Annual
Report and
Accounts
Year ended 31 March 2024
Contents
Annual Report and Accounts 2023:
Contents
2
Overview
Chair’s Statement
4
Chief Executive Officer’s Review
6
Business Review
Strategic Report
10
Risk Management
38
Board of Directors
56
Governance
Directors’ Report
60
Directors’ Report on Corporate Governance
72
Audit Committee Report
78
Directors’ Remuneration Report
82
Independent Auditors’ Report
96
Financial Statements
Income Statements
105
Statements of Comprehensive Income
106
Statements of Financial Position
107
Statements of Changes in Members’ Interest and Equity
108
Statements of Cash Flows
110
Notes to the Accounts
112
Country-by-Country Reporting
180
Annual Business Statement
183
Glossary
186
Key highlights
of the 2023/24
financial year include:
Annual Report and Accounts 2024:
Key highlights
3
1
Average market rates sourced from Bank of England Bankstats table A6.1 March 2024.
2
Interest saving in first year by borrower with less than 75% Loan to Value.
3
Average market reversion rate of 8.18% sourced from Moneyfacts March 2024.
4
Net Promoter Score and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld.
NEW MORTGAGE LENDING
£1.1
billion
£1.1bn in new mortgage lending (2022/23:
£0.7bn) including a record amount of
home ownership lending. This included
supporting 4,684 (2022/23: 3,413) first-time
buyers, an increase of nearly 40% year on year.
Savers were rewarded with rates, on average
over the year, more than one third higher
than the market average
1
, equivalent to a
savings member mutual benefit of £38.6m
(2022/23: £33.2m)
£38.6m
BORROWERS SAVED
£1,600
Our market-first approach to Differentiated
Standard Variable Rate (DSVR) provides existing
borrowers, with a greater proportion of equity in
their homes, a reduced rate at the end of their
mortgage deal. This means a DSVR borrower at
the West Brom would save circa £1,600
2
a year
for each £100,000 borrowed compared with an
average market SVR
3
.
Achieved the ‘Beyond Living Wage’
award this year in recognition of the high
standard of our employment practices,
primarily our commitment to
going above and beyond the
Living Wage accreditation.
BEYOND LIVING
WAGE AWARD
95%
customer satisfaction (2023/24: 95%)
Net Promoter Score
®
(NPS)
4
increased
to +75 (2023/24: +74) with customer
satisfaction remaining at 95%
(2023/24: 95%).
Established in November 2023 to support
local people and community causes that
are aligned to the Society’s core purpose.
WEST BROMWICH
BUILDING SOCIETY
FOUNDATION
17.8%
Common Equity Tier 1 (CET 1)
Strong capital position maintained
with a Common Equity Tier 1 ratio
of 17.8% (2022/23: 18.7%) Leverage
Ratio of 7.5% (2022/23: 7.9%).
AWARD
WINNING
Achieved national recognition, winning First
Time Buyers’ Choice and Best Customer Service
at the Moneyfacts Consumer Awards. Awarded
the 5 Star Service accolade at the Financial
Adviser Service Awards for the 6th year in a row.
PROFIT BEFORE TAX
The capital strength was supported by a statutory
profit before tax of £32.1m (2022/23: £31.8m),
driven by strong net interest income. Underlying
profit, which excludes one off items, increased by
over 40% to £37.2m (2022/23: £26.2m)
£32.1m
Supporting a record
amount of lending to home
ownership borrowers -
a principle that has been
at the core of our purpose
since we were founded
175 years ago.
John Maltby, Chair
Annual Report and Accounts 2024:
Overview
4
Against a backdrop of continuing
economic challenges and geopolitical
uncertainty we are proud to report
another year of strong performance,
including a record amount of lending to
home ownership borrowers – a principle
that has been at the core of our Purpose
since we were founded 175 years ago –
and giving our savers significant
tangible benefits.
Whilst life has, of course, changed beyond measure since 1849,
our Purpose is as relevant now as it ever has been, guided
by our fundamental belief that everyone should have the
opportunity to own their own home and be able to save for their
life goals.
A purpose-led strategy
During the year we have been fully engaged in ensuring that
we have a strategy to take these beliefs well into the next era
for the Society. The resultant investment we have committed to
make, in our systems, people, products and services will
be significant and will result in a building society that is
well placed to serve both current and future generations of
homeowners and savers.
The implementation has already begun, with enhancements
to our online savings offering, and our teams are working hard
to deliver further functionality to our digital solutions over the
course of the next few years. These exciting developments are
complementary to our ongoing commitment to our branches
which remain at the core of the Society. Whilst our branch
colleagues will always be on hand to support our members in
the way they are accustomed to, we are also looking ahead to
identify how we can bring more value to both new and existing
customers and our communities in the future.
Our dedication to working with and supporting local communities
and good causes has been invigorated further with the
establishment in the year of the West Bromwich Building Society
Foundation, predominantly funded under the Dormant Accounts
Scheme. We’re proud of all that we have done over the years,
through donations, volunteering and partnerships, and this
coming year, the Foundation will enable us to support further
the way in which we deliver our fundraising and charitable
giving.
Board changes
This year we were delighted to welcome Sara Bennison to our
Board as Non-Executive Director. With 15 years of retail financial
services experience, Sara brings a wealth of talent and expertise
from holding senior brand and marketing roles.
We said farewell to Victoria Mitchell who has served on the Board
since 2018 during which time we have greatly benefited from her
significant contribution to the success of the West Brom. We thank
Victoria and wish her well in her future roles.
As part of succession planning for the year ahead, we’re also
pleased to welcome Russell Galley and Nimisha Patel to the
Board; both joined us shortly after year end. Russell brings
with him over 20 years of experience in financial services, and
Nimisha, an in-depth expertise in technology, which will be
invaluable as we embark on the next stage of our journey.
Looking ahead
As we anticipate further social and economic uncertainties over
the next year, we continue to stand firmly behind our Purpose,
supporting our members through the challenges they may
encounter. The instability of the last few years has shown the true
value that can be found within mutual organisations, and this is
what drives us forward as we begin to enter the next era of the
West Brom.
On behalf of the Board, I would like to thank our members and
our colleagues for their unwavering support and loyalty to the
Society. Without this we would not have reached the significant
milestone of 175 years of the West Brom, and it is this which will
see us celebrate further landmark occasions in the years ahead.
John Maltby
Chair
30 May 2024
Chair’s Statement
Annual Report and Accounts 2024:
Overview
5
Chief Executive Officer’s Review
Annual Report and Accounts 2024:
Overview
6
Our commitment to doing
the right thing, not just the
easy thing, has always been
important to us.
Jonathan Westhoff,
Chief Executive Officer
The strong performance of 2023/24
was delivered despite the context briefly
outlined by the Chair in his Statement.
A combination of rising interest rates
and high inflation has meant that cost
of living pressures remain elevated, and
the challenges facing prospective home
buyers continue to be well-documented,
although towards the end of the period
interest rates edged above inflation,
offering the chance to achieve returns for
savers that increased the true value of
their savings.
It is in this environment that our focus has been to balance
the value we can deliver as a purpose-led, customer owned
building society to both sets of members; our savers and our
borrowers. Of course, the most tangible form of value we can
provide is through the rates we offer, but in addition to this we’re
incredibly proud of the quality of service and support we have
delivered for our members.
This year has seen us hit a significant milestone, exceeding the
£1 billion level for new residential mortgage lending across the
financial year, an increase of 54% year on year compared with
a market fall of circa 27% over the same period. This means
that since April 2023 we’ve helped another 7,161 (2022/23: 4,901)
customers with their home ownership ambition, a 46% increase
from the previous financial year. For our savings customers, who
provide the funding that enables us to help so many have the
security of home ownership, we continue to provide value by
delivering average interest rates that are 36% above the market
average - a measurable member benefit of £38.6m.
It is during times of instability that the true value of a purpose-
led organisation can shine through, and whilst we now embark
on significant plans to develop the Society for the future, our
Purpose upon which we were founded 175 years ago still, and
always will, remains at our core.
Our purpose-led activities
As our Society grows, so do the ways in which we support our
members. We’re proud to be leading the charge on a number
of tangible benefits for our borrowers, including initiatives such
as our market-first approach to Differentiated Standard Variable
Rate (DSVR) and not charging arrears fees for anyone struggling
to meet their monthly mortgage payments. In the true spirit of
mutuality, where members become financially vulnerable, our
focus is on providing support rather than burdening them with
additional charges.
We were delighted to achieve our ambition of being a £1bn
lender this year, but what makes this even more impactful is
knowing that 4,684 (2022/23: 3,413) of purchase mortgages
were for first-time buyers, with 38% (2022/23: 33%) of these
first-time buyers using shared ownership, a vital route for those
that cannot yet afford a traditional route out of rental and into
ownership. These figures demonstrate our ongoing commitment
to helping people own their own home and change the difficult
landscape that so many people can face on their journey to
home ownership.
Enabling these members to become homeowners is a direct
result of the savings deposited with us by our savers. This year
we welcomed 10,250 new savers to the Society, attracting £570m
in new savings, up 30% on last year, through a highly competitive
range of notice products, with ISA options to help our customers
maximise their tax-free savings.
Our commitment to doing the right thing, not just the easy thing,
has always been important to us, but this year saw us achieve
recognition for this on a national scale when we took home two
accolades at the annual Moneyfacts Consumer Awards – First
Time Mortgage Buyers’ Choice and the prestigious Best Customer
Service award. These awards mean a great deal to us as they
are voted for by customers, reflecting their true experiences with
household and personal finance providers, and it was fantastic
for our colleagues to receive this level of recognition for the hard
work they put in, day in day out.
This year also saw the introduction of the Consumer Duty
regulation, as well as the launch of the Government’s Mortgage
Charter, of which we are a signatory. Whilst both raise the bar
Annual Report and Accounts 2024:
Overview
7
THIS YEAR WE WELCOMED
NEW SAVERS WHO DEPOSITED
£570m
RESIDENTIAL MORTGAGE
LENDING EXCEEDS
£1 billion
for governance across the industry, which we welcomed as a
Society, we will always strive to go above and beyond standard
practices to ensure our members receive the products and
services they deserve.
The autumn of 2023 saw us embark on a major strategic
review which will look to enhance and strengthen the Society
for the future by intensifying our purpose-led approach in an
increasingly digital world. We have already made investments
across both our people and our technology as we begin
to shape what the next era of the West Brom will look like,
reaching customers who increasingly prefer digital channels,
whilst continuing to be there for our members across our
long-standing channels, in branch and by telephone.
Whilst this digital transformation will be a key development for
us over the coming months and years, our branches remain at
the heart of the Society. In 2023 we made a further investment
into our branches through the installation of digital screens and
signage, allowing us to not only showcase a wider variety of
our products and services to customers, but also update crucial
information, such as rate changes, far more quickly.
Building on our financial strength
Once again, the Society has demonstrated a strong financial
performance, continuing to build its strength and resilience,
underpinning our ability to pursue our commitment to support
our current and future members.
The statutory profit before tax for the year, £32.1m (2022/23:
£31.8m), is a strong performance. If we exclude one off items,
our underlying profit increased from £26.2m to £37.2m, an
increase of 42%. This was driven by an improvement in net
interest receivable in the year which rose to £103.6m (2022/23:
£83.2m), despite more than doubling the interest paid to savers
to £142.5m in the year.
The performance is discussed further in the Strategic Review
section of these Annual Report and Accounts.
Our continued profitability and management of risk contributes
to our overall financial resilience. Our Common Equity Tier 1
(CET 1) capital ratio, a key measure of capital, remained strong
at 17.8% (2022/23: 18.7%). This capital position provides the
capacity to support investment in future capabilities and help
more people into home ownership.
Supporting our colleagues
and communities
We’re committed to providing our colleagues with a rewarding
and enjoyable place to work, fostering a culture where every
person can see and feel the difference they are making to the
Society and to our members.
We know that the uncertainties faced by our members will also
be a reality for some of our colleagues, which is why we have a
number of support networks in place to help anyone who may
be struggling, such as our Financial Hardship Fund and access
to health and wellbeing advice through our Employee Assistance
Programme.
We were thrilled to achieve the ‘Beyond the Living Wage’ award
this year, in recognition of the high standard of our employment
practices and our commitment to going above and beyond the
Living Wage accreditation, and we will aim to continue to set an
example for other businesses both in our sector and beyond.
Alongside supporting our colleagues with their financial
wellbeing, we’re also committed to ensuring that every colleague
feels confident being their true self at work. Through our
dedicated equity, diversity and inclusion (ED&I) network, Connect,
we aim to recognise, celebrate and learn from colleagues
of all backgrounds. This year we have focussed on ensuring
we celebrate, acknowledge and raise awareness of multiple
religions, cultures and special events. We’ve also established a
number of focus groups/networks for colleagues to join including
the LGBTQ+ and Black Colleagues networks. Both groups
enable us to bring an independent listening ear and create a
comfortable environment for our colleagues to speak freely and
share vital information to help drive change and create better
outcomes for our colleagues and members.
We continue to work closely with a number of charities and good
causes, on both a national and local scale, and we are immensely
proud to hit the milestone of raising over £1m for the Birmingham
Children’s Hospital through our dedicated Red Balloon Appeal
Account, which has been open to members for the last 16 years.
We also continued to support our corporate charity partner,
Barnardo’s, turning all of our branches into donation points for
pre-loved clothing for one week in November as part of the global
Giving Tuesday campaign, as well as raising over £9,500 for the
charity throughout the year through events and volunteering.
Annual Report and Accounts 2024:
Overview
8
RAISED FOR BIRMINGHAM
CHILDREN’S HOSPITAL
£1
million
Annual Report and Accounts 2024:
Overview
9
For the past decade we have provided financial education
sessions for local children, and last year colleagues from across
our branch network held workshops for over 1,800 children
across 28 local schools. We believe that every child should
have the same opportunity to learn about money and we have
therefore introduced tailored sessions to support college students
and children with special educational needs. The expansion of
the programme now means that we have achieved our ambition
of being able to offer financial education to any child within an
education setting, and we look forward to growing the initiative
even further over the next year.
The ongoing work that we do to support both colleagues and
communities is something we have always been incredibly proud
of at the West Brom. Therefore, to acknowledge this, last year
we published our first Impact Report, ‘Building a Fairer Future’,
which goes into further detail on the above examples, as well as
the many other ways in which we have positively impacted our
members, communities, colleagues and the environment.
Outlook
The last few years has seen us navigate a sea of change across
the wider industry and indeed, the economy, and we know this
is unlikely to change as we head into our next financial year.
However, our strong capital position and financial resilience will
continue to support us through any uncertainties and as always,
we remain guided by our Purpose to help more people own their
own home and save for the future.
We now have a particularly momentous year ahead of us, as we
celebrate 175 years of the Society. It therefore feels fitting that,
whilst we look back at our rich history, we also look ahead at
how we can reshape our strategy to meet the evolving needs
of our members. Over the year, and beyond, we’ll bring to life
the next generation of the West Brom for both our colleagues
and our members, enhancing the Society for the future whilst
staying true to our Purpose which underpins all that we do. In
closing I add my thanks to our members for their loyalty and my
colleagues for their dedication. The Society’s significant progress
is founded on that loyalty and dedication.
Jonathan Westhoff
Chief Executive Officer
30 May 2024
We remain guided by our
Purpose to help more people
own their own home and
save for the future.
Strategic Report
Annual Report and Accounts 2024:
Business Review
10
An overview of our
strategy and our financial
and non-financial
performance in 2023/24.
Our strategy
Our strategy continues to focus on the
delivery of our Purpose – to support
the financial wellbeing of our members
by providing a safe and good return
on the savings they entrust with us
and promote home ownership. As a
mutual organisation, we seek to act in
the best interests of our members and
stakeholders over the long term.
We remain committed to helping people own their own home
and recognise that the journey to home ownership is different
for everyone. For many individuals, in particular first-time
buyers, the current landscape is increasingly challenging. Over
the last 12 months our lending has been concentrated on first-
time buyers with 65% of all loans supporting them to achieve
their home ownership goals. Shared ownership has presented
a beneficial alternative for those where the traditional route out
of rental is unaffordable, and 38% of our first-time buyers have
utilised this route this year. Our lending strategy continues to
assist existing and potential homeowners who are excluded
or overcharged by other lenders. Throughout the challenging
economic environment in 2023/24 we remained steadfast in our
support for these customers, whilst still lending prudently, and
achieved strong residential lending of £1.1bn (gross), up 54%
from 2022/23.
Our savings strategy remains focussed on providing a
strong return for existing savers and offering a wide range
of competitive products with features to meet the different
savings needs of our customers. Our savings members
provide the funding that enables us to help so many
individuals achieve the security of home ownership.
Fundamental to our Purpose is a commitment to do the right
thing for our customers in support of their financial wellbeing,
which is evident in our market-first approach to Differentiated
Standard Variable Rate (DSVR) for all borrowers, and in
not charging arrears for anyone struggling to meet their
repayments; we were among the first lenders to sign up for the
Mortgage Charter in June 2023. We strive to provide the highest
levels of customer service through our colleagues in branches,
on the phone and online, and our Net Promoter Score
4
increased to +75 (2022/23: +74) and customer satisfaction
remained at 95% (2022/23: 95%).
Whilst our commitment to members, competitive products,
customer service and branches remain at the heart of our
future, our strategic focus is on developing the Society to meet
the needs of members who prefer digital services, and on
building our brand, marketing and distribution channels to
enable us to reach more customers. Central to this is a major
investment in modernising our IT systems and architecture to
remain resilient and improve our ability to innovate, and the
development of our people to have the skills needed to support
this. In 2023/24 we developed the plan to deliver this, and
invested in key leadership and specialist roles in preparation for
a multi-year programme that commenced in early 2024/25.
Our commitment to do the right thing extends beyond our
members to our wider communities and stakeholders. In
September we published our first impact report, ‘Building a
Fairer Future’, which looked back on the initiatives through
which we have positively impacted our members, communities,
colleagues and the environment.
As well as our core saving and lending activities, the Society
operates, via its property investment subsidiary West Bromwich
Homes Limited (WBHL), a portfolio of residential properties.
These provide quality homes for those in the rented sector at an
affordable rent. The average rent is currently up to 4.6% lower
than the market rent charged for new tenants over time
6
.
Our ability to offer high quality products and services continues
to be supported by the effective management and reduction of
non-core lending. Since 2009, the Society has been managing
down these exposures to achieve the most favourable
economic outcome on behalf of members, and return to a
simpler business model.
Annual Report and Accounts 2024:
Business Review
11
4
Net Promoter Score and NPS are trademarks of Satmetrix Systems, Inc.,Bain & Company, Inc., and Fred Reichheld.
6
Internal analysis of the Society’s rent charged as at December 2023 compared to the market rent figure (sourced from independent Lettings
Agents) as at December 2022.
Annual Report and Accounts 2024:
Business Review
12
The Society’s business model is aligned to our
Purpose and is summarised below:
Our Lending:
Our funding is used to support
our lending purposes. In line
with our Purpose, our lending
is focused on supporting
home ownership with a
greater than market average
proportion to first-time buyers
and products designed to
provide greater access to
the mortgage market, thus
supporting home ownership.
• Lending for home ownership
• Lending to support the
private rented sector
• Lending to legacy positions
Our Funding:
The vast majority of our
funding comes from our retail
savers, supported by funding
from wholesale markets.
• Savers deposits
• Wholesale funding
Our Profits:
Our profits, the difference
between our income and
expenses, is used to support
our capital position - which
provides a buffer in case of
losses from future shocks or
stresses - and to invest in our
systems which enable us to
continue to provide excellent
service to both our current and
future membership.
Our Costs:
We use our income to run the business efficiently,
paying our people, our suppliers, maintaining our
branch network and Head Office.
We also provide for any losses and pay our taxes.
• Our people, property and equipment
• Our suppliers
• Provisions for bad debts
• Taxes
Our Income:
We generate income through
the difference in the rates
we charge to borrowers and
commission from savers, the
sale of selected third party
financial products and our role
as a responsible landlord.
• Net interest margin
• Other income
• Role as a responsible
landlord
Our business model
Delivering our
Purpose by supporting
financial wellbeing
A safe, good
home for savers
Supporting
people in their
homes
Generating
income
Protecting
deposits and
investing for
the future
Running the
business efficiently
Annual Report and Accounts 2024:
Business Review
13
The Group is organised into three main business segments, to allow the Society to focus its strategic intent on the delivery
of our Purpose whilst maintaining a concentrated effort to manage the orderly run-off of non-core activity.
The above business segments are supported by central functions providing Finance, HR, IT, Marketing, Compliance and
Risk Management.
Funding is reviewed at a Group-wide level with Treasury and Finance functions managing day-to-day cash flow, along
with providing wholesale funding and ensuring allocation of capital and liquidity.
Retail
– savings, mortgage and a limited range of insurance products offered either directly or by third
party partnerships through our 34 branches, customer services teams and online, with new mortgage
lending also delivered through our intermediary partners.
Property
– a portfolio of residential properties held to generate rental income and capital
appreciation. The Group recognises its role as a responsible landlord with the portfolio
actively managed by a well-respected property management company.
Commercial real estate
– the historic provision of finance for commercial real estate investment
which is deemed strategically as non-core.
Our Strategic Framework
Our Strategic Framework helps support and guide the delivery of our Purpose to members.
Our Purpose
Supporting the financial wellbeing of our members by providing a safe
and good return on their savings and promoting ownership
Strategic Intent
Customer
‘Developing products &
services that support the
principles of our Customer
Proposition - individual,
ease and trust’.
Safe & responsible
‘Understanding the risks
we take and making
responsible decisions that
generate sustainable levels
of retained profit’.
Efficient
‘Driving efficiencies in our
processes and structures
to improve the customer
experience and level of
member value’.
Digitally enabled
& future ready
‘Investing in and delivering
the change required to meet
the needs of current and
future customers’.
People
‘Investing in the
development of our people
and creating a diverse
and inclusive working
environment to improve our
organisational capability’.
Annual Report and Accounts 2024:
Business Review
14
How we are progressing
Across the year we have made good progress in delivering
against these five statements of strategic intent, just some of
this progress is detailed below:
Customer
• We achieved record levels of new home ownership mortgage
lending with gross lending of £1.1bn, up 54% from last year.
This included supporting 4,684 (2022/23: 3,413) first-time
buyers into home ownership, an increase of nearly 40% year
on year. 38% of our first-time buyers chose shared ownership.
• We delivered 17% growth in net owner-occupied lending of
£549m. This was due in part to strong retention of members
rolling off fixed rate mortgages, meaning that residential
mortgage assets increased by £438m in the year to
£4,653m. Almost 70% of borrowers chose to stay with the
Society at the end of their first product term, either on a new
product or on our competitive Standard Variable Rate.
• We welcomed 10,250 new savers to the Society (2022/23:
7,046) and attracted £570m in new savings, up 30% on last
year.
• We paid a measurable member benefit of £38.6m, up 16.3%
on last year, through increased average Society savings rates
that are 0.88% higher than the market average
1
(2022/23:
0.79%).
• For the sixth consecutive year, we were awarded five-star
ratings in the Financial Adviser Service Awards for our
exceptional service to intermediary partners, and two
Moneyfacts 2023 awards: First Time Mortgage Buyers’ Choice
and Best Customer Service.
Safe & responsible
• We maintained a strong CET 1 capital ratio of 17.8% (2022/23:
18.7%) providing a solid foundation to support investment in
future capabilities and to support increased numbers of future
members into home ownership.
• We delivered statutory profit before tax of £32.1m (2022/23:
£31.8m). On an underlying basis, profit increased to £37.2m
(2022/23: £26.2m).
• We reduced the residual commercial exposure by 4% during
2023/24, with our net exposure now less than one tenth of the
peak in 2008/2009.
• Our arrears rates remained below industry averages, with
core residential arrears of 0.89% (UK Finance: 0.91%)
5
at 31
March 2024 (2022/23: 0.52% and 0.71% respectively). The
increase since last year was driven by our legacy lending book
(including buy to let), with arrears in lending completed from
2012 onwards at just 0.23% (2022/23: 0.16%).
• We are on track to be carbon neutral in our directly controlled
operations by 2025: progress this year includes sourcing 100%
renewable energy through wind and hydro, commencing
the roll-out of new LED lighting across our Head Office, and
prioritising high-energy-performance housing within our West
Bromwich Homes Limited rental portfolio, with 97% of the
portfolio at EPC C or above.
Efficient
• Our management expense ratio increased to 1.02% (2022/23:
0.78%). The prior year included the benefit of the net recovery
of £5.6m of costs in relation to the digital savings platform
previously written off. Excluding this impact, the management
expenses ratio was 0.87% in 2022/23. The increase reflects
the ongoing impact of higher inflation and an increase in
headcount as we invest in capability to support higher volumes
of new lending and to put the foundations in place for the next
step of the Society’s strategy.
• We maintained our focus on efficiency and control of costs in
our core business, whilst investing in strategic development,
particularly in our systems and key leadership and specialist
roles required for delivery of our strategy.
1
Average market rates sourced from Bank of England Bankstats table A6.1 March 2024
5
UK Finance is a trade association for the UK banking and financial services sector
Annual Report and Accounts 2024:
Business Review
15
People
• We received the ‘Beyond Living Wage’ award, a recognition of
our commitment to going beyond the basics of our Real Living
Wage accreditation.
• In our commitment to improving Equity, Diversity and Inclusion
(ED&I), our 36% female Board representation continues
to exceed our target of 30% which was set as part of our
participation in the Women in Finance Charter. We have also
achieved 38% female representation at senior management
levels.
• We published our seventh annual Gender Pay Gap report
and although not a compulsory requirement, our third annual
Ethnicity Pay Gap report, demonstrating our commitment to
this important area.
• Our ED&I group, ‘Connect’, continued to play a key role
in raising awareness and strengthening an inclusive
environment where embracing colleagues from all
backgrounds and diversities is encouraged and celebrated.
