TIDMWBS
RNS Number : 7149O
West Bromwich Building Society
02 June 2020
West Bromwich Building Society
Preliminary results announcement for the year ended 31 March
2020
Forward-Looking Statements
Statements in this document are forward-looking with respect to
plans, goals and expectations relating to the future financial
position, business performance and results of the West Brom.
Although the West Brom believes that the expectations reflected in
these forward-looking statements are reasonable, we can give no
assurance that these expectations will prove to be an accurate
reflection of actual results. By their nature, all forward-looking
statements involve risk and uncertainty because they relate to
future events and circumstances that are beyond the control of the
West Brom including, amongst other things, UK domestic and global
economic business conditions, market-related risks such as
fluctuation in interest rates and exchange rates,
inflation/deflation, the impact of competition, changes in customer
preferences, risks concerning borrower credit quality, delays in
implementing proposals, the timing, impact and other uncertainties
of future acquisitions or other combinations within relevant
industries, the policies and actions of regulatory authorities, the
impact of tax or other legislation and other regulations in the
jurisdictions in which the West Brom operates. As a result, the
West Brom's actual future financial condition, business performance
and results may differ materially from the plans, goals and
expectations expressed or implied in these forward-looking
statements. Due to such risks and uncertainties the West Brom
cautions readers not to place undue reliance on such
forward-looking statements. We undertake no obligation to update
any forward-looking statements whether as a result of new
information, future events or otherwise.
West Bromwich Building Society
Preliminary results announcement
for the year ended 31 March 2020
The West Brom today announces its results for the financial year
ended 31 March 2020 , reporting a pre-tax profit of GBP1.5m 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:
-- GBP569m of new mortgage lending across an extended product
range, a reduction from the previous year (2018/19: GBP691m)
reflecting o ur strategy of only lending if it is in the best
interest s of our membership. At points in the year, the pricing
available for the risk was not achievable in certain segments.
-- Lending to support home ownership leading to a 3% increase in
owner occupied lending balances (2018/19: 5%) and circa 50% of new
mortgages to f irst- time buyers (2018/19: 42%), a segment at the
heart of our mutual purpose.
-- Delivering savers an average rate earned on their savings
some 49% higher than the market average (1) (2018/19: 45% above),
delivering a bene fit of GBP13.0m (2018/19: GBP11.4m).
-- Strong levels of customer satisfaction of 96% (2018/19: 94%)
and Net Promoter Score(R) (2) of +73 (2018/19: +72) significantly
ahead of the Financial Services benchmark (+50).
-- Statutory profit before tax of GBP1.5m (2018/19 (restated):
GBP9.2m) after setting aside additional provisions for potential
credit losses in Q4 of GBP14.7m, a significant proportion being in
respect of the anticipated economic impact arising from the
COVID-19 pandemic.
-- A strong capital position with a Common Equity T ier 1 (CET
1) capital ratio unchanged at 15.9% (2018/19 (restated) : 1 5.9 %)
despite the increased provisions for potential credit losses
resulting from the COVID-19 pandemic lockdown.
-- Further progress in reducing exposure to the legacy lending
portfolio with a 6% reduction in the non-core commercial loan book
(2018/19: 9%).
-- The launch of a major investment programme in our core
systems to enable further improvements in our digital offering.
(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:
Our end of year results come during an unprecedented global
crisis that required dramatic and immediate action from government,
industry and communities across the UK. The economic consequences
of the lockdown period are secondary to the tragic human cost we
have seen, and the need to safeguard individuals and protect our
vital health service from being overwhelmed. Also, as part of the
key workers group, our primary focus has been to ensure that we
continue to deliver essential services, so our members can manage
their finances and have access to their money when needed, as well
as prioritising the safety of both members and staff.
We have provided over 5,000 mortgage holidays to help those in
financial difficulty and continue to help with mortgage
completions, mortgage redemptions and product transfers. We have
enabled penalty-free early access to savings on accounts that would
normally be subject to withdrawal restrictions and facilitated
transfers to nominated bank accounts or trusted third parties, so
any members that are self-isolating can safely access their
savings.
We haven't placed any of our staff on the furloughing scheme and
continue to pay 100% of salaries. This includes those that have a
significant reduction in working hours. This was our choice, driven
by our clear focus on the wellbeing and financial security of the
Society's staff.
However, despite representing only a very small proportion of
the Society's financial year, COVID-19 still had a significant
impact on our results. This is because of the additional provisions
we have made due to the potential economic consequences of the
actions taken to manage the pandemic. These additional provisions
relate primarily to the legacy commercial lending portfolio,
reflecting the dramatic impact of the steps taken under lockdown
for retail and leisure businesses. Given the above, our results
demonstrate the Society's strength. Whilst the statutory profit
before tax has fallen from GBP9.2m to GBP1.5m, without the final
quarter provision charge of GBP14.7m (which largely arose in
anticipation of the potential consequences of the pandemic) profit
before tax would have been significantly higher.
