TIDMWBS
RNS Number : 9605I
West Bromwich Building Society
07 December 2022
West Bromwich Building Society
Announcement of half-year results for the six months
to 30 September 2022
Today the West Brom announces its half-year results for the six
months to 30 September 2022.
Key highlights:
-- Savers rewarded with rates that were on average, by the end
of the period, some two and a half times the average rates paid by
the market(1) (30 September 2021: more than double) equivalent to a
member benefit of GBP25.5m (2020/21: GBP8.8m).
-- New lending applications of GBP609m (6 months to 30 September
2021: GBP542m), with completions of GBP276m (6 months to 30
September 2021: GBP479m reflecting market conditions including
delays in borrowers drawing down mortgages.
-- Lending for first-time buyers represented 68% of lending for
home purchase (30 September 2021: 47%).
-- Statutory profit before tax increased by 24% to GBP18.1m (30
September 2021: GBP14.6m) driven by higher net interest income,
fair value gains and revaluation gains on investment properties,
which more than offsets higher impairment of loans and
advances.
-- Capital position remains strong with the Common Equity Tier 1
(CET 1) capital ratio improved to 18.3% (31 March 2022: 17.0%).
-- Consistently strong feedback with customer satisfaction at
95% (31 March 2022: 96%) and a Net Promotor Score(R)(2) of +74 (31
March 2022: +81).
-- Provided cost of living support to our colleagues with a
one-off payment of GBP1,200 for over 430 people.
Jonathan Westhoff, Chief Executive, commented:
"It's pleasing to report a strong half-year performance as we
continue to navigate through a challenging external
environment.
The pressures on the cost of living, especially the rising cost
of essential goods such as food and energy, have moved from a
forecast to a reality across the period, and we are focused on
supporting our members where we can. This means that as interest
rates increase towards levels not experienced for well over a
decade, we have striven to mitigate the impact on borrowing
members, whilst passing on the benefit to our saving members.
With there being no real indication of the situation easing in
the near term, we will ensure we remain alert to where even further
support may be necessary, for example for any borrowers who
encounter temporary challenges in meeting their repayments.
With home ownership being at the very core of our mutual
purpose, the first-time buyer is a prime focus of our activity.
That is why 68% (30 September 2021: 47%) of all purchase lending
was to those buying their first home, whether that be an outright
purchase or a share of ownership.
For our saving members, who provide the funds that enable us to
deliver on our home ownership objective, we have used the rising
interest rate environment to improve their returns, to such an
extent that the average rate paid by the end of the reporting
period was two and half times that of the market average. This is
an increase from the position of paying twice the market average a
year earlier. This has resulted in the benefit to savings members
increasing to around GBP25.5m from GBP8.8m for the six month
period.
Although more recently the tensions between monetary and fiscal
policy which created such market uncertainty have abated, it is
likely that a degree of uncertainty around the trajectory of the
economy will remain. Our strong capital position will support us in
navigating this uncertainty. Most importantly, we remain committed
to balancing the needs of our borrowers and savers during this
uncertain time and specifically working with borrowers to achieve
outcomes that are supportive and in their long-term best interests.
I am extremely thankful for the efforts of my colleagues and their
determination to continually deliver the Society's Purpose."
To read the full interim report, visit www.westbrom.co.uk .
(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.
S
For more information, please contact:
Sarah O'Leary
Corporate Communications Manager - the West Brom
sarah.o'leary@westbrom.co.uk
07507 338485
Notes to editors
About the West Brom
The West Brom is the UK's seventh largest building society and
is a leading provider of financial services. Proudly independent,
the West Brom is owned by and run for the benefit of its
members.
Since its foundation in 1849, the West Brom's fundamental
principles have been, and remain, to offer people the opportunity
to buy their own homes and save for the future.
West Bromwich Building Society
Condensed consolidated
half-yearly financial information
30 September 2022
Introduction
The pressures on the cost of living, especially the rising cost
of essential goods such as food and energy, have moved from a
forecast to a reality across the period, and we are focused on
supporting our members where we can. This means that as interest
rates increase towards levels not experienced for well over a
decade, we have striven to mitigate the impact on borrowing
members, whilst passing on the benefit to our saving members.
In addition to supporting our members in this way, we have also
continued, in line with our mutual philosophy, to deliver support
to our colleagues and the communities of which we are part, both of
whom are also impacted by the challenge of rising inflation. With
there being no real indication of the situation easing in the near
term, we will ensure we remain alert to where even further support
may be necessary, for example for any borrowers who encounter
temporary challenges in meeting their repayments.
Purpose-led activity
For our members:
Our focus on our Purpose-led strategy, which aims to promote
home ownership and provide a safe and good return on our members'
savings, has enabled us to respond positively to these
circumstances. Whilst 58% of our owner occupied borrowers are on
fixed rates that will protect them for at least 12 months from the
end of the reporting period, we have been working to limit the
level of increase to those borrowers who have either matured from
their fixed rate period, or expect to do so in the coming months.
For those who have a preference not to fix their rate for a further
period, we have ensured that the variable rate they pay (the
Society's Standard Variable Rate (SVR)) is at a level that has not
increased in line with the level witnessed in interest rates
generally.
For those borrowers wishing to re-fix their rate, we have
consistently offered products that are as good if not better value
than those made available to new customers.
With home ownership being at the very core of our mutual
purpose, the first-time buyer is a prime focus of our activity.
That is why 68% (30 September 2021: 47%) of all purchase lending
has been to those buying their first home, whether that be an
outright purchase or a share of ownership. Of course we recognise
that those who have been first-time buyers across recent years will
never have experienced the type of interest rate levels we are now
starting to experience. Although affordability has been tested at
materially higher rates than those being predicted, we are very
aware that other cost pressures (including rising energy prices),
will result in some facing difficulty in meeting mortgage
payments.
To help those who may find themselves in this situation, we have
taken tangible steps to ensure they are fully supported and the
impact on their ongoing finances protected. Offering vital,
independent advice is a critical part of this assistance, and
therefore we guide borrowers to trusted external organisations who
are able help, such as PayPlan. Importantly, whilst any borrowing
members face such difficulties they will have the comfort of
knowing that we do not charge any additional fees, more commonly
referred to as 'arrears fees'.
And there are other areas we have made changes to give direct
financial benefit to members. We have cut the commission we receive
for our general insurance offering in order to reduce premium
levels and, moreover, now distribute any 'profit share' received
from our insurance partner back to our members who hold a policy.
When combined, these actions are equivalent to approximately an 8%
reduction in premiums payable by our members.
For our saving members, who provide the funds that enable us to
deliver on our home ownership objective, we have used the rising
interest rate environment to improve their returns, to such an
extent that the average rate paid by the end of the reporting
period was two and half times that of the market average (1) . This
is an increase from the position of paying twice the market average
a year earlier. This has resulted in the benefit to savings members
increasing to around GBP25.5m from GBP8.8m for the six month
period.
Our customer satisfaction levels have remained strong at 95% (31
March 2022: 96%). Following a change in survey methodology which
allows us to capture much richer feedback, our Net Promoter Score
(R) (2) was +74 (31 March 2022: +81). Our consistently high
customer satisfaction levels are a reflection of the strong
emphasis we place on good customer service and the investment in
colleague training that we have made. Identifying and being able to
serve the needs of vulnerable members remains a top priority which
we serve using dedicated teams. We signed up to the Inclusive
Economy Partnership's Debt Code of Best Practise for Debt
Collection and Recovery, to ensure all consumers with low financial
resilience are treated fairly and consistently across all
sectors.
(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.
For our colleagues:
In addition to being mindful of the impact of economic
conditions on our borrowing members, we recognise that our
colleagues are also likely to face many of the same challenges. In
support of our colleagues' financial wellbeing, we wanted to offer
them support to help them navigate this period of difficulty. In
August 2022, we announced that all colleagues earning GBP35,000 or
below on a full-time equivalent salary would receive a one-off
payment of GBP1,200 to help ease the financial burden. This is in
addition to our Financial Hardship Support Fund which exists to
offer colleagues support in the event of a sudden unexpected
cost.
We continue to offer health and wellbeing advice to our
colleagues by providing access to a new Employee Assistance
Programme (EAP), delivered by Health Assured. The EAP provides a
complete support network that offers expert advice and
compassionate guidance 24/7, covering a wide range of issues such
as bereavement support, legal and medical information and general
life support.
For our communities:
Under the Government's 'Homes for Ukraine' scheme we have made
available five properties for housing Ukrainian refugees, with more
properties being readied for occupancy. Colleagues in branches and
Head Office also raised funds for the Disasters Emergency Committee
(DEC) as well as donating items to equip these properties.