• We expanded our apprenticeship commitment, supporting
23 colleagues undertaking apprenticeships ranging from
Level 3 (A-Level) to Level 7 (Master’s degree) qualifications.
Seven colleagues successfully completed their
apprenticeships in 2023 with two subsequently enrolling
onto higher level apprenticeships, further supporting with
growth of skills and retention.
• Acknowledging the impact that sudden, unexpected financial
shocks can have on mental wellbeing, we continued to
support colleagues via our Hardship Fund.
• We held three meetings of our Employee Council covering
strategic topics such as People Value Proposition, the future
of hybrid working, and the takeaways from the all-colleague
survey.
• We have continued to develop our leadership, with over 60
colleagues completing our New Manager programme so far,
further supported by a programme of culture initiatives to
support leaders in managing change.
Digitally enabled & future ready
• Against the external background of increasing cyber security
threats, we enhanced our security to keep members’ data
safe and secure, and increased the operational resilience of
our core services to ensure they remain reliable and available
for members.
• We launched a new online savings portal for our customers,
broadening the ways in which our savers can open and
manage their accounts, and made several enhancements to
improve our mortgage offering.
Annual Report and Accounts 2024:
Business Review
16
The Society’s KPIs are selected to support the Society’s strategic
pillars which are listed within the Business Model section of
the Strategic Report. These KPIs, and the Society’s performance
against each, are described below. KPIs for our Future Ready
pillar are currently only used internally to measure performance
against the application of digital technology.
Key performance
indicator
CUSTOMER
SATISFACTION
NET PROMOTER
SCORE
®
(NPS
®
)
4
– CUSTOMER
SATISFACTION
95%
+75
Measure
Following a branch visit or
call to our customer service
department, members are
asked to rate us across
a number of different
measures, including
how easy they found the
West Brom to deal with. A
customer satisfaction score
is subsequently captured.
A measure of how likely a
customer is to recommend
the West Brom’s products
and services. The NPS
ranges between -100
and +100.
Performance
2024 analysis
Customer satisfaction
remains high reflecting our
customer centric approach.
NPS increased to +75
(2022/23: +74). This is an
improvement from last year.
The Society monitors and assesses its
performance against strategic objectives
using a range of financial and non-
financial key performance indicators (KPIs).
Key performance indicators
2024
2023
2022
2021
2020
2024
2023
2022
2021
2020
Customer
95%
+75
95%
+74
96%
+81
96%
+76
96%
+73
17
GROSS
RESIDENTIAL
LENDING
£1,066m
Delivering the Society’s
core purpose of home
ownership, this is the
value of residential lending
advanced this year.
Gross residential lending, at
£1,066m, saw an increase of
54% compared to the prior year
reflecting our commitment to
help more people into home
ownership.
We remain committed to
delivering our Purpose which
supports responsible lending
and delivers an appropriate
level of return from our diverse
product range.
2024
2023
2022
2021
2020
£1,066m
£784m
£691m
£569m
£756m
Key performance
indicator
Measure
Performance
Customer (continued)
1
Average market rates sourced from Bank of England Bankstats table A6.1 March 2024.
4
Net Promoter Score and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld.
Gross residential owner
occupied lending less
repayments of principal and
redemptions. This includes
all owner occupied lending,
including non-traditional
elements (e.g. Shared
Ownership, Help to Buy and
Assisted mortgages) and
excludes buy to let lending.
This measure reflects growth
in the owner occupied lending
book and reflects both new
lending and customer retention.
The Society’s average
savings rate above the
rest of the market is paid
in mutual benefit to our
savings members.
Since re-entering the owner
occupied lending market in
2012, the lending balances in
this area have grown by 175%.
The strong growth in the year
was driven by increased gross
lending, particularly in the
purchase and First Time Buyers
markets, as well as stronger
retention of our mortgage book
as the accounts came to the
end of their incentive period.
We paid our savers rates that
were on average, more than
one third higher than (2022/23:
almost double) the average
rates paid by the market
1
,
enabling the Society to deliver
£38.6m in mutual benefit to
our members.
2024
2023
2022
2021
2020
£38.6m
£33.2m
£9.0m
£549m
£116m
(£117m)
£256m
£52m
£5.3m
£13.0m
2024
2023
2022
2021
2020
NET OWNER
OCCUPIED
LENDING
SAVINGS
MEMBER
MUTUAL
BENEFIT
£38.6m
£549m
Annual Report and Accounts 2024:
Business Review
2024 analysis
18
Annual Report and Accounts 2024: Business Re
view
2024
2023
2022
2021
2020
19
Key performance
indicator
Measure
CET 1 capital is the highest
quality form of capital
for a financial institution,
comprising retained
earnings, other reserves
and qualifying CET 1 capital
instruments.
The CET 1 ratio, calculated
as CET 1 capital divided
by risk-weighted assets,
is a measure of financial
strength and is required
to be maintained above a
regulatory threshold.
Profit contributes to
capital which provides
financial resilience
and facilitates
future growth and
investment.
Underlying profit
before tax excludes
the cost of buying back
Tier 2 debt and the
write off / recovery
of costs related to
intangible assets.
A reconciliation
of statutory to
underlying profit is
presented on page 22.
Net interest margin is
calculated as net interest
income expressed as a
percentage of mean total
assets.
The drivers of this measure
are the level of return
received from mortgages
and the interest paid to
savers.
Performance
2024 analysis
The CET 1 ratio at 17.8%
remains almost twice our
regulatory Total Capital
requirement and has done
so throughout the year. The
Society’s strong opening
capital position has allowed
us to grow our residential
mortgage book, increasing
growth in risk weighted
assets above the levels
of growth seen in capital
available.
Growth in underlying profit
before tax was driven by an
improvement in net interest
income.
Net interest margin improved
significantly in the year. This was
largely driven by rising interest
rates in the first half of the
year and the timing benefit we
experience from hedging our
fixed rate mortgages.
As a mutual, it is not our
objective to maximise margin
but to manage interest income
at a level that covers costs,
enables investment in the future
and maintains a strong capital
position.
2024
2023
2022
2021
2020
2024
2023
2022
2021
2020
Safe & responsible
9.3%
17.8%
9.4%
18.7%
17.0%
16.4%
15.9%
9.3%
9.3%
9.3%
(£3.3m)
£4.7m
£28.8m
£26.2m
1.42%
1.05%
1.02%
1.06%
£37.2m
1.77%
Annual Report and Accounts 2024:
Business Review
Current Total Capital Requirement (TCR)
CET 1 ratio
UNDERLYING
PROFIT
BEFORE TAX
NET INTEREST
MARGIN
COMMON
EQUITY TIER 1
(CET 1) RATIO
£37.2m
1.77%
17.8%
2024
2023
2022
2021
2020
20
Key performance
indicator
Measure
The management expense
ratio is a measure of cost
efficiency, reflecting costs
(including depreciation
and amortisation) as a
percentage of mean total
assets.
Performance
2024 analysis
The management expense
ratio increased to 1.02%
(2022/23: 0.78%). This was
due to ongoing inflationary
pressures and investment
in the business, including
an increase in headcount,
to support growth in new
lending to set the foundations
for our evolving strategy.
Efficient
Manex ratio
Manex ratio (excl. recovery/write off cost)
Key performance
indicator
Measure
Performance
2024 analysis
Safe & responsible (continued)
Annual Report and Accounts 2024:
Financial Review
1.02%
0.78%
0.87%
0.84%
0.83%
0.83%
0.89%
COST
EFFICIENCY
1.02%
Exiting the commercial real
estate sector has been a
longstanding strategy of
the Board and is measured
by the reduction in the
gross carrying value of
non-core commercial gross
exposures, which totalled
£1.7bn in 2008/09.
Non-core commercial
mortgage balances have
continued to reduce annually,
down 4% in the year to £219m
at 31 March 2024.
2024
2023
2022
2021
2020
The internal measure,
reported to the Board,
is the number of cases
where the borrower has
missed more than three
monthly payments, as
a proportion of the total
number of loans.
Arrears rates remain below
industry averages, with core
residential arrears of 0.89% (UK
Finance: 0.91%)
5
at 31 March
2024 (2022/23: 0.52% and 0.71%
respectively). This increase is
driven by our legacy lending
book (including buy to let), with
arrears in lending completed
from 2012 onwards at just
0.23% (2022/23: 0.16%).
2024
2023
2022
2021
2020
0.89%
0.52%
0.31%
0.43%
0.34%
Non-core commercial
lending (Net Exposure)
Non-core commercial
lending (Gross Exposure)
ON BALANCE
SHEET CRE
EXPOSURES
CORE
RESIDENTIAL
ARREARS
0.89%
£9m
£132m
£155m
£249m
£306m
£219m
£228m
£339m
£379m
£394m
£335m
5
UK Finance is a trade association for the UK banking and financial services sector.
2024
2023
2022
2021
2020
2024
2023
2022
2021
2020
21
Senior management
Ethnic Minorities – Board
Ethnic Minorities – Senior management
Ethnic Minorities – Other colleagues
Board
Key performance
indicator
Measure
The Society is a signatory
to the Women in Finance
Charter and has targets
to maintain female
representation of at least
30% on the Board and
in senior management.
Building on this continued
success, we announced
a revised target for our
senior management
population to achieve
40% female representation
by the end of 2024/25.
The Society is a signatory
of the Race at Work
Charter and during 2022
published the Society’s first
Ethnicity Pay Gap report,
one of the few companies
in financial services to
do so, to achieve better
transparency and drive
the diversity agenda.
In 2021, the Society
began reporting ethnic
representation across
the colleague base and
management group.
Performance
2024 analysis
The 30% target for female
representation continues to
be exceeded at both Board
and senior management
levels. We’re on track to
achieve the revised target
for our senior management
population.
Having 37% of colleagues from
ethnic minority backgrounds
helps us reflect the richly diverse
communities we serve in our
heartland. Representation at
Board level has fallen slightly,
and whilst a relatively small
population, this is an area of
focus for the future.
People
Annual Report and Accounts 2024:
Business Review
38%
38%
34%
33%
35%
36%
40%
40%
38%
38%
9%
21%
16%
18%
20%
19%
10%
20%
13%
13%
31%
32%
33%
35%
37%
FEMALE
REPRESENTATION
ETHNIC
REPRESENTATION
36%
37%
38%
21%
9%
22
A strong performance in the year saw statutory profit before tax
increase marginally from prior year, to £32.1m (2022/23: £31.8m).
This strong performance afforded us the opportunity to buy
back the majority of our expensive 11% Tier 2 debt, at one-off
cost of £5.1m, which is included in the statutory profit above. This
reduced our ongoing annual interest cost for the debt redeemed
by £2.2m. This is expanded upon under the Capital section
below. On an underlying basis, after excluding this one-off cost
and, in the prior year the benefit of a one-off recovery of costs
previously written off, profit increased by 42% to £37.2m (2022/23:
£26.2m).
A year-on-year comparison of underlying profit before tax is
presented below:
Net interest income
Net interest income increased in the year to £103.6m (2022/23:
£83.2m), with a net interest margin of 1.77% (2022/23: 1.42%). As
rates increased during the year, interest income rose by almost
two thirds to £287.0m (2022/23: £174.2m), but we saw a larger
relative increase in the interest expense, driven primarily by a
more than doubling of the interest paid to savers to £142.5m
(2022/23: £64.0m).
This meant that the amount paid to our savings members, on
average, in comparison to the market average
2
increased 11%
more (0.88% above the market average, 31 March 2023: 0.79%)
resulting in our savers receiving an additional £38.6m in mutual
benefit (2022/23: £33.2m).
Fair value (loss)/gains on financial
instruments
The Society is exposed to income statement volatility through
changes in the fair value of financial assets and liabilities which
are held at fair value through profit or loss (FVTPL), predominantly
interest rate swaps which are taken out to protect net interest
income from volatility in market interest rates.
The fair value movements on derivative financial instruments,
used purely for risk management purposes, are offset in the
Income Statement but only where the conditions for applying
hedge accounting are met.
Included in the £0.4m fair value loss (2022/23: £6.6m gains) in
the year:
• £2.4m loss (2022/23: £3.1m gains) represents fair value
movements on derivatives held to provide an economic hedge
against movements in impaired commercial provisions for
which the criteria to apply hedge accounting are not met. The
volatility arises from changes in the market view of interest rates
and is largely offset within impairment on commercial loans
because of the impact of discounting future cashflows at market
rates. For example, where interest rates increase, expected
credit loss (ECL) will increase owing to greater discounting of
future cashflows, but this is offset by a fair value gain;
• £1.8m gain (2022/23: £3.4m gains) relates to the element of
ineffectiveness in the hedge relationships which still meet
hedge accounting criteria and the fair value movements on
interest rate swaps held to hedge the Society’s mortgage
pipeline, before an effective hedge accounting relationship can
be established; and
*Fair value losses include fair value losses on derivatives used to hedge
commercial loans of £2.4m (2022/23: £3.1m), included within the amounts
presented in note 5 in the financial statements.
Financial Review
Financial performance
Summary income statement
Income Statement overview
Group
2024
£m
Group
2023
£m
Net interest income
103.6
83.2
Fees, commissions and other income
5.7
5.8
Fair value (loss)/gain on financial instruments*
(0.4)
6.6
Total income
108.9
95.6
Management expenses
(59.5)
(45.7)
Operating profit before revaluation gains,
impairment, provisions and cost on debt buyback
49.4
49.9
Gains on investment properties
2.5
6.0
Impairment on loans and advances
(14.7)
(24.1)
Cost on debt buyback
(5.1)
-
Provisions for liabilities
-
-
Profit before tax
32.1
31.8
Taxation
(7.7)
(5.6)
Profit for the financial year
24.4
26.2
Annual Report and Accounts 2024:
Business Review
Year to 31 March: Reconciliation of
statutory to underlying profit before tax
2024
£m
2023
£m
Statutory profit before tax
32.1
31.8
Write off/(recovery) of previously capitalised costs
-
(5.6)
Cost on debt buyback
5.1
-
Underlying profit before tax
1
37.2
26.2
1
In the prior period underlying profit before tax was calculated after the
adjusting for hedge ineffectiveness, this has deemed not to be as volatile
under current hedging methodology. As such, the hedging ineffectiveness
has been removed in the current and prior year restated calculation.
2
Average market rates sourced from Bank of England Bankstats table A6.1
March 2024.
23
• £0.2m gains (2022/23: £0.5m loss) arises on the closed equity
release portfolio reflecting the impact of expected house price
movements on the portfolio.
Management expenses
Management expenses have increased significantly from £45.7m
to £59.5m in the current year. The prior year expense was
reduced by the recovery of £5.6m of previously written off costs.
The remaining increase reflects the ongoing impact of higher
inflation and an increase in headcount (from 633 to 701) as we
invest in capability to support higher volumes of new lending and
to put the foundations in place for the next step of the Society’s
strategy, as outlined in the “Our Strategy” section of this Strategic
Report.
Gains on investment properties
The Society provides residential housing for rent through its
subsidiary company, West Bromwich Homes Limited. The
portfolio includes properties across England and Wales, with
substantial investments concentrated in the West Midlands, the
South West and South Wales.
Whilst the housing market has seen some volatility, it has
remained resilient, and we saw a lower valuation gain of
£2.5m, down from £6.0m in the previous year.
Impairment on loans and advances
The table below analyses the impairment charges on loans and
advances in the year:
Residential impairment
Impairment charges on the residential loan portfolio are based
on ECL calculations which take into account the credit risk of the
loans and assumptions of future economic scenarios in line with
IFRS 9 requirements.
The residential impairment charge for the year was just £0.5m
(2022/23: £3.0m charge). Our opening provisions included an
allowance for increased defaults from borrowers impacted by
an affordability squeeze as interest rates and the cost of living
increased. Whilst we have seen an increase in arrears, as set
out in the residential loans and advances section below, this
has not been material in terms of our owner occupier lending.
The primary driver of this increase has been the legacy buy to
let book, which is almost entirely made up of loans that directly
track Bank Base Rate and hence have perhaps experienced
the most significant impact of interest rate increases. Whilst the
economic outlook remains somewhat uncertain we continue to
use a number of overlays to cover this affordability risk and the
potential overstatement of house price inflation in recent years.
Commercial impairment
Commercial impairment charges decreased in the year to
£14.2m from £21.1m in 2022/23. After adjusting for the offsetting
movements in derivatives held to hedge the impact of changes
in interest rates, the net charges were £16.6m and £18.0m for the
current and prior year respectively.
The commercial property sector remains exposed to changes in
the wider economic climate and we continue to make appropriate
provisions against our exposures, resulting in commercial
provision balances of £92.1m (2022/23: £79.2m), which represents
41.2% of the current loan book (2022/23: 33.8%).
The majority of the Group’s commercial portfolio comprises loans
to the retail sector. Provision coverage against loans to the retail
sector increased to 52.3% from 40.4% in the prior year. Note 33(c)
(iii) in the financial statements further analyses the commercial
portfolio by industry type.
All commercial lending was originated at least 15 years ago and
we continue to manage the exit from this sector with a reduction
in gross exposures of 4% in the year (2022/23: 33%).
Taxation
There is a corporation tax charge of £7.7m for the year (2022/23:
£5.6m). This is as a result of utilisation of brought forward tax
losses and the recognition of deferred tax assets, based on
amounts expected to be recoverable against future taxable
profits. The effective tax rate is 24.0% compared to a UK rate
of 25%. In the prior year an increase deferred tax asset was
recognised with respect to carried forward losses and timing
differences after future increases in tax rates were announced.
Further analysis of the tax charge is given in note 9 in the financial
statements.
Year to 31 March impairment
on loans and advances
2024
£m
2023
£m
Residential loans
0.5
3.0
Commercial
14.2
21.1
Total impairment
14.7
24.1
Fair value movement on derivatives held to hedge
impaired commercial loans
2.4
(3.1)
Total impairment and related charges
17.1
21.0
Annual Report and Accounts 2024:
Business Review
24
Annual Report and Accounts 2024:
Business Review
Total residential loans and advances increased significantly in
the year and reflects a higher gross new lending of £1,066m
(2022/23: £691m) and stronger retention of borrowers when
they reach the end of their incentive mortgage period.
The proportion of prime owner occupied loans has continued to
increase in line with the Board’s strategy of reducing the legacy
buy to let portfolio, which has reduced to 21% of residential
lending, compared to 27% in the prior year.
At the heart of our Purpose, the Society supported a further
4,684 first-time buyers, an increase of 37% from 2022/23.
Arrears rates remain below industry averages, with core residential
arrears of 0.89% (UK Finance: 0.91%)
5
at 31 March 2024 (2022/23:
0.52% and 0.71% respectively). This increase is driven by our legacy
lending book (including buy to let), with arrears in lending completed
from 2012 onwards at just 0.23% (2022/23: 0.16%). Buy to let lending
is almost entirely made up of Bank Rate tracker mortgages, which
are more acutely impacted by the rise in Bank Rate seen in the first
half of the financial year, which has led to a significant increase in
arrears levels.
The Society continues to support borrowers who are faced with
ongoing cost of living challenges including the rising Bank Rate
environment. Encouraging borrowers to engage early is a key focus
for the Society, enabling a tailored approach to help reduce the
impacts. The wider economic outlook remains uncertain due to the
rising cost of living and this may impact arrears levels going forward.
2020
2022
2021
2023
£3,706m
£995m
£1,141m
£1,301m
£1,373m
£1,423m
£3,157m
£3,277m
£3,168m
£2,915m
2024
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
-
Summary statement of financial position
Residential loans and advances
Financial Position
At 31 March
Group
2024
£m
Group
2023
£m
Assets
Residential loans and advances
4,653.4
4,215.2
Commercial loans and advances
131.7
155.1
Liquid assets
929.4
986.6
Derivative financial instruments
61.8
100.5
Fixed and other assets
213.4
231.9
Total assets
5,989.7
5,689.3
Liabilities
Shares
4,670.6
4,306.3
Wholesale funding
820.0
883.1
Derivative financial instruments
12.8
6.7
Other liabilities
41.6
62.8
Total liabilities
5,545.0
5,258.9
Equity
General reserves
305.7
292.3
Other equity instruments
134.8
134.8
Other reserves
4.2
3.3
Total equity
444.7
430.4
Total liabilities and equity
5,989.7
5,689.3
Prime owner occupied
Buy to let
Analysis by lending type at 31 March 2024
5
UK Finance is a trade association for the UK banking and financial services sector.
Group arrears
At 31 March
2024
At 31 March
2023
£m
3 months +
%
£m
3 months +
%
Owner occupied
3,706.0
0.89
3,157.4
0.52
Buy to let
995.2
1.97
1,141.2
0.70
Total residential
4,701.2
1.10
4,298.6
0.73
3.34
3.42
3.15
2.98
2.85
0.96
1.25
1.03
1.25
0.99
0.46
0.74
25
Annual Report and Accounts 2024:
Business Review
Liquidity holdings comprise high quality liquid assets, with
treasury investment securities rated at least single A or held
with a Globally Systemically Important Counterparty. The Group
has never experienced a default on its Treasury investment
portfolio. The liquid asset impairment provision requirements
were negligible for both the current and prior year.
Liquidity was maintained at elevated levels throughout the year
reflecting the uncertainty in the economic outlook.
The Society’s Liquidity Coverage Ratio (LCR), which measures its
ability to meet cash outflows in the event of a stressed scenario,
was 203% at 31 March 2024 (2022/23: 224%), comfortably above
the regulatory minimum of 100%.
As a building society, the primary source of funding is retail
savings. Retail savings balances increased by 8% in the year
to £4.7bn (2022/23: £4.3bn). Within this total, branch based
accounts increased by 2% to £3.4bn.
During the year, the Society successfully launched a range of
competitive savings products which included £270m fixed rate
products and £280m new notice accounts.
Retail savings balances make up 73%, (2022/23: 78%) of total
funding with the remainder being wholesale funding. Accessing
the wholesale markets can reduce the overall cost of funding
and mitigate risk by diversifying the funding pool.
Wholesale funding balances reduced to £0.82bn (2022/23:
£0.88bn), which reduced the ratio of wholesale funding as a
proportion of total shares and borrowing to 15% (2022/23: 17%).
Our reduced use of wholesale funding also meant that our
encumbrance ratio fell to 16% (2023: 17%).
Deemed as non-core, the commercial loan book has reduced
by 4% this year in line with the Board’s long-term strategy of
exiting from the commercial real estate sector. After allowing
for increases in provisions, the net exposure reduced by 15%
to £132m, and now represents just 2.8% of our total lending.
From a peak lending position of £1.7bn in 2008/09, Commercial
exposures have reduced by 87%, which represents a material
de-risking of the balance sheet.
2020
£bn
2022
2021
2023
2024
6.00
5.00
4.00
3.00
2.00
1.00
0
Liquid assets
Funding balances
Commercial loans and advances
Funding
Other Wholesale
TFSME
Branch Accounts
Securitisation
Other Retail
Liquidity portfolio
At 31 March
2024
At 31 March
2023
£m
%
£m
%
Cash and balances with the
Bank of England
491.6
52.9
598.2
60.6
Supranationals
73.6
8.0
49.9
5.1
Covered bonds
165.1
17.8
152.6
15.5
Mortgage backed securities
86.9
9.4
37.9
3.8
Subsidiary/other liquidity
112.2
12.0
148.0
15.0
Total liquidity
929.4
100.1
986.6
100.0
1.06
0.21
0.17
0.17
0.11
0.51
0.27
0.22
0.17
0
0
0.71
0.61
Commercial loans portfolio
At 31
March
2024
At 31
March
2023
£m
£m
Non-core commercial balances excluding
securitisation
218.8
227.9
Securitised commercial balances
5.0
6.4
Impairment provisions
(92.1)
(79.2)
131.7
155.1
As at 31 March
2024
2023
2022
2021
2020
0.0%
10.0%
20.0%
30.0%
Wholesale funding ratio
25.1%
17.1%
15.0%
20.0%
24.4%
Capital ratios
%
%
%
%
Common Equity Tier 1 ratio
(as a percentage of RWA)
17.8
17.8
18.7
18.3
Common Equity Tier 1 before IFRS 9 transitional arrangements
(as a percentage of RWA)
17.8
17.8
18.3
18.3
Tier 1
(as a percentage of RWA)
17.8
17.8
18.7
18.3
Total capital ratio
(as a percentage of RWA)
17.9
17.9
19.7
19.4
Leverage ratio including claims on central banks
6.8
6.8
7.0
6.9
Leverage ratio excluding claims on central banks
7.5
7.4
7.9
7.7
26
Regulatory capital is held for the protection of depositors and
other creditors by providing a buffer against unexpected
losses. The Society is required to maintain thresholds set by
the Prudential Regulation Authority (PRA) and our capital is
assessed under the Capital Requirements Regulation and
Directive (CRR II and CRD V). Requirements are continually
monitored to ensure minimum regulatory requirements are
always met. At 31 March 2024, our CET 1 capital comprised
accumulated retained profits in general reserves, core capital
deferred shares (‘CCDS’) and other reserves after regulatory
adjustments.
The Society’s CET 1 ratio at 31 March 2024 decreased to 17.8%
(2022/23: 18.7%) but remains strong and comfortably in excess
of the Society’s Total Capital Requirement (TCR) which, at the
end of the year equated to 9.3% of risk weighted assets. The
TCR refers to the amount and quality of capital a firm must
maintain to comply with capital regulations. The Leverage Ratio,
excluding central bank claims, also remains strong at 7.5%
(2022/23: 7.9%).
As explained in note 1 to the table above, transitional
arrangements have been utilised in relation to the adoption
of IFRS 9 and its phased impact to regulatory capital. Had the
transitional arrangements not been in place, the CET 1 ratio at
31 March 2024 would have been 17.8% (2022/23: 18.3%) and the
Leverage Ratio would have been 7.4% (2022/23: 7.7%).