Aside from our response to COVID-19, the provision of quality
products and excellent customer service, plus our long-term
strategies to keep control of costs and reduce legacy risk, have
helped the Society deliver benefits to members. In the highly
competitive marketplace, our approach to managing the interests of
savers over the last 12 months has been to preserve rates for
existing members. We continued to deliver on our commitment to
provide savers with a safe and good return by paying an average
interest rate 49% (2018/19: 45%) above that paid by the market(1)
which represents an additional GBP13.0m (2018/19: GBP11.4m) in
interest directly to savers.
For borrowers, the Society's Purpose of supporting home
ownership led us to approving a further 3,423 new mortgages, circa
50% (2018/19: 42%) of these to first-time buyers. Part of this
achievement was due to our new range of shared ownership products,
supporting 481 borrowers to become part homeowners through both
lower initial deposits and more affordable monthly payments. In
value terms, at GBP569m (2018/19: GBP691m), our gross new lending
was lower than the previous year, due to a conscious decision to
protect our wider members' best interests and scale back lending
where returns would prove uneconomic or where pricing would be
irresponsible for the associated risk.
As of 31 March 2020, three month arrears rates across both our
Owner Occupied and Buy to Let portfolios, at 0.33% and 0.28%
respectively (2018/19: 0.36%, 0.12%), remained well below the
industry averages of 0.82% and 0.37% as published by UK Finance. In
addition, our residential lending portfolio continues to be
predominantly low loan to value (LTV) with 74% (2018/19: 71%) of
all our loans being 75% LTV or less. However, this excludes the
over 5,000 (over 2,600 at 31 March) of borrowers who, due to
financial pressures caused by their employment conditions under the
lockdown, have requested a payment holiday. Under agreements
reached across the sector, these payment holidays will not
initially be recorded as arrears.
We have also implemented further technological advances by
adopting more digital practices to make it easier for our members
to contact us and manage their money. We have introduced
innovations such as an online mortgage tracker service, text
message notifications to keep members informed of any account
activity to help prevent fraud, and a live chat facility on our
website as another way to contact us. The investment in digital
enhancements will continue to be a significant area of focus for
us, to allow greater digital capability and operational
resilience.
Although events in recent months have been unprecedented, the
Society is well capitalised to absorb the potential further adverse
impact on the UK economy due to the pandemic. Despite the
additional provisions made, the financial strength of the Society,
as measured by its Common Equity Tier 1 (CET 1) capital ratio,
ended the financial year unchanged at 15.9% (2018/19 (restated):
15.9%). As a comparison, during the financial crisis of 2008/9, the
Society's Core Tier 1 capital ratio was 6.8%. In the years since
that crisis, the strategy has been to build up capital to cope with
the most extreme of economic shocks.
We are working hard to adjust to the 'new normal', adapting our
ways of working across our branches and head office to adhere to
government guidelines, and continue to provide essential services
to both existing and new members. Despite these challenges, as a
mutual, the West Brom will continue to progress. The best interests
of both our saving and borrowing members will be at the forefront
of all decisions made.
ENQUIRIES:
The West Brom 0121 796 7785
Ashraf Piranie
Group Finance & Operations Director
Chief Executive ' s Review
Challenging and uncertain times
The COVID-19 pandemic and the unprecedented actions required to
minimise what is first and foremost a tragic human crisis has,
despite representing only a small part of the Society's financial
year, had a very significant impact on our results. Of course, the
economic consequences of the lockdown period are secondary to the
terrible human cost. Our prime focus has, therefore, been to ensure
that we continue to deliver the essential services that allow our
members to manage their financial affairs. At the most fundamental
level this means having access to their money when needed, subject
to our being able to maximise the safety of both staff and members.
Before detailing the financial impact, and presenting a wider
review of the year, the section below outlines the approach we have
taken to the dual objective of maintaining operations while
protecting people.
Our response to the crisis: keeping people safe and maintaining
access to key services
The Society has always ensured that detailed plans were in place
for events that would severely disrupt operations; whilst these
resiliency plans did not contemplate a scenario as severe as that
which has regrettably become a reality, they were able to be scaled
up quickly to meet the challenge. This has resulted in our
essential services to members remaining operational across the
period to date, albeit at a reduced level in one or two instances,
to maintain our overriding safety objective. I would like to take
this opportunity to thank members for bearing with us where we have
made changes to our usual service arrangements in the interests of
health and safety.
