%), the leverage ratio is
particularly strong and compares very favourably with peers in the
bank and building society sector. The CET1 ratio of 13.4% is
further evidence of the West Brom's robust capital position, which
strengthens to 14.2% when projecting forward the full impact of the
CRD IV rules.
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 Directors have agreed a set of statements which describe the
Board's risk appetite in terms of a number of key risk categories:
business, capital, liquidity, credit, market, operational, pension
liability and conduct (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 impact the
Society's long-term performance remain those outlined on pages 21
to 24 of the Annual Report and Accounts for the year ended 31 March
2014. There have been no significant changes in the Society's
approach to risk management during the six months ended 30
September 2014. Since 1 December 2013 a rate adjustment has been
applied to non-consumer buy to let loans held in West Bromwich
Mortgage Company. Legal proceedings have been initiated by a number
of borrowers affected by the adjustment and a court date has now
been set for 21 January 2015. As at 31 March 2014, this action was
reported as a contingent liability, and has also been classified as
such for these half year accounts (see note 6). The total
cumulative value of the rate adjustment is GBP11.0m, including
GBP6.3m for the six months to 30 September 2014.
Outlook
Having maintained its capital strength and profitability for the
six months to 30 September 2014, the Society is set to make further
progress against strategic objectives for the rest of the financial
year.
In recent months, the leverage ratio - considered to be an
essential part of the framework for assessing capital adequacy -
has been a subject of regulatory focus. The West Brom's leverage
ratio is one of the strongest in the UK bank and building society
sector and is expected to remain at this level going forwards.
Therefore, while the Society continues to face some legacy
challenges and remains vigilant to the possibility of a slowdown in
the UK economic recovery, it is well positioned to achieve its
current and future plans for growth.
Residential lending activity and house prices have increased
throughout the period with rising competition in the mortgage
markets expected to intensify further in the latter part of the
year. With a range of mortgages that provide genuine value and
choice, the West Brom is on track to accomplish its lending
objectives and has already passed the GBP300m milestone in the
first half of 2014/15. This is without any compromise of the
sensible affordability criteria in place which ensure that
borrowers can manage repayments on their chosen mortgage both now
and in the future, should interest rates rise.
The timing of an increase in Bank Rate remains a topic of
considerable speculation, given uncertainty over the long-term
health of the UK economy and the threats posed by financial
instability in Europe and beyond. The Society has taken the
necessary action to enable it to operate profitably in the current
protracted low interest-rate environment. Nevertheless, the widely
anticipated interest rate increases will be welcomed in terms of
the positive impact on both margins and returns for savers, who
have seen their rates fall significantly over the past year.
In an industry facing considerable public scrutiny and where
mistakes are proving commonplace, the West Brom is proud of its
traditional building society model and commitment to achieving fair
outcomes for customers. The continuation of the strategic
investment programme will ensure the Society delivers long-term
member value, enabling home ownership and providing a safe home for
members' savings for many years to come.
Jonathan Westhoff
Chief Executive
Forward looking statements
Certain statements in this half-year 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 2014
6 months 6 months Year
ended ended ended
30-Sep-14 30-Sep-13* 31-Mar-14
unaudited unaudited audited
GBPm GBPm GBPm
Interest receivable and similar income 67.4 67.8 135.9
Interest expense and similar charges (37.8) (47.3) (87.7)
Net interest receivable 29.6 20.5 48.2
Fees and commissions receivable 1.9 2.5 5.7
Other operating income 1.9 1.8 3.6
Total operating income 33.4 24.8 57.5
Fair value (losses)/gains on financial
instruments (4.1) 3.8 4.6
Net realised profits/(losses) - 0.1 (0.2)
Total income 29.3 28.7 61.9
Administrative expenses (20.6) (20.4) (40.6)
Depreciation and amortisation (2.4) (2.3) (4.4)
Operating profit before impairments,
provisions and revaluation gains 6.3 6.0 16.9
Gains on investment properties 4.9 2.0 5.1
Impairment on loans and advances (1.8) (11.8) (13.6)
Provisions for liabilities (3.4) (3.8) (6.3)
Profit/(Loss) before tax 6.0 (7.6) 2.1
Taxation (1.3) 2.1 (1.1)
Profit/(Loss) for the period 4.7 (5.5) 1.0
---------------------------------------- ---------------- ----------- ----------
* Restated due to a change in accounting policy as described in
note 3.
Condensed consolidated half-yearly Statement of Comprehensive
Income
for the six months ended 30 September 2014
6 months 6 months Year
ended ended ended
30-Sep-14 30-Sep-13* 31-Mar-14
unaudited unaudited audited
GBPm GBPm GBPm
Profit/(Loss) for the period 4.7 (5.5) 1.0
--------------------------------------------------- ---------------- ---------------- -----------------
Other comprehensive income
Items that may subsequently be reclassified
to profit or loss
Available for sale investments
Valuation loss taken to equity (0.6) (4.1) (6.2)
Amounts transferred to Income Statement - (0.1) 0.2
Cash flow hedge (losses)/gains taken to equity (0.1) (0.5) 0.2
Taxation 0.2 1.1 1.0
Items that will not subsequently be reclassified
to profit or loss
Gains on revaluation of land and buildings - - 0.5
Actuarial loss on retirement benefit obligations - - (6.2)
Taxation - - 1.4
--------------------------------------------------- ---------------- ---------------- -----------------
Other comprehensive income for the period,
net of tax (0.5) (3.6) (9.1)
--------------------------------------------------- ---------------- ---------------- -----------------
Total comprehensive income for the period 4.2 (9.1) (8.1)
--------------------------------------------------- ---------------- ---------------- -----------------
As a percentage of mean total assets % % %
Profit/(Loss) for the period 0.08 (0.09) 0.02
Management expenses (annualised) 0.81 0.75 0.76
--------------------------------------------------- ---------------- ---------------- -----------------
* Restated due to a change in accounting
policy as described in note 3.