Our support for Birmingham Children's Hospital Charity continues
through various fundraising measures. As part of Recycle Week 2022,
we set up Big Drop collection points at our Head Office and in
branches for colleagues to donate unwanted clothes and other items.
Our colleagues also participated in the Birmingham Dragon Boat race
demonstrating a great deal of passion, fun and effort to help
Birmingham Children's Hospital Charity achieve its fundraising
targets.
This all sits alongside our activities to support our charity
partner, Barnardo's for whom colleagues in Head Office and branches
regularly organise fundraising activities such as bake sales,
alongside volunteering efforts. Progress has been made towards the
building of four 'Gap Homes' across the region in partnership with
Barnardo's. The 'Gap Homes' initiative utilises vacant land and
builds energy-efficient, easy to maintain homes for vulnerable
people leaving the care system.
Financial performance update
I am pleased to say that we have further strengthened our
existing healthy capital position, maintaining the financial
resilience of the Society and putting us in a strong position to
support our members through the uncertain economic times ahead. Our
capital, measured using the Common Equity Tier 1 (CET 1) ratio,
ended the period at 18.3% (31 March 2022: 17.0%) or 17.6% if we
exclude profits for the last 6 months.
Regulatory c apital resources
Transitional Transitional Transitional
basis (including basis (excluding basis (including
unaudited unaudited audited year
interim profit) interim profit) end profit
(1) (1) ) (1)
31-Mar-2
30-Sep-22 30-Sep-22 2
GBPm GBPm GBPm
Members' interests and equity 429.0 414.3 417.3
Permanent interest bearing
shares (PIBS) deduction (7.8) (7.8) (7.8)
Other adjustments (2) (34.9) (34.9) (19.1)
------------------------------------- ------------------- ----------------------- ------------------
Common Equity Tier 1 capital 386.3 371.6 390.4
Additional Tier 1 capital 7.8 7.8 7.8
Amortisation of PIBS under
transitional rules (7.8) (7.8) (7.8)
------------------------------------- ------------------- ----------------------- ------------------
Total Tier 1 capital 386.3 371.6 390.4
Tier 2 capital (3) 21.8 21.8 21.8
Total regulatory capital resources 408.1 393.4 412.2
------------------------------------- ------------------- ----------------------- ------------------
Risk weighted assets (RWA) 2,105.7 2,105.7 2,299.7
Leverage ratio exposure including
claims on central banks 5,711.7 5,711.7 6,015.2
------------------------------------- ------------------- ----------------------- ------------------
Leverage ratio exposure excluding
claims on central banks 5,097.9 5,097.9 5,378.2
------------------------------------- ------------------- ----------------------- ------------------
Capital ratios % % %
Common Equity Tier 1 ratio
(as a percentage of RWA) 18.3 17.6 17.0
Common Equity Tier 1 before
IFRS 9 transitional arrangements
(as a percentage of RWA) 18.0 17.3 16.2
Tier 1 ratio (as a percentage
of RWA) 18.3 17.6 17.0
Total capital ratio (as a
percentage of RWA) 19.4 18.7 17.9
Leverage ratio including claims
on central banks 6.8 6.5 6.5
Leverage ratio ex cluding
claims on central banks 7.6 7.3 7.3
------------------------------------- ------------------- ----------------------- ------------------
(1) The 'Transitional' basis includes the effect of IFRS 9
transitional arrangements. For regulatory purposes, profit is not
recognised as capital until audited.
(2) Other adjustments mainly comprise deductions for intangible
assets and deferred tax assets net of IFRS 9 transitional
arrangements which unwound by GBP14m during the six months ended 30
September 2022.
(3) Tier 2 capital comprises subordinated liabilities excluding
accrued interest.
Pre-tax profits increased to GBP18.1m (30 September 2021:
GBP14.6m) driven predominantly by a stronger Net Interest Margin
(from GBP3 1.5 m to GBP3 6 . 2 m), fair value gains of GBP17.6m (30
September 2021: GBP3.9m) which includes a gain of GBP9.0m on
derivatives used to provide economic hedges against movements in
provisions on commercial loans, and revaluation gains of GBP5.9m
(30 September 2021: GBP0.4m). Offsetting this was a higher
commercial impairment charge of GBP17.3m (30 September 2021:
GBP2.7m and expenses of GBP27.8m (30 September 2021: GBP24.4m)
which have increased due to inflationary pressures and investment
in our digital infrastructure.
Despite the actions taken on our borrower rates and the above
average increases passed on to saving members, t he Net Interest
Margin rose to 1.21% (30 September 2021: 1.07%) .
The Bank of England continues to indicate further Bank Rate
increases will be necessary. The Society is well protected in this
respect through our interest rate hedging strategy which has
resulted in a significant fair value gain of GBP17.6m on the
derivatives we use to manage interest rate risk. This includes the
movement on the derivatives used to provide an economic hedge
against movements in commercial loan provisions explained overleaf
.
The interim valuation for the West Brom Homes portfolio
indicates a gain of GBP5.9m (30 September 2021: GBP0.4m). This
represents an increase in property valuations based on regional
house price index gains offset by charges for necessary property
improvements.
Administrative expenses increased by 14% compared to the
equivalent period last year and include GBP2.4m of one - off costs
incurred in the development of digital infrastructure. Excluding
this, the overall increase was 4%, significantly lower than current
inflation, and reflects cost savings that have been achieved as a
result of our ongoing efforts towards operational efficiency. The
management expenses ratio ended the period at 0.93% compared to
0.89% at 31 March 2022 for the full year.
The exposure to credit losses on residential loans has fallen
resulting in a release of provision of GBP0. 5 m (30 September
2021: release of GBP3.0m). House price inflation in the first half
of the year has contributed to this position. We continue to hold
post model adjustment overlays to provide cover against the
heightened risk of default and reducing property values on
properties where combustible material may be present. In arriving
at the expected credit loss estimation, we have updated our view of
the macroeconomic scenarios reflecting the movement in economic
conditions and what this is likely to mean for future affordability
. We have also applied greater propensities of default to those
borrowers whose affordability is likely to be most stretched.
Group arrears increased modestly for the core residential book
and stood at 0.3 3 % (31 March 2022: 0.31%) which compares
favourably against the UK Finance average of 0.7 2 % (31 March
2022: 0.77%). We have been proactively working with borrowers in
arrears to discuss the options available to them, particularly
those on variable or tracker-linked products, or those coming to
the end of their term. W e want to ensure borrowers are supported
through periods of financial hardship and come through such periods
still owning their properties. As we have previously communicated,
it is likely that arrears levels will rise should borrowers face
longer term difficulties.
Our legacy commercial book has reduced to GBP297m (31 March
2022: GBP349m) as we make progress towards winding down this
portfolio. At the period end, there had been an increase in
provisions resulting in an impairment charge against the legacy
commercial book of GBP17. 3 m (30 September 2021: charge of
GBP2.7m). This is largely as a result of greater discounting of
semi-fixed future cashflows; to protect against such moves the
Society uses derivatives to provide an economic hedge against
movements in provisions on commercial loans which has seen an
offsetting gain of GBP9.0m. In our income statement this is
included within the fair value gain of GBP17.6m. As the legacy
commercial portfolio includes concentrations in retail, healthcare
and leisure sectors, it is likely that these borrowers will be
impacted by future economic conditions and we have factored this
into our assessment of the expected credit losses against the
portfolio. As discussed above, our macroeconomic scenarios have
been updated to reflect the economic environment at 30 September
2022 resulting in a higher provision.
In connection with the indicative PIBS distribution policy, the
Society continues to calculate a notional PPDS reserve which was
GBP2.7m at 31 March 2022 . As this would have allowed a
distribution maximum of 1.48%, or 0.74% on a semi-annual basis , a
resolution was passed to make an interest payment on the PIBS of
0.74%, which was paid on 5 October 2022. For Core Capital Deferred
Share (CCDS) holders, this means that the Board currently expects
to return to the path of forecast distributions outlined in April
2018, which would mean that the interim distribution would be
GBP2.25 per CCDS to be paid in February 2023.
Principal risks and uncertainties
The Society continues to recognise that effective risk
management is essential to achieving the Society's objectives in an
operating environment where the nature of the threats which prevail
is continually evolving.
Where applicable, this report provides an update on the
principal risks and uncertainties reported on pages 3 6 to 49 of
the 2021/22 Annual Report and Accounts.