During the year the Society paid £5.8m as distributions on the
Society’s Core Capital Deferred Shares. In May 2024 the Board
declared a final distribution for the period to 31 March 2024 of
£2.25 per CCDS, in line with current distribution policy published
on 24 November 2021. The final distribution has been deducted
from capital but is not reflected in these financial statements as,
for accounting purposes, distributions to the CCDS holders are
recognised with reference to the date they are declared.
In March 2024, the Society approved an interest payment in
respect of the Permanent Interest Bearing Shares (the ’PIBS’) of
1.5414%, which was paid on 5 April 2024.
Annual Report and Accounts 2024:
Business Review
Capital
At 31 March (unaudited)
1. Other adjustments mainly comprise IFRS 9 transitional arrangements and deductions for intangible assets, deferred tax assets and the retirement benefit asset.
2. Tier 2 capital comprises subordinated liabilities excluding accrued interest.
3. The ‘Full implementation’ basis includes the unwind of IFRS 9 transitional relief.
Transitional
2024
Full
implementation
3
2024
Transitional
2023
Full
implementation
3
2023
£m
£m
£m
£m
Members
’
interest and equity
444.7
444.7
430.5
430.5
Permanent interest bearing shares (PIBS) deductions
(7.8)
(7.8)
(7.8)
(7.8)
Other adjustments
1
(34.6)
(34.7)
(29.4)
(37.7)
Common Equity Tier 1 (CET 1) Capital
402.3
402.2
393.3
385.0
Additional Tier 1 capital
-
-
-
-
Total Tier 1 capital
402.3
402.2
393.3
385.0
Tier 2 capital
2
2.0
2.0
21.8
21.8
Total regulatory capital resources
404.3
404.2
415.1
406.8
Risk weighted assets (RWA)
2,258.8
2,258.7
2,108.5
2,100.2
Leverage ratio exposure including claims on central banks
5,939.0
5,938.9
5,584.7
5,576.4
Leverage ratio exposure excluding claims on central banks
5,399.0
5,398.9
5,000.5
4,992.2
27
The strong underlying profitability of the business meant that
during the year the Society was able to buy back £20.4m of its
Subordinated Tier 2 Notes, resulting in a one-off cost of £5.1m,
including the write down of unamortised issuance costs of
£0.6m. Whilst this results in a charge this year, this will save
£2.2m of interest cost per annum going forwards. Following the
partial purchase and cancellation, £2.1m of the notes remain
outstanding.
Further details of our capital position are given in the Pillar 3
disclosure document, published on the Society’s website.
Principal risks and uncertainties
Effective risk management is integral to the Society’s operations.
The separate Risk Management Report on pages 39 to 55
identifies the principal risks and uncertainties faced by the
Society and describes, in detail, the West Brom’s approach
to risk management.
Financial outlook
The outlook for the UK economy going forward remains unclear;
the joint challenge of rising cost of living and increased borrowing
costs mean there is significant uncertainty over the demand
for mortgage borrowing over the next 12 months. As a lender
with a focus on our Purpose of advancing home ownership, our
mortgage lending is concentrated on first-time borrowers, which
we expect to be more impacted by this uncertainty.
Further Bank Rate increases are unlikely and reductions are
expected given inflation has returned to more sustainable levels.
We may yet see the impacts of inflation over recent years leading
to potential for rising business failures leading to increases in
unemployment. Coupled with ongoing cost of living pressures
this may lead to a rise in arrears. As always, we stand ready to
support our members through these difficult and uncertain times,
providing financial resilience to our saving members and tailored
support to borrowers who require it.
In response to the societal challenges from climate change, we
are developing initiatives and implementing change to limit the
Society’s greenhouse gas (GHG) emissions by building upon
the past improvements we have made. Operational resilience
has been a key focus during the year. A centralised area has
been established to co-ordinate efforts across the business
in the development and delivery of the Society’s Operational
Resilience Plan and Business Continuity and Disaster Recovery
Risk Management Framework, all important components against
which to manage operational resilience.
Our responsible, purpose-led approach to lending will seek out
growth opportunities that remain focused on our Purpose, without
adversely impacting our savers. Supported by a robust capital
position, the Society is well positioned for the challenges ahead.
Engaging our stakeholders
The Society’s Board fundamentally believes that consideration
of stakeholder views is an integral part of the Society’s strategic
development and long-term direction; part of the mutual ethos on
which the Society was founded and continues to be guided by.
The Society goes to great lengths to ensure the perspectives of
a wide range of stakeholders are included both formally and
informally within its decision-making structures.
As discussed further in the Corporate Governance section of
this report on page 72, the UK Corporate Governance Code (the
Code) provides the basis for the Society’s approach to corporate
governance. As a building society, although the West Brom is not
required to comply with the Code, aligned to the fundamental
belief referred to above, the Society includes information on how
the Board listens to, hears and acts upon the views of stakeholders
within its decision making by way of a Section 172 Statement (in so
far as this statement is relevant to a building society).
Obligations included within the Statement require directors to act
in the way they consider, in good faith, would be most likely to
promote the success of the Society for the benefit of its members
as a whole, and in doing so have regard to a number of key areas:
• The likely consequences of any decision in the long term;
• How the interests of employees are considered;
• How constructive relationships with wider stakeholder
groups, including suppliers are fostered;
• How any community and environmental impacts of our
operations are considered;
• How a reputation for high standards of business conduct is
maintained; and
• The need to act fairly and balance the interests of
members.
While the Society’s commitment to the principle of stakeholder
engagement is evidenced throughout this report, the table below
provides a summary of how the views of stakeholders have been
considered within Board decision making.
Annual Report and Accounts 2024:
Business Review
28
Annual Report and Accounts 2024:
Business Review
Our
Stakeholders
How the Board has considered
views within decision making
How else we engage to
ensure views are considered
Our Members
- we exist to fulfil our Purpose to
members. Listening to our members helps us
develop our strategy in a way that is for their
long-term benefit.
Established in 2019 our Member Council acts
as a formal body that helps ensure the Board’s
long-term strategic decision making remains
considerate of member views. Across the year
the Council has met three times, with meetings
chaired by the Society’s Chief Executive Officer
or Non-Executive Directors where appropriate.
Topics discussed have ranged from the future of
digital at the West Brom, to changes members
wished to see on our savings platform, and
Executive Director Remuneration.
- Monthly management information supplied to
Board covering key customer metrics including:
- NPS;
- Customer satisfaction;
- Ease of doing business; and
- Complaints.
- Customer feedback – members invited to
provide feedback on the Society’s services
through our ‘voice of the customer’ initiative.
- Customer panel – over 2,000 members that
regularly complete questionnaires to help
us shape our offering. This includes testing
literature for new products to make sure it is
clear, balanced and easy to understand.
Our Colleagues
- our colleagues underpin the
delivery of our Purpose. By listening to and acting
upon the views of our colleagues we create a
culture that enables the delivery of our Purpose.
Like our Member Council, our Employee Council
acts as a formal body that helps ensure the
Board’s long-term strategic decision making
remains considerate of the views of the Society’s
colleagues. Across the year the Council has
met three times, with meetings chaired by the
Society’s Chief Executive Officer or Non-Executive
Directors where appropriate. A Non-Executive
Director also joins meetings of the Council to
strengthen the link between the Council and the
Board. Topics discussed have ranged from our
People Value Proposition, to the future of hybrid
working, and the results of the all-colleague
survey.
- Regular colleague surveys provides a way for
colleagues to have their say on key operational
matters at the Society.
- The ongoing activity of our diversity and
inclusion employee group, Connect. Further
details of the activity of our Connect group can
be found on page 35 of this report.
- Ongoing dialogue through our intranet platform
WeBe, which allows open, transparent and
conversational discussions across all of our
colleagues including the Executive.
- A number of ‘all hands’ meetings hosted by our
Chief Executive Officer providing an opportunity
for our colleagues to ask questions.
Our Communities
- as a business we do not
exist in isolation but form an integral part of
the communities we serve. Listening to and
understanding the role we play helps ensure our
decisions remain sustainable.
As a regional building society the strength of
our community relationships helps contribute to
being a sustainable business – one which cares
about the communities it serves. As detailed
on pages 30-37 of this report, the significant
work the Society undertakes to support local
community causes is very much fundamental to
what we do and how we operate.
The Board receives regular updates on the
Society’s community activities. Funding from the
Society’s Community Account has been used to
provide grants which have benefitted vulnerable
groups across our region. The Society’s
partnership with Barnardo’s to build four ‘Gap
Homes’ is another example of targeted support
towards vulnerable people.
- Much needed funding to local causes through
our Community Account, affinity savings
products and grants administered through the
Mercian Community Trust;
- Fundraising and volunteering in support of
causes covering a wide array of community
needs; and
- Delivery of financial education sessions to local
schools and colleges to support students to feel
more comfortable about money.
Full details of our considerable community
engagement programme can be found on pages
30-37 of this report.
Our wider stakeholder groups
- intermediaries,
suppliers and investors. We recognise our
reliance on a number of key third parties to
support core elements of our business model.
Listening to the views of these groups helps foster
constructive working relationships and is key to
our mutual success.
The Board regularly receives updates from the
working relationships we foster with our wider
stakeholder groups including:
- The results of our annual broker survey which
provides our much valued intermediary
partners the chance to let us know how we’re
doing and to give us ideas for how we can
improve. The results of this survey are used to
inform product, policy, process, service and
system developments.
- Relationships with our wholesale investors
overseen by the Assets & Liabilities Committee.
- Regular attendance at supplier user groups
which help provide a constructive feedback loop
between clients and providers; and
- Engagement with investors to support
the development of constructive working
relationships.
29
Annual Report and Accounts 2024: Business Review
Our
Stakeholders
How the Board has considered
views within decision making
How else we engage to
ensure views are considered
Our
Environment
- understanding and actively
reducing the impact of the Society’s operations
ensures we are able to support the financial
wellbeing of generations to come.
Understanding and seeking to actively reduce the
environmental impact of our physical operations
is a growing priority of the Board. Our current
environmental policy includes aims and targets to
be met by continuous improvement:
- A programme of work to reduce our resource
consumption, re-using and recycling where
possible;
- Accelerating our target to become carbon
neutral for all operations under our direct
control by 2025.
- Procurement of goods and services in a socially,
environmentally and economically responsible
manner.
- An environmental policy that requires the
following aims and targets to be met through
continuous improvement which includes:
- Carbon neutrality;
- Energy and water;
- Waste;
- Travel and transport;
- Procurement;
- Health and wellbeing; and
- Training, awareness, and communication.
Further details can be found on pages 30-37 of
this report.
Our
Regulators
– as a dual regulated Financial
Services firm having an open, transparent and
constructive dialogue with our regulators ensures
the decisions we make regarding our long-term
future are safe and sound.
The Society’s Board maintains an open and
transparent relationship with both the FCA and
the PRA. Key engagement includes:
- The management of any actions raised by
regulatory reviews at Board level with key
updates provided at regular intervals; and
- Attendance of Board members, both Executive
and Non-Executive, at key regulatory update
meetings so the Society’s position is considered
in light of emerging developments.
- Monthly updates provided on key regulatory
items covered within the material supplied to
the Board.
- Regular dialogue with regulatory supervisors
covering principal risks and other matters.
- Regular regulatory ‘horizon scanning’
completed by our Legal and Regulatory team to
ensure the Society is well informed regarding
latest updates and actions required.
Annual Report and Accounts 2024:
Business Review
30
Our Purpose is founded on our commitment to the communities
that we serve and the region in which we operate, to ensure
we create a positive impact on the lives of our members,
colleagues, and environment.
Introduction
Good Business Charter
For the fourth consecutive year we
have been awarded the Good Business
Charter Accreditation. This recognises
our efforts as a responsible business and
employer. The Good Business Charter promotes and encourages
responsible business behaviour by requiring all companies to
demonstrate their commitment across ten categories.
This section of the report highlights how we have delivered
against these categories through the past year.
Commitment to our customers
Our key priority is to ensure that we offer the best products and
services to meet the needs of our customers. This is enshrined
in our Member Commitments and Society Values, and our
effectiveness in delivering on these is measured in a range of
ways such as in:
• Regularly reviewing and acting on customer feedback to
ensure our products and services offer fair value and meet the
needs of our customers.
• Measuring customer retention on savings products such as
fixed-rate bonds.
• Utilising measures such as Net Promoter Score
4
to ensure
we are promoting our products and services in a clear and
balanced manner.
• Comparing the average rate we pay our members, to the
average rate paid in the savings market to ensure we are
competitive.
• Monitoring the number of upheld complaints we have resolved,
as well as the number of complaints referred to the Financial
Ombudsman Service (FOS).
• Tracking and improving our efforts to reduce carbon emissions,
water usage, and waste reduction year on year.
• Monitoring the hours being spent in our local communities
through colleague volunteering, the delivery of our education
programme, and the amount of funds raised and distributed to
good causes.
Sustaining our Society
4
Net Promoter Score and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld.
Annual Report and Accounts 2024:
Business Review
31
Customer research and engagement
Customer feedback is extremely important as it helps us to
make constant improvements to the products and services we
offer. We frequently test customer understanding on important
communications, use customer research to develop new
propositions, and seek feedback through our customer panel,
which consists of over 2,000 members. Our Annual General
Meeting also gives members the opportunity to meet and ask
questions to our Board and senior management team.
Customers are kept informed about our products and services
through customer mailings, e-mail, information at branches, and
updates on our website. We collect feedback through our voice
of the customer programme, which allows us to track real-time
feedback. After visiting one of our branches, speaking with our
Customer Service team, or meeting with a Personal Mortgage
Consultant, we invite our customers to rate the service they
received and provide feedback about their experience.
Engaging with our members is vital and our Member Council
plays a key role in this. This year has seen us hold three Member
Council Meetings covering a range of topics such as the future of
digital at the West Brom, changes on our savings platform, and
Executive Director Remuneration.
Supporting our customers, no matter
what their challenges
Accessibility to our communications is carefully considered,
and a range of alternative formats are available to ensure our
customers can interact with us in the most effective way to suit
their individual needs.
Alternative formats include large print,
braille, and accessible options on our website.
We understand that dealing with finances can be stressful and
that many people may lack financial literacy and confidence. We
have demonstrated our commitment to this area by becoming
the first building society to partner with Plain Numbers, who provide
training and accreditation for presenting numbers as clearly as
possible. Over the last year we made continuous improvements
to our customer communications to ensure they are easy to
understand with key letters achieving accreditation from Plain
Numbers.
We are also part of the Alzheimer’s Society’s Dementia Friends
programme, which aims to raise awareness and change the way
people think, act, and talk about dementia. All our customer-facing
colleagues receive dementia awareness training, and our branches
are classed as dementia-friendly. We have over 240 colleagues who
have completed their dementia friendly training.
Our goal is to provide our members with the confidence that we can
support them, no matter what challenges they may face.
Community
Engagement
Over the last year, we have distributed over £48,000 to numerous
charities and local causes through fundraising, member donations
and community grants.
Our corporate partnership with Barnardo’s entered its third year
and has raised over £9,500 in the last year through a variety of
employee fundraisers and events. In December, we participated in
the global Giving Tuesday initiative and temporarily turned our 34
branches into Barnardo’s clothes donation points. Our customers
generously donated over 50 bags of clothing, making it an excellent
opportunity for them to get involved in our charitable giving.
In July 2023, our Red Balloon Appeal Account reached a significant
£1m savings milestone with Birmingham Children’s Hospital, which
saw us being recognised as one of Birmingham Children’s Hospitals
32
Annual Report and Accounts 2024:
Business Review
100 Heroes due to our members contributions through the Red
Balloon Appeal.
Mark Brider,
Chief Executive Officer at Birmingham Children’s
Hospital Charity, said:
Congratulations to the West Brom
for reaching this phenomenal milestone.
Our partnership with the West Brom is
one of our longest running and it can’t
be overstated how very special it is to us.
Their support year after year allows us
to plan ahead for new projects, research
and equipment at our hospital, to ensure
we continue providing world-class care to
our brave patients. A very big thank you to
them and their members.”
In March 2024 we were awarded a Gold Pennies from Heaven
Award for running the scheme to a high standard for 10 years
and for raising over £10,000 for our chosen charities.
The continued generosity of our members has seen a further
£5,700 sent to the Disaster Emergency Committee Appeals,
supporting those affected by the Turkey-Syria Earthquake,
Pakistan Floods, and the Conflict in Ukraine. We have also
continued to house and support 10 Ukrainian families through
properties in our West Brom Homes rental portfolio.
The Power of Partnerships
Our affinity accounts enable members to support specific local
causes through their savings. By opening an affinity account,
members can achieve their own financial goals whilst supporting
an organisation that they feel a personal connection with. The
affinity organisation receives an annual bonus payment based
on the total savings held within the accounts.
Our Community Account savings product is one of our oldest
affinity partnerships. In affiliation with the Diocese of Lichfield,
the Mercian Community Trust administers grants to help local
community groups and charitable causes. Over the past year,
we have supported a wide range of causes, awarding grants
totalling over £16,600 to 27 local community causes and charities.
One of the 2023/24 recipients was Aldridge Cricket Club, a
grassroots club which offers the local community the opportunity
to participate in cricket, as well as offering a community space
where local people can walk, meet others, and engage in
outdoor activities.
This grant will go a long way to
creating a safe and useable outdoor
space for the local community. Having an
outdoor space for use by the public is vital
for wellbeing, so this grant will play a big
part in bringing that back. A huge thank
you to the West Brom!”
Tom Davies, Aldridge Cricket Club
Volunteering
Each colleague is encouraged to take two volunteering days per
year to use their time and talents to help others in the community.
Over 100 days were spent last year by colleagues supporting
their chosen causes.
Increasing financial confidence amongst
the younger generation
According to the Money and Pensions Service’s research, 67% of
young adults lack confidence in planning their financial future
and we strongly believe that providing financial education
to young people in our region is crucial. During 2023/24, we
provided support to 1,800 students across 28 different schools
using our Money-Go-Round and Financial Fitness programmes.
We have also recently launched tailored sessions to assist
children with additional learning needs.
33
Annual Report and Accounts 2024: Business Review
34
Annual Report and Accounts 2024:
Business Review
At 31
March
2024
Female
2024
Male
2023
Female
2023
Male
Directors
Number
4
7
4
6
Percentage
36%
64%
40%
60%
Senior
managers
Number
34
56
29
47
Percentage
38%
62%
38%
62%
Other
colleagues
Number
429
214
379
185
Percentage
67%
33%
67%
33%
TOTAL
Number
467
277
412
238
Percentage
63%
37%
63%
37%
From a total of 744 colleagues, 467 (63%) are female, and within
the senior managers cohort of 90, 34 (38%) are female. Whilst
we have maintained a strong gender balance in our Society,
we recognise there is more work to be done. In the coming year
we are working towards extending our apprenticeship offering
to accommodate opportunities in branches, which will further
support gender balance in entry level roles.
For four years we have been a committed signatory to the
Race at Work charter and have recently published our Ethnicity
Pay Gap results for the third consecutive year. As the Society’s
heartland is in one of the most ethnically and socially diverse
regions of the UK, reflecting this in our workforce is crucial to
understand and serve the needs of our members. Currently
35% (2022/23: 33%) of our colleagues are from ethnic minority
communities.
Looking at the ethnicity of colleagues at the Society based on
respondent data, the composition (compared with 2023) is as
follows:
At 31
March
2024
Ethnic
Minority
2024
White
2023
Ethnic
Minority
2023
White
Directors
Number
1
10
1
9
Percentage
9%
91%
10%
90%
Senior
managers
Number
19
71
12
64
Percentage
21%
79%
16%
84%
Other
colleagues
Number
238
402
197
364
Percentage
37%
63%
35%
65%
TOTAL
Number
258
483
210
437
Percentage
35%
65%
33%
67%
We are also committed to understanding and raising awareness
of all types of disabilities, including those that can seem invisible.
As a Disability Confident Leader, we are dedicated to supporting
Supporting our
Colleagues
Gender and Ethnicity Representation
Diversity is essential for a varied perspective in the workforce,
enabling us to better serve our members. We are committed to
building an inclusive work environment where all employees feel
empowered to contribute regardless of their background.
We are still committed signatories to the Women in Finance and
Race at Work Charters, as well as maintaining transparency on
both gender and ethnicity pay.
This is the seventh year of publishing our annual Gender Pay
Gap report. Our goal is to achieve gender balance at all levels of
the organisation to ensure a balance of views and perspectives
across the Society, as well as reducing the gender pay gap. As
one of the original signatories to the Women in Finance Charter,
we continue to make positive progress towards our targets for
female representation within our workforce. We have exceeded
our 30% target to maintain female Board representation by 6%
within the past year and continue to make good progress with
female representation in senior management. By the end of
March 2024 women within senior specialist roles had reached
38%, against our target of 40%.
We support female career progression in several ways including
our ‘Women In IT’ group. This group comprises over 40 female
colleagues and was created to support and inspire women
in IT roles, as well as to help those who may face challenges
in their current career progression. As part of this effort, we
have partnered with Reed, who provide a mentoring platform
that offers our female colleagues career development and
progression opportunities.
Our colleague gender composition is currently as follows:
35
Annual Report and Accounts 2024:
Business Review
people with disabilities in securing employment. In collaboration
with our Equity, Diversity and Inclusion network, Connect, a two-
day recruitment event took place for eight outstanding students
with a range of disabilities from Queen Alexandra College.
The event gave us insights into the challenges faced by these
students, and our learnings are being used to enhance our
recruitment processes to make them more accessible for those
with additional needs. Following this recruitment event, we now
offer a 10-week placement to a student who aspires to build a
career within the IT sector.
Promoting Inclusion and Representation
We strive to create a work environment that values diversity and
encourages open communication, where everyone feels heard
and appreciated.
Our colleague-led group, Connect, has been working to promote
diversity, inclusivity, and create a welcoming atmosphere for
all for the past five years. The group is sponsored by our Chief
Executive and our Chief People Officer which encourages two-
way communication between colleagues and the Executive
Committee, and gives colleagues reassurance that they’re
supported, valued, and listened to at all levels.
In 2023/24 Connect delivered several initiatives including the
introduction of unconscious bias training for all hiring managers
and anonymising gender data during the recruitment and
selection process. Connect have also continued to support the
LGBTQ+ group, encouraging colleagues to voice their challenges
and ideas, as well as welcoming guest speakers to celebrate
Pride month. This year Connect has also focussed on engaging
our Black colleagues to understand their concerns and needs.
Our Employee Council provides a platform where representatives
from all areas come together to provide feedback and insights
for our future direction, as well as enabling employees to have
a say in the Society’s strategic decision-making. During the last
year, the Council held three meetings to discuss topics such as
our People Value Proposition, the future of hybrid working, and
the results of the all-colleague survey.
Our annual all-colleague survey enables us to gather feedback
from our colleagues about what it’s like to work at the West
Brom. Based on the feedback from recent surveys, we have
delivered a bespoke New Manager Programme which over 60
colleagues have successfully completed since its launch in 2023.
All colleagues are eligible to join our affiliated union, Community,
which provides support in the workplace and at home, especially
during challenging times.
Wellbeing
The health and wellbeing of everyone at the West Brom is
paramount to our success. To support and encourage this, we
have implemented several clear, fair, and transparent policies
which support our colleagues by outlining the responsibilities of
both employees and employers.
We have 13 trained Mental Health First Aiders in our business
who offer initial support to colleagues experiencing mental
health issues. They can provide confidential conversations and
signpost colleagues and line managers to relevant support.
Furthermore, we have an Employee Assistance Programme (EAP)
in place with Health Assured. This programme offers colleagues,
and their families, access to 24/7 confidential support from
trained professionals on a range of topics, including financial
well-being, stress and anxiety, bereavement and more.
We have recently undertaken a gap analysis of WELL Building
Standard
7
criteria to further understand how we can improve
employee wellbeing within our offices, as well as improving
overall office sustainability.
Living Wage and Hours
In July 2023, our employment practices were recognised
at the Living Wage Foundation’s Champion awards, where
we received the ‘Beyond Living Wage’ award. This award is
a testament to our commitment to maintaining the highest
standards of employment practices, going beyond the basics of
our Living Wage accreditation, which also extends to our on-site
contractors. We are also a Real Living Hours employer, meaning
we provide our people the security of agreed hours, alongside
providing the Real Living Wage as a minimum.
7
WELL Building Standard is a performance-based system to measure and monitor features of the built environment that impact human health and well-being.
36
Annual Report and Accounts 2024:
Business Review
Supplier Relationships
Prompt Payment
We have signed the Government’s Prompt Payment Code and
commit to paying all suppliers within 30 days. Unless there is
specific agreement, the Society will endeavour to pay suppliers
with ‘immediate’ payment terms within 2 weeks of receipt of the
invoice. For the financial year ending 31 March 2024, all suppliers
have been paid within 30 days of receipt of invoice.
Ethical and Responsible Sourcing
We are committed to upholding the Ethical Trading Initiative Base
Code standards and encourage our suppliers to do the same.
Our annual Modern Slavery and Human Trafficking Statement
is published on our website and we maintain a zero-tolerance
approach to slavery and human trafficking throughout our
business operations and supply chain.
We adhere to the highest standards of anti-bribery and
corruption and all our colleagues are trained to recognise and
understand the associated risks. We have policies in place to
comply with applicable laws, including the Bribery Act 2010 and
the Criminal Finances Act 2017.
We strive to maintain ethical practices in our sourcing and aim to
collaborate with suppliers who share our values as a responsible
business.
Commitment to our customers also extends to maintaining
transparency. Our Tax Strategy Statement is reviewed and
approved annually by the Audit Committee and is published on
our website.
Environmental
Responsibility
Our Journey to Net Zero
We’re continuing our journey to net zero, developing initiatives
and implementing changes to limit our impact on the
environment.