In addition to maintaining services, we have also needed to
develop, without notice, new ways of operating in order to deal
with requirements emerging specifically out of the government's
lockdown arrangements. For example, the agreement to allow mortgage
borrowers affected by the crisis to take a payment holiday,
resulted in mortgage related calls into our contact centre
increasing by 37%, as we accommodated requests from over 5,000 of
our mortgage borrowers. The vast majority of these requests were
dealt with by a rapidly developed online solution, removing waiting
times on the telephones and the need for borrowers to visit our
branches. This also reduced anxiety as borrowers' applications were
very quickly accepted and the payment holiday confirmed.
Other measures we've taken over the last 3 months to support
both our members and our people include:-
- The removal of all notice and penalty periods across our
savings range to support those members who have a need to access
their money sooner than planned for;
- Increased flexibility on the use of third-party withdrawals to
allow friends and family to access essential funds for those
members self-isolating or vulnerable;
- Prioritising calls into our contact centre from key workers; and
- Reducing the number of people working in our head office by up
to 90% through extensions of our homeworking capabilities.
Whilst our actions have resulted in a proportion of colleagues
experiencing reduced hours or periods without any work, much of
what has created this 'dormancy' has been a direct consequence of
our decision to put the safety and wellbeing of people first. A
combination of that 'choice' and the Society's fundamental
financial strength which derives from the capital reserves we have
built up specifically to protect our members in times of economic
stress, meant that the Board did not consider it correct to place
employees on the government's furlough scheme, rescind offers of
employment already issued or consider any redundancies for the
remainder of 2020. Importantly, every employee, regardless of the
hours we have required them to work, has not suffered any reduction
in pay.
Needless to say, this response continues to be underpinned by
the enormous hard work, flexibility and commitment of our people
and our suppliers. I would therefore like to thank our staff for
the contribution they have made in helping the Society to meet the
immediate financial needs of our members across a period of
considerable operational challenge.
Financial strength and providing for the impact
As with the financial impact on the economy, the longer-term
impact on the Society is, as yet, unquantifiable with any degree of
confidence. The sheer scale of the government's various support
initiatives for individuals and businesses is targeted at making
the economic impact short, even though severe. Our challenge has
been to try and anticipate what this may mean for the Society.
As a result of our efforts to anticipate, as best we can at this
stage, a plausible range of outcomes, our financial performance
across the year has been disproportionately impacted by the
lockdown introduced on 23 March. The most material impact has been
in terms of provisions for potential credit losses, primarily in
respect of the legacy commercial lending exposures that remain,
with an additional GBP12.1m in the final quarter largely as a
result of the potential impacts on key sectors, such as retail and
leisure. In terms of our residential mortgages, the impact at this
stage is expected to be less severe, with the position coming into
the lockdown reflecting the credit quality of these exposures. At
31 March 2020, 3 month arrears rates across both our Owner Occupied
and Buy to Let portfolios at 0.33% and 0.28% respectively (2018/19:
0.36%, 0.12%), remained well below the industry averages of 0.82%
and 0.37% as published by UK Finance. In addition our residential
lending portfolio continues to be predominantly low loan to value
(LTV) with 74% (2018/19: 71%) of all our loans being 75% LTV or
less. Despite this, we still set aside an additional GBP2.6m in Q4
to provide for potential losses in our residential loan books.
Despite these additional provision costs, which total GBP14.7m,
the Society has recorded a statutory profit before tax of GBP1.5m
(2018/19 (restated): GBP9.2m) for the year. Had these additional
provisions not been required profit before tax would have been
significantly higher. While it is prudent to set aside these
amounts, I must stress that it is extremely difficult, if not
impossible, to predict the impact on the economy of this pandemic.
A great deal depends on the success of the government's support
schemes. This means we cannot discount further credit loss
provisions being required.
However, the Society is sufficiently capitalised to absorb
further provisions if required. Despite the additional provisions
made, the financial strength of the Society, as measured by its CET
1 capital ratio, ended the financial year unchanged at 15.9%
(2018/19 (restated): 15.9%). As a comparison, during the financial
crisis of 2008/9, the Society's Core Tier Capital 1 ratio was 6.8%.
In the years since that crisis, the strategy has been to build up
capital to cope with the most extreme of economic shocks.
In simple terms the work we have done over the last 10 years, to
rebuild the Society and realign it to a traditional building
society directed towards a Purpose of enabling home ownership and
generating sustainable levels of profit, has placed the Society in
the best possible position to face the challenges that the next
period will inevitably bring.