Principal risks
The Society's identified principal risk categories have remained
unchanged in the period. To avoid repetition, we have chosen to
focus on developments in certain areas during the first six months
of the year.
Business conditions and the economic environment
As the economy emerges from the pandemic, positive initial
developments were observed such as growth in UK Gross Domestic
Product (GDP). However, existing supply chain issues were
exacerbated by the Ukraine/Russia conflict leading to higher energy
and commodity prices and driving up inflation. This led to
successive increases in Bank Rate in an attempt to control
inflation, however the cost of living challenge persists.
In the six month period, political turbulence has given rise to
further economic pressures, one consequence of which has been the
withdrawal and repricing of most mortgage products. This has had
the impact of worsening affordability challenges by increasing
mortgage repayments and increasing the likelihood of borrowers
entering arrears. We remain focused on supporting borrowers through
periods of financial hardship.
Credit risk
As discussed above, while arrears levels have so far remained at
steady levels, it is expected that they will be impacted as
borrowers face the affordability challenges and other ongoing
pressures of the cost of living crisis. Our approach to collections
and recoveries continue s to be updated such that it is reflective
of the Financial Conduct Authority's Tailored Support Guidance.
Given the se conditions the assumptions used in our provisioning
have been updated to take account of borrower circumstances and
economic uncertainty and, at 30 September 2022, our range of
economic scenarios has also been updated. Our stress testing
continues to reflect the broad range of outcomes we may see as the
economic situation unfolds, including possible house price falls.
The retail exposures in the commercial lending portfolio are
particularly susceptible to such shocks although, as detailed
already, the combination of provisions set aside and capital
directly allocated to these exposures is significant. At the period
end, coverage against the reta il sector exposures stood at 69.7 %
(30 September 2021: 60.7%) driven by higher provision levels as
well as a minor reduction in balances .
Margin compression risk
Margin Compression Risk is the risk of margin squeeze caused by
having limited ability to increase pay rates on the mortgage book
if the Society were to experience a relative increase in funding
costs affecting variable rate retail funding, and in particular the
administered rate retail balances.
During the first half of 2022 we have increased our proportion
of fixed rate retail funding to hedge against fixed rate mortgage
lending. This not only allows us to provide a better return for our
members but also provides some resilience to margin
compression.
Operational resilience and technology investment
The Society's Operational Resilience Plan and Business
Continuity and Disaster Recovery Risk Management Framework have
been developed, all of which are important components against which
to manage operational resilience. The Society has established its
Important Business Services and their associated Impact Tolerances,
with the next steps established to meet the 2025 regulatory
deadline. We have operated our hybrid model for a year now and
hybrid working policies have been embedded throughout the
organisation including ongoing work to re-purposing our Head Office
space to accommodate further social interaction and collaborative
work ing .
Despite all of the challenges in the year to date, investment in
the core technology platforms continues and this is expected to
remain a focus of management for the rest of the year.
Outlook
Although more recently the tension s between monetary and fiscal
policy which created such market uncertainty have abated, it is
likely that a degree of uncertainty around the trajectory of the
economy will remain . Our strong capital position will support us
in navigating this uncertainty. Most importantly, we remain
committed to balancing the needs of our borrowers and savers during
this uncertain time and specifically working with borrowers to
achieve outcomes that are supportive and in their long-term best
interests. I remain extremely thankful to the efforts of my
colleagues and their determination to continually deliver the
Society's Purpose.
Jonathan Westhoff
Chief Executive
Forward-looking statements
Certain statements in this half-yearly 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 financial information
30 September 2022
Condensed consolidated half-yearly Income Statement
for the si x months ended 30 September 2022
6 months 6 months Year
ended ended ended
30-Sep-2
2 3 0-Sep-21 31-Mar-22
unaudited unaudited audited
Notes GBPm GBPm GBPm
Interest receivable and similar income
Calculated using the effective interest
method 61.7 50. 5 100.0
On instruments measured at fair value (7.3 ( 12.7
through profit or loss 5.0 ) )
Total interest receivable and similar
income 66.7 43.2 87.3
(11.7 (2 5.2
Interest expense and similar charges (30.5) ) )
Net interest receivable 36.2 31.5 62.1
Fees and commissions receivable 0.9 1.0 1.9
Other operating income 2.1 1.8 3.7
Fair value gains on financial instruments 17.6 3.9 10.6
56 .
Total income 8 38.2 78.3
(24.0 (19.4 ( 45.5
Administrative expenses ) ) )
( 3 (5.0 ( 7.4
Depreciation and amortisation 10 . 8 ) ) )
Operating profit before revaluation
gains, impairment and provisions 29.0 13.8 25.4
Gains on investment properties 11 5.9 0.4 5.8
( 8.1
Impairment on loans and advances 6 (16.8) 0.3 )
Provisions for liabilities 7 - 0.1 0.1
Profit before tax 18.1 14.6 23.2
(2.7
Taxation (3.4) ) 1.2
Profit for the period 14.7 11.9 24.4
------------------------------------------- ------ ---------- ----------- ----------
Condensed consolidated half-yearly Statement of Comprehensive
Income
for the si x months ended 30 September 2022
6 months 6 months Year
ended ended ended
30-Sep-22 30-Sep-21 31-Mar-2
2
unaudited unaudited audited
GBPm GBPm GBPm
Profit for the period 14.7 11.9 24.4
--------------------------------------------------- ---------------- ---------------- ---------------
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 (1.4) (0.3) (1.0)
Taxation 0.3 0.1 0.2
Items that will not subsequently be reclassified
to profit or loss
Actuarial gains on defined benefit obligations - - 9.6
Taxation - - (2.9)
--------------------------------------------------- ---------------- ---------------- ---------------
Other comprehensive income for the period,
net of tax (1.1) (0.2) 5.9
--------------------------------------------------- ---------------- ---------------- ---------------
13 .
Total comprehensive income for the period 6 11.7 30.3
--------------------------------------------------- ---------------- ---------------- ---------------
Condensed consolidated half-yearly Statement of Financial
Position
at 30 September 2022
30-Sep-22 30-Sep-21 31-Mar-22
unaudited unaudited audited
Notes GBPm GBPm GBPm
Assets
Cash and balances with the Bank
of England 628.8 482.2 652.0
Loans and advances to credit
institutions 142.8 85.7 73.2
Investment securities 378.5 276.6 286.9
Derivative financial instruments 165.3 11.8 52.4
Loans and advances to customers 8 4,339.0 4, 979.0 4 ,778.3
Current tax assets - 0.2 -
Deferred tax assets 23.5 18.5 27.1
Trade and other receivables 3.4 3.0 2.2
Intangible assets 10 9.0 14.5 10.2
Investment properties 11 153.4 141.9 147.3
Property, plant and equipment 10 22.1 24.0 22.8
Retirement benefit assets 17.1 3.2 14.9
------------------------------------ ------ -------------------- ---------- ----------
Total assets 5,882.9 6,040.6 6,067.3
------------------------------------ ------ -------------------- ---------- ----------
Liabilities
Shares 9 4,217.6 4,267.7 4,183.6
Amounts due to credit institutions 850.6 996.4 1,116.7
Amounts due to other customers 217.0 110.4 114.6
Derivative financial instruments 3.4 24.9 11.5
Debt securities in issue 12 113.2 196.9 171.2
Current tax liabilities 0.3 - 0.3
Deferred tax liabilities 14.4 7.5 14.7
Trade and other payables 14.1 12.8 14.0
Provisions for liabilities 7 0.4 0.5 0.5
Subordinated liabilities 16 22.9 22.9 22.9
Total liabilities 5,453.9 5,640.0 5,650.0
------------------------------------ ------ -------------------- ---------- ----------
Members' interests and equity
Core capital deferred shares 13 127.0 127.0 127.0
Subscribed capital 15 7.8 7.8 7.8
General reserves 291.9 261.6 2 79.1
Revaluation reserve 3.1 3.3 3.1
Fair value reserve (0.8) 0.9 0.3
------------------------------------ ------ -------------------- ---------- ----------
Total members' interests and
equity 429.0 400.6 417.3
==================================== ====== ==================== ========== ==========
Total members' interests, equity
and liabilities 5,882.9 6,040.6 6,067.3
------------------------------------ ------ -------------------- ---------- ----------
Condensed consolidated Statement of Changes in Members'
Interests and Equity