In line with the UK’s decarbonisation effort, we are working
towards becoming carbon neutral for all operations under the
Society’s direct control by 2025 and achieving net zero emissions
by 2050. It is our aspiration to become carbon negative, meaning
we are removing more carbon dioxide from the atmosphere than
we emit, by 2050.
We have implemented several environmentally responsible
initiatives aimed at reducing our carbon emissions. These
initiatives range from energy-saving office management to green
employee benefits, as well as offering green financing options as
part of our financial services.
Since April 2023 we have achieved the following:
• A 200% increase uptake on our EV chargers, saving a total of
15,501kg CO
2
.
• Sourced 100% renewable energy through wind and hydro
assets.
• Prioritised high energy-performance housing within our West
Bromwich Homes Limited rental portfolio, with 97% of the
portfolio at EPC C or above.
• Initiated the roll-out of a new LED lighting system across our
Head Office, designed to reduce our office emissions.
Our suppliers play an important part in our journey to net
zero, and we encourage them to work with us in achieving
our environmental goals. We have committed to only use FSC
(Forestry Stewardship Council) paper in our marketing materials
and have started transitioning to using recycled paper for our
communications.
On behalf of the Board
Alex Pawley
Chief Financial Officer
30 May 2024
37
Annual Report and Accounts 2024: Busin
ess Review
Annual Report and Accounts 2024:
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38
Risk Management
This section outlines the risks
that the Society is exposed to
and how they are managed.
Annual Report and Accounts 2024:
Business Review
39
Effective management of risks and
opportunities is essential to achieving
the Society’s objectives.
The Board aims to manage effectively all the risks arising
from its activities and believes that its approach reflects an
understanding of actual and potential risks, the quantification
of the impact of such risks, and the development and
implementation of controls that manage exposures within the
Board’s risk appetite.
The Society operates entirely within the UK financial services
market and only takes on risks which it has the capability to
understand and manage effectively.
Risk management framework
The Society’s activities are governed in line with our Purpose and
Values. The Board has agreed a set of Risk Appetite Statements
covering the principal risk categories which the Society is
exposed to: business, credit, capital, liquidity, market, margin
compression, operational, retail conduct, pension liability,
cyber, and information risk (the Society’s Risk Appetite
Statements). The Board also reviews the key strategic risks
that may impact the delivery of its business plan.
These Risk Appetite Statements drive corporate planning activity,
including capital and liquidity planning, as well as providing
the basis for principal risk measures. The measures are
categorised as:
• Level 1
– These are set by the Risk Committee (RC) and the
Board has full visibility;
• Level 2
– These are set by Executive sub-committees but are
reported to the RC and the Board; and
• Level 3
– These are fully delegated to sub-committees and
reported to the RC and the Board by exception.
The final element of the framework is the formal structure for
managing risk across the Group. This is based on the ‘Three
Lines of Defence’ model which is illustrated below.
First
Line
Second
Line
Third
Line
Overview
• Defines culture and values
• Establishes risk appetite and strategy
• Approves frameworks, methodologies, policies,
and roles and responsibilities
• Operational areas are accountable for management of
risk and execution of risk controls in their area including:
• Identifying;
• Assessing; and
• Reporting risk exposures, taking into account the
Society’s risk appetite, policies and procedures.
Day-to-day risk
management
Board
Chief Executive Officer
Chief Risk Officer
Executive
Risk
oversight
Independent
assurance
• Independent oversight and risk governance through
monitoring and reporting responsibilities to Operational
Oversight Committees and the Risk Committee.
• Provide guidance, support and education on Risk
Management matters, working collaboratively
with business management to ensure effective risk
management practices are being delivered.
• Internal Audit provide the Board (via the Audit
Committee) with independent assurance over the
adequacy and effectiveness of control mechanisms
in place to mitigate the Society’s exposure to all risks
within its Risk Categories.
Chief Internal Auditor and Board Audit Committee
Board Risk Committee
Annual Report and Accounts 2024:
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40
Governance Structure
During the year, risk governance was provided through eleven
risk management committees/groups:
Risk Committee (RC)
- Comprising six of the Non-Executive Directors,
this Committee is responsible for the oversight and management of
the principal and key strategic risks identified by the Board.
Audit Committee (AC)
- Comprising four Non-Executive Directors,
the Audit Committee provides the Board with assurance regarding
the integrity of the financial statements, the adequacy of the
provisions and the adequacy and effectiveness of the Society’s risk
management frameworks.
Independent assurance is provided by the Internal Audit function
which has a direct reporting line into the Chair of Audit Committee.
Executive Risk Committee (ERC)
– This Committee is chaired by
the Chief Risk Officer (CRO) and is responsible for providing the
Executive and the Risk Committee with an enterprise wide view
of the risk profile of the Society, including current and potential
risks. The ERC is also accountable for driving the detailed
implementation of the Society’s Risk Management Framework.
Assets & Liabilities Committee (ALCo)
- This Committee is
chaired by the Chief Financial Officer (CFO) and is responsible for
overseeing the assets and liabilities risk, including the assessment
of exposure to Treasury counterparty credit, market, liquidity,
pension liability, margin compression, basis and interest rate risk.
Residential Credit Group (RCG
) - This Group is chaired by the
Senior Manager Credit Risk and is responsible for overseeing
the exposure to credit risks generated as a result of the Society’s
residential lending activity.
Commercial Loans Risk Group (CLRG)
- This Group is chaired by
the CRO and is responsible for overseeing the Society’s exposure
to credit risks in the commercial loan book.
Conduct Risk & Customer Review Group (CRCRG)
– This Group
is chaired by the Society’s Chief Customer Officer and is
responsible for overseeing the management of retail conduct
risk and includes responsibility for monitoring customer
outcomes arising from the Society’s retail activities.
Operational Risk & Resilience Group (ORRG)
– This Group is
chaired by the Chief Operating Officer (COO) and oversees the
management of all operational, information, and operational
resiliency risks.
Information Security Forum (ISF)
– The ISF provides a forum within
which First Line of Defence operational level discussions around
cyber risks can be collectively considered and discussed amongst
operational IT leaders, IT and IT Security personnel, and wider
leadership and practitioners (as required), across the Society. This
cyber management ‘committee’ as part of the ISF, forms part of the
Society’s overall cyber security risk governance regime.
Capital Review Group (CRG)
- This Group is chaired by the CFO
and is responsible for overseeing the Group’s capital position.
Model Risk Group (MRG)
- This Group is chaired by the CRO and
is responsible for overseeing the Society’s exposure to model risk
across the business.
Risk categories
The Board has identified ten principal risk categories, which
together define its overall risk universe. These are defined below:
Conduct risk
The risk that action or behaviour by the Society results in poor
outcomes for customers.
Business risk
The risk of the Society failing to meet its business objectives
through: the inappropriate selection or implementation of
strategic plans; inadequate assessment and mitigation of
climate change related risks; and/or failure to implement a
diverse and inclusive culture.
Operational risk
The risk of loss and/or negative impact to the Society resulting
from inadequate or failed internal processes, systems or people,
or from external events.
Credit risk
The risk that losses may arise as a result of the Society’s
borrowers, debtors or market counterparties failing to meet their
obligations to repay.
Capital risk
The risk that the Society has insufficient capital to cover stressed
losses or to meet regulatory requirements.
Liquidity risk
The risk that the Society either does not have sufficient financial
resources to enable it to meet its obligations as they fall due or
can secure such resources only at excessive cost.
Market risk
The risk of changes in the value of, or income arising from, the
Society’s assets and liabilities as a result of unexpected changes
in financial prices, primarily interest rates, property prices, bond
yields and inflation.
Margin compression risk
The risk of a margin squeeze caused by having limited ability to
increase margins on the mortgage book if the Society were to
Annual Report and Accounts 2024:
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41
experience a relative increase in funding costs affecting variable
rate retail funding and in particular the administered rate retail
balances.
Pension liability risk
The risk that there will be a shortfall in the value of the Society’s
pension fund assets over and above the liability to its employees
under the defined benefit pension scheme. This may result from
a number of sources including investment strategy, investment
performance, market factors and mortality rates.
Cyber risk
The risk of damage or harm to our information assets or systems,
by an entity or threat, and the likelihood that damage or harm
will be realised.
For each risk category the Board has agreed an appetite
statement and associated key metrics which, together, define
the level of risk the Board is prepared to accept or tolerate. In
addition, key threats and the corresponding Society responses
or mitigants, as well as opportunities, have been identified.
The mitigating controls and the effectiveness of the controls are
monitored by line management, with control functions providing
a Second Line of Defence. Internal Audit, through an approved
assurance programme, provides the Third Line of Defence.
The Risk Committee meets at least quarterly to review the
Society’s exposure to the risk categories. During this financial
year, the Committee met on six occasions.
Day-to-day management of key risks
Primary responsibility for risk management, including the design
and operation of effective controls, rests with the management of
each business function - the ‘First Line of Defence’. Support and
challenge is provided through specialist risk functions - Credit
Risk, Operational Risk, Compliance and Financial Crime, and
the ALM (Asset and Liability Management) Oversight and Model
Risk Oversight – the ‘Second Line of Defence’. These functions
develop and review policies, monitor and support compliance
with those policies, and support the business functions in their
management of risk.
Governance and oversight is provided through a number of
management and executive committees as detailed on page 40.
Credit risk
The Society’s Board establishes the credit risk appetite and
supporting lending policy. All new lending is monitored against
risk appetite limits, with any breaches reported through the
Society’s risk committees so that the need for corrective action
may be considered.
The Society’s exposure to residential and commercial credit risk
is managed by a specialist Credit Risk team, which is responsible
for the Credit Risk Management Framework and associated limits
and providing regular reports to the Risk Committee.
Economic uncertainty and market movements including
significantly higher interest rates, have manifested into cost of
living challenges for many in the UK. In response, the Society has
continuously reviewed its credit risk policies and procedures that
reflect these affordability challenges. This approach supports
both responsible lending decisions and the support provided to
individual borrowers in vulnerable financial situations.
The Society’s approach to collections and recoveries has
continued to evolve, reflecting experiences of working with
borrowers through recent uncertainty and dramatic increases
in the cost of living. Focus has been drawn to providing
pre-emptive support for borrowers. The Society’s approach
is reflective of any ongoing government and regulatory
guidance and has specifically been fully cognisant of the
Financial Conduct Authority’s (FCA) Tailored Support Guidance,
and supported the Government’s Mortgage Charter.
The Society’s internal credit risk reporting has evolved to ensure
that the risk committees have the required information in relation
to borrowers’ potential affordability issues or those already in
financial difficulty in light of the cost of living challenges.
Additionally, credit risk can arise within treasury transactions
(used to meet liquidity requirements and those hedging
instruments used for interest rate risk purposes). This type of
credit risk is managed by the Treasury Middle Office team.
On a daily basis, this team monitors exposures to counterparties
and countries, and ensures operations remain within Board
approved limits. ALCo and the Board review the Treasury Policy
and limits, with reports presented to ALCo on a monthly basis
confirming compliance with such policy limits.
Market risk
Market risk exposures are managed through the Treasury
department which is responsible for managing exposure to all
aspects of market risk within parameters set by the Board.
ALCo reviews the Treasury & Financial Risk Management Policy
(TFRMP), recommending changes to the Board as appropriate,
and ensures that regular reports on all aspects of market risk
are assessed and reported to the RC and Board. The key market
risk is interest rate risk, which arises as a result of differences
in the timing of interest rate re-pricing of assets and liabilities.
To mitigate this, the Treasury team uses natural balance sheet
hedging (e.g. matching 2 year fixed rate mortgages with 2 year
fixed rate saving bonds) and derivative instruments. The Building
Societies Act 1986 restricts the use of derivatives strictly to hedge
against the impact of fluctuating external factors, such
as interest rates.
In line with regulatory requirements and best practice, the
impact on net interest income (NII) of a parallel shift in interest
rates in both directions is considered. In addition, the impacts of
alternative non-parallel scenarios upon NII and market value are
also considered. Both are reported monthly to ALCo.
Interest rate sensitivity also arises from the potential for
different interest rates to move in different ways, e.g. Bank Rate
Annual Report and Accounts 2024:
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42
mortgages are partially funded by administered rate liabilities.
The impact of these mismatches (basis risk) is monitored by the
Treasury team and reported to ALCo. There is no direct exposure
to foreign exchange rates.
The Society has invested in property through its subsidiary West
Bromwich Homes Limited (WBHL) and offers residential property
for rent. This exposes the Society to movements in house prices.
Liquidity risk
The Society funds mortgages on residential property substantially
from shorter term deposits provided by its savings members. The
contractual maturity of the mortgages is up to 40 years although
loans are typically repaid early due to borrowers moving home or
remortgaging.
Savers’ deposits, whilst accessible predominantly on demand, at
short notice or for fixed periods, tend to remain with the Society
for longer periods. A substantial proportion of savers have long-
established relationships with the Society, predominantly through
its Branch network.
This difference in the nature of borrowers’ and savers’
relationships cause a structural mismatch between the speed at
which the Group can generate cash from its business assets and
the demand for funds to meet its liabilities. To mitigate this risk,
the Group holds sufficient cash to meet the normal day-to-day
operations of the business and in addition, maintains a buffer
of high quality liquid assets, which can be converted quickly into
cash to cover outflows in stressed conditions. Processes are in
place to ensure that the quantity, quality and availability of these
liquid resources is adequate at all times.
The Board undertakes a detailed review of its liquidity
adequacy under the Internal Liquidity Adequacy Assessment
Process (ILAAP) and submits this to the Prudential Regulation
Authority (PRA) for supervisory review upon their request.
The ILAAP specifies the daily processes that the Society will use
to determine the amount of liquidity required to cover its potential
cash flow needs under a range of stresses including three PRA
standard scenarios: ‘idiosyncratic’, ‘market-wide’ and ‘combined’.
The supervisory review also informs the PRA’s view of the amount
of ‘buffer’ or highest quality liquid assets that the Society should
hold to meet the three standard regulatory stress scenarios
and the maximum allowable gap between maturing wholesale
assets and wholesale liabilities (wholesale refinancing gap).
The Treasury team maintains liquid resources at the greater
of the Liquidity Coverage Ratio requirement or the internal
assessment of liquidity adequacy.
The Net Stable Funding Ratio (NSFR) is a longer-term stable
funding metric, which measures the sustainability of the Society’s
long-term funding requirement. The Society’s NSFR is in excess of
100%, and the Society holds sufficient stable funding to meet this.
The TFRMP lays down a rigorous framework of limits to control
the Society’s liquidity risk. The governance process surrounding
liquidity risk management activities is as follows:
• The RC has delegated authority for the governance of liquidity
risk management to the ALCo which meets at least monthly;
• Operational management of liquidity risk is further delegated
to the Liquidity Management Group (LMG) which typically meets
weekly. LMG looks at liquidity stresses over a horizon of up
to three months and plans cash flows over a rolling 12 month
planning period;
• The Treasury team is responsible for day-to-day management
and maintenance of adequate liquid resources under
delegated authority from ALCo; and
• The RC monitors independently the overall liquidity adequacy
process, including the activities of ALCo, LMG and the Treasury
team. It also reviews and recommends for approval to the
Board the ILAAP at least annually.
The Society is responsible for the liquidity and cash flow
requirements of wholly owned subsidiaries. Throughout the last
financial year, a conservative approach to liquidity management
has been maintained, holding the vast majority of liquidity in the
Bank of England Reserve Account and other high quality, Liquidity
Coverage Ratio-eligible assets. Treasury operates a strict control
framework and exposures are monitored on an intra-daily basis.
Capital risk
The Society conducts an Internal Capital Adequacy Assessment
Process (ICAAP) covering all risks. This is used to assess the
Society’s capital adequacy and determine the levels of capital
required going forward to support the current and future risks in
the business. This analysis is collated through the ICAAP that is
approved by the Board. The ICAAP incorporates expected future
capital requirements from changes in business volumes, mix of
assets and activities within the context of current and anticipated
future risks, and stressed scenarios. The ICAAP is reviewed by the
PRA periodically to set the Society’s Total Capital Requirement.
Society capital requirements are reviewed on a monthly basis
and the results of this monitoring are reported to the CRG, ALCo,
RC and the Board. RC reviews and recommends for approval to
the Board the ICAAP at least annually.
The detailed breakdown of the Society’s capital position can be
found on page 26.
Operational risk
Each business function has a clearly articulated responsibility
for identifying, monitoring and controlling its operational risks.
The business function receives support and guidance from the
Operational Risk team, which has regular dialogue with function
managers and collates management information for review by
executive management, the Operational Risk and Resilience
Group, and the Risk Committee.
The Operational Risk team also provides independent input and
challenge to the business functions, both through the regular
review of operational risks and day-to-day business initiatives.
Annual Report and Accounts 2024:
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43
They also oversee the operational risk scenario analysis
undertaken that feeds into the ICAAP.
During the year there has been continued focus on our
operational resilience and there has been co-ordinated efforts
successfully across the business in the delivery of the Society’s
operational resilience plan and Business Continuity and
Disaster Recovery Risk Management Framework, all important
components against which to manage operational resilience.
The Society has established its important business services,
associated impact tolerances and completed resource mapping.
We have continued to focus testing against severe but plausible
disruption scenarios to identify any vulnerabilities to the Society
remaining operationally resilient. Another key focus area for
the Society this year has been supplier management, with the
introduction of a dedicated team to support business areas with
delivering increased understanding and control. These steps
support us in our delivery against the regulatory requirements
as we have entered the transition period to March 2025, defined
by the FCA and PRA “as the ability of firms to prevent, adapt,
respond, recover and learn from operational disruptions”.
As a subset of operational risk, Information risk is supported, and
has second line oversight from the Compliance Team to ensure
appropriate protection and management of member and Society
information assets and to ensure compliance with regulatory
requirements set out by the ICO. This is to ensure appropriate
controls are in place to protect the data from breaches caused by
people or systems.
Conduct risk
Conduct risk is overseen by the FCA which continues to increase
its regulatory focus on the importance of putting customers’
needs first. Following the previous compliance rules, which
include the fair treatment of customers, the introduction of
the new Consumer Duty sets higher and clearer standards to
protect customers and requires us to proactively work to deliver
good customer outcomes – it is not enough to just avoid poor
outcomes.
As a result of the Duty, the Society made a number of
enhancements to policies, procedures and communications to
ensure compliance with the initial deadline in July 2023. The
second phase is on target for compliance by the end of July 2024
with the following key deliverables;
Fair value assessments on closed mortgage products
are
being completed with any gaps and actions being tracked;
Customer outcome testing
is being completed across 15
customer journeys which have been identified as having
potential to cause harm if they drive poor customer outcomes;
A new
outcome monitoring dashboard
is being developed
which will track our performance against outcome focussed
metrics and data, and highlight any areas for improvement –
this will replace our existing Conduct Risk MI; and
A
Board report and attestation
to provide reassurance that we
are compliant with the Duty and have plans to continue to embed
good customer outcomes.
CRCRG has been implemented which includes the oversight of
conduct risk. This is chaired by our Chief Customer Officer and
demonstrates the importance the Society places on providing
good customer outcomes with the management of conduct risk a
key component in the successful delivery of the Society’s strategy
and objectives, and protection of its members.
Cyber risk
Identifying and understanding cyber security risk is paramount
in today’s digital landscape, where the interconnectedness
of systems and the proliferation of sophisticated threats pose
significant challenges. Recognising the potential impact
of cyber-attacks on the Society’s operations, finances and
reputation, the Society prioritises proactive measures through
the implementation of and maturing robust security frameworks,
conduct regular risk assessments, and fostering a culture of
security awareness among Society colleagues.
The West Brom’s Risk Committee approved Cyber Security
Strategy outlines the approach to, and the implementation of
cyber security by delivering best security practice that is aligned
to industry standards to protect the services and products that
the Society provides, and the supporting information assets,
systems and data stored within them from unauthorised access,
harm, or misuse.
Additionally, the Risk Committee approved Cyber Security Risk
and Control Assessment Policy implemented within the Society
forms the basis of the Society’s Cyber Security Risk Management
Framework setting out the requirements for the identification and
assessment of cyber security risks inherent in the Society’s key
value chain and supporting services, infrastructure, extended
enterprise, IT systems, products, processes, people, and activities
setting out the requirements for the evaluation, monitoring and
testing of cyber controls.
The IT Security team develops and implements the people,
processes and technology to effectively manage cyber risk
within the Society’s agreed cyber risk appetite statement being
“zero” where “all cyber security risk events need to be identified,
escalated, and recorded within the parameters set out in the
Cyber Security Risk and Control Assessment Policy”. Decisions
to accept residual cyber security risk impacts being signed off
by the Chief Information Security Officer and/or member of the
Executive.
The Society continuously monitors compliance with the Security
Risk and Control Assessment Policy through bi-annual reports
to the ERC on the status of risks and controls including risk
profile and key trends, monthly reporting on risk events to the
Information Security Forum and monthly production of key risk
indicators that confirm compliance to policy requirements.
44
Risk
category
Principle external threats
Society response and mitigants
Business risk
Adverse changes to the operating environment arising from the general
uncertainty in the UK economy, due to the ongoing disruption caused by
heightened geopolitical risks and ongoing cost of living crisis leading to:
• Higher inflation resulting in Bank Rate increasing above 5%;
• Declining consumer confidence resulting in reduced activity in the
housing market and adverse impact from both lower lending and a
potential fall in house prices;
• Elevated competition in the mortgage market and rising cost of retail
funding;
• Flat or declining economic growth and associated rising
unemployment causing possible recession; and
• Increasing regulatory costs.
Business plans continue to model the impact of a range of
scenarios and stress tests, which have been expanded to
include potential macroeconomic impact of rising central
Bank Rates to respond to higher inflation due to global
supply chain issues and rising energy costs. This is reflected
within the IFRS 9, ICAAP and ILAAP assessments. These
outcomes have Board visibility and are reviewed by a
number of risk management committees.
These scenario and stress tests are complemented by
Reverse Stress Testing to identify the circumstances that
put the Society into an unviable position, i.e. capital and/or
liquidity falls below minimum regulatory requirements.
The Society is based in the UK and has no EU operations
limiting its exposure to Brexit related operational risks.
Credit risk
Higher unemployment as a result of self-employed/wider business
insolvencies and/or an increase in Bank Rate (leading to increased
arrears and losses).
The Society’s IFRS 9 provisioning and stress testing models
assume a range of unemployment levels and varying
interest rate scenarios, including a stressed outcome.
Should an increase in arrears accounts occur, the Society
would expand its credit services resource.
Reduction in property prices (leading to a higher incidence of voluntary
possessions and elevated shortfalls when properties sold).
The Society is committed to work with its borrowers across a
range of forbearance options to avoid possession wherever
possible. In the event that possessions were to increase, the
Society’s regular reviews of its IFRS 9 provisions would reflect
this increase. Mortgage Indemnity Guarantee insurance is
obtained on lending originated at above 80% Loan to Value
to mitigate potential losses.
Low or flat economic growth combined with higher inflation (leading to
further commercial property/BTL tenant failures).
The Society has a well-resourced and highly experienced
team dealing with commercial property and BTL mortgages
and, as has been the case throughout the year, works with
borrowers and agents to lessen the impact.
Capital risk
Rules for calculating capital (amount required and/or amount held) are
changed.
Maintain regular dialogue with the regulator and ensure full
understanding of and compliance with the relevant rules.
Liquidity risk
Intensification of competition for retail and wholesale funding.
Following the failure of US mid-size banks, rules for calculating liquidity
(amount required and/or amount held) are changed.
The Society continues to demonstrate the ability to attract
new retail deposits this year and the focus has been on
fixed rate funding. The Society also has access to a diverse
range of other funding sources, including wholesale options
and funding provided through the Bank of England’s Sterling
Monetary Framework.
Scenario and stress testing is undertaken to assess the
requirements over a number of different time horizons. This
is also complemented by Reverse Stress Testing to identify
the circumstances that puts the Society into an unviable
position, i.e. liquidity falls below minimum regulatory
requirements.
Margin
Compensation
risk
Reduction in returns from residential tracker mortgage assets whose
rate is linked to Bank Rate with no floor.
The Society does not originate any new residential tracker
mortgages and is managing down its Bank Rate Tracker
book, replacing this with administered rate, or SONIA-linked
assets.
A relative increase in funding costs affecting variable rate retail funding,
and in particular the administered rate retail balances.
The Society has embedded into the Risk Management
Framework, a Margin Compression Stress (MCS) model.
The MCS model quantifies what could happen to Net
Interest Margin (NIM) following an increase in funding
costs exclusively outside of other benchmark rates (Bank
Rate and SONIA) and returns earned on existing mortgage
assets (which are mostly linked to benchmark rates through
swaps).
Principal risks and uncertainties
Set out in the following table are the Board’s principal external threats which have been
identified by the RC, along with the Society’s responses and mitigants in place.
Annual Report and Accounts 2024:
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45
Risk
category
Principle external threats
Society response and mitigants
Market risk
The risk of a reduction in the Society’s net interest margin as a result of
rising competition amongst deposit takers.
The Society operates within Board approved limits and
monitors the exposure to increases in funding rates through
ALCo.
Falling HPI, leading to a reduction in the book value of WBHL properties.
No new homes have been added, containing the exposure
and properties continue to be sold where appropriate.
Operational
risk
Single points of failure are identified, potentially impacting on critical and
Important Business Services.
The Society maintains an operational resilience framework
to prevent, adapt, respond to, recover, and learn from
operational disruptions. Scenario analysis is also
undertaken.
A significant business continuity event.
Detailed business continuity plans are in place, which are
regularly tested and supported by scenario testing.
Investment in core technology introduces execution risk with the benefits
being delayed or not delivered.
The Society has a robust change management framework in
place with regular updates provided to the Board.
Insurance arrangements do not sufficiently cover an event (requiring the
Society to pick up the cost).