Condensed consolidated half-yearly Statement of Financial
Position
at 30 September 2014
30-Sep-14 30-Sep-13* 31-Mar-14
unaudited unaudited audited
Notes GBPm GBPm GBPm
Assets
Cash and balances with the Bank
of England 130.9 203.7 136.3
Loans and advances to credit
institutions 184.7 188.4 169.4
Investment securities 403.5 557.5 461.6
Derivative financial instruments 24.7 29.3 33.8
Loans and advances to customers 7 4,737.2 4,805.6 4,680.5
Deferred tax assets 22.7 26.6 23.8
Trade and other receivables 2.8 3 2.8
Intangible assets 9 7.6 7.5 8.7
Investment properties 10 118.2 113.6 115.2
Property, plant and equipment 9 22.6 16.9 18.4
Retirement benefit assets 0.8 2.7 -
------------------------------------ ------ ----------------------- ----------------------- ----------------
Total assets 5,655.7 5,954.8 5,650.5
------------------------------------ ------ ----------------------- ----------------------- ----------------
Liabilities
Shares 8 4,130.2 4,369.1 4,235.6
Amounts due to credit institutions 22.1 15.7 38.7
Amounts due to other customers 150.8 134.9 121
Derivative financial instruments 62.1 72.8 62
Debt securities in issue 11 779 855.1 677
Deferred tax liabilities 3.6 4.3 3.6
Trade and other payables 9.1 8.7 13.6
Provisions for liabilities 6 2.1 2.7 5.1
Retirement benefit obligations - - 1.4
Total liabilities 5,159.0 5,463.3 5,158.0
------------------------------------ ------ ----------------------- ----------------------- ----------------
Equity
Profit participating deferred
shares 12 176.1 173 174.7
Subscribed capital 14 74.9 74.9 74.9
General reserves 238.2 234.1 234.9
Revaluation reserve 3.4 3.7 3.4
Available for sale reserve 4 6.2 4.4
Cash flow hedging reserve 0.1 (0.4) 0.2
------------------------------------ ------ ----------------------- ----------------------- ----------------
Total equity attributable to
members 496.7 491.5 492.5
------------------------------------ ------ ----------------------- ----------------------- ----------------
Total liabilities and equity 5,655.7 5,954.8 5,650.5
------------------------------------ ------ ----------------------- ----------------------- ----------------
As a percentage of shares and % % %
borrowings
Gross capital 10.9 10.5 11
Free capital 8 7.9 8.2
Total liquidity 15.8 20.2 17.2
------------------------------------ ------ ----------------------- ----------------------- ----------------
* Restated due to a change in accounting policy as described in
note 3.
Condensed consolidated Statement of Changes in Members'
Interest
for the six months ended 30 September 2014
6 months ended 30 September 2014 (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 2014 174.7 74.9 234.9 3.4 4.4 0.2 492.5
Comprehensive income
for the period 1.4 - 3.3 - (0.4) (0.1) 4.2
---------------------- --------------- ----------- ---------- ------------ ---------- --------- ------
At 30 September 2014 176.1 74.9 238.2 3.4 4.0 0.1 496.7
---------------------- --------------- ----------- ---------- ------------ ---------- --------- ------
6 months ended 30 September 2013 (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 2013 (as
reported) 173.7 74.9 236.1 3.7 9.4 - 497.8
Change in accounting
policy 0.7 - 2.1 - - - 2.8
----------------------------- --------------- ----------- ----------- ------------ ---------- --------- -------
At 1 April 2013 (restated) 174.4 74.9 238.2 3.7 9.4 - 500.6
Comprehensive income
for the period (1.4) - (4.1) - (3.2) (0.4) (9.1)
----------------------------- --------------- ----------- ----------- ------------ ---------- --------- -------
At 30 September 2013 173.0 74.9 234.1 3.7 6.2 (0.4) 491.5
----------------------------- --------------- ----------- ----------- ------------ ---------- --------- -------
Year ended 31 March 2014 (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 2013 174.4 74.9 238.2 3.7 9.4 - 500.6
Comprehensive income
for the period 0.3 - (3.3) (0.3) (5.0) 0.2 (8.1)
---------------------- --------------- ----------- ---------- ------------ ---------- --------- ------
At 31 March 2014 174.7 74.9 234.9 3.4 4.4 0.2 492.5
---------------------- --------------- ----------- ---------- ------------ ---------- --------- ------
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.
* Restated due to a change in accounting policy as described in
note 3.