for the si x months ended 30 September 2022
6 months ended 30 September 202 2 (unaudited)
Core capital
deferred Subscribed General Revaluation Fair value
shares capital reserves reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2022 127.0 7 . 8 279.1 3.1 0.3 417.3
Profit for the
period - - 14.7 - - 14 . 7
Other
comprehensive
income for the
period (net of
tax)
Fair value
through other
comprehensive
income
investments - - - - (1.1) (1 . 1)
Total other
comprehensive
income - - - - (1 . 1) (1 . 1)
--------------- --------------- --------------- --------- --------------- --------------- ---------------
Total
comprehensive
income for
the period - - 14 . 7 - (1 . 1) 13 . 6
Distribution
to the
holders of
core capital
deferred
shares - - (1.9) - - (1 . 9 )
At 30
September
2022 127.0 7.8 291 . 9 3. 1 (0 . 8) 429.0
--------------- --------------- --------------- --------- --------------- --------------- ---------------
6 mo nths
ended 30
September
2021
(unaudited)
Core capital
deferred Subscribed General Revaluation Fair value
shares capital reserves reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2021 127.0 7.8 250.7 3.3 1.1 3 89.9
Profit for the
period - - 11.9 - - 11.9
Other
comprehensive
income for the
period (net of
tax)
Fair value
through other
comprehensive
income
investments - - - - (0.2) (0.2)
Total other
comprehensive
income - - - - (0.2) (0.2)
--------------- --------------- --------------- --------- --------------- --------------- ---------------
Total
comprehensive
income for
the period - - 11.9 - (0.2) 11.7
Distribution
to the
holders of
core capital
deferred
shares - - (1.0 ) - - (1.0 )
At 30
September
2021 127.0 7.8 261.6 3.3 0.9 400 .6
--------------- --------------- --------------- --------- --------------- --------------- ---------------
Year ended 31
March 2022
(audited)
Core capital
deferred Subscribed General Revaluation Fair value
shares capital reserves reserve reserve Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 April
2021 127.0 7.8 250.7 3.3 1.1 389.9
Profit for the
financial
year - - 24.4 - - 24.4
Other
comprehensive
income for the
year (net of
tax)
Retirement
benefit
obligations - - 6.9 - - 6.9
Realisation of
previous
revaluation
gains - - - (0.2) - (0.2)
Fair value
through other
comprehensive
income
investments - - - - (0.8) (0.8)
=========
Total other
comprehensive
income - - 6.9 (0.2) (0.8) 5.9
--------------- --------------- --------------- --------- --------------- --------------- ---------------
Total
comprehensive
income for
the year - - 31.3 (0.2) (0.8) 30.3
Distribution
to the
holders of
core capital
deferred
shares - - (2.9 ) - - (2.9)
At 31 March
2022 127.0 7.8 279 . 1 3 .1 0.3 417.3
--------------- --------------- --------------- --------- --------------- --------------- ---------------
Condensed consolidated half-yearly Statement of Cash Flows
for the si x months ended 30 September 2022
6 months 6 months Year
ended ended ended
30-Sep-22 30-Sep-21 31-Mar-22
unaudited unaudited audited
GBPm GBPm GBPm
Net cash inflow from operating activities (below) 204.5 166.9 365.7
---------------------------------------------------------- ------------------ ------------------ ------------------
Cash flows from investing activities
Purchase of investment securities (104.7 ) ( 38.5 ) ( 101.9 )
Proceeds from disposal of investment securities 68.7 34.1 86.5
Proceeds from disposal of investment properties 0.7 1.5 2.1
Purchase of property, plant and equipment and intangible
assets (3.2 ) (2.0 ) (5.1 )
---------------------------------------------------------- ------------------ ------------------ ------------------
Net cash flows from investing activities (38.5) (4.9) (18.4)
---------------------------------------------------------- ------------------ ------------------ ------------------
Cash flows from financing activities
Repayment of debt securities in issue ( 59.2 ) (21.6 ) (47.4 )
Interest paid on subordinated liabilities (1.2) (1.2) (2.5)
Payment of lease liabilities (0.2) (0.2) (0.4 )
Distribution to the holders of core capital deferred
shares (1 . 9 ) (1.0 ) (2.9 )
Net cash flows from financing activities (62.5 ) (24.0) (53.2 )
---------------------------------------------------------- ------------------ ------------------ ------------------
Net increase in cash 103.5 138.0 294.1
Cash and cash equivalents at beginning of period 710 . 1 416.0 416.0
---------------------------------------------------------- ------------------ ------------------ ------------------
Cash and cash equivalents at end of period 813.6 554.0 710.1
---------------------------------------------------------- ------------------ ------------------ ------------------
For the purposes of the cash flow statement, cash and cash
equivalents comprise the following balances with maturities of
three months or less from the date of acquisition:
30-Sep-22 30-Sep-21 31-Mar-22
unaudited unaudited audited
GBPm GBPm GBPm
Cash and cash equivalents
Cash in hand (including Bank of England Reserve account) 613.8 468.3 636.9
Loans and advances to credit institutions 142.8 85.7 73.2
Investment securities 57.0 - -
----------------------------------------------------------
813.6 554.0 710.1
---------------------------------------------------------- --------------- --------------- ---------------
The Group is required to maintain certain mandatory balances
with the Bank of Eng land which, at 30 September 2022 , amounted to
GBP 15.0m (30 September 2021: GBP13.9m and 31 March 2022: GBP15.1
m). The movement in these balances is included within cash flows
from operating activities.
The Group's loans and advances to credit institutions includes
GBP 98.0m (30 September 2021: GBP43.0m and 31 March 2022: GBP46.0
m) of balances belonging to the Society's structured entities which
are not available for general use by the Society.
Condensed consolidated half-yearly Statement of Cash Flows
(continued)
for the si x months ended 30 September 2022
6 months 6 months Year
ended ended ended
30-Sep-2 30-Sep-2
2 1 31-M ar-22
unaudited unaudited audited
GBPm GBPm GBPm
Cash flows from operating activities
Profit before tax 18.1 14.6 23.2
Adjustments for non-cash items included
in profit before tax
Impairment on loans and advances 16.8 (0.3) 8.1
Depreciation and amortisation and
impairment 3.8 5.0 13.0
Disposal of property, plant and equipment - - (0.1)
(0.4
Revaluation of investment properties (5.9) ) (5.8 )
( 0.1
Changes in provisions for liabilities (0.1) (0.1) )
Interest on subordinated liabilities 1.2 1.2 2.5
Fair value (gains)/ losses on equity ( 0.2
release portfolio 0.2 (0.5) )
Interest paid on lease liabilities - - 0.1
Changes in fair value 101.5 16.2 63.7
---------------------------------------------- --------------- ---------- -----------
135.6 35.7 104.4
Changes in operating assets and liabilities
Loans and advances to customers 320.8 (142.0) 2.5
(2.1
Loans and advances to credit institutions 0.1 ) (3.3 )
( 74.9
Derivative financial instruments (121.0) (20.9) )
Shares 34.0 33.6 (50.5)
Deposits and other borrowings (162.5) 264.7 389.3
Trade and other receivables (1.2) (0.4) 0.4
Trade and other payables 0.9 0.4 1.8
Retirement benefit obligations (2.2) (2.1) (4.2 )
Tax received - - 0.2
Net cash inflow from operating activities 204.5 166.9 365.7
---------------------------------------------- --------------- ---------- -----------
Notes to condensed consolidated half-yearly financial
information
for the si x months ended 30 September 2021
1 General information
These half-yearly financial results do not constitute statutory
accounts within the meaning of the Building Societies Act 1986. A
copy of the statutory accoun ts for the year to 31 March 2022 has
been delivered to the Financial Conduct Authority and the relevant
information in this report has been extracted from these statutory
accounts. The statutory accounts for the year ended 31 March 2022
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 202 2 and 30 September 202 1 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 202 2 has been prepared in accordance
with the Disclosure and Transparency Rules of the Financial Conduct
Authority and in accordance with the UK adopted International
Accounting Standards (IAS 34 'Interim Financial Reporting'). The
half-yearly condensed consolidated financial report should be read
in conjunction with the Annual Report and Accounts for the year
ended 31 March 2022 , which have been prepared in accordance with
International Financial Reporting Standards (IFRS) adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European
Union.
3 Going concern and business viability statement
Details of the Group's objectives, policies and processes for
managing its exposure to risk are contained in the Risk Management
Report of the 2021/22 Annual Report and Accounts. The Directors
also include statements in the Directors' Report in respect of
going concern and longer-te rm business viability on page 60 of the
2021/22 Annual Report and Accounts.
The Directors have reviewed the latest plans and forecasts for
the Group giving consideration to liquidity and capital adequacy.
