The West Brom today announces its results for the financial year ended 31 March 2020, reporting a pre-tax profit of £1.5m 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:

• £569m of new mortgage lending across an extended product range, a reduction from the previous year (2018/19: £691m) reflecting our strategy of only lending if it is in the best interests 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 first-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 average¹ (2018/19: 45% above), delivering a benefit of £13.0m (2018/19: £11.4m).
• Strong levels of customer satisfaction of 96% (2018/19: 94%) and Net Promoter Score®² of +73 (2018/19: +72) significantly ahead of the Financial Services benchmark (+50).
• Statutory profit before tax of £1.5m (2018/19 (restated): £9.2m) after setting aside additional provisions for potential credit losses in Q4 of £14.7m, 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 Tier 1 (CET 1) capital ratio unchanged at 15.9% (2018/19 (restated): 15.9%) 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.

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 £9.2m to £1.5m, without the final quarter provision charge of £14.7m (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 market1 which represents an additional £13.0m (2018/19: £11.4m) 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 £569m (2018/19: £691m), 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.

A copy of our Preliminary Results is available to view and download here.

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.
³ Average market rates sourced from Bank of England Bankstats table A6.1