Condensed consolidated half-yearly Statement of Cash Flows
for the six months ended 30 September 2014
6 months 6 months Year
ended ended ended
30-Sep-14 30-Sep-13* 31-Mar-14
unaudited unaudited audited
GBPm GBPm GBPm
Net cash flows from operating activities
(below) (144.7) (235.4) (235.0)
------------------------------------------------- ------------------ ----------- ----------
Cash flows from investing activities
Purchase of investment securities (100.6) (58.0) (141.8)
Proceeds from disposal of investment securities 111.1 55.4 229.3
Proceeds from disposal of investment properties 1.8 0.9 2.3
Purchase of property, plant and equipment
and intangible assets (5.5) (2.6) (6.2)
Proceeds from disposal of property, plant
and equipment - 0.4 0.5
------------------------------------------------- ------------------ ----------- ----------
Net cash flows from investing activities 6.8 (3.9) 84.1
------------------------------------------------- ------------------ ----------- ----------
Cash flows from financing activities
Issue of mortgage backed loan notes - 380.0 380.0
Repayment of mortgage backed loan notes (72.6) (30.6) (105.8)
Net repayment of other debt securities 173.7 (199.4) (302.3)
------------------------------------------------- ------------------ ----------- ----------
Net cash flows from financing activities 101.1 150.0 (28.1)
------------------------------------------------- ------------------ ----------- ----------
Net decrease in cash and cash equivalents (36.8) (89.3) (179.0)
Cash and cash equivalents at beginning
of period 371.3 550.3 550.3
------------------------------------------------- ------------------ ----------- ----------
Cash and cash equivalents at end of period 334.5 461.0 371.3
------------------------------------------------- ------------------ ----------- ----------
For the purposes of the cash flow statement, cash and cash
equivalents comprise the following balances with less than 90 days
maturity:
30-Sep-14 30-Sep-13* 31-Mar-14
unaudited unaudited audited
GBPm GBPm GBPm
Cash and cash equivalents
Cash in hand (including Bank of England
Reserve account) 123.4 195.3 128.1
Loans and advances to credit institutions 184.7 188.4 169.4
Investment securities 26.4 77.3 73.8
------------------------------------------- ----------------- ----------------- -----------------
334.5 461.0 371.3
------------------------------------------- ----------------- ----------------- -----------------
The Group is required to maintain certain mandatory balances
with the Bank of England which, at 30 September 2014, amounted to
GBP7.5m (30 September 2013: GBP8.4m and 31 March 2014: GBP8.2m).
The movement in this balance is included within cash flows from
operating activities.
6 months 6 months Year
ended ended ended
30-Sep-14 30-Sep-13* 31-Mar-14
unaudited unaudited audited
GBPm GBPm GBPm
Cash flows from operating activities
Profit/(Loss) on ordinary activities before
tax from continuing activities 6.0 (7.6) 2.1
Movement in prepayments and accrued income - (0.5) (0.1)
Movement in accruals and deferred income (4.8) (3.3) 1.2
Impairment on loans and advances 0.9 11.8 13.6
Depreciation and amortisation 2.4 2.3 4.4
Disposal of fixed assets and investment
properties 0.1 (0.1) -
Revaluation of investment properties (4.9) (2.0) (5.1)
Movement in provisions for liabilities (3.0) (0.6) 1.9
Movement in derivative financial instruments 9.2 (26.4) (41.7)
Movement in fair value adjustments 1.0 22.6 40.3
Change in retirement benefit obligations (2.2) (2.3) (4.4)
---------------------------------------------- ------------------ ----------- ------------------
Cash flows from operating activities before
changes in operating assets and liabilities 4.7 (6.1) 12.2
Movement in loans and advances to customers (63.5) 125.6 237.9
Movements in loans and advances to credit
institutions 0.7 (2.8) (2.6)
Movement in shares (100.0) (281.0) (418.9)
Movement in deposits and other borrowings 13.2 (70.9) (62.8)
Movement in trade and other receivables - 0.3 0.1
Movement in trade and other payables 0.2 (0.5) (0.9)
---------------------------------------------- ------------------ ----------- ------------------
Net cash outflow from operating activities (144.7) (235.4) (235.0)
---------------------------------------------- ------------------ ----------- ------------------
* Restated due to a change in accounting policy as described in
note 3.
Notes to condensed consolidated half-yearly financial
information
for the six months ended 30 September 2014
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
2014 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 2014 and 30 September 2013 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 2014 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 2014, which have
been prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union.
3 Accounting policies
The following new or amended accounting standards and
interpretations, have been adopted during the period to 30
September 2014 but have had no impact on the interim accounts:
- IAS 27 (revised) 'Separate Financial Statements'
The revised standard requires that when an entity prepares
separate financial statements, investments in subsidiaries,
associates, and jointly controlled entities are accounted for
either at cost, or in accordance with IFRS 9.
- IAS 28 (revised) 'Investments in Associates and Joint
Ventures'
The revised standard prescribes the accounting for investments
in associates and sets out the requirements for the application of
the equity method when accounting for investments in associates and
joint ventures.
- IFRS 10 'Consolidated Financial Statements'
The new standard introduces a single consolidation model for all
entities based on control.