Commitment to Purpose
Our Purpose as a building society is grounded in supporting the
financial wellbeing of members. This is achieved by providing safe,
good returns through our savings products and promoting home
ownership through responsible mortgage lending. We also provide a
range of other insurance and investment products from our chosen
third-party partners.
Delivering on this commitment requires a careful balancing of
what can appear to be the competing interests of two sets of
members - savers and borrowers. Managing these interests fairly
means we only grow the Society at levels, and in markets, where
sustainable returns can be evidenced. This means accepting mortgage
returns that are in the best interests of the membership as a whole
and do not reduce the interest rate we are able to pay our savers
below what is fair or expose the Society to any unacceptable risk.
This mutual approach helps to direct the development of our
mortgage proposition to the Purpose-led lending markets,
particularly those in which a genuine home ownership need
exists.
A safe, good return for savers
In what has been a highly competitive marketplace, our approach
to managing the interests of savers over the last 12 months has
been to preserve rates for existing members rather than to grow new
savings balances at their expense and, where we have been forced by
the market environment to make changes, to apply these as fairly as
possible. I am pleased to say that across the year we have
continued to deliver on our commitment to provide savers with a
safe and good return by paying an average interest rate 49%
(2018/19: 45%) above that paid by the market(1) which, in monetary
terms, represents an additional GBP13.0m (2018/19: GBP11.4m) in
interest directly to savers. This represents a very meaningful
contribution in what has, even prior to recent emergency measures,
remained a very low interest rate environment.
As members may be aware, attention from competition authorities
and financial services regulators has focused on savings providers'
pricing practices, specifically the difference between the interest
paid to new customers compared to existing customers. The Society '
s approach to this is to offer the best rate at the time in terms
of what is fair, when compared against the rates of equivalent
products offered by high-street savings providers. The results of
this pricing approach are evident in the difference in interest
rate paid to new and existing customers, being less than half the
market average differential - proof of our commitment to provide
savers with a good, fair return regardless of how long they have
chosen to remain a Society saver(2) .
(1) Average market rates sourced from Bank of England Bankstats
table A6.1
(2) The difference in the rate paid to Society members opening a
non-ISA savings account in the last 12 months compared to those who
have held equivalent accounts for over 5 years was 0.2%. This
compares to an equivalent market differential of 0.42% as revealed
by the FCA's analysis in CP20/1.
Promoting home ownership
Throughout the year our mortgage proposition has continued to be
led by our commitment to enable people to have a place to call
home, whatever form that may take, extending a further 3,423 new
mortgages, circa 50% (2018/19: 42%) of these to first-time
buyers.
As forecast in my half-year review, in value terms at GBP569m
(2018/19: GBP691m), our gross new lending was lower than the
previous year, due to a conscious decision to scale back lending
where returns would prove uneconomic or where pricing would be
irresponsible for the associated risk. Of course, the effective
closure of the housing market throughout the lockdown will affect
volumes in 2020/21 but it is not possible to estimate the extent
with any certainty.
Our Purpose for borrowers means we place as much focus on who we
lend to as how much we lend. Over successive periods we have
developed our product set considerably, from a very simple purchase
and remortgage range to include specialist products for first-time
buyers, borrowers looking to remortgage with a help to buy equity
loan, along with self-build and assisted options for those looking
for support from a sponsor. In support of successive governments '
drive for more affordable housing options, our new range of shared
ownership products has proved particularly popular, supporting 481
borrowers to become part homeowners through both lower initial
deposits and more affordable monthly payments.
As with our savings members, we recognise that our commitment to
mortgage members extends beyond new borrowers, ensuring existing
borrowers are afforded equal access to switch to a new product, at
the end of their fixed or discounted period. During the year we
have worked hard to ensure that all our borrowers eligible to
switch are notified around four months prior to the end of any
initial fixed or discounted rate period and again at regular
intervals until their rate ultimately reverts to the Society ' s
Standard Variable Rate which, following recent amendments, remains
amongst the lowest charged by any building society. Also we ensure
that existing borrowers, either at product maturity or at any time
they wish to switch, have access to a range of product options
priced at rates, and with terms, that are at least as good as those
offered to new borrowers. Our work and investment to improve the
experience of borrowers in this area has been considerable, with
maturing customers now contacted and able to switch in a way which
suits them: in branch, over the phone, via post, online and by
mobile.
Service development in a digital world
In a financial services industry where providers seek to
differentiate themselves on the service they provide to customers,
the Society continues to take pride in maintaining outstanding
levels of service across all our customer interactions - in branch,
via the telephone, via post, online and increasingly by mobile.