They are satisfied that the Group has adequate resources to meet
both the normal demands of the business and the requirements which
might arise in stressed circumstances for the next 12 months and
that the longer-term business viability statement in the 2021/22
Annual Report and Accounts remains appropriate. Accordingly they
continue to adopt the going concern basis in preparing these
half-yearly financial results.
4 Accounting policies
The accounting policies adopted by the Group in the consolidated
half-yearly information are consistent with those disclosed in the
Annual Report & Accounts for the year ended 31 March 2022
(details provided on page 100).
Critical accounting estimates and judgements in applying
accounting policies
In the process of applying accounting policies, the Group makes
various judgements, estimates and assumptions which affect the
amounts recognised in the financial statements. Estimates and
judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the
circumstances.
For the half year accounts, tax has been charged on the
statutory profit before tax at the UK standard rate of 19%. A full
review of the tax position of the Society and its subsidiaries will
be carried out at the year end date. T he significant judgements in
applying accounting policies and key sources of estimation
uncertain ty at 30 September 2022 are unchanged from those existing
at 31 March 202 2 .
5 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 real estate - 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, finance, 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 202 Commercial Consolidation Total
2 (unaudited) Retail real estate Property adjustments Group
GBPm GBPm GBPm GBPm GBPm
Interest receivable and similar income
Calculated using the effective interest
method 62.7 3.9 - (4.9) 61.7
On instruments measured at fair
value through profit or loss 4.4 0.6 - - 5.0
-------------------------------------------- -------- ------------- --------- -------------- --------
Total interest receivable and similar
income 67.1 4.5 - (4.9) 66.7
Interest expense and similar charges (30.8) (3.2) (1.4) 4.9 (30.5)
-------------------------------------------- -------- ------------- --------- -------------- --------
Net interest receivable/(expense) 36.3 1.3 (1.4) - 36.2
Fees and commissions receivable 0.9 - - - 0.9
Other operating income 0.2 - 1.9 - 2.1
Fair value gains on financial instruments 7.4 10.2 - - 17.6
-------------------------------------------- -------- ------------- --------- -------------- --------
Total income 44.8 11.5 0.5 - 56.8
Administrative expenses (23.4) (0.5) (0.1) - (24.0)
Depreciation and amortisation (3.8) - - - (3.8)
-------------------------------------------- -------- ------------- --------- -------------- --------
Operating profit/(loss) before revaluation
gains, impairment and provisions 17.6 11.0 0.4 - 29.0
Gains on investment properties - - 5.9 - 5.9
Impairment on loans and advances 0.5 (17.3) - - (16.8)
-------------------------------------------- -------- ------------- --------- -------------- --------
Profit/(Loss) before tax 18.1 (6.3) 6.3 - 18.1
-------------------------------------------- -------- ------------- --------- -------------- --------
Total assets 6,006.9 179.7 156.8 (460.5) 5,882.9
-------------------------------------------- -------- ------------- --------- -------------- --------
Total liabilities 5,591.2 394.6 124.6 (656.5) 5,453.9
-------------------------------------------- -------- ------------- --------- -------------- --------
6 months ended 30
September 202 1 Commercial Consolidation Total
(unaudited) Retail real estate Property adjustments Group
GBPm GBPm GBPm GBPm GBPm
Interest receivable and
similar income
Calculated using the
effective interest
method 54.4 3.7 - (7.6 ) 50.5
On instruments measured
at fair
value through profit or (7. (7.3
loss 3 ) - - - )
-------------------------- -------- -------------------- ----------- --------------- -----------
Total interest receivable
and similar
income 47.1 3.7 - (7.6 ) 43.2
Interest expense and (11.9 ( 1.4 (11.7
similar charges ) ( 6 .0) ) 7.6 )
-------------------------- -------- -------------------- ----------- --------------- -----------
Net interest (1.4
receivable/(expense) 35.2 (2.3) ) - 31.5
Fees and commissions
receivable 1.0 - - - 1.0
Other operating income - - 1.8 - 1.8
Fair value gains on
financial instruments 2.0 1.9 - - 3.9
-------------------------- -------- -------------------- ----------- --------------- -----------
Total income 38.2 (0.4 ) 0.4 - 38.2
(19.4
Administrative expenses (18.9) (0.5) - - )
Depreciation and (5.0 (5.0
amortisation ) - - - )
-------------------------- -------- -------------------- ----------- --------------- -----------
Operating profit/(loss)
before revaluation
gains, impairment and
provisions 14.3 (0.9 ) 0.4 - 13.8
Gains on investment
properties - - 0.4 - 0.4
Impairment on loans and
advances 3.0 (2.7 ) - - 0.3
Provisions for
liabilities 0.1 - - - 0.1
-------------------------- -------- -------------------- ----------- --------------- -----------
Profit/(Loss) before tax 17.4 (3.6 ) 0.8 - 14.6
-------------------------- -------- -------------------- ----------- --------------- -----------
Total assets 6,103.5 294.2 144.4 (501.5) 6,040.6
-------------------------- -------- -------------------- ----------- --------------- -----------
Total liabilities 5,750.4 427.6 121.6 (659.6) 5,640.0
-------------------------- -------- -------------------- ----------- --------------- -----------
Year ended 31 March 202 2 Commercial Consolidation Total
(audited) Retail real estate Property adjustments Group
GBPm GBPm GBPm GBPm GBPm
Interest receivable and
similar income
Calculated using the
effective interest
method 106.9 7.2 - (14.1 ) 100.0
On instruments measured
at fair
value through profit or (12.7 (12.7
loss ) - - - )
--------------------------- -------- -------------------- ----------- --------------- ---------
Total interest receivable
and similar
income 94.2 7.2 - (14.1 ) 87.3
Interest expense and (25.6 ( 2.8 ( 25.2
similar charges ) (10.9 ) ) 14.1 )
--------------------------- -------- -------------------- ----------- --------------- ---------
Net interest (2.8
receivable/(expense) 68.6 (3.7 ) ) - 62.1
Fees and commissions
receivable 1.9 - - - 1.9
Other operating income - - 3.7 - 3.7
Fair value gains on
financial instruments 3.9 6.7 - - 10.6
-------- -------------------- ----------- --------------- ---------
Total income 74.4 3.0 0. 9 - 78.3
Administrative expenses (44.5) (0.9) (0.1) - (45.5)
Depreciation and (7.4 (7.4
amortisation ) - - - )
--------------------------- ======== ==================== =========== =============== =========
Operating profit before
revaluation
gains, impairment and
provisions 2 2.5 2.1 0.8 - 25.4
Gains on investment
properties - - 5.8 - 5.8
Impairment on loans and ( 12.5 (8.1
advances 4.4 ) - - )
Provisions for liabilities 0.1 - - - 0.1
--------------------------- -------- -------------------- ----------- --------------- ---------
Profit/(Loss) before tax 27.0 (10.4 ) 6.6 - 23.2
--------------------------- -------- -------------------- ----------- --------------- ---------
Total assets 6,125.4 257.3 150.6 (466.0 ) 6,067.3
--------------------------- -------- -------------------- ----------- --------------- ---------
Total liabilities 5,775.3 406.3 124.8 (656.4 ) 5 ,650.0
--------------------------- -------- -------------------- ----------- --------------- ---------
6 Allowance for losses on loans and advances to customers
6 months 6 months Year
ended ended ended
30-Sep-22 30-Sep-21 31-Mar-22
unaudited unaudited audited
GBPm GBPm GBPm
Impairment charge/(credit) for the period 16.8 (0.3) 8.1
---------------------------------------------- ---------- ---------- ----------
Impairment provision at end of period
Loans fully secured on residential property 7.0 9.0 7.7
Loans fully secured on land 116.9 92.8 99.9
---------------------------------------------- ---------- ---------- ----------
Total 123.9 101.8 107.6
---------------------------------------------- ---------- ---------- ----------
In accordance with IFRS 9, 'Financial instruments', forecasts of
future economic conditions are integral to the E xpected C redit L
oss (ECL) calculations. At 30 September 2022, the Group modelled
four forward-looking macroeconomic scenarios: central, upside,
downside and severe with respective probability weightings kept the
same of those applied at 31 March 2022 following review. The
Group's scenario weightings as at 30 September 2022 are 60% for the
central scenario, 5% for the upside scenario, 25% for the downside
scenario and 10% for the severe scenario (31 March 2022: central
scenario 60%, upside scenario 5%, downside scenario 25% and severe
scenario 10%). Individual economic variables within the scenarios
are regularly reviewed and updated to reflect the current economic
outlook.