- IFRS 11 'Joint Arrangements'
The new standard requires a party to a joint arrangement to
account for its rights and obligations in accordance with the type
of joint arrangement.
- IFRS 12 'Disclosure of Interests in Other Entities'
The new standard requires extensive disclosures with respect to
interests in other entities. No consequential amendments were made
to IAS 34 on issuance of IFRS 12 and, as such, the requirements of
IFRS 12 do not directly apply to interim financial statements.
- Amendment to IAS 32 'Financial Instruments: Presentation'
The amendment clarifies requirements for offsetting financial
assets and financial liabilities.
- Amendments to IAS 36 'Recoverable Amount Disclosures for
Non-Financial Assets'
This amendment limits the circumstances for which disclosure of
recoverable amounts for non-financial assets is required.
- Amendments to IAS 39 'Novation of Derivatives and Continuation
of Hedge Accounting'
This amendment makes it clear that there is no need to
discontinue hedge accounting if a hedging derivative is novated,
provided certain criteria are met.
The following new or amended accounting standards and
interpretations have been issued but are not effective for the six
months ended 30 September 2014:
- Amendments to IAS 19 'Defined Benefit Plans: Employee
Contributions'
This amendment is applicable to annual periods beginning on or
after 1 July 2014 and clarifies the requirements that relate to how
contributions from employees or third parties that are linked to
service should be attributed to periods of service.
- Amendments to IFRS 11 'Accounting for Acquisitions of
Interests in Joint Operations'
This amendment is applicable to annual periods beginning on or
after 1 January 2016 and requires an acquirer of an interest in a
joint operation, which constitutes a business, to apply the
principles and disclosure requirements of other relevant IFRSs.
- Amendments to IAS 16 and IAS 38 'Clarification of Acceptable
Methods of Depreciation and Amortisation'
This amendment is applicable to annual periods beginning on or
after 1 January 2016 and confirms the inappropriateness of certain
depreciation and amortisation methods.
The following accounting standard was neither adopted by the
European Union nor effective for the six months ended 30 September
2014:
- IFRS 9 'Financial Instruments'
This standard introduces new requirements with respect to
classification and measurement of financial instruments. IFRS 9 is
subject to EU endorsement, the timing of which is uncertain. The
standard is currently expected to be effective for annual periods
beginning on or after 1 January 2018. The Group is monitoring
developments and considering the associated impact.
The Group has applied IFRIC 21 in these interim statements. The
implementation constitutes a change in accounting policy and is
therefore retrospectively applied. The table below details the
restatement of prior period comparatives:
Previously IFRIC
published 21 adjustment Restated
30-Sep-13 30-Sep-13 30-Sep-13
GBPm GBPm GBPm
Income Statement
Provisions for liabilities (1.4) (2.4) (3.8)
Loss before tax (5.2) (2.4) (7.6)
Loss for the financial period (3.6) (1.9) (5.5)
---------------------------------------- ------------------ ---------------- --------------
Statement of Financial Position
Deferred tax assets 26.8 (0.2) 26.6
Total assets 5,955.0 (0.2) 5,954.8
Provisions for liabilities 3.8 (1.1) 2.7
Total liabilities 5,464.4 (1.1) 5,463.3
Profit participating deferred shares 172.8 0.2 173.0
General reserves 233.4 0.7 234.1
Total equity attributable to members 490.6 0.9 491.5
Total liabilities and equity 5,955.0 (0.2) 5,954.8
---------------------------------------- ------------------ ---------------- --------------
Statement of Cash Flows
Loss on ordinary activities before
tax from continuing activities (5.2) (2.4) (7.6)
Movement in provisions for liabilities (3.0) 2.4 (0.6)
---------------------------------------- ------------------ ---------------- --------------
4 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, funding, 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
2014 (unaudited) Retail Commercial Property adjustments Group
GBPm GBPm GBPm GBPm GBPm
Income
Interest receivable and similar
income 66.5 11.5 - (10.6) 67.4
Interest expense and similar
charges (36.8) (10.1) (1.6) 10.7 (37.8)
----------------------------------- -------- ----------- --------- -------------- --------
Net interest receivable/(expense) 29.7 1.4 (1.6) 0.1 29.6
Fees and commissions receivable 1.8 0.1 - - 1.9
Other operating (expense)/income (0.1) - 2.0 - 1.9
----------------------------------- -------- ----------- --------- -------------- --------
Total operating income 31.4 1.5 0.4 0.1 33.4
Fair value gains/(losses) on
financial instruments 0.3 (4.4) - - (4.1)
----------------------------------- -------- ----------- --------- -------------- --------
Total income/(expense) 31.7 (2.9) 0.4 0.1 29.3
Administrative expenses (19.4) (1.1) (0.1) - (20.6)
Depreciation and amortisation (2.4) - - - (2.4)