Across the year our Net Promoter Score (R)3 (how likely customers
are to recommend us) has increased to +73, which is well ahead of
the industry average for Financial Services of +50, with customer
satisfaction also increased at equally impressive levels to 96%
(2018/19: 94%). These metrics provide us with confidence that the
level of service provided by our people is of the very highest
standard and that this is valued by our members.
With service being a key differentiator for why customers choose
to use or stay with providers, we understand that we can ' t take
performance against these metrics for granted and must constantly
challenge ourselves to improve and innovate, particularly by
harnessing the benefits that digital service solutions can bring to
solving simple problems. Across the year we have delivered a number
of digital service extensions, including the launch of a ' track my
mortgage ' portal, allowing new customers to view the status of
applications, which has been used by over 3,000 customers and
brokers since it went live. We also introduced live chat services
across our consumer website.
To improve our digital capability further, therefore, we
launched a programme to update our core savings platform and
introduce, over the next two years, new features that will enhance
our digital capability. This will be a very significant investment
and bring our various channels into one core system, which will
deliver efficiencies, enhanced customer experience and a capability
to adopt changing digital technology.
(3) Net Promoter Score and NPS are trademarks of Satmetrix
Systems, Inc., Bain & Company, Inc., and Fred Reichheld.
A safe and responsible approach to risk
Over the course of the year our gross exposure to legacy
higher-risk commercial real estate loans has reduced by GBP27m
(6%). Our strategy for reduction of the book continues to be guided
by our detailed knowledge of individual loans held, which has been
developed over the course of a full economic cycle, and ensures any
decision to exit is taken in the interests of members so not to
unnecessarily impact the capital position. This decade-long
strategy has resulted in associated balances being reduced from a
peak of GBP1.7bn to their current position of GBP417m and with
GBP23m of these balances securitised, effectively transferring the
risk away from the Society, commercial exposures are now 75% less
than they were 10 years ago. Provision coverage for potential
losses, including the additional provisions as a consequence of the
potential long term impact for the COVID-19 pandemic referred to
earlier, increased to 20%.
In addition, a further GBP50m of capital has been set aside
should the economic scenario be significantly worse than that
currently forecast by the Bank of England's Financial Planning
Committee. This means that through a combination of provisions and
capital, the loss coverage is at over 30% of total exposures.
Throughout the year the Society has continued to develop its
Purpose-led, prime owner- occupied residential lending strategy.
Delivery of this strategy has seen associated balances increase by
3% over the period, with total prime owner occupied balances now
increased by 114% since the Society made the decision to restart
lending in 2012 following the financial crash. Despite the
expansion of the Society's prime owner occupied lending the credit
quality has been maintained, with only 0.03% of lending undertaken
since 2012 now being 3 months or more in arrears. The Society's
commitment to supporting home ownership remains simple and very
much supports our long-term strategy to reduce exposure to legacy
commercial assets .
Building capability through our people
We recognise that the simplest way to improve the capability of
the Society is to support and invest in the development of our
people. As an employer, we take this responsibility seriously and
throughout the year we have supported 26 staff to study for
professional and vocational qualifications. We also support a
diverse range of roles and qualifications from information
technology and data security to a Masters in Strategic Leadership,
in partnership with Loughborough University. We are now seeing the
investment come to fruition with 85% of those studying further
developing their careers within the Society.
Along with capability, diversity is also an essential ingredient
of good decision-making with our diversity and inclusivity agenda
focused on developing a culture in which all colleagues feel
included and able to contribute to the future of the Society. As
one of the original signatories to the Women in Finance Charter we
are pleased to report that female representation on the Society ' s
Board and within the Senior Management population now stands at 38%
and 35% respectively, with the first six candidates to our newly
launched talent programme also being female, not because of their
gender but because of their stand-out capabilities.
In addition to the external targets we have set ourselves for
gender diversity, we continue to champion the diversity that comes
with the majority of the Society's operations being located in one
of the most ethnically diverse regions in the UK, with 30% of the
Society's workforce being drawn from ethnic minority communities.
Our diversity and inclusion group - Connect - continues to play an
active role in supporting our people to understand, celebrate and
value all aspects of diversity.
Best in class stakeholder engagement
We have continued to foster meaningful links with our various
community and charity partners. Our charity of the year, nominated
and voted for by colleagues, has been the Midlands Air Ambulance
Charity with fundraising events across the year contributing in
excess of GBP30,000 in donations which will go towards supporting
the lifesaving work this service provides across the region. In
addition to our fundraising activities, colleagues have once again
provided over 700 volunteering hours, providing direct support to
small local charities within our immediate operating area.
Ensuring the views of the Society ' s primary stakeholders,
members and employees are considered in a formal way as part of our
decision making structures has, for a number of years, been one of
my personal endeavours. We now pride ourselves on the way we have
given substance to this stakeholder engagement through our Member
and Employee Councils; this is best in class amongst the industry.