In addition to the scenario weightings and account-specific
factors that impact cashflows, the key model assumption for
commercial provisioning is considered to be the exit yield
requirement, which is used to estimate the cash flows arising from
realisation of the property values on sale. While interest rates
also have a significant impact on the ECL, via the discount factor
applied in the model, compensating economic hedge arrangements
would substantially offset the movement in profit or loss terms
with an opposing fair value movement . Compared with the central
economic forecast, the exit yield requirement for each loan
increases by 0. 9 % and 1.9% in the downside and severe scenarios
respectively and reduce s by 0.2% in the upside scenario. This
compares to an average exit yield of 8%.
Presented below is the sensitivity to the total residential and
commercial ECL provision arising from the application of 100%
weighting to each scenario.
Current scenario (%)
Increase/ Increase/
(decrease) (decrease)
in provision in provision
with 100% with 10%
202 scenario increase
Probability 2 /2 202 3 5 year weighting in
weighting 3 /2 4 average (GBPm) weighting*(GBPm)
Central
scenario 6 0% Bank Rate 5.0 5.3 4.5
---------- ------------ --------------
HPI 5.9 (2.0) 1.9
---------- ------------
Unemployment 3.8 4.4 4.7
GDP 0.5 (0.2) 0.8 (8.5 ) -
---------- ------------ ------------- ------------- ----------------- ----------------- -------------- -----------------
Upside
scenario 5 % Bank Rate 3.3 3.5 3.2
---------- ------------ --------------
HPI 9.2 3.5 4.9
---------- ------------
Unemployment 3.7 3.6 3.1
(10 . 0
GDP 5.5 2.1 3.2 ) (0. 4 )
---------- ------------ ------------- ------------- ----------------- ----------------- -------------- -----------------
Downside
scenario 25% Bank Rate 6.3 7.0 5.1
---------- ------------ --------------
HPI - (9.7) (2.4)
---------- ------------
Unemployment 5.0 6.8 6.3
GDP (1.5) (2.0) (0.3) 10.9 1.8
---------- ------------ ------------- ------------- ----------------- ----------------- -------------- -----------------
S evere
scenario 1 0 % Bank Rate 6.3 2.0 1.7
---------- ------------ --------------
HPI (4.1) (15.0) (4.2)
---------- ------------
Unemployment 10.0 12.0 8.8
GDP (5.7) (3.8) (0.3) 19.7 2.6
---------- ------------ ------------- ------------- ----------------- ----------------- -------------- -----------------
* (increase in 10% weighting with a corresponding reduction in
the central scenario) .
The tables below analyse the movement in residential impairment
provisions by IFRS 9 stage.
Stage Stage Stage
1 2 3 Total
6 months ended 30 September 2022 (unaudited) GBPm GBPm GBPm GBPm
Residential expected credit loss allowance
At 1 April 2022 1.3 4.1 2.3 7.7
Transfers due to increased credit risk:
From stage 1 to stage 2 - 0.2 - 0.2
From stage 1 to stage 3 (0.2) - 0.4 0.2
From stage 2 to stage 3 - (0.1) 0.1 -
Transfers due to decreased credit risk:
From stage 2 to stage 1 0.1 (0.7) - (0.6)
From stage 3 to stage 2 - - (0.1) (0.1)
Remeasurement of expected credit losses
with no stage transfer 0.2 (0.4) (0.1) (0.3)
(0.3 (0. 3 ( 0 .
Redemptions ) (0.1) ) 7 )
(0. 1 (0. 5
Amounts written off (0.4) - ) )
Other movements 0.1 0.1 - 0.2
Movement in provision overlays - 0.9 - 0.9
---------------------------------------------- ------------ ------------ ------------ ------------
2 .
At 30 September 2022 0.8 4.0 2 7.0
---------------------------------------------- ------------ ------------ ------------ ------------
Stage Stage Stage
1 2 3 Total
6 months ended 3 0 September 2021 (unaudited) GBPm GBPm GBPm GBPm
Residential expected credit loss allowance
At 1 April 2021 1.8 7.4 2.6 11.8
Transfers due to increased credit risk:
From stage 1 to stage 2 (0.1) 0.3 - 0.2
From stage 1 to stage 3 (0.1) - 0.3 0.2
From stage 2 to stage 3 - (0.1) 0.1 -
Transfers due to decreased credit risk:
(2.5
From stage 2 to stage 1 0.2 ) - (2.3)
(0.1
From stage 3 to stage 2 - 0.1 ) -
Remeasurement of expected credit losses (0.9
with no stage transfer 0.2 ) 0.1 (0.6)
(0.2 (0.4
Redemptions ) (0.1) (0.1) )
(0.3 (0.3
Amounts written off - - ) )
Other movements 0.1 - (0.1) -
Movement in provision overlays - 0.4 - 0.4
----------------------------------------------- ------- ------- ------- -------
At 30 September 2021 1. 9 4.6 2.5 9.0
----------------------------------------------- ------- ------- ------- -------
Stage Stage Stage Total
1 2 3
Year ended 31 March 202 2 (audited) GBPm GBPm GBPm GBPm
Residential expected credit loss allowance
At 1 April 2021 1.8 7.4 2.6 11.8
Transfers due to increased credit risk:
From stage 1 to stage 2 - 0.4 - 0.4
From stage 1 to stage 3 (0.2) - 0.5 0.3
From stage 2 to stage 3 - (0.1) 0.2 0.1
Transfers due to decreased credit risk:
From stage 2 to stage 1 0.2 (2.5) - (2.3)
From stage 3 to stage 2 - - (0.1) (0.1)
Remeasurement of expected credit losses
with no stage transfer (0.1) (1.5) (0.1) (1.7)
Redemptions (0.4) (0.2) (0.3) (0.9)
Amounts written off - - (0.5) (0.5)
Movement in provision overlays - 0.6 - 0.6
--------------------------------------------
At 31 March 2022 1. 3 4.1 2. 3 7.7
-------------------------------------------- ------ ------ ------ ------
The tables below analyse the movement in commercial impairment
provisions by IFRS 9 stage.
Stage Stage Stage
1 2 3 Total
6 months ended 30 September 202 2 (unaudited) GBPm GBPm GBPm GBPm
Commercial expected credit loss allowance
8 . 91 . 99 .
At 1 April 2022 - 8 1 9
Transfers due to increased credit risk:
From stage 2 to stage 3 - (8.4) 8.7 0.3
Remeasurement of expected credit losses
with no stage transfer - (0.1) 16.9 16.8
Redemptions - - (0.1) (0.1)
At 30 September 2022 - 0.3 116.6 116.9
----------------------------------------------- -------- ------- ------- -------
Stage Stage Stage
1 2 3 Total
6 months ended 30 September 2021 (unaudited) GBPm GBPm GBPm GBPm
Commercial expected credit loss allowance
At 1 April 2021 - 8.4 83.5 91.9
Transfers due to increased credit risk:
From stage 1 to stage 3 - - 1.2 1.2
From stage 2 to stage 3 - (0.3) 0.4 0.1
Remeasurement of expected credit losses
with no stage transfer - - 3 .7 3.7
Amounts written off - - (1.4) (1.4)
Other movements - - 0.1 0.1
Movement in provision overlays - - (2.8) (2.8)
----------------------------------------------- -------- --------------- -------------- ----------------
At 30 Sep tember 2021 - 8.1 84.7 92.8
----------------------------------------------- -------- --------------- -------------- ----------------
Stage Stage Stage
1 2 3 Total
Year ended 31 March 2022 (audited) GBPm GBPm GBPm GBPm
Commercial expected credit loss allowance
At 1 April 2021 - 8.4 83.5 91.9
Transfers due to increased credit risk:
(2.7
From stage 2 to stage 3 - ) 1.5 (1.2)
Remeasurement of expected credit losses
with no stage transfer - 3.6 13.7 17.3
Redemptions - (0.5) - (0.5)
(4.8
Amounts written off - - (4 .8) )
( 2.8 ( 2.8
Movement in provision overlays - - ) )
---------------------------------------------- --------- --------------- -------------- --------------
At 31 March 2022 - 8.8 91.1 99.9
---------------------------------------------- --------- --------------- -------------- --------------
7 Provisions for liabilities
6 months 6 months
ended ended Year ended
31-Mar-2
30-Sep-22 30-Sep-21 2
unaudited unaudited audited
GBPm GBPm GBPm
At beginning of period 0. 5 0.6 0.6
Utilised in the period (0.1) - -
( 0.1
Release for the period - (0.1) )
At end of period 0.4 0.5 0.5
----------------------------------- ---------- ---------- -----------
Provisions for liabilities
Provisions for liabilities represent the Group's best estimate
of customer redress payable. The calculation is based on a series
of assumptions, including the number of affected accounts,
appropriate level of remediation and resulting administrative
costs.