----------------------------------- -------- ----------- --------- -------------- --------
Operating profit/(loss) before
impairments, provisions and
revaluation gains 9.9 (4.0) 0.3 0.1 6.3
Gains on investment properties - - 4.9 - 4.9
Impairment on loans and advances (0.3) (1.5) - - (1.8)
Provisions for liabilities (3.4) - - - (3.4)
----------------------------------- -------- ----------- --------- -------------- --------
Profit/(Loss) before tax 6.2 (5.5) 5.2 0.1 6.0
----------------------------------- -------- ----------- --------- -------------- --------
Total assets 5,556.5 794.8 124.8 (820.4) 5,655.7
----------------------------------- -------- ----------- --------- -------------- --------
Total liabilities 5,021.0 865.0 93.9 (820.9) 5,159.0
----------------------------------- -------- ----------- --------- -------------- --------
Capital expenditure 5.5 - - - 5.5
----------------------------------- -------- ----------- --------- -------------- --------
6 months ended 30 September 2013 Consolidation Total
(unaudited) Retail* Commercial Property adjustments Group*
GBPm GBPm GBPm GBPm GBPm
Income
Interest receivable and similar
income 67.2 12.2 - (11.6) 67.8
Interest expense and similar charges (43.2) (14.2) (1.6) 11.7 (47.3)
-------------------------------------- -------- ----------- --------- -------------- --------
Net interest receivable/(expense) 24.0 (2.0) (1.6) 0.1 20.5
Fees and commissions receivable 2.3 0.2 - - 2.5
Other operating (expense)/income (0.1) 1.1 1.9 (1.1) 1.8
-------------------------------------- -------- ----------- --------- -------------- --------
Total operating income/(expense) 26.2 (0.7) 0.3 (1.0) 24.8
Fair value gains on financial
instruments 0.2 3.6 - - 3.8
Net realised profits 0.1 - - - 0.1
-------------------------------------- -------- ----------- --------- -------------- --------
Total income 26.5 2.9 0.3 (1.0) 28.7
Administrative expenses (18.8) (1.5) (0.1) - (20.4)
Depreciation and amortisation (2.3) - - - (2.3)
-------------------------------------- -------- ----------- --------- -------------- --------
Operating profit before impairments,
provisions and revaluation gains 5.4 1.4 0.2 (1.0) 6.0
Gains on investment properties - - 2.0 - 2.0
Impairment on loans and advances (1.8) (10.0) - - (11.8)
Provisions for liabilities (3.8) - - - (3.8)
-------------------------------------- -------- ----------- --------- -------------- --------
(Loss)/Profit before tax (0.2) (8.6) 2.2 (1.0) (7.6)
-------------------------------------- -------- ----------- --------- -------------- --------
Total assets 5,828.4 931.5 117.8 (922.9) 5,954.8
-------------------------------------- -------- ----------- --------- -------------- --------
Total liabilities 5,287.6 1,006.9 94.5 (925.7) 5,463.3
-------------------------------------- -------- ----------- --------- -------------- --------
Capital expenditure 2.6 - - - 2.6
-------------------------------------- -------- ----------- --------- -------------- --------
Consolidation Total
Year ended 31 March 2014 (audited) Retail Commercial Property adjustments Group
GBPm GBPm GBPm GBPm GBPm
Income
Interest receivable and similar
income 134.4 24.3 - (22.8) 135.9
Interest expense and similar charges (85.4) (21.9) (3.1) 22.7 (87.7)
------------------------------------------ -------- ----------- --------- -------------- --------
Net interest receivable/(expense) 49.0 2.4 (3.1) (0.1) 48.2
Fees and commissions receivable 5.4 0.3 - - 5.7
Other operating (expense)/income (0.3) 1.1 3.9 (1.1) 3.6
------------------------------------------ -------- ----------- --------- -------------- --------
Total operating income/(expense) 54.1 3.8 0.8 (1.2) 57.5
Fair value gains on financial
instruments 4.6 - - - 4.6
Net realised losses (0.2) - - - (0.2)
------------------------------------------ -------- ----------- --------- -------------- --------
Total income/(expense) 58.5 3.8 0.8 (1.2) 61.9
Administrative expenses (37.8) (2.6) (0.2) - (40.6)
Depreciation and amortisation (4.4) - - - (4.4)
------------------------------------------ -------- ----------- --------- -------------- --------
Operating profit/(loss) before
impairments, provisions and revaluation
gains 16.3 1.2 0.6 (1.2) 16.9
Gains on investment properties - - 5.1 - 5.1
Impairment on loans and advances (2.7) (10.9) - - (13.6)
Provisions for liabilities (6.3) - - - (6.3)
------------------------------------------ -------- ----------- --------- -------------- --------
Profit/(Loss) before tax 7.3 (9.7) 5.7 (1.2) 2.1
------------------------------------------ -------- ----------- --------- -------------- --------
Total assets 5,526.9 863.6 120.6 (860.6) 5,650.5
------------------------------------------ -------- ----------- --------- -------------- --------
Total liabilities 4,995.7 932.5 93.7 (863.9) 5,158.0
------------------------------------------ -------- ----------- --------- -------------- --------
Capital expenditure 6.9 - - - 6.9
------------------------------------------ -------- ----------- --------- -------------- --------
* Restated due to a change in accounting policy as described in
note 3.
