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Preliminary results announcement for the year ended 31 March 2021

The West Brom today announces its results for the financial year ended 31 March 2021, reporting a pre-tax profit of £4.7m which is after absorbing a significant impact from the potential economic consequences of the COVID-19 pandemic lockdown.

Key highlights of the financial year include:

  • 38% increase in new mortgage lending to £784m (2019/20: £569m) and £1.2bn in new applications (2019/20: £0.9bn).
  • 9% increase in residential owner occupied balances (2019/20: 3%) with 1 in 3 of all new mortgages helping support first-time buyers (2019/20: c.1 in 2).
  • Rewarded savers with rates that were, on average, 41% above those paid by the market1 (2019/20: 49%); equivalent to an additional £5.3m in interest (2019/20: £13.0m).
  • The first lender to design and launch a range of mortgages specifically to help mortgage prisoners.
  • Demonstrated our resilience through the pandemic by remaining open for business while providing consistently outstanding service with our Net Promoter Score®2 increasing to +76 (2019/20: +73) and customer satisfaction maintained at 96%.
  • Improved statutory profit before tax of £4.7m (2019/20: £1.5m), after making appropriate provisions to reflect the impacts of the pandemic, with operating profit before provisions increasing by 26% to £19.6m (2019/20: £15.5m) and a 50% increase in underlying profit (profit before tax excluding one off items and hedge ineffectiveness) to £2.4m.
  • Strong capital position maintained with a Common Equity Tier 1 (CET 1) capital ratio of 16.4% (2019/20: 15.9%) and a leverage ratio of 6.8% (2019/20: 6.9%).
  • Further external recognition as the Best Regional Mortgage Lender by Mortgage Finance Gazette and the Best Regular Savings Provider by Moneynet.
  • Became one of first signatories of The Inclusive Economy Partnership Code of Best Practice for Debt Collection & Recovery.
  • Recognised for responsible business practices through accreditation by the Good Business Charter.

Jonathan Westhoff, Chief Executive, commented:

No one could have predicted that we would be reporting our financial results in the midst of the global pandemic for the second year running. Firstly I would like to thank colleagues for their continued support in the delivery of the Society’s Purpose to members, and their hard work and resilience through this difficult time. It is thanks to the commitment shown by the Society’s people that has enabled us to deliver a robust performance in a very difficult operating environment.

The pandemic has highlighted the benefit of our mutual ethos and enabled us to focus our efforts on supporting our members when they needed us most. We have reconfigured our business model in ways that would’ve seemed impossible under ‘normal’ circumstances, providing much more flexibility and agility that ultimately provides greater support to our members.

Throughout this difficult period, we have had three areas of focus; prioritising the wellbeing of members, colleagues and communities, remaining operationally and financially resilient, and ensuring the Society’s products, services and premises are safe and accessible.

Prioritising the wellbeing of our members, colleagues and communities

Members

Supporting our most financially vulnerable throughout this period has been a key priority. Many members were worried about their financial stability through the pandemic, and the Society responded swiftly, developing a quick and easy online portal to apply for a mortgage payment deferral period, enabling 5,570 deferrals in total. We’re pleased to see that 99% have already resumed payments, and for those who are still experiencing financial difficulty, we have created a dedicated team who can apply a range of measures to help borrowers get back on track.

Throughout the pandemic, we have been determined to deliver our Purpose, centered on the promotion of homeownership. This determination has seen our new residential lending increase by 38% to £784m (2019/20: £569m) and we received £1.2bn in new applications (2019/20: £0.9bn). Whilst at the start of the pandemic we took a responsible approach by limiting the amount of high loan to value (LTV) lending, in total a third of our new mortgage lending has been to first-time buyers. This segment is at the heart of our Purpose, and we have recently launched a range of 95% LTV products to provide more options for those looking to achieve the dream of homeownership.

One group that has been hit hard by the pandemic is savers. That said, for many the impact of the pandemic will have reaffirmed the importance of having a savings buffer, and the Society has welcomed 4,513 new savers, and was recognised by MoneyNet as the Best Regular Savings Provider. Despite the Bank of England Base Rate being at an all-time low of 0.10% for the entire financial year, the Society has continued to pay rates of interest which are on average 41% higher than the equivalent market rate1, an interest rate benefit of circa £5.3m in monetary terms.