The annual review of insurance arrangements is based on
advice from brokers and an annual benchmarking exercise.
Cyber risk
One or more of the Society’s IT systems are attacked for the purposes of
financial gain, theft of data or to cause the Society disruption or negative
exposure and threaten the security of members’ information, and the
availability of the services offered to them. Cyber attacks, including those
done through phishing, malware, ransomware or supply chain attack,
remain a significant risk for financial institutions.
The Society recognises the need to maintain and develop
its defences and responses in this area in order to protect
the Society and maintain the trust of customers and the
confidence of regulators. The Society has a robust Cyber
Security Strategy and RC is kept updated as to the maturity
of the Society’s cyber defences and controls and a Chief
Information Security Officer has been recruited to develop
these further. In addition, Cyber Risk has now been elevated
to a principal risk with its own framework and appetite
statement.
Pension
liability risk
Increased longevity, poor or volatile returns on scheme assets such as
equities, gilts or bonds linked to long-term interest rates (requiring the
Society to contribute more to the scheme).
The Defined Benefit Scheme is closed to new members and
existing members are no longer accruing service benefits.
The Scheme is subject to an actuarial review every three
years to calculate the current position (surplus/deficit)
and was finalised in 2023. The Society and the Trustee
Board agreed to eliminate the funding shortfall through
contributions by the Society. The Scheme’s investment
advisors provide support on the strategies for the Scheme
to the Trustee Board which aims to fulfil future funding
requirements of the Scheme, as well as hedging interest
rate and inflation risks to protect the pension liabilities
against market volatility.
Retail
conduct risk
Actions of third party and outsourced suppliers leading to adverse
customer outcomes.
A robust supplier framework is in place to oversee the
activities of key suppliers. The conduct risk appetite metrics
monitoring is reported to RC.
Annual Report and Accounts 2024:
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Annual Report and Accounts 2024:
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46
Business conditions and the
economic environment
The key themes from the previous financial year, subdued
economic growth, high inflation and rising cost of living
pressures, continue to shape the UK economic outlook. Global
central banks continued to respond to higher inflation by raising
interest rates to reduce demand, with the Bank of England
increasing Bank Rate to 5.25% in August 2023, increasing from
4.25% at the end of March 2023, to its highest level since 2008.
Although it appears we are at or near the peak of the interest
rate rises, Bank Rate is expected to remain elevated at a higher
level than recent years.
Higher interest rates and economic uncertainty have weighed
on activity in the housing market, although house prices have
remained relatively robust throughout 2023 despite predictions
of large corrections. The forecast outlook is dependent on the
performance of the wider economy, and the Society has shown
appropriate prudence in its modelled macroeconomic scenarios
to take account of any downside risk.
Households are facing unprecedented pressure as a result of
rapid increases in the cost of living. Although mortgage arrears
rates have continued to remain low the Society has enhanced its
forbearance practices, with a focus on pre-emptive tailor-made
support for borrowers. These changes align to the tone being set
by our regulators.
The Society is exclusively focused in the UK and, therefore, the
general UK macroeconomic environment is key to its success.
The Society considers macroeconomic risks on a regular basis,
under central, downside, stressed and upside conditions to
understand and manage the impact on its business model.
The geo-political landscape remains uncertain, and elections
in both the UK and US have the potential to further impact on
consumer and business confidence. The ongoing conflicts in
Ukraine and the Middle East continue to be a source of risk to the
global economy.
The external factors that impact the Society include:
• Interest rates (Bank Rate, SONIA and other market rates);
• Inflation;
• Unemployment; and
• The residential housing and commercial property markets.
Climate change
Climate change has been consistently highlighted as one of the
top risks facing global economics by the World Economic Forum
(WEF). While not currently a principal risk for the Society, climate
change poses potential financial and societal challenges that
could significantly impact the Society, its members, and the
broader community. The Society acknowledges that climate
change threatens financial stability and may exacerbate existing
risks. In addition, climate change implications may affect the
ability of members to transition to a low-carbon economy.
While the financial risks from climate change may fully
materialise over longer time horizons, there are also
short-term impacts to consider.
Financial risks from climate change can arise through two
primary channels: physical and transition, which can manifest
through increased business risk, credit risk or market risk.
Physical risk can manifest through increasing frequency, severity
or volatility of extreme weather events impacting mortgaged
properties. Transition risks can arise from the process of
adjustment towards a low-carbon economy. The Society
continues to work to quantify its potential exposure to both
climate change risks to reflect emerging thinking and access
to improving data sources.
The Society is committed to transparency regarding climate-
related risks and opportunities. Our disclosures are informed
by the Taskforce on Climate-Related Financial Disclosure (TCFD)
recommendations, and we are continuously working to enhance
our reporting in line with TCFD best practice. Since 2019, the
Society has been continuously improving its capabilities to
monitor and manage climate risk adhering to the requirements
of the PRA Supervisory Statement SS3/19 – enhancing banks’
and insurers’ approaches to managing the financial risks from
climate change.
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Progress to date
Ongoing and future focus
Governance
Designated CRO as the Senior Management Function
(SMF) accountable for climate-related financial risks.
Established dedicated Climate Change function (April
2023) for leadership and coordination.
Implemented Board oversight of climate targets and
alignment with strategic objectives.
Continued engagement with the Board on climate risk
management and disclosures.
Enhanced climate risk training and education for the
Board and Executive Committee.
Evolved climate governance to drive positive outcomes
and best practice alignment.
Develop transition plans, targets, and disclosures,
reflecting the Society’s commitment to a low carbon
future.
Strategy
Reporting and monitoring of Scope 1 and 2 emissions.
Implemented measures to support near-term climate
targets.
Launched Green Additional Borrowing product,
supporting members with sustainable home
improvements.
Integrated sustainability considerations into procurement
processes, promoting responsible sourcing practices
throughout the value chain.
Undertaken analysis of physical and transition risks to
better inform decision-making processes.
Calculate Scope 3 emissions and develop targets,
broadening environmental responsibility beyond direct
operations.
Establish a Net Zero Transition Plan.
Further develop scenario testing capabilities to inform
strategic decision making.
Provide support and guidance to members on
transitioning to a low-carbon future.
Explore green finance propositions including retrofitting
support, promoting environmentally conscious choices.
Risk Management
Assessed physical and transitional climate-related risks
and impacts.
Integrated climate risk considerations into the Risk
Management Framework.
Enhanced data to improve understanding and monitoring
of climate risk in the mortgage portfolio.
Incorporated climate risk modelling and analysis into
ICAAP.
Integrated physical and transition risk factors into lending
policies and credit decisions.
Embedded climate risk factors into third party
management processes, ensuring risk mitigation
throughout the value chain.
Reported climate risk to Board Risk Committee bi-annually.
Continuously monitor climate change risk through existing
risk frameworks.
Ensure lending decisions reflect the potential impact of
climate change.
Develop data capabilities for physical and transitional risk
modelling and decision-making.
Enhance scenario analysis capability to generate
meaningful insights, informing proportionate responses
to potential climate-related threats and opportunities
under various future scenarios.
Review climate risk appetite to alignment with long-term
goals.
Continuously enhance risk assessment to account for the
evolving nature of climate risk, including its long-term,
non-cyclical materialisation.
Metrics and Targets
Published Scope 1 and 2 emissions data since 2019,
providing transparency and accountability.
Developed capabilities for future Scope 3 emission
measurement.
Improved data quality and data capture for the
assessment of transition risk.
Fully measure and report Scope 3 emissions to provide a
comprehensive carbon footprint.
Enhance climate risk stress testing to inform strategic
goals and decision-making.
Establish metrics, targets and timelines for the Net Zero
Transition Plan.
Refine long-term targets with interim milestones for the
net zero journey.
Climate summary
The table below outlines the Society’s progress to date, as well as areas of ongoing and future focus.
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48
Governance
The Society has established a robust governance framework to
oversee and manage climate change risks. RC delegated by the
Board, holds overall responsibility for climate risk oversight. RC
are fully engaged in climate strategy, receiving regular updates
on climate risk identification and management, and setting the
overall risk appetite for the Society.
Key Governance Roles:
• Risk Committee (RC):
• Oversees climate change risks.
• Sets overall risk appetite for climate change.
• Approves risk management actions.
• Receives regular climate risk updates
and management information.
• Approves the Climate Change Risk Management
Framework (CCRMF) on a triennial basis.
• Chief Risk Officer (CRO):
Designated Senior Management
Function accountable for managing financial risks arising
from climate change.
• Executive Risk Committee (ERC):
Chaired by the CRO, this
committee manages climate change risks.
• Recommends proposals to RC for approval, including
risk appetites and risk management actions.
• Conducts annual reviews of the CCRMF and climate
change-related proposals.
• Oversees outputs from climate risk stress models
and risk metrics.
• Credit Risk Team:
Manages climate change financial risks
in daily operations.
• Audit Committee (AC):
Oversees external disclosures
related to the Society’s management of climate-related
financial risks.
Training
The West Brom recognises the importance of building a strong
foundation in climate awareness across the Society. To cultivate
a culture of environmental responsibility, the Society engages
employees at all levels with ongoing educational initiatives on
climate and sustainability. Further engagement is encouraged
through the development of a Climate Champions network. This
network of employees facilitates the sharing of communication
on environmental issues across each business area. The Risk
Committee receives regular climate briefings twice a year,
encompassing climate trends and developments across the
sector. The West Brom remains committed to expanding
its educational offerings, ensuring colleagues can actively
participate in the journey towards achieving net zero.
Strategy
The Society’s climate change strategy addresses the challenges
faced by climate change through two key targets:
• To be carbon neutral for all operations under the Society’s
direct control by 2025; and
• To achieve net zero emissions by 2050, with aspiration to
become carbon negative (removing more carbon dioxide
from the atmosphere than is emitted).
The Society recognises that the journey towards a greener, net
zero economy has just begun. Targets, plans and disclosures will
evolve alongside emerging standards and best practice. Given
the urgency of the climate crisis, establishing near-term and
long-term greenhouse gas (GHG) reduction targets aligned with
science is critical. Developing these targets within the Society’s
Transition Plan will be a key area of focus for 2024/25.
Annual Report and Accounts 2024:
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49
2019-2024
2025-2030
2030-2059
Implementation Phase 1
Initiation and monitoring
Implementation Phase 2
Expand and refine
Implementation Phase 3
Innovate for impact
Measure baseline emissions:
Conduct a comprehensive assessment
of GHG emissions across Scope 1 and 2.
Initial target setting:
Set ambitious, but achievable targets for
emission reductions.
Launch net zero initiatives:
• Improve operational efficiency, implement
energy-saving measures in branches
and Head Office to reduce consumption.
• Education and awareness
initiatives for colleagues.
• Renewable energy procurement.
• Prioritise sustainable procurement
processes, choosing suppliers with strong
environmental credentials.
Monitor initial impact:
Regularly monitor progress towards initial targets
and evaluate the effectiveness of initiatives.
Scope 3 emissions assessment:
Conduct a comprehensive assessment of GHG
emissions across Scope 3.
Refine target setting:
Refine long term net zero targets and establish
appropriate near-term interim targets.
Scale net zero initiatives:
Increase the scope and effectiveness of initial net
zero initiatives based on the monitoring results
and identified opportunities.
Increase data granularity and accuracy:
Improve data collection practices to gain deeper
insights into the Society’s emissions profile and
the impact of implemented initiatives.
Strategic sustainability projects:
Undertake impactful projects that significantly
accelerate progress towards net zero.
Ongoing innovations:
Continuously explore and implement new
technologies to further expedite progress
towards net zero.
Strategic partnerships:
Establish partnerships with key stakeholders to
support industry wide decarbonisation efforts.
Accelerate net zero by 2050:
Refine and accelerate existing and new initiatives
to achieve net zero emissions by 2050 or sooner.
Operations
The Society is actively collecting data to understand its
operational emissions. To reduce the Society’s operational
emissions, green energy sourced from renewable sources
is used across Head Office and the branch network.
Furthermore, the Society’s entire vehicle fleet is fully
electric. Looking ahead, the Society is exploring additional
sustainability initiatives, such as the installation of solar
panels and improved LED lighting at Head Office.
Climate-related risks
The table on page 50 presents the Society’s initial
assessment of climate change risks, leveraging its expertise
and understanding of the current landscape. The Society
acknowledges the need to further refine and is committed
to utilising data-driven methodologies wherever possible
to enhance the accuracy of these assessments. As
understanding of the risks posed by climate change evolves,
the Society will continue to assess the potential impact on the
business and to members.
Transition Plan roadmap
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Risk
Category
Risk
Summary
Significance/
Impact
1
Ability to
Control
2
Horizon
Term Risk
3
Business risk
'Green' competition in the mortgage lending and retail deposit space.
Low
High
Short
Increasing frequency of environmental perils could affect the delivery of
3rd party goods and services.
Low
Medium
Long
Increase supply chain costs due to climate-related inflationary pressures.
Low
Medium
Medium
Credit risk
Flood/subsidence risk materialising which impacts property values and
subsequent losses to the Society.
Low
Medium
Long
Higher energy efficiency standards for BTL properties may affect our BTL
book and WB Homes book.
Medium
High
Medium
Operational
risk
Business continuity events as a result of increasing frequency and
severity of weather events (Head Office, branches, suppliers).
Medium
Medium
Long
Increased cost base (insurance, energy etc).
Low
High
Medium
Supplier/third-party operational risk due to climate events, or sourcing of
supplies from entities with poor climate change disclosures or strategy.
Medium
Medium
Medium
Market,
Liquidity,
Funding risk
Market/liquidity shocks in response to a specific weather event or
repricing for new information causing disruption and volatility in specific
asset categories, sectors, individual names or regions.
Medium
Medium
Medium
Retail and wholesale participants only funding/dealing with firms with
strong environmental credentials.
High
Medium
Short
Higher haircuts on Bank of England pledged collateral with low energy
efficiency ratings.
Medium
Medium
Medium
Savings balances eroded to fund, for example property retrofits or
replace income due to a climate related macroeconomic impact.
Medium
Medium
Medium
Conduct risk
Potential for borrowers with significant uninsurable flood or subsidence
risk to become mortgage prisoners.
Low
Medium
Long
Inappropriate incentives for green products.
Medium
High
Short
Potential liability and conduct risks from green propositions and
assumed advice.
Low
High
Long
Regulatory
& Legal
Inadequate or inaccurate climate risk disclosures on past
or anticipated events.
Medium
High
Long
(Possible) capital add-ons for lack of governance and control of risks.
Medium
High
Medium
Reputational
risk
Foreseeable, material risks left undisclosed.
High
High
Medium
Society seen as not proactively addressing risks, but rather responding
reactively to regulation and guidance or “greenwashing”.
Medium
Medium
Medium
1
Significance/Impact is based on the risk drivers crystallising.
2
Ability to control reflects the extent of mitigation that can be applied by the Society
3
Horizon Term risk is defined by Short (1-2 years), Medium (3-4 years), and Long (5 years or more).
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Managing climate risk in lending
Climate change considerations are integrated into the Society’s
lending policies. The Society applies greater scrutiny for
properties in areas with a high risk of flood or with low EPC
ratings as part of the property valuation assessment.
Climate-related opportunities
The Society recognises the potential to offer products that align
with the UK’s target to reach net zero by 2050 at the latest.
Housing contributes significantly to GHG emissions, therefore
making homes more energy-efficient is a critical step towards
achieving this target. To support this, the Society offers a Green
Additional Borrowing product specifically designed to fund
energy efficiency improvements in homes.
The Society is developing engagement opportunities for
colleagues, members, and suppliers to raise awareness
of climate-related risks and drive the transition to net zero.
Additionally, the Society is exploring collaborations with
suppliers, industry bodies, government, and regulators to
increase knowledge, develop best practice and advocate
for change.
Approach to scenario analysis
Scenario analysis plays a critical role in understanding how
climate change could impact the Society. The Society has
developed a proportionate approach to scenario analysis to
understand the potential future impacts of climate change
on its overall risk profile and to inform strategic planning.
Scenario analysis is a valuable tool for strategic planning, risk
management and assessing strategic resilience.
To capture physical risk data for properties across the mortgage
portfolio, the Society worked with 4most Analytics Consulting to
assess flood and subsidence risk. Scenario analysis currently
only focuses on Physical risk from flooding and subsidence.
The Society is exploring the inclusion of Transitional risk in future
analyses.
Modelling future climate requires assumptions about the
economic, social and physical changes to our environment that
will influence climate change. The Met Office Representative
Concentration Pathways (RCPs) capture these assumptions in
a set of scenarios used to model potential climate evolution,
specific to the UK context. These scenarios are based on the
more widely used Intergovernmental Panel on Climate Change
(IPCC) RCPs. The Society uses both the RCP 2.6 low emissions
scenario, and the RCP 8.5 high emissions scenarios. Results for
a medium emissions scenario are interpolated from the RCP 2.6
and RCP 8.5 results.
The rate at which flood risks increase over time is taken from
the UK 2017 Climate Change Risk Assessment (‘CCRA2017’),
which forecasts the impact of flood damage for the UK and
its constituent countries and regions by 2030, 2050, and 2080.
Impacts on expected losses are modelled based on a static
balance sheet.
Modelling of climate change impacts remains complex and
subject to a high degree of uncertainty. This is primarily due to
the longer-term time horizons over which the risks are expected
to materialise (compared to the relatively short life cycle of
the current mortgage book) and uncertainties around future
government climate policies.
The Society continues to have limited potential exposure to
Physical risk, both currently, and under a range of climate
pathways modelled until 2080. The flood risk profile, based on
the mortgage portfolio as of 31 March 2024, is shown below.
Subsidence risk remains low, under both 2030 and 2070
estimates, when using the “High” cost scenario, with an average
cost £40,000.
Further detail of the Society’s flood and subsidence exposure can
be found in the Metrics and Targets section. The results of this
analysis will be used to inform strategies for managing climate-
related risks in the future.
Risk management
The nature of climate change risk means that unforeseen risks
may emerge. These risks can manifest over extended time
horizons and are potentially non-linear and irreversible. While the
exact outcome is uncertain, financial impact from a combination
of physical and transition risk factors is highly probable.
The Society adopts a proportionate approach to climate risk
management, aligned with evolving regulatory expectations set
forth by the PRA and FCA. This approach balances managing
financial risks in and emerging and uncertain area while
avoiding unintended consequences.
92.7%
74.5%
4.7%
2.1%
0.5%
16.6%
5.2%
3.7%
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Distribution of Risk – England & Wales
Risk level
Number of properties
None
Medium
Low
High
Surface
River
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Climate change is not considered a Board Principal Risk due to
the modest losses resulting from future flood and subsidence
risk. It is positioned as a sub-risk under Business Risk, with full
Board oversight.
The Society has implemented a CCRMF to embed, manage, and
monitor climate-related financial risks. Rigorous and consistent
risk management practices are embedded across the CCRMF,
designed to identify, assess, and mitigate risks to minimise their
potential impact and support the achievement of the Society’s
business strategies.
Risk identification considers at least the following:
Market-wide risks:
These impact the entire market, for example
government legislation on energy efficiency or disclosure
standards. Additionally, changing climate scenarios, when
integrated into physical climate risk stress models, could result in
higher future expected credit losses (ECL) on mortgage assets;
Idiosyncratic risks:
These are specific to the Society and its
experience. For example, the risk to the rental income and
valuations of properties due to potentially increasing energy
efficiency standards for buy to let properties; and
Emerging risks:
The Society remains vigilant in identifying
potential future risks driven by forthcoming changes in the
external environment.
Decisions on how to manage climate change risks consider the
following as a minimum:
Regulatory constraints:
The level of risk taken or the type of
controls that may be used to manage risk must comply with
relevant regulations, such as PRA Supervisory Statement SS3/19.
This included reviewing existing and evolving regulatory material
to ensure all mandatory risks are identified;
Proportionality:
As directed by SS3/19, the PRA expects a
firm’s response to the financial risks from climate change to be
proportionate to the nature, scale, and complexity of its business,
as dictated by SS3/19. The Society takes this into account when
establishing its response;
Policy constraints:
Only methods permitted within current
policies can be used to manage risks exposures. For example,
changes to residential security criteria to take account of
changing physical and transition risk should be made through
changes to the relevant Policy;
Best practice:
The Society should consider whether its approach
to managing climate change risks remains appropriate given
current industry best practice which continues to be outlined by
the Climate Financial Risk Forum. Any proposal to change an
approach used must go through the normal governance
process; and
Effectiveness in a stress:
The chosen risk management
approach is assessed against its performance in a stressed
environment. A climate stress event can manifest over a very
short or longer time period, often at short notice (e.g. flash
flooding). The Society also uses scenario testing: Risks that can
The Board annually reviews climate change risks and
opportunities, and the Society’s ICAAP annually assesses the
financial risks arising from climate change. Currently, the Society
does not deem it necessary to hold additional capital against
this risk. The Society’s simple business model of savings deposits
funding residential lending is considered resilient to the financial
risk from climate change. The outputs of the Society’s physical
climate risk stress model show very modest losses resulting from
future flood and subsidence risk under three climate scenarios.
Management information and metrics are presented to RC to
track the Society’s exposure to physical and transition risks. This
ongoing monitoring allows for necessary actions to be taken as
climate risk evolves.
The Society has defined a clear risk appetite statement for
the financial risk from climate change:
The Society will ensure that the
impact of physical and transition risks
on its exposures do not give rise to
potential losses that threaten its
business model or compromise its
current or future viability.
Operational emissions
The Society measures GHG emissions in accordance with the
Streamlined Energy & Carbon Reporting (SECR) framework,
as implemented by the Companies (Directors’ Report) and
Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018
Scope 1 consumption and emissions include direct
combustion of natural gas and fuels utilised for transportation
operations, for example, company vehicle fleets.
Scope 2 consumption and emissions cover indirect emissions
related to the consumption of purchased electricity in day-to-
day business operations.
Metrics and targets
only be identified through scenario analysis, whether in-house or
conducted by a third party. This mainly applies to physical risks
which will be exacerbated in coming decades by rising global
temperatures, but can also apply to the impact of changing
energy efficiency standards on the BTL or WBHL books, where it
may become apparent through analysis that it is uneconomical
for certain properties to be upgraded. Scenario testing will be
mindful of the latest PRA scenarios, such as those contained
within the Climate Biennial Exploratory Scenario.
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Location-based Emissions (tCO2e)
2024
2023
Scope 1
Gaseous and other fuels
187.9
179.7
Transport (owned)
0.0*
0.0
Scope 2
Buildings Electricity
443.8
403.6
Total Scope 1 and 2
631.7
583.3
Market-Based Emissions (tCO2e)
2024
2023
Scope 2
Buildings Electricity
0
0
Total Scope 2
0
0
Market-Based Emissions
For the market-based emissions reporting methodology, it was
acknowledged that the electricity supplied to the Society for the
period covering April 2023 to March 2024 was 100% renewable.
These supplies were procured via REGO-backed electricity
contracts. An emissions factor of 0.00 tCO2/kWh has been
applied to these supplies to express this accurately.
*prior year figure has been restated.
Operational Targets
• To be carbon neutral for all operations under the Society’s
direct control by 2025; and
• To achieve net zero emissions by 2050, with aspiration
to become carbon negative (removing more carbon
dioxide from the atmosphere than is emitted).
In order to achieve these targets, the Society maintains its
commitment to 100% renewable energy usage, sourced from
wind and hydroelectric assets. This commitment extends to
our vehicle fleet, which is entirely electric and charged, using
renewable energy at Head Office. The Society is prioritising
initiatives that reduce energy.
A key focus area for the Society is to complete the measurement
and baselining of its full emissions footprint, including Scope 3
emissions. This increased understanding of emissions will enable
the Society to establish more specific, interim climate targets and
develop actionable plans for future emission reduction.
Locations-based emissions
Scope 1 (natural gas) and Scope 2 (electricity) emissions both saw slight increases in 2023/24 compared to 2022/23.
These increases can be attributed to increased business activity across the estate in 2023/24, post-COVID-19 pandemic.
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Physical risk metrics
The Society conducted a Physical risk analysis for its residential
mortgage book as of 31 March 2024. This model calculates the
potential additional expected credit losses (ECLs) the Society may
incur due to flooding at different future time horizons under High,
Medium and Low emission scenarios. The analysis encompasses
surface, river, and coastal flooding.
The model translates flood and subsidence risk into additional
ECLs by applying adjustments to the value of the property to
reflect the short and long-term costs incurred due to flood and
subsidence risk, and by assessing the impact of these events
on the likelihood of a default occurring. ECLs are calculated
incorporating these effects, compared to a base ECL assuming
no such hazards. This determines the increase in ECLs
attributable to climate stress for each account.
Flooding
The Society’s physical climate risk modelling yielded the following
output with respect to future flood risk ECLs across England and
Wales:
The Society continues to have limited potential exposure to physical
risk. Even under the high emissions scenario, the modelled ECLs
are modest compared to the Society’s residential provisions. There
is currently no material impact on the financial statements as a
result of physical climate risk. The Society will continue to monitor
the climate model outputs and consider mitigation actions if future
losses become material.