5 Allowance for losses on loans and advances to customers
6 months 6 months Year
ended ended ended
30-Sep-14 30-Sep-13 31-Mar-14
unaudited unaudited audited
GBPm GBPm GBPm
Impairment charge for the period 1.8 11.8 13.6
------------------------------------ --------------- ------------- ---------------
Impairment provision at end
of period
Loans fully secured on residential
property 25.5 36.1 27.5
Other loans 58.6 66.8 57.7
Total 84.1 102.9 85.2
------------------------------------ --------------- ------------- ---------------
The charge for the six months ended 30 September 2014 should be
viewed in conjunction with the GBP4.4m fair value losses (30
September 2013: gains of GBP3.7m) on financial instruments held to
economically hedge impaired loans. These provisions are deducted
from the appropriate asset values in the Statement of Financial
Position.
6 Provisions for liabilities
6 months ended 30 September 2014
(unaudited) Onerous
FSCS contracts Other Total
GBPm GBPm GBPm GBPm
At beginning of period 2.1 0.5 2.5 5.1
Utilised in the period (3.9) (0.6) (1.9) (6.4)
Charge/(Release) for the period 3.6 0.1 (0.3) 3.4
At end of period 1.8 - 0.3 2.1
---------------------------------- ---------------- ---------------- ------ ------
6 months ended 30 September 2013
(unaudited) Onerous
FSCS* contracts Other Total*
GBPm GBPm GBPm GBPm
At beginning of period 2.4 0.8 - 3.2
Utilised in the period (4.1) (0.2) - (4.3)
Charge for the period 3.8 - - 3.8
At end of period 2.1 0.6 - 2.7
---------------------------------- ------ ---------- ---------------- -------
Year ended 31 March 2014 (audited) Onerous
FSCS contracts Other Total
GBPm GBPm GBPm GBPm
At beginning of period 2.4 0.8 - 3.2
Utilised in the period (4.1) (0.3) - (4.4)
Charge for the period 3.8 - 2.5 6.3
At end of period 2.1 0.5 2.5 5.1
------------------------------------ ------ ---------- ------ ------
* Restated due to a change in accounting policy as described in
note 3 and below.
Financial Services Compensation Scheme (FSCS)
In common with all regulated UK deposit takers, the Society pays
levies to the Financial Services Compensation Scheme (FSCS) to
enable the FSCS to meet claims against it. The FSCS levy consists
of two parts: a management expenses levy and a compensation levy.
The management expenses levy covers the costs of running the scheme
and the compensation levy covers the amount of compensation the
scheme pays, net of any recoveries it makes using the rights that
have been assigned to it. During 2008 and 2009 claims were
triggered against the FSCS in relation to Bradford & Bingley
plc, Kaupthing Singer and Friedlander, Heritable Bank plc,
Landsbanki Islands hf, London Scottish Bank plc and Dunfermline
Building Society.
The FSCS met these claims by way of loans received from HM
Treasury. The terms of these loans were interest only for the first
three years, and the FSCS recovers the interest cost, together with
ongoing management expenses, by way of annual management levies on
members.
The Society FSCS provision reflects market participation up to
the reporting date. Following the early application of IFRIC 21,
which impacts the trigger date for recognition of FSCS levies, the
provision at 30 September 2014 represents the estimated management
expenses levy for the scheme year 2014/15. This provision was
calculated based on the Society's current share of protected
deposits and the FSCS estimate of total management expenses for the
scheme year. See note 3 for details of the prior period adjustment
arising on implementation of IFRIC 21.
Onerous contracts
The provision for onerous contracts covers the loss anticipated
in connection with future lease expenses from non-cancellable lease
commitments in branches that the Society has, as part of its branch
restructure, decided are no longer required.
Other provisions and contingent liabilities
Other provisions represent the Group's best estimate of customer
redress arising from a review of its interest charging policy on
mortgage redemptions, primarily in respect of mortgages advanced
from 2001 to 2007. The calculation was based on a series of
assumptions, including the number of affected accounts, appropriate
level of remediation and resulting administrative costs.
Certain external parties have initiated legal proceedings
against West Bromwich Mortgage Company Limited (the Company) in
relation to an interest rate increase on the non-consumer buy to
let portfolio. The rate uplift contributed GBP11.0m to Group
interest receivable from the application of the rate change in
December 2013 to 30 September 2014, of which GBP6.3m has been
recognised in the 6 months ended 30 September 2014. As the Company
believes that it has a robust defence to such claims, no provision
has been recognised in these financial statements. A number of
cases have been referred to the Financial Ombudsman Service (FOS)
by individuals for adjudication. A decision has been issued by the
Ombudsman in respect of one of these adjudications taken to appeal,
and that decision, which is a matter of public record, was
determined in favour of the Company.
7 Loans and advances to customers
30-Sep-14 30-Sep-13 31-Mar-14
unaudited unaudited audited
GBPm GBPm GBPm
Loans and receivables
Loans fully secured on residential
property 3,963.8 3,928.1 3,860.1
Other loans
Loans fully secured on land 806.5 915.8 846.5
Other loans 0.1 0.1 0.1
4,770.4 4,844.0 4,706.7
At fair value through profit or
loss
Other loans
Loans fully secured on land 50.9 64.5 59.0
4,821.3 4,908.5 4,765.7
------------------------------------ ---------- ---------- ----------
Less: impairment provisions (84.1) (102.9) (85.2)
4,737.2 4,805.6 4,680.5
------------------------------------ ---------- ---------- ----------
Included within loans and advances to customers are GBP153.1m
(30 September 2013: GBP199.9m) of commercial mortgage balances and
GBP1,413.8m (30 September 2013: GBP1,581.9m) of residential
mortgage balances that the Group has sold to bankruptcy remote
special purpose entities (SPEs). The SPEs have been funded by
issuing mortgage backed securities (MBSs) of which GBP1,037.6m (30
September 2013: GBP1,113.9m) are held by the Group.