8 Loans and advances to customers
30-Sep-2 31-Mar-2
2 30-Sep-21 2
unaudited unaudited audited
GBPm GBPm GBPm
Amortised
cost
Loans fully secured on residential
property 4, 299.4 4, 713.6 4, 592.1
Loans fully secured
on land 293.1 345.8 320.3
4,592.5 5,059.4 4,912.4
Fair value through
profit or loss
Loans fully secured on residential
property 10.0 11.9 11.5
4,602.5 5,071.3 4,923.9
Fair value adjustment for
hedged risk (139.6) 9.5 (38.0)
(123.9 ( 101.8 (107.6
Less: impairment provisions ) ) )
4,339
.0 4, 979.0 4,778.3
------------------------------------ ---------- ---------- ---------
Included within loans and advances to customers are GBP 297.4m
(31 March 2022 : GBP3 48.5 m) of commercial lending balances of
which GBP 9.7 m (31 March 202 2 : GBP1 0.0 m) have been sold by the
Group to bankrupt remote structured entities.
The tables below illustrate the IFRS 9 staging distribution of
residential and commercial loans and advances to customers held at
amortised cost and related expected credit loss provisions. Stage 2
loans have been further analysed to show those which are more than
30 days past due, the IFRS 9 backstop for identifying a S
ignificant I ncrease in C redit R isk (SICR) and those which meet
other SICR criteria. For the purposes of this disclosure, gross
exposures and expected credit loss provisions are rounded to the
nearest GBP0.1m whereas the provision coverage percentages are
based on the und erlying data prior to rounding.
Expected
credit
Gross loss Provision
exposure provision coverage
At 30 September 202 2 (unaudited) GBPm GBPm %
Residential loans held
at amortised cost
Stage 1 3,847.6 0.8 0.02
Stage 2
> 30 days past
due 8.8 0.1 -
Other SICR indicators 382.3 0.7 0.18
Provision overlays - 3.2 -
Stage 3 60.2 2.2 3.65
7 .
4,298.9 0 0.16
---- ---- --------- -------------- ----------
Expected
credit
Gross loss Provision
exposure provision coverage
At 30 September 2021
(unaudited) GBPm GBPm %
Residential loans held at amortised
cost
Stage
1 4,131.4 1. 9 0.05
Stage
2
> 30 days
past due 7.7 0.1 1.30
Other SICR indicators 501.8 2.4 0.48
Provision overlays - 2.1 -
Stage 3 58.3 2.5 4.28
4, 699.2 9.0 0.19
--- ---- ---------------------------------------- ---------- ------------ -----------
Expected
credit
Gross loss Provision
exposure provision coverage
At 31 March 202 2
(audited) GBPm GBPm %
Residential loans held at
amortised cost
Stage 1 4,005.1 1. 3 0.03
Stage 2
> 30 days past
due 7.3 0.1 1.37
Other SICR indicators 502.1 1.7 0.34
Provision overlays - 2.3 -
Stage 3 62.6 2.3 3.67
4,577.1 7.7 0.17
--------------------------- ---------------- ------------- --------------
Expected
credit
Gross loss Provision
exposure provision coverage
At 30 September 2022 (unaudited) GBPm GBPm %
Commercial loans held at
amortised cost
Stage 0.0
1 20.6 - 4
Stage
2
> 30 days
past due - - -
Other SICR indicators 26.2 0.3 1.15
Stage
3 250.6 116.6 46.53
297.4 116.9 39.31
---------------------------------- --------- ---------- ----------
Expected
credit
Gross loss Provision
exposure provision coverage
At 30 September 2021
(unaudited) GBPm GBPm %
Commercial loans held at
amortised cost
Stage
1 18.3 - 0.03
Stage
2
> 30 days
past due - - -
Other SICR indicators 80.6 8.1 10.05
Stage
3 279.7 84.7 30.28
378.6 92.8 24.51
-------------------------- ----------- ---------- ----------
Expected
credit
Gross loss Provision
exposure provision coverage
At 31 March 2022
(audited) GBPm GBPm %
Commercial loans held at
amortised cost
Stage
1 47.9 - 0.00
Stage
2
> 30 days -
past due - -
Other SICR indicators 50.3 8.8 17.50
Stage
3 250.3 91.1 36.40
Provision overlays - - -
--------- -------------- ----------
348.5 99.9 28.67
-------------------------- --------- -------------- ----------
9 Shares
30-Sep-22 3 0-Sep-21 31-Mar-22
unaudited unaudited audited
GBPm GBPm GBPm
Held by individuals 4 , 216.5 4,266.7 4, 182.5
Other shares 1.1 1.0 1.1
--------------------- ---------- ----------- ----------
4 , 217.6 4,267.7 4, 183.6
--------------------- ---------- ----------- ----------
10 Property, plant, equipment and intangible assets
Property,
Intangible plant
assets and equipment
6 months ended 30 September 202 2
(unaudited) GBPm GBPm
Net book value at 1 April 2022 10.2 22.8
Additions 1.6 0 .3
Depreciation, amortisation, impairment (2.8 ( 1.0
and other movements ) )
Net book value at 30 September 2022 9.0 22.1
----------------------------------------------- -------------- -----------------
Property,
Intangible plant
assets and equipment
6 months ended 30 September 2021 (unaudited) GBPm GBPm
Net book value at 1 April 2021 16.3 24.9
Additions 1.8 0.5
Depreciation, amortisation, impairment (1. 4
and other movements (3.6 ) )
----------------------------------------------- -------------- -----------------
Net book value at 30 September 2021 14.5 24.0
----------------------------------------------- -------------- -----------------
Property,
Intangible plant
assets and equipment
Year ended 31 March 202 2 (audited) GBPm GBPm
Net book value at 1 April 2021 16.3 24.9
Additions 4.2 0.4
Depreciation, amortisation, impairment ( 4.7
and other movements ) (2.5 )
Write off of previously capitalised
costs (5.6) -
---------------------------------------------- -------------- -----------------
Net book value at 31 March 2022 10.2 22.8
----------------------------------------------- -------------- -----------------
11 Investment properties
6 months 6 months Year
ended ended ended
31-Mar-2
30-Sep-22 30-Sep-21 2
unaudited unaudited audited
GBPm GBPm GBPm
Valuation
1 47 .
At beginning of period 3 143.0 143.0
Additions 0.9 - 0.5
Disposals (0.7) (1.5) (2.0)
Revaluation gains 5.9 0.4 5.8
------------------------ ---------- ---------- ---------
At end of period 153.4 141.9 147.3
------------------------ ---------- ---------- ---------
31-Mar-2
12 Debt securities in issue 30-Sep-2 2 3 0-Sep-21 2
unaudited unaudited audited
GBPm GBPm GBPm
Non-recourse finance on securitised
advances 113.2 196.9 171.2
------------------------------------- ----------- ----------- ---------
113.2 196.9 171.2
------------------------------------- ----------- ----------- ---------
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.
13 Core capital deferred shares
Number of CCDS nominal Share
shares amount premium Total
GBPm GBPm GBPm
At 30 September 202
2 (unaudited) 1,288,813 1.3 125.7 127.0
---------------------------- ---------- ------------- --------- ------
At 30 September 202 1
(unaudited) 1,288,813 1.3 125.7 127.0
---------------------------- ---------- ------------- --------- ------
At 31 March 2022 (audited) 1,288,813 1.3 125.7 127.0
---------------------------- ---------- ------------- --------- ------
CCDS are perpetual instruments and a form of Common Equity Tier
1 (CET 1) capital.
CCDS are the most junior-ranking capital instrument of the
Society, ranking behind the claims of all depositors, payables and
investing members.
Each holder of CCDS has one vote, regardless of the number of
CCDS held.
The CCDS holders are entitled to receive a distribution at the
discretion of the Society. The total distribution paid on each CCDS
in respect of any given financial year of the Society is subject to
a cap provided for in the Rules of the Society and adjusted
annually for inflation. T he Directors declared a final
distribution in May 2022 of GBP1.50 per CCDS in respect of the
period to 31 March 2022, which was paid in August 2022. These
distributions have been recognised in the Statement of Changes in
Members' Interests and Equity.