Across the year these groups have met four times with all meetings
chaired by members of the Society ' s Board - including me, our
Group Finance and Operations Director and Non-Executive Directors.
Topics discussed have included strategic items such as Directors'
Remuneration, Product and Service Development, Pay and Reward
Structures and Corporate Social Responsibility, with views from
both Councils shared with the Executive Committee and directly with
the Board for consideration as part of formal decision making and
to inform the development of the Society ' s strategy. I would like
to take this opportunity to thank those members and employees who
have given their time and effort to make the Councils a success
over the last 18 months.
Looking forward
Uncertainty of outlook has become a consistent theme of my
reports for the last few years, with Brexit and geopolitical and
economic tensions conspiring to create a sense of unpredictability
in the markets in which we operate. Those drivers of uncertainty,
however, pale into a level of insignificance against what has
unfolded in the last few months, presenting not only enormous
challenges to the safety and soundness of markets but to the safety
and soundness of everyday life, where remaining in good health and
having a source of income is something that is perhaps now less
taken for granted.
Over the first six months of the new financial year our energy
will be focused on continuing to maintain the critical services on
which our members depend and those which are integral to support
the foundations of the UK economy. Providing these services in a
way that is safe and responsible, so as not to unwind what we have
achieved over the last decade, will be paramount. We have built a
Society that has a sustainable business model and robust capital
base, capable of withstanding a range of severe shocks to the
economy.
As I have said consistently, over the last decade the Society
has been on a simple mission. A mission to repair our business
model and transform the balance sheet to be reflective of what a
building society should be - an organisation that lends savers'
money for the purpose of putting people in homes in a way that is
safe and responsible. Our progress against this mission is manifest
with over 95% of our new lending now in support of our primary
Purpose, home ownership, and 76% of all our funding provided by our
loyal retail savers. The challenges of the immediate environment
are very different to the ones we saw a decade ago and I take an
enormous amount of confidence from the progress the Society has
made throughout this period, with the Society being well
positioned, both financially and operationally, to meet the
challenges that lie ahead; far stronger than it was when facing the
financial crisis of 2008/09.
In closing, I must again thank all of my colleagues who have
worked so conscientiously to ensure our services have been
maintained, and thank our members for helping us to respect our
'people, safety and wellbeing first' approach to this pandemic.
More than ever, we do not take your support for granted.
Jonathan Westhoff
Chief Executive
2 June 2020
Income Statement
for the year ended 31 March 2020 Group Group
2020 2019
Restated*
GBPm GBPm
Interest receivable and similar income
Calculated using the effective interest
method 118.6 118.5
On instruments measured at fair value
through profit or loss (4.5) (6.9)
----------------------------------------------- ------- --------------
Total interest receivable and similar
income 114.1 111.6
Interest expense and similar charges (55.0) (53.1)
----------------------------------------------- ------- --------------
Net interest receivable 59.1 58.5
Fees and commissions receivable 2.3 2.6
Other operating income 4.0 4.0
Fair value losses on financial instruments (8.5) (5.7)
Gain on deconsolidation of commercial
securitisations 5.3 -
Write down of goodwill (0.5) -
----------------------------------------------- ------- --------------
Total income 61.7 59.4
Administrative expenses (38.2) (42.6)
Depreciation and amortisation (8.0) (6.9)
----------------------------------------------- ------- --------------
Operating profit before revaluation
gains, impairment and provisions 15.5 9.9
Gains on investment properties 4.2 2.6
Impairment on loans and advances (17.5) (3.0)
Provisions for liabilities (0.7) (0.3)
----------------------------------------------- ------- --------------
Profit before tax 1.5 9.2
Taxation - (1.2)
-----------------------------------------------
Profit for the financial year 1.5 8.0
=============================================== ======= ==============
* 2019 fair value losses on financial instruments
and taxation have been restated. Certain hedged
mortgages had been valued with reference to SONIA
rather than the documented hedged risk, LIBOR.
The restatement corrects this position to reflect
the fair value movement with reference to movements
in LIBOR only. The cumulative fair value adjustment
on current mortgages will tend to nil over the
remaining fixed term, and this adjustment will
unwind over this period.