Subsidence
Subsidence risk remains low, under both 2030 and 2070
estimates. The Society’s physical climate risk modelling yielded the
following output with respect to future subsidence risk ECL under
the “High cost” scenario:
Subsidence cost assumptions (£m)
2030
2070
“High cost” scenario – average cost
£40,000
0.05
0.13
2024
Additional flood risk related
expected loss £m
Low
Medium
High
0.21
0.27
0.32
2029
Additional flood risk related
expected loss £m
Low
Medium
High
0.29
0.37
0.46
2050
Additional flood risk related
expected loss £m
Low
Medium
High
0.35
0.50
0.65
2080
Additional flood risk related
expected loss £m
Low
Medium
High
0.42
0.63
0.85
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Current EPC rating
Potential EPC rating
EPC Rating
Total %
Owner Occupied %
Buy to let %
Total %
Owner Occupied %
Buy to let %
A
0.4
0.5
0.0
11.3
14.3
2.2
B
14.3
17.2
5.7
42.3
42.9
40.5
C
22.4
19.7
30.7
26.5
23.7
34.9
D
46.6
46.1
48.2
17.2
16.4
19.5
E
13.8
13.8
13.7
2.5
2.4
2.7
F
2.1
2.3
1.4
0.2
0.2
0.2
G
0.4
0.5
0.3
0.0
0.0
0.0
Average
D
D
D
B
B
B
Transition risk metrics
Potential transition risks are broad, with little available data
from which to quantify impacts. The Society utilises Energy
Performance Certificate (EPC) data as the primary method for
assessing the potential impact of transition risk. By monitoring
EPC ratings for its UK mortgage portfolio, the Society gains an
overall view of the energy efficiency (and potential emissions)
of its mortgaged properties and the potential impacts of future
changes to Government policy. The Society has successfully
matched EPC ratings from the publicly available EPC Register
The Society is committed to supporting borrowers in improving
the energy efficiency of their homes and aspires to bring
the residential portfolio to an average of an EPC C by 2028.
Acknowledging that meeting this target is reliant on Government
policy and support, the Society continues to explore ways to
further enhance the resilience of the portfolio.
The Society recognises that there is already legislation in place
setting minimum EPC ratings for buy to let properties, which
could be expanded in the future. The Society actively monitors
these developments and will adapt its strategy accordingly.
David Thomas
Chair of Risk Committee
30 May 2024
to a significant portion of its mortgage book. For properties
without readily available ratings, an exercise to estimate
EPC ratings has been undertaken. This combined approach
provides a comprehensive understanding of 98% of the
portfolio’s energy efficiency.
As of 31 March 2024, the average EPC rating across the
residential mortgage book is D. The EPC rating distribution for
current and potential EPC rating is shown below.
Board of Directors
Annual Report and Accounts 2024:
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56
This section provides
information about your
Board of Directors.
GENDER SPLIT
36%
91%
9%
64%
ETHNIC DIVERSITY
Male = 7
Female = 4
<1
7
4
11
2
9
6
13
1
8
5
12
3
10
14
Board Members
Years
Non-BAME = 10
BAME = 1
TENURE OF BOARD MEMBERS
Annual Report and Accounts 2024:
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57
2
3
2
1
1
1
1
The Board analysis detailed represents the Board as at 31 March 2024.
John Maltby
MBE
Chair of the Board
Julie Hopes
MBA, ACIB
Senior Independent
Director and Deputy Chair
Appointed January 2021
Appointed April 2016
I believe companies should strive to improve the lives and
prospects of their customers and their colleagues. As a mutual,
the West Brom is a wonderful example of an organisation that
delivers in this regard and has done throughout its long history.
I am proud to be part of the Board that serves and supports our
current and future members and colleagues.
I joined the West Brom because I believe in mutuals - businesses
owned by and run in the interest of their members. I’ve stayed with
the West Brom for the last eight years because it puts its members
and the local community at the heart of its decision making. I
bring broad experience of retail financial services and in particular
a strong focus on customer service, change and operational
management. I am proud to be part of the West Brom.
John is an experienced Board member in financial services as well as with
public, private, not-for-profit and private-equity owned businesses. John
also has experience in chairing purpose-led organisations – having been
Chair of Good Energy for over six years. He is currently Chair of Allica Bank
Ltd, Non-Executive Director of Nordea Bank and Chair of Max Nicholas
Renewables Ltd, a developer of an innovative turbine for hydro and tidal
energy. John was previously on the Board of Trustees for the National
Citizens Service Trust, a not-for-profit organisation founded to help young
people achieve their potential, and in recognition of this role was awarded
an MBE in the 2022 Queen’s Birthday Honours list. He was elected Chair of
the Society’s Board in 2021 and is also Chair of the Nominations Committee
and a member of the Remuneration Committee.
Julie has many years of experience in retail financial services, with a
particular focus on general insurance. An Associate of the Chartered
Institute of Bankers, she has Non-Executive Director roles with Saga
Plc where she is Chair of the Saga Plc Risk Committee, Remuneration
Committee, Board People Champion, Chair of Saga Services Limited
and with MS Amlin Underwriting Limited where she is Chair of the Risk
Committee. Julie chairs the Society’s Remuneration Committee and is
a member of the Nominations and Audit Committees.
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Board of Directors
Sara Bennison
MA (Oxon)
Non-Executive Director
Martin Boyle
BSc, M.Phil (Cantab.)
Chief Operating Officer
Appointed August 2023
Appointed April 2023
I joined The West Brom a) because the mutual model is
precious, b) because the commitment to helping people
own a more secure future is palpable and c) because it is
at a fascinating moment in its history, taking all that is good
from the past whilst transforming for a digital era.
I believe the mutual sector is a vital part of our society. It has
been helping people get the home of their dreams and make
the most of their income for over 170 years. Personally, I want to
ensure the Society is fit for the future and can serve our members
in ways that best suit them. That is why I am proud to be part of
the Society team and the wider building society movement.
Sara joined the Board in August 2023 and is a member of the Risk and
Remuneration Committees. She is also a Non-Executive Director of DUAL
UK, the LTA and The Openwork Partnership. Sara has 15 years of retail
financial services experience in senior roles at Nationwide and Barclays.
Prior to that she worked in advertising agencies in the UK and Asia
on a number of well-known brands. Sara is a member of the Society’s
Remuneration and Risk Committees.
Martin joined the Board and the Society in April 2023 in the newly created
role of Chief Operating Officer. Martin is an experienced change and
operations leader with extensive retail banking expertise, most recently
as Chief Transformation Officer at Metro Bank Plc, where he sat on the
Group Executive Committee. He has previously held senior roles at
Nationwide and Portman building societies, Visa Europe and Accenture.
Martin has significant expertise leading transformational programmes
and portfolios, running scale operations and is responsible for leading
the modernisation and digitisation of the Society’s infrastructure and
operations, to better serve our Purpose-led member strategy. Martin is a
member of the Executive Committee and Executive Risk Committee.
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Anne Gunther
BSc, MBA, ACIB, FSCIB
Non-Executive Director
Appointed November 2021
Throughout my career I have worked at senior levels within
major public companies and mutual firms, with a top up of
NHS, charity and university governance. Hence, I continue
to compare and contrast that which gives the best balance
between all stakeholders and particularly for customers. The
West Brom represents building societies at their very best: a good
understanding and response to the commercial realities in a highly
competitive world with nevertheless the expertise to maintain a key
focus on our customers including those that others find difficult to
support. That’s why I’m a proud member of the team.
Anne is a highly experienced Non-Executive Director with more than 10
years’ experience as a Board member in public and private companies
spanning retail financial services, insurance, wealth management,
savings and lending. Anne is the independent Chair of Mattioli Woods
Plc and chairs the Nominations Committee. She is also a member of
their Audit, Risk and Remuneration Committees. Anne is a member of
the Society’s Remuneration and Risk Committees.
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Dave Dyer
BA Hons.
(Cantab.), MBA, FCMA
Non-Executive Director
Appointed September 2021
For me joining the West Brom was driven by two ‘Ps’ – good
People, with a good Purpose. Many organisations talk about
putting the customer first – at the West Brom I see it unswervingly
put into practice by a team dedicated to their members, their
colleagues, and their communities.
Dave joined the Board on 1 September 2021 and has many years’
experience in the retail banking sector. Prior to taking on the Non-
Executive Director role at the West Brom Dave was one of the founding
members of Snoop – an app to consolidate finances in one place allowing
customers to see benefits (e.g. savings on bills). Previous to this Dave
worked as Chief Financial Officer at Virgin Money Holdings (UK) plc and
Finance Director, Mortgages at Royal Bank of Scotland. Dave is a member
of the Society’s Audit and Risk Committees.
Russell Galley
Non-Executive Director
Appointed May 2024
Manjit Hayre
Chief Risk Officer
Appointed May 2024
Appointed September 2021
I joined the West Brom as I believe deeply in the mutual model
and how it supports social mobility and local communities.
Mutuals are a critical part of the UK financial services
landscape and I am delighted to be able to leverage my
experience for the benefit of West Brom members.
Having worked in mortgage related financial services for over 30
years, the last 20 or so has afforded me the opportunity to see
first-hand the benefits of mutuality for the Society’s members and
this ethos is closely aligned to my personal values. Being born
and living locally in the heartlands of the Black Country and West
Midlands, I am proud to be part of a team that puts its members’
interests and supporting local communities at the heart of
everything the West Brom does on a daily basis.
Russell has a wealth of experience from a 40 year career including
strategy formulation, cultural change, colleague engagement, balance
sheet and P&L leadership, product and proposition development,
transformation programme leadership, marketing, data and
personalisation development. He left Lloyds Banking Group as CEO Retail
Banking leading 40,000 colleagues across the Lloyds, Halifax and Bank
of Scotland Retail Banks. He is also a Non-Executive Director for Yorkshire
Housing, a major social landlord and housebuilder where he also chairs
their Audit and Risk Committee. Russell is a member of the Society’s Risk
and Remuneration Committees.
Manjit was appointed to the Board in September 2021 having joined the
Society in 2006. Prior to this, Manjit was at the Britannia Building Society
for five years and has over 30 years of financial services experience,
having started his career at NatWest Mortgage Services, and in risk
related roles since 1993. Manjit chairs the Society’s Executive Risk
Committee and is a member of the Executive Committee and Assets &
Liabilities Committee.
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Lynne Shamwana
BA, FCA
Non-Executive Director
Appointed February 2019
I started my career in a mutual building society and I believe
passionately that there needs to be real choice for customers. I
was delighted to be invited to join the West Brom Board and chair
the Audit Committee so I can play my part in ensuring its future
success. I am proud that at the West Brom colleagues feel cared
for and everyone strives to put our members and customers at
the heart of everything we do.
Lynne previously held the position of Chief Financial Officer at Virgin Care
and before that Global Finance Director of Christie’s, the international art
auction house. She has held a variety of senior finance and management
roles at Centrica plc, British Gas, Goldfish Bank plc and Alliance &
Leicester plc. Lynne is a Director and Chair of the Audit Committee of Antin
Infrastructure Partners and a Director and Governor of the Southbank
Centre. She is a fellow of the Institute of Chartered Accountants in England
and Wales. Lynne chairs the Society’s Audit Committee and is a member
of the Nominations and Risk Committees.
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Annual Report and Accounts 2024:
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Nimisha Patel
BSc
Non-Executive Director
Appointed with effect from June
2024
I am delighted to be joining the West Brom’s Board at a time of
significant digital transformation focused on delivering the right
customer outcomes at the right time through the right channels.
As a purpose driven individual, I am extremely proud to be part
of an organisation focused on improving the financial future of
the communities it serves, helping generations to come.
Nimisha is a highly experienced executive leader with over 23 years’
experience in technology, digital and cyber security across the private
and public sector spanning financial services, healthcare, energy, aviation
and car manufacturing. In her last executive role, Nimisha was the Chief
Digital and Information Officer for Bupa. Prior to this, Nimisha was the
Chief Digital and Information Officer for HM Cabinet Office. She also
served on the board of B-North where she was a member of the Bank’s
Audit, Risk and Remuneration Committees.
David Thomas
MSc, ACIB, FIB (Ireland)
Non-Executive Director
Appointed August 2020
I joined the West Brom because of the way it puts its
members first. Having been on the Board for over three
years now I am also impressed by the ethical approach it
takes, led by a strong and professional team.
David joined the Board on 1 August 2020. He brings a wealth of
experience in general management, risk management, internal audit
and regulatory activities. David’s previous roles include Chief Risk
Officer at SMBC, EMEA Region, Chief Risk Officer at RBS Plc, Corporate
Banking Division and the Managing Director responsible for Ulster
Bank’s Corporate and SME business on the Island of Ireland. He is
also a Non-Executive Director and Chair of the Risk Committee of a UK
subsidiary of TD Bank Group. David is a member of the Society’s Audit
and Remuneration Committees and Chair of the Risk Committee.
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Alex Pawley
BSc, FCA
Chief Financial Officer
Appointed January 2023
I believe strongly in the Society’s values as a truly mutual and
Purpose-led organisation, and am proud to see our teams put
these into practice every day. In my role as Chief Financial Officer
I lead our Finance and Treasury teams and my priority is to
safeguard the Society’s strong financial position, whilst ensuring
we maximise the value and benefits for our members, both
current and future.
Alex joined the Board in January 2023 having been the Society’s Divisional
Director for Treasury & Finance since 2020. Alex joined the West Brom
in 2016 from Deloitte where he qualified as a Chartered Accountant and
specialised in the financial services sector, working with a host of banks,
building societies and specialist lenders. Alex chairs the Society’s Assets
& Liabilities Committee and is a member of the Executive Committee and
Executive Risk Committee.
Jonathan Westhoff
BA (Hons) Financial Services,
FCMA, CGMA, ACIB
Chief Executive Officer
Appointed May 2009
Having spent nearly 24 years in the building society sector,
the last 15 at the West Brom, my passion for mutuality and the
benefits we bring to our members, as well as the communities
we are part of, is stronger than ever. It is our members and my
colleagues that make the West Brom a building society that
I am immensely proud to be part of.
Having spent over 40 years in financial services, the majority of which
have been in the building society sector, Jonathan served as Finance
Director at two building societies before joining the West Brom Board,
initially as Finance Director and Deputy Chief Executive. He was
appointed as Chief Executive Officer in May 2011. He chairs the Society’s
Executive Committee, the Member and Employee Councils, and is a
member of the Assets & Liabilities Committee. Jonathan is also a past
Chair of the Building Societies Association.
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Annual Report and Accounts 2024:
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66
Directors’ Report
This section outlines the
Directors of the Society
and their responsibilities
in 2023/24.
Annual Report and Accounts 2024:
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67
The Directors are pleased to present their
Annual Report, together with the audited
Accounts, for the financial year ended
31 March 2024.
Business objectives
The main purpose of the Society and its subsidiaries (the Group)
is to work together to meet the prime financial needs of our
members. This entails the provision of a range of personal
financial products, offering competitive pricing and excellent
service.
Business review
The Group’s business and future plans are referred to in the Chair’s
Statement on pages 4 to 5, the Chief Executive Officer’s Review on
pages 6 to 9 and the Strategic Report on pages 10 to 37.
Key performance indicators
The Board measures performance against its strategic aims by
reference to a number of key performance indicators which are
described in the Strategic Report on pages 16 to 21.
Profit and capital
Profit before tax (on continuing operations) was £32.1m (2022/23:
£31.8m). The capital position is set out in the Strategic Report on
pages 26 to 37 and the Annual Business Statement on page 183.
Pillar 3 capital disclosures for the current year are available on
the Society’s website.
Country-by-country reporting
Information in respect of the Capital Requirements (Country-by-
Country Reporting) Regulations 2013, is provided on page 180.
Risk management
As the Society operates in a very competitive environment, the
management of risk and development of a suitable strategy are
critical activities in achieving business success.
The Board and the Board Committees ensure that risk
management and strategic direction are considered regularly
and that appropriate actions are implemented. These
considerations are detailed in the Society’s Internal Capital
Adequacy Assessment Process (ICAAP) document.
The principal risks inherent to our business and details of how
these risks are managed are set out in the Risk Management
report on pages 38 to 55.
In addition to these principal risks there are, as a result of
the economic environment for banks and building societies,
ongoing actions under the PRA’s supervisory review process,
which include extensive stress testing exercises. The Directors
are aware, in arriving at their judgements, that the Society will
be subject, in the same way as others within the sector, to these
ongoing tests of capital and recognise the uncertainty inherent in
the process as factors within each test change.
Financial risk management
objectives and policies
The Board’s objective is to minimise the impact of financial risk
upon the Society’s performance. Financial risks faced by the
Society include interest rate, credit and liquidity risks. The Board
manages these risks through a risk management framework,
Board policies and its Treasury and Credit Risk functions.
Governance and oversight is provided through the Risk and
Assets & Liabilities Committees. Details of the Society’s financial
instruments, hedging activity and risk mitigation can be found in
note 12 and notes 33 to 35 in the financial statements..
Mortgage arrears
At 31 March 2024 there were 88 residential and 5 commercial
mortgage accounts (2022/23: 39 residential and 5 commercial
mortgage accounts) where payments were 12 months or more in
arrears based on current monthly repayments.
The total amount outstanding on these accounts was £74.8m
(2022/23: £69.5m), of which £66.9m (2022/23: £67.3m) related to
commercial mortgage accounts. The total amount outstanding
represented 1.52% (2022/23: 1.47%) of mortgage balances. The
amount of arrears was £14.3m (2022/23: £12.4m), relating primarily
to commercial mortgage accounts. Appropriate provisions were
made for potential losses on mortgages in accordance with the
provisioning policy set out in note 1 in the financial statements.
Directors
The following served as Directors of the Society during the year:
Sara Bennison
(appointed to the Board on 1 August 2023)
Martin Boyle*
(appointed to the Board on 3 April 2023)
Dave Dyer
Anne Gunther
Manjit Hayre*
Julie Hopes
John Maltby (Chair)
Victoria Mitchell
(stepped down from the Board 31 March 2024)
Alex Pawley*
Lynne Shamwana
David Thomas
Jonathan Westhoff*
* Executive Directors
68
All Directors are members of the Society. None of the
Directors have, at any time in the year or as at the year end,
held any beneficial interest in shares or debentures of any
associated body of the Society.
Supplier payment policy
The Society’s policy is to agree the terms of payment before
trading with the supplier and to pay in accordance with its
contractual and other legal obligations. At 31 March 2024, the
creditor days figure was 29 days (2022/23: 26 days).
This conforms with the aim of paying creditors promptly.
Charitable donations
The Society raised significant sums through its community
programme, affinity accounts and voluntary employee
initiatives. These are outlined in the Sustaining our Society
section of the Strategic Report. The Society also donated £1,311
(2022/23: £1,645) to its charity of the year, Barnardo’s, as a result
of the number of votes received at the AGM in 2023.
No donations were made for political purposes.
While encouraging any employees who wish to take part in
community affairs, the Group does not support any employees
in the pursuit of political activity.
Employees
The Society is an equal opportunities employer and gives proper
consideration to all applications for employment with regard to
vacancies that arise and to the applicant’s own aptitude and
abilities, regardless of race, creed, gender, sexual orientation,
marital status, age, physical or mental disability. If current
employee members become disabled, every effort is made
to enable them to maintain their present position or to receive
relevant retraining.
The Society was one of the first signatories to the Women in
Finance initiative, which is a government sponsored initiative to
increase the numbers of female employees in financial services.
The Society continues to build on its success in meeting its
2020 target and will be reporting on progress towards its 2024
target later this year. The Society produced a diversity strategy
during 2017 to increase its representation of people from all
backgrounds. This has now evolved to the Equity, Inclusion and
Diversity (EI&D) strategy which sets out how the Society both
seeks to be supportive of different groups of individuals, as well
as to continue to enhance diversity of representation amongst
colleagues, including by reference to ethnicity, gender and
socio-economic backgrounds.
The Society consults with the Employee and Member Councils
and assesses the results of colleague surveys to ensure
that employee conditions and workload are maintained at
an acceptable level. Additionally, details of meetings, team
briefings, circulars and information updates are placed on the
Society’s intranet to ensure that colleagues are both aware of
the Society’s objectives and performance, and conscious of the
wider financial and commercial environment in which the Society
operates.
Health and safety
The Society sets high standards to maintain the health and safety
of all employees, members and those affected by any of its
operations.
The Society is committed to ensuring that all employees receive
training in health and safety to make them aware of their
responsibilities to enable them to carry out their work without
injury or damage to the health of themselves or others affected
by their work. All employees, on commencing employment in
any business area, receive induction training which is reinforced
through regular testing. Additional training is delivered when
a need has been identified, such as Manager Training, Stress
Awareness, Manual Handling, Fire Warden, First Aid etc.
The Society recognises the need to consult with its employees
on health and safety issues. Accredited safety representatives
are afforded every opportunity to effect this consultation and to
receive training. A Health and Safety Committee is in place with
representatives from across the business which meets every six
months to review health and safety.
Health and safety issues are brought to the attention of all
employees through business specific communication channels.
Employees are similarly encouraged to raise issues through their
line management.
During the reporting year no enforcement notices were issued
against the organisation by any of the enforcing authorities; and
no proceedings were instigated against the Society for breaches
of health and safety regulations within the reporting period.
Directors’ responsibilities in respect of
the Annual Report, the Annual Business
Statement, the Directors’ Report and the
Annual Accounts
The Directors are responsible for preparing the Annual Report,
Annual Business Statement, Directors’ Report and the Annual
Accounts in accordance with applicable law and regulations.
The Building Societies Act 1986 (the Act) requires the Directors to
prepare Group and Society Annual Accounts for each financial
year. Under that law they are required to prepare the Group
Annual Accounts to UK adopted International Accounting
Standards as set out in note 1 to the accounts and applicable law
and have elected to prepare the Society Annual Accounts on the
same basis.
Annual Report and Accounts 2024:
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69
The Group and Society Annual Accounts are required by law and
UK adopted International Accounting Standards to present fairly
the financial position and the performance of the Group and the
Society. The Building Societies Act 1986 provides, in relation to
such Annual Accounts, that references in the relevant part of that
Act to Annual Accounts giving a true and fair view are references
to their achieving a fair presentation.
In preparing each of the Group and Society Annual Accounts,
the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
• state whether they have been prepared in accordance with the
standards set out in note 1 to the accounts;
• assess the Group and Society’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and
• use the going concern basis of accounting unless they either
intend to liquidate the Group or the Society or to cease
operations, or have no realistic alternative but to do so.
In addition to the Annual Accounts the Act requires the Directors
to prepare, for each financial year, an Annual Business Statement
and a Directors’ Report, each containing prescribed information
relating to the business of the Group and Society.
A copy of the Annual Report and Accounts is placed on the
Society’s website.
Directors’ statement pursuant to the
Disclosure and Transparency Rules
The Directors who held office at the date of approval of this
Directors’ Report confirm that, so far as they are each aware:
• the financial statements, prepared in accordance with IFRS as
set out in note 1 to the accounts, give a true and fair view of the
assets, liabilities, financial position and result of the Group; and
• the management reports in pages 10 to 55 include a fair review
of the development and performance of the business and the
position of the Group and Society, together with a description of
the principal risks and uncertainties that they face.
Annual Report and Accounts 2024:
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70
Directors’ responsibilities for accounting
records and internal control
The Directors are responsible for ensuring that the Group:
• keeps proper accounting records that disclose with
reasonable accuracy, at any time, the financial position
of the Group and Society in accordance with the Act; and
• takes reasonable care to establish, maintain, document
and review such systems and controls as are appropriate to
its business in accordance with rules made by the Financial
Conduct Authority and Prudential Regulation Authority under
the Financial Services and Markets Act 2000.
The Directors are responsible for such internal control as they
determine is necessary to enable the preparation of Annual
Accounts that are free from material misstatement, whether due
to fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets
of the Group and Society and to prevent and detect fraud and
other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Society’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Going concern and business viability
The Directors’ responsibilities in respect of going concern are
set out below. In addition, the Directors have elected, with
regard to the UK Corporate Governance Code, to publish a
business viability statement which states whether there is
a reasonable expectation the Society and the Group will be
able to continue in operation and meet their liabilities as they
fall due. The period assessed under the business viability
statement is required to be significantly longer than the
minimum period of 12 months over which going concern is
assessed.
Directors’ responsibilities in respect
of going concern
In preparing the financial statements the Directors must
satisfy themselves that it is reasonable for them to conclude
it is appropriate to adopt the going concern basis. The
Group meets its day-to-day liquidity requirements through
managing both its retail and wholesale funding sources and
is required to maintain a sufficient buffer over regulatory
capital requirements in order to continue to be authorised to
carry on its business.
The Group’s business activities, together with the factors likely
to affect its future development, performance and position
are set out in the Chief Executive Officer’s Review on pages 6
Annual Report and Accounts 2024:
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71
to 9 and the Strategic Report on pages 10 to 37. The financial
position of the Group, its capital structure risk management
and control processes for managing exposure to credit,
market, liquidity and operational risk are described in the
Strategic Report on pages 10 to 37 and the Risk Management
report on pages 38 to 55.
The Group’s forecasts and projections, taking account of
possible changes in trading performance and funding
retention, and including stress testing and scenario analysis,
show that the Group will be able to operate at adequate
levels of both liquidity and capital for the planning period.
Furthermore, the Group’s capital is in excess of the PRA
minimum requirement under each of the scenarios
considered. Scenarios considered continue to include
scenarios considering the impacts of high inflation and the
potential for recession as well as reflecting the current global
geo-political instability. Stresses consider both financial and
operational stresses.
After making enquiries the Directors are satisfied that the
Group has adequate resources to continue in business for
the next 12 months and that, therefore, it is appropriate
to adopt the going concern basis in preparing the Annual
Accounts.
Business viability statement
The Directors have assessed the viability of the Group over
a longer period than the 12 months required by the ‘going
concern’ provision noted above.
The Directors’ assessment is based on a robust review of the
Group’s principal risks, the Medium Term Plan (MTP) and the
Risk Management Framework including risk appetite and
risk culture described within the Risk Management Report.
This assessment is further supported by the Internal Capital
Adequacy Assessment Process (ICAAP), Internal Liquidity
Adequacy Assessment Process (ILAAP), Reverse Stress
Testing, Recovery Plan and Resolution Pack.
The assessment covers a period of three years as this is
within the period covered by the Group’s MTP, ICAAP, ILAAP
and regulatory and internal stress testing. The time period
chosen reflects the consideration that the level of uncertainty
relating to the assessment increases the longer the period
chosen. The pace of change of the economic, market and
regulatory environments in which the Group operates may
undermine the reliability of longer forecasts.