The Group has made subordinated loans to the SPEs to provide
some level of credit enhancement to the MBSs. In future periods the
Group will earn interest income on the subordinated loans and fees
for managing the loans. The Group will earn deferred consideration
once the cash flows generated by the SPEs have been used to pay
interest and capital to the holders of the MBSs. Since the Group
maintains substantially all of the risks (key risk being an
exposure to credit risk through the subordinated loan agreements)
and rewards emanating from the mortgages, they have been retained
on the Group's Statement of Financial Position.
8 Shares
30-Sep-14 30-Sep-13 31-Mar-14
unaudited unaudited audited
GBPm GBPm GBPm
Held by individuals 4,129.1 4,368.0 4,234.5
Other shares 1.1 1.1 1.1
4,130.2 4,369.1 4,235.6
--------------------- ---------- ---------- ----------
9 Property, plant, equipment and intangible assets
Intangible Tangible
assets assets
6 months ended 30 September 2014 (unaudited) GBPm GBPm
Net book value at 1 April 2014 8.7 18.4
Additions 0.2 5.5
Depreciation, amortisation, impairment
and other movements (1.3) (1.3)
---------------------------------------------- ----------- --------------
Net book value at 30 September 2014 7.6 22.6
---------------------------------------------- ----------- --------------
Intangible Tangible
assets assets
6 months ended 30 September 2013 (unaudited) GBPm GBPm
Net book value at 1 April 2013 7.9 16.5
Additions 0.7 2.0
Disposals - (0.3)
Depreciation, amortisation, impairment
and other movements (1.1) (1.3)
---------------------------------------------- ----------- --------------
Net book value at 30 September 2013 7.5 16.9
---------------------------------------------- ----------- --------------
Intangible Tangible
assets assets
Year ended 31 March 2014 (audited) GBPm GBPm
Net book value at 1 April 2013 7.9 16.5
Additions 3.1 3.8
Disposals - (0.3)
Depreciation, amortisation, impairment
and other movements (2.3) (1.6)
---------------------------------------- ---------------- --------------
Net book value at 31 March 2014 8.7 18.4
---------------------------------------- ---------------- --------------
Capital commitments
The Group has placed contracts amounting to a total of GBP1.4m
(30 September 2013: GBP0.7m) for future expenditure that was not
provided in the financial statements.
10 Investment properties
6 months 6 months Year
ended ended ended
30-Sep-14 30-Sep-13 31-Mar-14
unaudited unaudited audited
GBPm GBPm GBPm
Valuation
At beginning of period 115.2 112.5 112.5
Disposals (1.9) (0.9) (2.4)
Net gains from fair value adjustments 4.9 2.0 5.1
At end of period 118.2 113.6 115.2
--------------------------------------- ---------- ---------- ----------
11 Debt securities in issue
30-Sep-14 30-Sep-13 31-Mar-14
unaudited unaudited audited
GBPm GBPm GBPm
Certificates of deposit 1.0 6.0 3.0
Other debt securities 250.2 175.4 74.5
Non-recourse finance on securitised
advances 527.8 673.7 599.5
------------------------------------- ---------- ---------- ----------
779.0 855.1 677.0
------------------------------------- ---------- ---------- ----------
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.
12 Profit participating deferred shares
30-Sep-14 30-Sep-13* 31-Mar-14
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 (9.4) (9.7) (9.7)
Share of profit/(loss) for the period 1.4 (1.4) 0.3
--------------------------------------- ---------- ----------- ----------
(8.0) (11.1) (9.4)
--------------------------------------- ---------- ----------- ----------
Net value at end of period 176.1 173.0 174.7
--------------------------------------- ---------- ----------- ----------
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.
* Restated due to a change in accounting policy as described in
note 3.
13 Related party transactions
Related party transactions for the six months to 30 September
2014 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 2014.
14 Subscribed capital
30-Sep-14 30-Sep-13 31-Mar-14
unaudited unaudited audited
GBPm GBPm GBPm
Permanent interest bearing shares 74.9 74.9 74.9
----------------------------------- --------------- ---------- ----------
In a winding up or dissolution of the Society the claims of the
holders of permanent interest bearing shares (PIBS) would rank
behind all other creditors of the Society, with the exception of
holders of profit participating deferred shares (PPDS) with which
the PIBS rank pari-passu, and the claims of members holding shares
as to principal and interest. The holders of PIBS are not entitled
to any share in any final surplus upon winding up or dissolution of
the Society.
With respect to future interest payments, as a condition of the
PPDS, the Society has undertaken to pay an amount which, when
annualised, represents the lower of: 6.15% of the outstanding
principal amount of the PIBS and the dividend yield attributable to
the PPDS with respect to the prior financial year ending 31 March
whose payment is at the discretion of the Society.