Subsequent to the balance sheet date, the Directors have
announced their intention to declare an interim distribution of GBP
2.25 per CCDS in respect of the period to 30 September 202 2 whic h
would be paid in February 2023 . The interim distribution is not
reflected in the members reserves of these financial statements as
distributions to the CCDS holders are recognised with reference to
the date they are declared, although they are accrued for in
capital calculations. In the event of a winding up or dissolution
of the Society, the share of surplus assets (if any) a CCDS holder
would be eligible to receive is determined by the calculation of a
core capital contribution proportion, limited to a maximum of the
average principal amount, currently GBP100 per CCDS.
14 Related party transactions
Related party transactions for the six months to 30 Septemb er
2022 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 2022 .
15 Subscribed capital
30-Sep-2 31-Mar-2
30-Sep-22 1 2
unaudited unaudited audited
GBPm GBPm GBPm
Permanent I nterest B earing S hares 7.8 7.8 7.8
------------------------------------- --------------- --------- --------
The 6.15% Permanent Interest Bearing Shares (PIBS) comprise
7,847 PIBS of GBP1,000 each issued at a price of 99.828% of their
principal amount, with the issue premium amortised.
In connection with the indicative PIBS distribution policy, the
Society continues to calculate a notional PPDS reserve which was
GBP2.7m at 31 March 2022. As this would have allowed a distribution
maximum of 1.48%, or 0.74% on a semi-annual basis, a resolution was
passed to make an interest payment on the PIBS of 0.74%, which was
paid on 5 October 2022.
16 Subordinated liabilities
30-Sep-2 31-Mar-2
2 3 0-Sep-21 2
Unaudited unaudited audited
GBPm GBPm GBPm
Subordinated notes due 2038 -
11.0% 22.9 22.9 22.9
------------------------------- --------------- ----------- ---------
The Society's subordinated notes rank behind all other creditors
of the Society, with the exception of holders of CCDS and PIBS.
17 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.
The carrying value of cash and balances with the Bank of England
are assumed to approximate their fair value.
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.
Fair Fair Fair Fair
At 30 September 202 2 (unaudited) Carrying value value value value
Level Level Level
value 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm
Financial assets
Loans and advances to credit institutions 142.8 - 142.8 - 142.8
Loans and advances to customers 4,329.0 - - 4,403.0 4,403.0
------------------------------------------
4,471.8 - 142.8 4,403.0 4,545.8
------------------------------------------ -------- ------ ------- ------- -------
Financial liabilities
Shares 4,217.6 - - 4,160.8 4,160.8
Amounts due to credit institutions 850.6 - 850.6 - 850.6
Amounts due to other customers 217.0 - 210.2 6.3 216.5
Debt securities in issue 113.2 112.7 0.5 - 113.2
Subordinated liabilities 22.9 - 22.9 - 22.9
------------------------------------------
5,421.3 112.7 1,084.2 4,167.1 5,364.0
------------------------------------------ -------- ------ ------- ------- -------
At 30 September 202 1 (unaudited) Carrying Fair value Fair value Fair value Fair value
Level Level Level
Value 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm
Financial assets
Loans and advances to credit
institutions 85.7 - 85.7 - 85,7
Loans and advances to customers 4,967.1 - - 5,035.7 5,035.7
----------------------------------------
5,052.8 - 85.7 5,035.7 5,121.4
---------------------------------------- ------------ -------------- -------------- ---------------- ------------
Financial liabilities
Shares 4,267.7 - - 4,232.0 4,232.0
Amounts due to credit institutions 996.4 - 996.4 - 996.4
Amounts due to other customers 110.4 - 101.6 8.8 110.4
Debt securities in issue 196.9 197.4 0.2 - 197.6
Subordinated liabilities 22.9 - 22. 9 - 22.9
----------------------------------------
5,594.3 197.4 1, 121.1 4,240.8 5,559.3
---------------------------------------- ------------ -------------- -------------- ---------------- ------------
At 3 1 March 2022 (audited) Carrying Fair value Fair value Fair value Fair value
Level Level Level
value 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm
Financial assets
Loans and advances to credit institutions 73.2 - 73.2 - 73.2
Loans and advances to customers 4,766.8 - - 4, 907.2 4, 907.2
------------------------------------------ --------- ---------- ---------- ---------- ----------
4,840.0 - 73.2 4,907.2 4,980.4
------------------------------------------ --------- ---------- ---------- ---------- ----------
Financial liabilities
Shares 4, 183.6 - - 4, 145.5 4, 145.5
Amounts due to credit institutions 1,116.7 - 1,116.7 - 1,116.7
Amounts due to other customers 114.6 - 107.5 7.2 114.7
Debt securities in issue 171.2 171.4 0.2 - 171.6
Subordinated liabilities 22.9 - 22. 9 - 22.9
------------------------------------------ --------- ---------- ---------- ---------- ----------
5, 609.0 171.4 1,247.3 4, 152.7 5,571.4
------------------------------------------ --------- ---------- ---------- ---------- ----------
a) Loans and advances to customers
The fair value of loans and advances to customers has been
determined 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 i t were sold at 30
September 2022 .
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 202 2 .
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
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 Level
At 30 September 202 2 (unaudited) 1 2 3 Total
GBPm GBPm GBPm GBPm
Financial assets
Investment securities
At fair value through other
comprehensive
income 378.0 - - 378.0
At fair value through profit or
loss 0 . 5 - - 0.5
Derivative financial instruments - 165.3 - 165.3
Loans and advances to customers - - 10.0 10.0
----------------------------------------- ---------------- ------------------- ----------------- -----------------
378.5 165.3 1 0.0 553.8
----------------------------------------- ---------------- ------------------- ----------------- -----------------
Financial liabilities
Derivative financial instruments - 3.4 - 3.4
----------------------------------------- ---------------- ------------------- ----------------- -----------------
Level Level Level 3
At 30 September 202 1 (unaudited) 1 2 Total
GBPm GBPm GBPm GBPm
Financial assets
Investment securities
At fair value through other
comprehensive
income 276.0 - - 276.0
At fair value through profit or
loss 0.6 - - 0.6
Derivative financial instruments - 11.8 - 11 .8
Loans and advances to customers - - 11.9 11.9
--------------- ------------------- ----------------- -----------------
276.6 11 .8 11.9 300.3
------------------------------------------ --------------- ------------------- ----------------- -----------------
Financial liabilities
Derivative financial instruments - 24.9 - 24.9
------------------------------------------ --------------- ------------------- ----------------- -----------------
Level Level Level 3
At 31 March 2022 (audited) 1 2 Total
GBPm GBPm GBPm GBPm
Financial assets
Investment securities
At fair value through other comprehensive 2 86 .
income 286.4 - - 4
At fair value through profit or
loss 0.5 - - 0. 5
Derivative financial instruments - 52.4 - 52.4
Loans and advances to customers - - 11 .5 1 1 .5
286.9 52.4 1 1 .5 350.8
---------------------------------------------- -------------- ----------------- ----------------- ----------------
Financial liabilities
Derivative financial instruments - 11.5 - 11.5
---------------------------------------------- -------------- ----------------- ----------------- ----------------
The table below analyses movements in the level 3 portfolio
during the period.
Year
6 months 6 months ended
ended ended 31-Mar-2
30-S ep-22 30-Sep-21 2
unaudited unaudited audited
GBPm GBPm GBPm
Equity release portfolio
At beginning of period 11.5 12.5 12.5
Items recognised in the Income
Statement
Interest receivable and similar
income 0.4 0.4 0.7
Changes in fair value (0.2) 0.5 0 . 2
( 1.5 (1 . 9
Redemption payments (1.7) ) )
---------------
At end of period 10.0 11.9 11 .5
--------------------------------------- -------------------- ------------------- ---------------
There have been no transfers of financial assets or liabilities
between levels of the valuation hierarchy in the period.
18 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', and that the interim management report herein
includes a fair review of the information required by:
-- DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events during the first six months of the
financial year and the description of principal risks and
uncertainties for the remaining six months of the financial year;
and
-- DTR 4.2.8R of the Disclosure and Transparency Rules, being an
indication of any material related party transactions that have
taken place in the first six months of the financial year and any
material changes in the related party transactions described in the
last annual report.
The Directors of West Bromwich Building Society are listed in
the West Bromwich Building Society Annual Report for the year ended
31 March 2022.
Signed on behalf of the Board of Directors:
Jonathan Westhoff Ashraf Piranie
Chief Executive Group Finance & Operations Director
7 December 2022
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END
IR BUBDDCUGDGDR
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