The MTP projects the Society’s ongoing financial performance,
capital and funding positions as satisfactory to the end of the
three year plan period even in a range of adverse scenarios.
Inherent uncertainty with regard to a number of factors,
including geo-political, economic and regulatory, inevitably
increases over the planning period.
Scenarios tested showed that the Society would be able to
maintain viability over the three year period under assessment
after taking account of the actions available to management,
including where appropriate actions undertaken by government
to support the economy to mitigate the impacts on capital and
liquidity in such scenarios.
Through the ICAAP the Society models the impact of the
Bank of England’s Annual Cyclical scenario on the Society’s
capital position, throughout which a surplus over Total Capital
Requirements is maintained. The impact of the Annual Cyclical
scenario is more severe than that anticipated in the current
economic climate even after accounting for the high levels of
inflation and the current global geo-political instability.
Subject to the uncertainty in the outer years noted above
and based upon the assessment set out above, the Directors
therefore have a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities as they fall
due over the period to March 2027.
Auditors
The auditors, PricewaterhouseCoopers LLP, have expressed
their willingness to continue in office. In accordance with Section
77 of the Building Societies Act 1986, a resolution for its re-
appointment will be proposed at the Annual General Meeting.
The Directors who held office at the date of approval of this
Directors’ Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Society’s
auditors are unaware; and each Director has taken all the steps
that they ought to have taken as a Director to make themselves
aware of any relevant audit information and to establish that the
Society’s auditors are aware of that information.
By order of the Board
John Maltby
Chair
30 May 2024
Annual Report and Accounts 2024:
Governance
Annual Report and Accounts 2024:
Governance
72
Directors’ Report on
Corporate Governance
This section details how the
Society’s governance framework
operated during 2023/24.
Annual Report and Accounts 2024:
Governance
73
The Board is committed to high standards of corporate
governance and believes they are central to the Society’s
culture and values.
The widely accepted articulation of good practice is the UK
Corporate Governance Code (the Code) and this Report
has been prepared in accordance with the Principles of the
Code. Whilst the Society is not required to comply with the
Code, as it applies to publicly listed companies only, where
As Chair of your Board I am pleased to
present to you the Society’s report on
Corporate Governance.
it is considered relevant, the Society does have regard to its
Principles. This Report details the Society’s approach to corporate
governance and, where different to relevant Code Principles,
explains why this is the case.
For the financial year ending 31 March 2024 the Society met with
the main Principles of the Code.
The Board notes that a revised version of the UK Corporate
Governance Code was published in January 2024, and which will
apply for financial years beginning on or after 1 January 2025.
The Board will ensure it continues to have regard to the Code’s
Principles and reflect any applicable revisions in its approach to
corporate governance during the coming financial year.
Board Leadership and Company Purpose
A successful company is led by an effective and
entrepreneurial board, whose role is to promote the long-
term sustainable success of the company, generating
value for shareholders and contributing to wider society.
The board should establish the company’s purpose,
values and strategy, and satisfy itself that these and its
culture are aligned. All directors must act with integrity,
lead by example and promote the desired culture.
The board should ensure that the necessary resources
are in place for the company to meet its objectives and
measure performance against them. The board should
also establish a framework of prudent and effective
controls, which enable risk to be assessed and managed.
In order for the company to meet its responsibilities to
shareholders and stakeholders, the board should ensure
effective engagement with, and encourage participation
from, these parties.
The board should ensure that workforce policies and
practices are consistent with the company’s values and
support its long-term sustainable success. The workforce
should be able to raise any matters of concern.
The principal functions of the Society’s
Board include:
• Providing entrepreneurial leadership;
• Setting the Society’s strategic aims and
risk appetite;
• Implementing and maintaining a
framework of prudent and effective
controls, which enables risk to be
assessed and managed;
• Ensuring the necessary financial and
human resources are in place for the
Society to meet its objectives; and
• Reviewing management performance.
The Board meets as often as is necessary
to fulfil its responsibilities. During the
last financial year the Board met on 10
occasions. Details of Director attendance
at Board and Committee meetings can be
found in the table at the end of this Report.
The minutes of Board and Committee
meetings record all material discussion
and challenge and are circulated to all
Directors. The Chair of each Committee
reports to the subsequent Board meeting
the key matters discussed.
A schedule of matters reserved to the
Board is maintained and kept under
regular review.
The Board is supported by a number of
Committees each with Board approved
terms of reference. Details of the
membership of those Committees and
their key activities are reported elsewhere
in this Annual Report and Accounts.
As a mutual the Society is owned by its
members; the Society seeks feedback from
members in a number of ways, including:
• Customer Panel to canvass views on
products and services and give feedback
on how the Society can improve the way
it operates;
• Member Council. A consultative group
comprising of West Brom members
whose purpose is to articulate their
views as a member of the Society
back to the Society’s Board and Senior
Leadership Team on specific Board and
Society matters;
• Members’ ViewPoint events held around
the branch network;
• Assessing enquiries from the Society’s
contact centre and website;
• Analysing the quantity and nature of
customer complaints;
• Customer research on specific topics;
and
• Customer satisfaction surveys.
Every employee has direct access to
the Chief Executive Officer by either
email, phone or face to face. In
addition, the Society has an ‘Open Door’
(“Whistleblowing”) Policy which provides
employees who may have serious
concerns about any aspect of the Society’s
work, the ability to come forward and voice
those concerns. This process provides
the opportunity for employees to leave
an anonymous message on a dedicated
phone line. This policy has taken account
of the Public Interest Disclosure Act 1998.
During the year, the Audit Committee
received a report summarising incidents of
whistleblowing.
The report was fully investigated but did
not indicate any possible improprieties of
financial reporting or other issues covered
by the Public Interest Disclosure Act 1998.
The 2018 Code’s main Principles
What the Society does to meet the Principles
74
The 2018 Code’s main Principles
What the Society does to meet the Principles
Division of Responsibilities
The chair leads the board and is responsible for its
overall effectiveness in directing the company. They
should demonstrate objective judgement throughout
their tenure and promote a culture of openness and
debate. In addition, the chair facilitates constructive
board relations and the effective contribution of all NEDs,
and ensures that directors receive accurate, timely and
clear information.
The board should include an appropriate combination
of executive and non-executive (and, in particular,
independent non-executive) directors, such that no
one individual or small group of individuals dominates
the board’s decision-making. There should be a clear
division of responsibilities between the leadership of the
board and the executive leadership of the company’s
business.
NEDs should have sufficient time to meet their board
responsibilities. They should provide constructive
challenge, strategic guidance, offer specialist advice
and hold management to account.
The board, supported by the company secretary, should
ensure that it has the policies, processes, information,
time and resources it needs in order to function
effectively and efficiently.
Composition, Succession and Evaluation
Appointments to the board should be subject to a formal,
rigorous and transparent procedure, and an effective
succession plan should be maintained for board and
senior management.
Both appointments and succession plans should be based
on merit and objective criteria and, within this context,
should promote diversity of gender, social and ethnic
backgrounds, cognitive and personal strengths. The board
and its committees should have a combination of skills,
experience and knowledge. Consideration should be
given to the length of service of the board as a whole and
membership regularly refreshed.
The role of the Chair includes establishing
and developing an effective Board
to provide support and constructive
challenge to the management team.
The main responsibilities of the Chair are:
• Establish and develop an effective
Board, including succession planning,
recruitment and appraisal of Non-
Executive Directors (NEDs);
• Lead the Board as a team;
• Ensure that the Board has agreed clear
values and guiding principles;
• Plan and manage the Board’s business,
including ensuring that appropriate
committees are established with the
right objectives and membership and
that the Board has the right agenda and
information;
• Ensure that the Board has established
key priorities;
• Maintain and develop a productive and
open relationship with the Chief Executive
Officer, agree the Chief Executive
Officer’s objectives and carry out regular
appraisals. The Chair is responsible for
leading the appointment process for the
Chief Executive Officer;
• Ensure there are appropriate
arrangements for the evaluation and
remuneration of senior executives;
• Act as an accountability focus for the
Society, including chairing the
Annual General Meeting;
• Represent the Society with regulators
and ensure that there is an open and
trustworthy relationship; and
• Ensure that the Board and its
Committees periodically evaluate their
own performance.
The Board has satisfied itself that, both at
the time of his appointment and during
his tenure, the Chair was independent
in character and judgement and met the
independence criteria set out in the Code.
The Chief Executive Officer has overall
responsibility for managing the Society
and implementing Board agreed strategy.
Board and Committee composition is kept
under regular review by the Chair and the
Nominations Committee to ensure that
it is of appropriate size, mix of Executive
and NEDs and has the right skills and
experience to oversee the Society’s
business activities.
The positions of Chair and Chief Executive
Officer are held by different people.
The letter of appointment for NEDs sets
out that at least 30 days per annum is the
expected time commitment and explains
what is required if there is any material
change to their commitments. The time
commitment for the Chair and Chairs of
Board Committees is expected to be much
greater.
Board papers, including a management
information pack, are issued to Directors
prior to Board meetings.
Board agendas are agreed in advance
of each meeting and focus on strategic
matters, as well as ensuring that Directors
are kept informed of key business activities
and regulatory developments.
Draft minutes of the previous Board
meeting are included in the papers for
the following meeting, for approval.
Approved minutes of all Board Committee
meetings are also circulated to all Board
Members. Where appropriate, papers are
presented by the relevant member of the
management team.
The Board and its Committees are served
by the Group Secretary who advises on
governance matters and procedures.
Directors have access to independent
professional advice should that be
required.
The Nominations Committee is responsible
for the recruitment of all Board members as
well as members of the senior leadership
team.
Work of the Nominations Committee
The Nominations Committee, chaired by
the Society’s Chair, supports the Board by
fulfilling the following overall aims:
• Ensure the Board is of the appropriate
size and has the appropriate skills
and experience to enable it to fulfil its
regulatory and corporate governance
responsibilities; and
• Provide oversight of elements of the
Society’s People Strategy that relate
specifically to the Board and all other
roles under the Senior Managers Regime
(SMR).
In fulfilling its central duties and
responsibilities during 2023/24, the
Committee has had a specific focus
on:
• Attraction, selection and appointment
of new NEDs in response to a number of
the current NEDs concluding their terms
of office. As part of this process the
Committee has reflected on the blend
of skills and competencies required
collectively to enable the Board to
continue to provide support to the Society
in meeting its strategic objectives;
Annual Report and Accounts 2024:
Governance
75
The 2018 Code’s main Principles
What the Society does to meet the Principles
Composition, Succession and Evaluation
(continued)
Annual evaluation of the board should consider its
composition, diversity and how effectively members
work together to achieve objectives. Individual evaluation
should demonstrate whether each director continues to
contribute effectively.
• Opportunities to develop and
improve Board performance. A Board
Effectiveness Review (BER) has been
undertaken and is one of a number of
ways in which the Board continually
challenges itself to ensure it is able to
deliver robust, effective and dynamic
governance of the Society; and
• Overseeing the broader organisational
people strategy and its role in supporting
delivery of the Society’s goals.
Meetings of the Nominations
Committee
The Nominations Committee met on 5
occasions in the last financial year. The
above areas of focus were also reflected
within a number of the Committee’s
standing duties and responsibilities as
follows:
• Membership of Board committees;
• Board performance evaluation
arrangements;
• NEDs reaching the end of their term of
office;
• NED development (see details below);
• Board succession planning, including
NED recruitment; and
• Training, development and succession
planning of the wider leadership team.
The terms of reference of the Committee,
which is made up of NEDs only, is available
on request from the Group Secretary.
Non-Executive Director
appointments
The Nominations Committee regularly
reviews Board succession plans. With
the impending departure of a number
of NEDs, the Committee has followed a
rigorous approach to the identification
of candidates able to drive the Society’s
strategy at Board level, with support in the
selection process provided by specialist
advisors. The approach followed included
the use of a Skills Matrix to understand
individual NEDs existing skills and
experiences which were then mapped
against the requirements identified to
provide guidance to the Society as it moves
forward on its strategic journey.
Board development
The Society has a range of induction
activities and material for its NEDs which
are delivered at different points during
their term of office and tailored to their
individual experience. For example,
following their appointment to the Board
a NED will be invited to attend site visits,
meetings with senior management
and consider reports/information
concerning the Group’s operations. While
during their Board tenure NEDs will be
invited to internally organised events
on topics of particular relevance to the
Society are used to aid development.
NEDs are also encouraged to attend
appropriate externally organised events.
A development log records relevant
development activities undertaken by
individual Directors.
The Society undertakes an externally
led evaluation every three years
supplemented by annual internal
evaluations in the intervening period. A
Board Effectiveness Review (BER) has been
a key aspect of Board development during
2023/24. This activity was supported by
New Street Consulting with the Board
participating in facilitated workshops and
was augmented by the output from the
Skills Matrix exercise.
As a principle, the Society requires that
NED Board members serve a maximum of
nine years except where this may have a
detrimental impact on the smooth running
of the Board.
The Board requires that all NEDs should
meet the Code’s independence criteria on
appointment and throughout their term
of office and has determined that each
of the current Directors is independent in
character and judgement and that there
are no potential conflicts of interest which
would affect their judgement.
Annual Report and Accounts 2024:
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76
The 2018 Code’s main Principles
What the Society does to meet the Principles
Audit, Risk and Internal Control
The board should establish formal and transparent
policies and procedures to ensure the independence
and effectiveness of internal and external audit
functions and satisfy itself on the integrity of financial
and narrative statements.
The board should present a fair, balanced and
understandable assessment of the company’s position
and prospects.
The board should establish procedures to manage risk,
oversee the internal control framework, and determine
the nature and extent of the principal risks the company
is willing to take in order to achieve its long-term
strategic objectives.
Remuneration
Remuneration policies and practices should be
designed to support strategy and promote long-term
sustainable success. Executive remuneration should be
aligned to company purpose and values, and be clearly
linked to the successful delivery of the company’s long-
term strategy.
A formal and transparent procedure for developing
policy on executive remuneration and determining
director and senior management remuneration should
be established. No director should be involved in
deciding their own remuneration outcome.
Directors should exercise independent judgement and
discretion when authorising remuneration outcomes,
taking account of company and individual performance,
and wider circumstances.
The Society’s Board is responsible for
the development of strategies relating to
risk management and internal control.
Operational responsibility rests with the
Executive Directors and senior managers.
The risk management systems and internal
controls are designed to allow the
Society to achieve its objectives in a
controlled manner and remain within
defined Risk Appetite Statements. These
systems and controls are designed to
manage rather than eliminate risk.
The Board reviews the effectiveness of the
risk management systems and internal
controls in a number of ways, including:
• Board review and approval of Risk Appetite
Statements at least annually, with monthly
reporting relating to those statements;
• A formal committee structure, including
an Audit Committee (see below for
more detail) and a Risk Committee
(see Risk Management report for more
detail). The minutes of the meetings of
these Committees are available to the
full Board with the relevant Committee
Chair highlighting any key matters at the
following Board meeting;
• Regular reports and presentations to
the Board by the Executive Directors and
other senior management; and
• Monthly Board report on key business
information and performance.
In addition, the NEDs meet formally and
informally without Executive Directors present.
The Society’s Internal Audit function,
with a reporting line to the Chair of
Audit Committee, provides independent
assurance regarding the adequacy and
effectiveness of internal controls across all
Group activities.
The Board has both an Audit Committee
and Risk Committee comprising only NEDs,
all of whom are considered independent
according to the criteria contained in
the Code. The terms of reference of
the Committees are available from the
Group Secretary on request. The Board
is satisfied that at least one member of
each Committee has recent and relevant
financial experience. The Audit and Risk
Committees receive detailed management
information and reports to ensure they
have a firm grasp of the Society’s business
and external operating environment. The
Chairs of the Audit and Risk Committees
receive additional fees in recognition of
their additional responsibilities.
The Society has a policy on the
engagement of the external auditors
to supply non-audit services, which is
operated across the Group and in tandem
with the external auditors’ own internal
policy on providing non-audit services.
There have been 4 meetings of the Audit
Committee during the financial year
2023/24. Executive Directors and other
members of senior management (by
invitation only) attended the meetings.
Those employees who regularly attend
include the Chief Executive Officer, Chief
Financial Officer, Chief Operating Officer,
Group Secretary, Chief Risk Officer, and
Chief Internal Auditor.
During the last financial year, the Audit
Committee:
• Validated the integrity of the Group’s
financial statements (including formal
announcements relating to such
statements);
• Reviewed and approved significant
financial reporting judgements and
accounting policies/issues;
• Assessed the adequacy and
effectiveness of the Society’s internal
controls and risk management systems;
• Monitored and reviewed the effectiveness
of the Group’s Internal Audit function;
• Confirmed the independence of the Chief
Internal Auditor;
• Considered the results of Internal
Audit Reviews, including the Change
Management Framework;
• Reviewed the external auditors’
independence, objectivity and the
effectiveness of the audit process,
together with the remuneration and terms
of engagement;
• Confirmed that the Internal Audit function
was appropriately resourced; and
• Met privately with the Chief Internal
Auditor and the external auditors.
The Board has established a Remuneration
Committee, comprising only NEDs, which
considers and makes recommendations to
the Board on key remuneration decisions
relating to Society employees who have
been identified in the FCA’s Remuneration
Code as Code Staff.
The Directors’ Remuneration Report on
pages 82 to 95 explains how the Society,
through the Remuneration Committee and
Board, approaches the remuneration of
Directors and other executives.
The Society is subject to the FCA’s
Remuneration Code, requiring the Society
to have a remuneration policy which
promotes effective risk management,
supports business strategy, objectives and
values, and is in the long-term interests of
the Society.
During the last financial year, the
Remuneration Committee:
• Recommended to the Board the
Performance-Related Pay Scheme and
awards under that Scheme;
• Reviewed employee benefits
arrangements;
• Made recommendations to the Board in
respect of the annual salary review;
• Reviewed the employee benefits
package;
• Reviewed the terms of appointment and
benefits of Code Staff; and
• Sought input on executive remuneration
proposals from both the Employee and
Member Councils, including a discussion
about objectives.
Annual Report and Accounts 2024:
Governance
77
The attendance of individual Directors during the year, with the number of meetings each
was eligible to attend shown in brackets, is set out below.
Board
Nomination
Audit
Risk
Remuneration
Sara Bennison
6 (6)
4 (4)
2 (2)
Martin Boyle*
10 (10)
Dave Dyer
10 (10)
3 (4)
6 (6)
Anne Gunther
10 (10)
6 (6)
5 (5)
Manjit Hayre*
10 (10)
Julie Hopes
10 (10)
5 (5)
4 (4)
5 (5)
John Maltby (Chair)
10 (10)
5 (5)
5 (5)
Victoria Mitchell
9 (10)
6 (6)
5 (5)
Alex Pawley*
10 (10)
Lynne Shamwana
10 (10)
5 (5)
4 (4)
6 (6)
David Thomas
10 (10)
4 (4)
6 (6)
5 (5)
Jonathan Westhoff*
10 (10)
*Executive Directors
Board skills and experience as at 31 March 2024
Attendance records – Board and Board Committee meetings
John Maltby
Chair
30 May 2024
Banking & Financial Services
Risk Management
Customer Insight
Technology & Data
Digital Customer Experience
Accounting & Financial Reporting Oversight
Corporate Governance Skills
Strategy
Marketing & Brand
Sustainability & Environment
Community Engagement
People Strategy
Advanced or higher level skills/ experience
Indirect skills/experience
12
5
7
5
7
4
9
7
5
11
9
9
1
11
3
5
7
11
8
1
1
3
3
Annual Report and Accounts 2024:
Governance
The output of the ‘Boards skills and experience’ is self-assessed by each individual Director.
Audit Committee Report
This report sets out
the work carried out
by the Audit Committee
throughout 2023/24.
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79
Annual Report and Accounts 2024:
Governance
Membership and attendees
The Audit Committee is appointed by the Board and, at 31 March
2024, comprised four Non-Executive Directors (NEDs):
• Lynne Shamwana (Chair);
• Julie Hopes;
• Dave Dyer; and
• David Thomas.
The Chair, other NEDs, Chief Executive Officer, Chief Financial
Officer, Chief Risk Officer, Chief Operations Officer, Chief People
Officer & Group Secretary, Chief Customer Officer, the external
auditors and Chief Internal Auditor also attend by invitation.
The Board is satisfied that the Committee has members with
recent and relevant financial experience.
The Committee met four times during the year, with attendance
as detailed on page 77. In addition, the Committee met privately
with the external auditors and the Chief Internal Auditor, during
the year.
Roles and responsibilities
The roles and responsibilities of the Committee are in line with
the provisions of the Financial Reporting Council (FRC) Guidance
on Audit Committees (the ‘Smith Guidance’).
The main function of the Committee is to assist the Board in
fulfilling its oversight responsibilities in relation to:
• The provision of assurance to the Board regarding the integrity
of the financial statements of the Society, including its annual
and any interim reports, reviewing significant financial
reporting issues and judgements which they contain. Where
Board approval is required for other statements containing
financial information (for example the release of price sensitive
information), whenever practicable the Audit Committee should
review such statements first (without being inconsistent with
any requirement for prompt reporting under the Listing Rules
or Disclosure and Transparency Rules);
• Assessing the adequacy and effectiveness of the Society’s
internal controls and risk management systems (including
conduct risk);
• Reviewing and approving the statements to be included
in the Annual Report concerning internal controls and risk
management;
• Reviewing the Society’s arrangements for its employees to raise
concerns, in confidence, about possible wrongdoing in financial
reporting or other matters. The Committee shall ensure that
these arrangements follow proportionate and independent
investigation of such matters and appropriate follow up action;
• Monitoring and reviewing the effectiveness of the Society’s
Internal Audit function in the context of the Society’s overall risk
management system;
• Approving the appointment and removal of the Chief
Internal Auditor, and making recommendations regarding
performance objectives and remuneration to the Society’s
Remuneration Committee as required;
• Considering and approving the remit of the Internal Audit
function and ensuring it has adequate resources and
appropriate access to information to enable it to perform
its function effectively and in accordance with the relevant
professional standards. The Committee shall also ensure
the function has adequate standing and is free from
management or other restrictions;
• Reviewing and assessing the Internal Audit plan;
• Considering and making recommendations to the
Board, to be put to members for approval at the Annual
General Meeting (AGM), in relation to the appointment,
reappointment and removal of the Society’s external
auditors. The Committee shall oversee the selection
process for new external auditors and if the external
auditors resign, the Committee shall investigate the issues
leading to this and decide whether any action is required;
• Monitoring the effectiveness of the Society’s external
auditors, PricewaterhouseCoopers LLP (PwC), including
(but not limited to):
• approval of their terms of engagement, including
any engagement letter issued at the start of each
audit and the scope of the audit;
• approval of their remuneration, whether fees for
audit or non-audit services, and ensuring that the
level of fees is appropriate to enable an adequate
audit to be conducted;
• reviewing the results of the latest FRC annual
inspection in respect of PwC;
• assessing annually their independence and
objectivity taking into account relevant UK
professional and regulatory requirements and the
relationship with the auditors as a whole, including
the provision of any non-audit services; and
• reviewing and approving in accordance with policy,
any proposed employment of employees or former
employees of the Society’s auditors.
The minutes of the Audit Committee are distributed to the
Board, and the Committee Chair provides a verbal report
to the Board meeting immediately following Committee
meetings.
A copy of the Audit Committee terms of reference can be
obtained from the Chief People Officer & Group Secretary,
on request.
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Annual Report and Accounts 2024:
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Areas of focus for the Committee
in the year
The Committee has an annual schedule, developed from its
terms of reference, with standing items that it considers at
each meeting in addition to any specific matters upon which
the Committee has decided to focus. The work of the Audit
Committee falls under three main areas as follows:
• Financial reporting issues and judgements
The Committee considers the financial information published
in the Group’s annual and half year financial statements
including the accounting policies adopted by the Group,
presentation and disclosure of the financial information and,
in particular, the key judgements made by management in
preparing the financial statements. The Committee focuses
its attention on matters it considers to be important by virtue
of their impact on the Group’s results, and those which
involve a high level of complexity, judgement or estimation by
management.
The Committee also takes note of the audit procedures
conducted by the external auditors with a view to ensuring
that suitable accounting policies have been implemented and
appropriate judgements have been made by management.
The key matters that the Committee considered in reviewing
the 2023/24 financial statements are outlined below.
• Loan impairment provisions
For each mortgage portfolio in the scope of IFRS 9, the
Committee confirmed the suitability of the approach to
calculating expected credit losses. This included the suitability
of Post Model Adjustments (PMAs), judgements within the
calculation of those PMAs and the updates to the macro-
economic scenarios. Additionally for the commercial book,
up to date sector analysis, exposure and provision coverage
was considered, especially for sectors deemed to be ‘at
risk’. The Committee had the opportunity to review and
challenge the impairment model assumptions, including
probability-weighted forecasts of future economic conditions
(with sensitivity analysis) and, for the non-core commercial
loan book, account-specific scenario data. Furthermore,
the Committee reviews the credit risk disclosures. Based on
this review, the Committee agreed that the loss provision
requirements were suitably calculated and adequately
disclosed.
• Investment property valuations
The Group applies IAS 40 ‘Investment Properties’ under which
the residential properties held by the Society’s subsidiary,
West Bromwich Homes Limited, are measured at fair value.
The Audit Committee has reviewed the methodology adopted
to determine the fair value of the properties, including
the impact of valuation adjustments, and concluded that
the carrying value of the portfolio at the year end date is
appropriately supported by market data and a validation
exercise conducted by an independent firm of specialist
valuers on a sample of the properties.
• Financial instruments at fair value through profit or loss
and hedge accounting
Following the rules and guidance of IAS 39, the Society applies
hedge accounting to qualifying hedge relationships. The
Committee has reviewed the hedging requirements and
changes made to the hedge accounting processes as a result
of previous external audit findings.