Statement of Comprehensive Income
for the year ended 31 March 2020 Group Group
2020 2019
Restated*
GBPm GBPm
Profit for the financial year 1.5 8.0
--------------------------------------------- ------ ----------
Other comprehensive income
Items that may subsequently be reclassified
to profit or loss
Fair value through other comprehensive
income investments
Valuation losses taken to equity (2.2) (1.1)
Taxation 0.4 0.2
Items that will not subsequently
be reclassified to profit or loss
Actuarial losses on defined benefit
obligations (0.7) (2.5)
Taxation 0.3 0.5
--------------------------------------------- ------ ----------
Other comprehensive income for the
financial year, net of tax (2.2) (2.9)
--------------------------------------------- ------
Total comprehensive income for the
financial year (0.7) 5.1
============================================= ====== ==========
* 2019 profit for the financial year has been
restated as described above.
Statement of Financial Position
At 31 March 2020
Group Group
2020 2019
Restated*
GBPm GBPm
Assets
Cash and balances with the Bank of England 263.5 182.5
Loans and advances to credit institutions 123.6 106.7
Investment securities 285.3 309.3
Derivative financial instruments 4.5 6.5
Loans and advances to customers 4,691.6 4,745.4
Current tax assets 0.4 -
Deferred tax assets 20.4 18.9
Trade and other receivables 4.1 3.7
Intangible assets 16.3 16.5
Investment properties 138.9 134.7
Property, plant and equipment 28.2 28.4
Total assets 5,576.8 5,552.6
================================================== ===================== ================
Liabilities
Shares 3,846.1 3,991.2
Amounts due to credit institutions 883.8 667.3
Amounts due to other customers 94.6 77.7
Derivative financial instruments 54.2 39.3
Debt securities in issue 266.3 344.1
Current tax liabilities - 0.9
Deferred tax liabilities 6.7 5.8
Trade and other payables 15.2 12.1
Provisions for liabilities 0.6 1.4
Retirement benefit obligations 2.7 4.9
Subordinated liabilities 22.8 22.8
Total liabilities 5,193.0 5,167.5
Members' interests and equity
Core capital deferred shares 127.0 127.0
Subscribed capital 8.9 8.9
General reserves 246.5 246.0
Revaluation reserve 3.3 3.3
Fair value reserve (1.9) (0.1)
-------------------------------------------------- --------------------- ----------------
Total members' interests and equity 383.8 385.1
Total members' interests, equity and liabilities 5,576.8 5,552.6
================================================== ===================== ================
*2019 loans and advances to customers, current tax liabilities
and general reserves have been restated as described above. There
was no impact on the brought forward figures for the year ended 31
March 2019 from the restatement.
Statement of Changes in Members' Interests and Equity
for the year ended 31 March 2020
Core capital
deferred Subscribed General Revaluation Fair value
shares capital reserves reserve reserve Total
Group GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2019 127.0 8.9 246.0 3.3 (0.1) 385.1
Profit for the
financial
year - - 1.5 - - 1.5
Other
comprehensive
income for
the year (net
of tax)
Retirement
benefit
obligations - - (0.4) - - (0.4)
Fair value
through other
comprehensive
income
investments - - - - (1.8) (1.8)
Total other
comprehensive
income - - (0.4) - (1.8) (2.2)
--------------- --------------- ---------------------- --------- ------------ -------------------- -------
Total
comprehensive
income for
the year - - 1.1 - (1.8) (0.7)
Distribution
to the
holders of
core capital
deferred
shares - - (0.6) - - (0.6)
At 31 March
2020 127.0 8.9 246.5 3.3 (1.9) 383.8
=============== =============== ====================== ========= ============ ==================== =======
Profit Core
participating capital Available Fair
deferred deferred Subscribed General Revaluation for sale value
shares shares capital reserves reserve reserve reserve Total
Group * GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2018 175.0 - 75.0 215.8 3.4 0.8 - 470.0
Changes on
initial
application
of IFRS
9 - - - (27.8) - (0.8) 0.8 (27.8)
--------------- --------------- --------- ----------- --------- ------------ ---------- -------- ---------
At 1 April
2018
including
impact of
IFRS 9
adoption 175.0 - 75.0 188.0 3.4 - 0.8 442.2
Profit for the
financial
year 8 . 8 .
(restated)* - - - 0 - - - 0
Other
comprehensive
income for the
period
(net of tax)
Retirement
benefit
obligations - - - (2.0) - - - (2.0)
Realisation of
previous
revaluation
gains - - - 0.1 (0.1) - - -
Fair value
through
other
comprehensive
income
investments - - - - - - (0.9) (0.9)
Total other
comprehensive
income - - - (1.9) (0.1) - (0.9) (2.9)
--------------- --------------- --------- ----------- --------- ------------ ---------- -------- ---------
Total
comprehensive
income for
the year 6 . 5 .