15 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 2014 Carrying Fair Fair Fair Fair
(unaudited) value value value value
value Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm GBPm
Financial assets
Cash and balances with the Bank
of England 130.9 130.9 - - 130.9
Loans and advances to credit
institutions 184.7 - 184.7 - 184.7
Loans and advances to customers 4,688.4 - - 4,573.6 4,573.6
------------------------------------ --------- ---------------- ---------------- ---------------- --------
5,004.0 130.9 184.7 4,573.6 4,889.2
------------------------------------ --------- ---------------- ---------------- ---------------- --------
Financial liabilities
Shares 4,130.2 - - 4,114.5 4,114.5
Amounts due to credit institutions 22.1 - 22.1 - 22.1
Amounts due to other customers 150.8 - 150.8 - 150.8
Debt securities in issue 779.0 408.8 364.4 - 773.2
------------------------------------ --------- ---------------- ---------------- ---------------- --------
5,082.1 408.8 537.3 4,114.5 5,060.6
------------------------------------ --------- ---------------- ---------------- ---------------- --------
6 months ended 30 September 2013 Carrying Fair Fair Fair Fair
(unaudited) value value value value
value Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm GBPm
Financial assets
Cash and balances with the Bank
of England 203.7 203.7 - - 203.7
Loans and advances to credit
institutions 188.4 - 188.4 - 188.4
Loans and advances to customers 4,744.3 - - 4,545.6 4,545.6
------------------------------------ --------- ---------------- ---------------- ---------------- --------
5,136.4 203.7 188.4 4,545.6 4,937.7
------------------------------------ --------- ---------------- ---------------- ---------------- --------
Financial liabilities
Shares 4,369.1 - - 4,356.3 4,356.3
Amounts due to credit institutions 15.7 - 15.7 - 15.7
Amounts due to other customers 134.9 - 134.9 - 134.9
Debt securities in issue 855.1 518.4 315.1 - 833.5
------------------------------------ --------- ---------------- ---------------- ---------------- --------
5,374.8 518.4 465.7 4,356.3 5,340.4
------------------------------------ --------- ---------------- ---------------- ---------------- --------
Year ended 31 March 2014 (audited) Carrying Fair Fair Fair Fair
value value value value
value Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm GBPm
Financial assets
Cash and balances with the Bank
of England 136.3 136.3 - - 136.3
Loans and advances to credit
institutions 169.4 - 169.4 - 169.4
Loans and advances to customers 4,624.0 - - 4,551.2 4,551.2
------------------------------------ --------- ---------------- ---------------- ---------------- --------
4,929.7 136.3 169.4 4,551.2 4,856.9
------------------------------------ --------- ---------------- ---------------- ---------------- --------
Financial liabilities
Shares 4,235.6 - - 4,223.4 4,223.4
Amounts due to credit institutions 38.7 - 38.7 - 38.7
Amounts due to other customers 121.0 - 121.0 - 121.0
Debt securities in issue 623.6 532.2 83.0 - 615.2
------------------------------------ --------- ---------------- ---------------- ---------------- --------
5,018.9 532.2 242.7 4,223.4 4,998.3
------------------------------------ --------- ---------------- ---------------- ---------------- --------
a) Loans and advances to customers
The fair value of loans and advances to customers has been
calculated on an individual loan basis, 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 2014.
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 2014.
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.
Level Level
6 months ended 30 September 2014 (unaudited) 1 2 Total
GBPm GBPm GBPm
Financial assets
Investment securities 391.8 11.7 403.5
Derivative financial instruments - 24.7 24.7
Loans and advances to customers - 48.8 48.8
391.8 85.2 477.0
---------------------------------------------- ---------------- -------------- --------------
Financial liabilities
Derivative financial instruments - 62.1 62.1
Debt securities in issue - 45.1 45.1
- 107.2 107.2
---------------------------------------------- ---------------- -------------- --------------
Level Level
6 months ended 30 September 2013 (unaudited) 1 2 Total
GBPm GBPm GBPm
Financial assets
Investment securities 557.5 - 557.5
Derivative financial instruments - 29.3 29.3
Loans and advances to customers - 61.3 61.3
557.5 90.6 648.1
---------------------------------------------- ---------------- ---------------- --------------
Financial liabilities
Derivative financial instruments - 72.8 72.8
Debt securities in issue - 54.5 54.5
- 127.3 127.3
---------------------------------------------- ---------------- ---------------- --------------
Level Level
Year ended 31 March 2014 (audited) 1 2 Total
GBPm GBPm GBPm
Financial assets
Investment securities 438.6 23.0 461.6
Derivative financial instruments - 33.8 33.8
Loans and advances to customers - 56.5 56.5
438.6 113.3 551.9
------------------------------------ ---------------- -------------- --------------
Financial liabilities
Derivative financial instruments - 62.0 62.0
Debt securities in issue - 53.4 53.4
- 115.4 115.4
------------------------------------ ---------------- -------------- --------------
16 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 2014.
By order of the Board
Jonathan Westhoff
Chief Executive
Mark Gibbard
Group Finance Director
This information is provided by RNS
The company news service from the London Stock Exchange
END
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