Colleagues

As well as looking after our members, it has been equally important to look after the wellbeing of our colleagues during this difficult time. We have not placed any colleagues on furlough, made any redundancies as a result of the pandemic, or reduced pay even when there has been a reduction in working hours. We have supported homeworking throughout and will continue to apply agile working following the pandemic, as it is evident that our business model can successfully adapt to accommodate more flexibility.

Communities

As a mutual business, supporting the communities in which we operate is a core part of our ethos. Whilst fundraising and volunteering have been difficult in the past year, we have still been able to support groups most in need as a result of the pandemic. This included a £34,000 donation to local food banks, as well as donations to West Midlands Air Ambulance and Birmingham Children’s Hospital. Many of our colleagues also supported key workers with care packages delivered to hospitals around the Black Country, for both patients and NHS staff.

Remaining operationally and financially resilient

It is thanks to the hard work of colleagues that today the Society reports an increased level of profitability before tax, at £4.7m (2019/20: £1.5m). This has been achieved while increasing the level of provisions recorded in anticipation of the full impact of the pandemic on borrowers, as government support begins to unwind. Operating profit, which is before provisions charges on residential and commercial real estate lending, increased by 26% to £19.6m (2019/20: £15.5m).

Despite the number of borrowers who asked for our support under the option to defer their mortgage payments, we have continued to maintain arrears rates at levels well below industry averages. Core residential arrears stood at 0.43% on 31 March 2021, compared to the UK Finance average of 0.85%.

As well as this, the Society’s Common Equity Tier 1 ratio (CET 1), which measures the strength of the Society’s capital, has remained strong at 16.4%. As a comparison, during the financial crisis 2008/2009, the Society’s CET 1 ratio was at 6.8%, demonstrating the capital that has been built up to cope with economic shocks.

Ensuring the Society’s products, services and premises are safe and accessible

Given the role of building society staff as part of the keyworker group, the Society’s premises have been operational throughout the pandemic, and we had a responsibility to make these settings safe for both colleagues and customers to help stop the spread of the virus. Our head office and all 36 branches have all been certified as COVID-19 safe, with measures including social distancing, increased cleaning schedules, and colleagues required to wear face coverings as appropriate.

As well as supporting our vulnerable customers, another group we have supported is mortgage prisoners. In September, we became the first lender to adopt the new modified affordability rules, which enabled us to launch a specific range of products to help those borrowers. The financial benefit for those have taken advantage of our initiative have been significant, with borrowers receiving monthly reductions of up to £700.

What does the future hold?

As a result of the pandemic, we have been analysing our current operating model and taking learnings from how the Society has performed over the past 12 months to shape how we move forward. We are looking at our internal working arrangements with colleagues with a view to offer more flexibility post-pandemic, tailored to colleagues’ roles and commitments.

For members, we have learned that introducing digital platforms to manage accounts has provided a good option for times when they are unable to contact us through other channels. This year we introduced a new mortgage portal to enable members to manage their mortgage online, and made good progress in the development of our new digital savings platform.

As part of this analysis, we have also been reviewing our customers’ needs and demands for our services within the branch network set up. Through this, we identified two branches that have leases that will now end in September, Birmingham and Merry Hill, given the high operating costs of both, especially as these branches are predominantly used as secondary to the member’s main branch. We have written to customers informing them of the change and we are still operational in these branches until the end of August.

We recognise that there will always be a need for branches and some customers prefer coming to see us to get support with their savings or mortgages. Therefore we are committed to having a branch network accessible for these customers, whilst increasing support for those who want to connect with us through other channels, and will continue to review our operating model to ensure we’re meeting all customer needs.

As we seemingly are moving into the ‘post-pandemic’ world, we know there will be more challenges this year as we return to a form of normal. If we have learnt anything from the past 12 months, it is how resilient the Society is, which is largely down to the commitment and hard work of colleagues, and how we can provide the benefits of mutuality to our members to support them during the most unprecedented times. We have confidence that the Society is in a strong position to weather any future challenges, and this year we will continue to make decisions with our saving and borrowing members at heart.

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