(restated)* - - - 1 (0.1) - (0.9) 1
Capital
restructuring (175.0) 127.0 (66.1) 51.9 - - - (62.2)
--------------- --------------- --------- ----------- --------- ------------ ---------- -------- ---------
At 31 March
2019 24 6 38 5
(restated)* - 127.0 8.9 . 0 3.3 - (0.1) . 1
=============== =============== ========= =========== ========= ============ ========== ======== =========
* 2019 profit for the financial year and general reserves have
been restated as described above.
Statement of Cash Flows
for the year ended 31 March 20 20 Group Group
20 20 20 19
GBPm GBPm
Net cash inflow from operating activities
(below) 140.3 30.7
------------------------------------------------------ -------- -----------
Cash flows from investing activities
Purchase of investment securities (121.8) (120.1)
Proceeds from disposal of investment
securities 124.7 87.8
Proceeds from disposal of investment
properties - 0.1
Purchase of property, plant and equipment
and intangible assets (5.6) (6.7)
Proceeds from disposal of property, plant
and equipment 0.7 -
Net cash flows from investing activities (2.0) (38.9)
------------------------------------------------------ -------- -----------
Cash flows from financing activities
Issue of debt securities - 1.0
Repayment of debt securities in issue (57.5) (149.2)
Capital restructuring - (36.2)
Interest paid on subordinated liabilities (2.5) (1.2)
Payment of lease liabilities (0.6) -
Distribution to the holders of core capital
deferred shares (0.6) -
------------------------------------------------------ -------- -----------
Net cash flows from financing activities (61.2) (185.6)
------------------------------------------------------ -------- -----------
Net increase/(decrease) in cash 77.1 (193.8)
Cash and cash equivalents at beginning
of year 298.7 492.5
Cash and cash equivalents at end of year 375.8 298.7
====================================================== ======== ===========
For the purposes of the Statement of Cash Flows, cash
and cash equivalents comprise the following balances with
less than 90 days ' original maturity:
Group Group
20 20 201 9
GBPm GBPm
Analysis of cash and cash equivalents
Cash in hand (including Bank of England
Reserve account) 252.2 172.0
Loans and advances to credit institutions 123.6 106.7
Investment securities - 20.0
375.8 298.7
====================================================== ======== ===========
The Group is required to maintain certain mandatory balances
with the Bank of England which, at 31 March 2020, amounted to
GBP11.3m (2018/19: GBP10.5m). The movement in these balances is
included within cash flows from operating activities.
Group Group
2020 2019
Restated*
GBPm GBPm
Cash flows from operating activities
Profit before tax 1.5 9.2
Adjustments for non-cash items included
in profit before tax
Impairment on loans and advances 17.5 3.0
Depreciation and amortisation 8.0 6.9
Disposal of property, plant and equipment (0.2) -
Revaluations of investment properties (4.2) (2.6)
Gain on deconsolidation of commercial
securitisations (5.3) -
Write down of goodwill 0.5 -
Changes in provisions for liabilities (0.8) (0.7)
Interest on subordinated liabilities 2.5 2.4
Fair value losses on equity release portfolio 0.1 1.7
Interest paid on lease liabilities 0.1 -
Changes in fair value 3.4 (12.3)
----------------------------------------------- -------- ----------
23.1 7.6
Changes in operating assets and liabilities
Loans and advances to customers 31.3 31.3
Loans and advances to credit institutions (2.5) (3.9)
Derivative financial instruments 20.2 13.6
Shares (145.1) (59.9)
Deposits and other borrowings 216.8 42.0
Trade and other receivables (0.4) 2.4
Trade and other payables 0.9 0.3
Retirement benefit obligations (2.9) (2.7)
Tax paid (1.1) -
----------------------------------------------- -------- ----------
Net cash inflow from operating activities 140.3 30.7
=============================================== ======== ==========
*2019 profit before tax and loans and advances to customers have
been restated, as described above, which have no impact on net cash
inflow from operating activities.
Ratios
for the year ended 31 March 2020 Group Statutory
2020 limit
% %
Lending limit 7.7 25.0
Funding limit 20.3 50.0
------------------------------------------- ------ ----------
Group Group
2020 201 9
Restated*
% %
As a percentage of shares and borrowings:
Gross capital 7.99 8.03
Free capital 4.38 4.49
Liquid assets 13.21 11.78
As a percentage of mean total assets:
Profit for the financial year 0.03 0.14
Net interest margin 1.06 1.03
Management expenses 0.83 0.87
------------------------------------------- ------ ----------
Group Group
2020 2019
Restated*
% %
Common Equity Tier 1 capital ratio 15.9 15.9
Common Equity Tier 1 capital ratio before
IFRS 9 transitional relief 15.0 15.1
------------------------------------------- ------ ----------
*2019 ratios have been restated as described above.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SSEFDEESSEFM
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