• Defined benefit pension liability
With respect to the Society’s funded defined benefit pension
scheme, the Audit Committee considered the key actuarial
assumptions, as disclosed in note 31 in the financial
statements, and deemed them suitable for calculating the
retirement benefit obligation at 31 March 2024.
• Accounting standard updates
The Committee confirmed the reasonableness of the
disclosures with regards to new or amended accounting
standards.
• Going concern and viability statement
The Committee performed a thorough review of evidence
supporting the going concern and longer-term viability
assumptions, including adjustments made to assumptions
in light of the ongoing economic uncertainty. In doing so, it
examined the Group’s strategy and business model, together
with capital and liquidity adequacy assessments under
current market conditions and stressed scenarios. Thereafter
the Committee approved the preparation of the Annual Report
and Accounts on a going concern basis and considered the
longer-term viability statement given in the Directors’ Report to
be appropriate.
• Fair, balanced and understandable
The Committee considers that the Annual Report and
Accounts, taken as a whole, are fair, balanced and
understandable and provide the necessary information
for members to assess the Group’s position, performance,
business model and strategy.
• External audit
The Committee considered matters communicated by the
statutory external auditors and concluded that no material
adjustments to the financial statements were required.
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Risk and internal control
The Society recognises the importance of effective risk
management and strong systems of internal control in the
achievement of its objectives and the safeguarding of its
assets. This facilitates the effectiveness and efficiency of
operations, which help to ensure the reliability of internal and
external reporting and assist in compliance with applicable
laws and regulations. The Society operates in a dynamic
business environment and, as a result, the risks it faces change
continually. Management are responsible for designing the
internal control framework to ensure thorough and regular
evaluation of the nature and extent of risk and the Society’s
ability to react accordingly. Management are also responsible
for implementing the Board’s policies on risk and control, noting
that all employees are responsible for internal control as part of
their individual objectives.
Further details of actual risk management practices are
provided in the Risk Management report on pages 38 to
55. Through the Committee, the Society’s Internal Audit
function provides independent assurance to the Board on the
effectiveness of the internal control framework. The information
received and considered by the Committee during the 2023/24
financial year provided reasonable assurance that there were
no material breaches of control and that, overall, the Society
maintained an adequate internal control framework that met
with the main principles of the UK Corporate Governance Code.
Internal Audit utilise the services of external specialists for
support in providing assurance in technical areas, primarily,
Information Technology and Prudential Risk. The Chief Internal
Auditor reports to the Chair of the Committee, and the
Committee is responsible for agreeing the annual budget for
Internal Audit, in addition to ensuring that the function retains
adequate skills and resource levels that are sufficient to provide
the level of assurance required.
The Audit Committee approves the Internal Audit plan of work,
including subsequent amendments, which is prepared on a
risk-based approach by Internal Audit and reflects input from
management and the Committee. The Committee reviews
the work of, and output from, Internal Audit, in addition to
progress against the agreed plan of work. Internal Audit
provides the Committee with reports on material findings and
recommendations and updates on the progress made by
management in addressing those findings.
The Committee also reviews periodically the use of the
confidential reporting channel in the Society. Awareness of
‘whistle blowing’ arrangements is maintained through internal
communication and is covered as part of employees’ induction
and ongoing development.
As part of the external audit process, PwC performs testing
over certain controls supporting the preparation of the financial
statements and reports any deficiencies to the Audit Committee.
The Audit Committee takes note of control deficiencies reported
and management resolution of these.
The Committee recommends an External Quality Assessment
(EQA) of Internal Audit every five years. This review covers an
assessment of compliance with internal auditing standards,
in addition to Internal Audit’s readiness to comply with the
Chartered Institute of Internal Auditors recommendations on
‘Effective Internal Audit in the Financial Services Sector’, issued in
July 2013 (and updated in September 2017).
The last EQA in 2021/22, concluded the Internal Audit function
‘generally conforms’ to the Standards, which is the highest rating.
External auditors
PwC are in their fourth year as the Society’s external auditors.
The Committee regularly monitors the Society’s relationship
with the external auditors and has adopted a framework
for ensuring auditor independence and objectivity, which
defines unacceptable non-audit assignments, pre-approval of
acceptable non-audit assignments and procedures for approval
of other non-audit assignments across the Society.
Details of the fees paid to the external auditors for audit and
non-audit services are set out in note 6 in the financial
statements.
The Committee assesses the effectiveness of the external
auditors annually, the results of which are reported to and
discussed at the next appropriate Committee meeting. This
assessment is facilitated by the Chief Financial Officer and is
discussed, initially, without the presence of the auditors in the
meeting. The Committee considers that the relationship with the
auditors is working well and is satisfied with their effectiveness
and independence.
Audit Committee effectiveness
The effectiveness of the Committee was assessed by an
external firm in 2023/24. The scope of this review considered
time management and composition, Committee processes
and support, the work of the Committee and future priorities.
This review concluded that the Committee operated effectively.
An internal review is conducted in the years there is no
external review.
Committee members are expected to undertake relevant
training as part of their ongoing development and, periodically,
the Committee as a whole receives training on current topics.
On behalf of the Board
Lynne Shamwana
Chair of Audit Committee
30 May 2024
Directors’ Remuneration
Report
This section explains our
approach to rewarding
Directors and colleagues.
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Quote or description
needed here?
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Annual Statement by the Chair of the
Remuneration Committee
As Chair of the Remuneration Committee (the Committee), I am
pleased to present the Directors’ Remuneration Report. This
report includes a summary of the Committee’s activities over the
year, our Remuneration Policy and details of pay and benefits for
our Executive Directors and fees paid to Non-Executive Directors.
Despite some respite for UK Households from the cost of living
crisis, as inflation fell during the year, economic conditions
remained challenging for many. We continued to support our
colleagues against this backdrop through a number of initiatives
in addition to the 2023 pay awards, including the provision of
hardship fund for emergency situations and ensuring colleagues
were provided with sufficient working hours to help mitigate the
challenges of inflated living costs. This resulted in the Society
becoming the first financial services provider to receive the
Real Living Hours accreditation, which was in addition to being
recognised with an award in the ‘Beyond Living Wage Category’
from the Real Living Wage Foundation.
Employment rates have remained high by historical comparisons,
which can create a challenging environment for recruitment,
and our strategy has meant a demand for an increase in our
headcount. It is therefore pleasing that we have attracted and
appointed a variety of highly talented individuals during the year
– both across our customer-facing distribution networks and in
core head office functions.
Our work on developing our strategic direction, as referred to
in the Chief Executive Officer’s Review has not distracted from
our delivery to our members. The Strategic Report outlines the
extremely strong performance of the Society through the year,
with a number of milestones being achieved, not least lending of
£1.1bn, primarily to those who need our support most to access
the financial services they require.
As a mutual, Environmental, Social and Governance (ESG)
principles have always been a natural and integral driver for the
way our organisation is run. The voice and views of members
and colleagues are sought relentlessly; their priorities and
suggestions are turned into actions.
Our Member and Employee Councils were the first to be
established in the sector and have been in place for some years
now. I regularly attend the council meetings, and in February
each group discusses Executive Director Remuneration. This year
we also shared areas to be included in the Executive Director’s
individual performance objectives for the coming year; Council
members expressed their thoughts and ideas which were used
when finalising the objectives. Both Councils were supportive of
Executive base salaries receiving equitable uplifts, in line with the
market.
Ultimately, we demonstrate the importance of our members’
views on remuneration by making their votes on both the
Remuneration Report and Remuneration Policy binding, not
just advisory, as is the case for most other firms. You vote on
the Report at each AGM and the Policy every three years or
whenever changes are required, whichever is sooner. Under the
three year rule, the Policy was put to a binding member vote last
year and received a 92.15% approval.
Turning to a review of the 2023/24 financial year, the Board
continued to voluntarily adopt the relevant requirements of the
UK Corporate Governance Code (the Code). The ratio of the Chief
Executive Officer’s pay to the wider colleague population has
again been published. A remuneration benchmarking review
was undertaken for every role in the Society, against the market
rate for that role, ensuring that we pay fairly and competitively
for the level of responsibility of every position. We are committed
to paying all our employees the real Living Wage as an absolute
minimum.
The tables marked ‘audited’ in this report meet the requirements
of the Building Societies Act 1986. The Society follows the PRAs
code on Remuneration Practices and Disclosure requirements,
and in addition, aligns the Policy with the PRAs best practice
guidelines and the UK Corporate Governance Code where
applicable.
Under the Remuneration Code, the Society is required to identify
those colleagues who are considered to have a material impact
on the Society’s risk profile (Code Staff). This includes all Executive
and Non-Executive Directors and all members of the Society’s
Executive Committee (ExCo). The key focus of the Remuneration
Committee is to have in place the Remuneration Policy for the
pay and benefits, including performance-related pay, for such
Code Staff. It also has oversight of reward practices for all other
employees to ensure alignment to the Society’s culture, and the
Policy for Executive Directors.
This report is presented in two sections:
• The Remuneration Policy – setting out the Remuneration
Committee’s forward-looking Policy with regard to pay and
benefits. The Society continues to strive to create an inclusive
environment where diversity in all forms is encouraged and
that the Society’s Remuneration Policy is inclusive in both its
design and practice.
• The Annual Remuneration Report – detailing the amounts
earned by Directors in respect of the financial year ended 31
March 2024 and how the Policy will operate for the year ending
31 March 2025.
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Salary and fees for 2023/24 and
proposals for 2024/25
At the Society all roles are externally benchmarked for salary on
an annual basis. As a result, salary changes have been focused
on ensuring employees are appropriately paid taking into
account the market rate for their role and delivering a consistent
approach to pay throughout the organisation. Wage movements
created by economic factors such as inflation and labour market
forces are factored into the benchmarking that is performed
using external data. On this basis, salary increases for eligible
employees ranged between 1% and 20%.
Consistent with this approach, a recent independent
benchmarking exercise of Executive Directors’ remuneration was
undertaken by our Remuneration Advisor, FIT Consultants. Our
new Chief Operating Officer joined in April 2023, resulting in the
following Executive Director roles:
• Chief Executive Officer;
• Chief Financial Officer;
• Chief Risk Officer; and
• Chief Operating Officer.
The Chief Financial Officer’s salary was below benchmarking
medians for peer group organisations (as a result of a lower
starting salary via internal promotion in January 2023 and being
a first time Executive Director with a targeted development
pathway); having now been performing well in the role for over
a year, a higher increase to bring them closer to the benchmark
was considered appropriate by the Remuneration Committee.
Reflecting the benchmarking information, the performance of the
Society under the Executive Directors’ leadership, and to ensure
that remuneration keeps pace with the market, the Remuneration
Committee has agreed the following pay increases for the
Executive Directors:
• Chief Executive Officer 4%;
• Chief Financial Officer 15%;
• Chief Risk Officer 4%; and
• Chief Operating Officer 4%.
Performance-related pay awards
The Executive Director performance-related pay award
generated the following awards:
• Chief Executive Officer 47.38%;
• Chief Financial Officer 45.88%;
• Chief Risk Officer 44.13%; and
• Chief Operating Officer 46.88%.
These payments reflect the delivery of both personal and Society
objectives including customer, financial, people, risk and new
and enhanced operational capabilities. These payments are
being made based on the strong performance of the Executive
Directors. Further detail on the Society objectives is provided on
page 93 of this report.
Deferred performance-related payments in relation to 2020/21,
2021/22 and 2022/23 for the Chief Executive Officer, Chief
Financial Officer, Chief Risk Officer and former Group Finance &
Operations Director have been approved for payment since the
end of the 2023/24 financial year.
The Committee has, once again, not exercised its discretion in
the Policy to increase the maximum performance-related pay
award to 75% of basic salary. This will remain at 50% of salary for
2024/25.
FIT Consultants completed a recent review of the Non-
Executive Director fees for the 2024/25 financial year against
benchmarking data. In order to keep pace with the market and
retain a strong Board, a 4% increase will be applied to this fee,
along with the Society Chair. Fees for Chairs of Board Committees
will not receive any increase.
Gender and ethnicity pay
In August 2023, the Society published its updated report on
gender and ethnicity pay gaps. Addressing the drivers of the
pay gaps remains a key focus for the Society as reflected in their
inclusion within our Key Performance Indicators as shown in the
Strategic Report. Key to this is achieving a greater gender and
ethnicity balance across the Society’s pay range. It is pleasing to
note the number of female and ethnic minority employees who
are regarded as successors for senior positions. A full copy of the
report can be found on the Society’s website at
www.westbrom.co.uk.
Diversity of all forms is crucial to the Society’s workforce;
ultimately richer diversity can result in better service and
outcomes for our members. Our colleague diversity group,
‘Connect’, supported by several sub-groups representing
different areas of diversity, has worked hard through the year to
help support and maintain an inclusive workplace for all.
The Committee will continue to work diligently in the coming
year to ensure it supports the best interests of members and
colleagues.
Julie Hopes
Chair of Remuneration Committee
30 May 2024
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Membership
The members of the Remuneration Committee during the
financial year 2023/24 were: Julie Hopes, John Maltby, Sara
Bennison (joined August 2023), Anne Gunther, Victoria Mitchell
(stood down March 2024) and David Thomas.
All members of the Committee are Non-Executive Directors.
Under the Committee’s terms of reference, at least one member
of the Committee must also be a member of either the Risk
Committee or Audit Committee. The current composition of the
Committee complies with this requirement.
The Society’s Chief Executive Officer and Chief People Officer &
Group Secretary attend meetings by invitation.
Responsibilities
The Committee is responsible for setting the Policy on
remuneration, overseeing its implementation and making
recommendations to the Board in respect of remuneration
arrangements for Executive Directors and other Code Staff.
Following each meeting, the Chair of the Committee reports to
the Board on all substantive issues discussed.
The Committee is required to meet at least twice a year. During
the year there were five meetings.
The Committee considered the following matters during the year:
• Determining the pay and benefits of Executive Directors,
the Chair, Code Staff and other senior managers, with
consideration for the increase in general basic salary for the
wider colleague population, where appropriate;
• Determining the budget for salary and performance-related
pay for employees, including monitoring the approach to pay,
reward and recognition, aligned with the ethos of a mutual
organisation and the Society’s overarching Purpose;
• Determining the level of performance-related pay in relation to
the 2023/24 financial year and deferred awards due during the
year for Code Staff;
• Setting the Society and individual performance-related
pay objectives for Code Staff in relation to the 2024/25
financial year;
• Considering the approach to be adopted in respect of
disclosure requirements in relation to this report; and
• Considering the approach for the Gender Pay Gap Regulations
and Ethnicity Pay Gap data.
The Committee receives annual confirmation jointly from the
Chief Risk Officer and the Chief Internal Auditor that no activity
or behaviour by any individual has been identified or observed
which should affect their eligibility to participate in performance-
related pay arrangements. Confirmation of such has been
received this year.
The Terms of Reference for the Committee were last updated in
November 2023. The Terms of Reference are available on request
from the Chief People Officer & Group Secretary.
Advisors
The Remuneration Committee seeks the advice of independent,
external consultants, as required. During the 2023/24 year
the Committee commissioned FIT Consultants to undertake a
thorough benchmarking of remuneration for Executive Directors.
Remuneration Committee
membership and responsibilities
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Background
The Remuneration Policy (the Policy) provides the framework
for the Committee to make remuneration decisions and
recommendations to the Board in relation to Executive Directors
and other Code Staff.
The Policy is designed to promote appropriate behaviours and
practices consistent with the Society’s risk appetite.
The approach of the Remuneration Committee is to ensure that
Executive Directors’ remuneration is designed to promote the
long-term success of the Society, with full consideration of other
stakeholders such as members, colleagues and regulators.
Remuneration decisions are made on the basis of total
compensation comprising salary, performance-related pay and
benefits, ensuring an appropriate balance between the fixed and
variable components of remuneration. The variable element of
the remuneration package creates flexibility to allow for changes
in current and future performance.
The Society’s remuneration principles are as follows:
• The Policy is in line with the strategy, objectives and values of
the Society, thereby aligning it with both short and long-term
interests;
• The policies, procedures, remuneration practices and
performance-related payment schemes are consistent with
the promotion of good and effective risk management and are
structured in such a way as to discourage risk taking which is
outside the Society’s risk appetite;
• The Society’s focus is on improving the underlying business
position where management can influence performance. The
Society’s performance-related pay schemes may therefore
exclude the impact of specific one-off items which would
be agreed at the outset by the Society’s Board following a
recommendation by the Remuneration Committee;
• All remuneration packages are designed such that the Society
can attract and retain high calibre individuals;
• Performance measures for individuals are challenging and
robust, and measured on a consistent basis; and
• Performance-related pay is performance dependent, 40%
of which is deferred over a four year period, to allow the
Remuneration Committee to review whether the payment
remains appropriate, and providing the ability to reduce
or cancel the payment. The Committee also has discretion
to recover payments previously made (clawback), should
information come to light subsequent to the payment being
made, that would have resulted in the Committee withholding
the payment, had this information been known.
The Policy follows, as a minimum, regulatory requirements and
good corporate governance practices.
Section 1
- The Remuneration Policy
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Basic salary
Component 1:
Component 2:
Operation and performance metrics
Opportunity
Performance-related pay
Operation and performance metrics
Fixed remuneration set to attract and retain Executives of sufficient calibre through the payment of competitive rates.
Reviewed annually (or more frequently if required).
Influencing factors include: role and experience, personal performance, salary increases awarded across the Society, and benchmarking
comparisons against organisations of a similar size/complexity, and roles of similar responsibilities.
Set at a level considered appropriate, taking into account the relevant factors tabled. The Committee considers very carefully any pay awards
which do not reflect the wider increases across the Society and will only make them where there is a clear commercial rationale for doing so.
Linked to the delivery of Society and personal objectives. Used to reward Executive Directors within the context of achieving the Society’s goals
and objectives.
40% of the performance-related pay earned is deferred over a four year period from 2021/22 (previously three years). Deferred payments are
made in equal instalments over the following four years, and are subject to annual review and recommendation by the Committee and require
approval by the Non-Executive members of the Board. The Committee has discretion to make a reduction in the level of award (down to zero) or
recover awards if necessary including withholding vested awards (malus arrangements) and recovering payments (clawback arrangements) in
line with relevant regulation, which from April 2021 is for a period of 7 years for Executive Directors, and 5 years for deferred payments/one year
for non-deferred payments for other Code Staff after the award is paid (previously this ‘clawback’ arrangement was for a three year period for all
Code Staff). The annual review prior to payment of a deferred element will take into account a number of factors, making sure management has
operated within the risk appetite of the Society, not exposed the Society to regulatory or control failings, or taken other such actions that would
represent a poor outcome for members.
All awards are non-pensionable.
Based on a number of measures, including: customer, financial, people, risk and new and enhanced operational capabilities.
Reviewed by the Committee annually to ensure that the measures are appropriate.
Remuneration Policy and practice
Components of remuneration
The table below describes the Society’s Policy with respect to each element of pay for Executive Directors:
Opportunity
The Committee has the discretion to allow maximum annual opportunity of 75% of basic salary (as approved by voting members at the 2018
AGM). However, the maximum opportunity for 2024/25 remains at 50% of basic salary.
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The table below shows the Policy for Non-Executive Directors:
Whilst Non-Executive Directors do not participate in any performance-related pay scheme, their
overall performance is reviewed annually by the Chair.
Benefits
Operation and performance metrics
Opportunity
A part of fixed remuneration intended to attract and retain Executive Directors of sufficient calibre.
Executive Directors receive benefits in line with market practice; private medical care for themselves and their family, and life assurance
(4X basic salary). Other benefits may be provided in individual circumstances.
Set at a level considered appropriate, as part of a review of total compensation arrangements.
Component
Operation
Application
Fees
To attract and retain Non-Executive Directors of
the right calibre for the Society.
Fees are reviewed annually for Non-Executive
Directors by the Chair and Executive Directors.
Fees for the Chair are recommended by the
Remuneration Committee and approved by the
Board. The Chair is not present when these fees
are discussed or approved.
Fees are set at a level to attract individuals with
the appropriate knowledge and experience
and to reflect the responsibilities and time
commitment for Board and Board Committees,
taking into account market practice.
Reimbursement is also made for reasonable
travel expenses for attending meetings/Society
business.
Pension or pension allowance
Operation and performance metrics
Opportunity
A part of fixed remuneration intended to attract and retain Executive Directors of sufficient calibre.
Executive Directors are invited to join the Society’s stakeholder pension plan or, as an alternative, be provided with a cash allowance (for example,
where they have exceeded the annual or lifetime allowance).
For all Executive Directors, a pension contribution or cash allowance equal to the maximum pension contribution available to all other employees
(for 2024/25: 10.6%).
Component 3:
Component 4:
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The appointment of an Executive Director could be either an
internal or external appointment. In principle, the Society would
look to provide no additional benefits to a new Director than
those provided to an existing Director.
The Remuneration Committee has the right to exercise discretion
within the Policy, and recommend to the Board an override of any
formulaic approach laid out in the PRP Scheme Rules should it be
deemed appropriate in line with good corporate governance.
In recommending remuneration arrangements for new hires, the
Committee will consider the value of the total package on offer
compared to similar positions in the market, the structure of the
remuneration and the experience of the candidate, to ensure
that arrangements are in the best interests of both the Society
and its members, without paying in excess of what is deemed
necessary to recruit a Director of the required calibre.
Recruitment Policy for
Non-Executive Directors
As with Executive Directors, the approach is to offer a package that
is sufficient to recruit an individual of sufficient calibre, but to pay
no more than is necessary to attract the appropriate candidate.
Service contracts
The terms and conditions of employment for Executive Directors
are detailed in their service contracts. The contract is terminable
with 12 months’ notice if given by the Society or six months’ notice
if given by the Director.
Non-Executive Directors do not have service contracts and
instead have letters of engagement which set out their time
commitments and responsibilities.
Policy on payment for loss of office
The Society’s Policy, as reflected in Executive Director contracts,
is for loss of office payments to be reduced by an amount
equivalent to basic salary from new employment entered into
during the period covered by loss of office payments.
The approach is to offer a package that is sufficient to recruit
an individual of sufficient calibre, but to pay no more than is
necessary to attract the appropriate candidate.
Recruitment Policy for Executive Directors
Component
Application
Basic salary
A Director would receive an amount commensurate with their experience and responsibilities.
Benefits
A Director would receive comparable benefits to existing Directors, although if required to attract the right
candidate these may be widened to include additional benefits, such as a relocation allowance.
Performance-related pay
The maximum performance-related award would be in line with current Policy, unless the market rate
required to recruit the individual supported a higher amount. In any event, this would be no more than
what is considered commercially justifiable.
Pension or pension allowance
An Executive Director would have the option to join the Society’s stakeholder pension scheme or to receive
a cash allowance up to the maximum pension contribution available to all employees, which is 10.6% of
salary (with the cash allowance option subject to deduction of tax and national insurance).
Recruitment compensation
Compensation arrangements are only considered if the new Director was required to forego an
arrangement from their previous employer. In such instances the award would be no more in terms of
amount than the award due to be foregone. The timing and vesting requirements of any payment would
be replicated as far as possible.
Component
Application
Fees
A new Non-Executive Director would receive
fees. The level of fees would be set at a level
commensurate with the Director’s experience
and responsibilities and with due regard to the
fees of other Non-Executive Directors.
Component
Application
Salary and
benefits
A termination payment would be on the basis
of the relevant notice period. There would be
no payment in the event of misconduct or poor
performance.
Performance-
related pay
Any performance-related pay awards would be
made solely at the discretion of the Committee.
Any deferred awards would remain payable
in future years subject to the normal rules of
the Scheme, including possible reduction or
cancellation.
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Employment conditions elsewhere
in the Society
The pay and benefits of employees are considered annually by
the Committee, which also determines the amount of general
performance-related pay. The Society, subject to eligibility,
offers a comprehensive range of benefits to employees,
including pension, life assurance, health care, employee car
scheme and performance-related pay. The Society’s annual
salary review scheme reviews salary for each employee based
on robust external benchmarking, taking into account the
market rate and level of responsibility for each role. From April
2024, base salary increments applied to eligible colleagues
ranged between 1% and 20%.
Remuneration scenarios
The chart shows the breakdown of the component parts of the
remuneration package for Executive Directors for 2023/24 on
the following basis:
• Fixed remuneration – comprising basic salary, pension and
benefits.
• Target remuneration – the anticipated annual remuneration
incorporating a performance-related award.
• Maximum remuneration – the maximum remuneration that
could be awarded.
When developing the remuneration scenarios, the following
assumptions were made:
• Fixed remuneration includes basic salary, pension and
benefits only;
• Target remuneration is based on a performance-related
award of 37.5% of basic salary; and
• Maximum award is based on a performance-related
award of the maximum achievable which is 50% of basic
salary (as stated on page 88 and 89, the Remuneration
Committee has the right to allow an increase in
performance-related award to 75% if deemed appropriate,
with effect from financial year 2019/20).
Total Maximum
Remuneration
Target
Remuneration
Fixed
Remuneration
Chief Executive
Officer
Chief Risk
Officer
Chief Operations
Officer
Chief Financial
Officer
£754,000
£524,000
£443,000
£419,000
£696,000
£483,000
£408,000
£387,000
£520,000
£361,000
£305,000
£289,000
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Non-Executive
Director
Date
appointed
2023/24
Fees
(1)
£000
2023/24
Benefits
(2)
£000
2022/23
Fees
£000
2022/23
Benefits
(2)
£000
John Maltby
(Society Chair since 01/03/21)
04/01/21
130
1
125
1
Julie Hopes
(Remuneration Committee Chair. Deputy Chair
from 01/08/19)
01/04/16
77
2
75
2
Lynne Shamwana
(Audit Committee Chair since 23/07/20)
01/02/19
67
1
65
2
David Thomas
(Risk Committee Chair from 04/05/21)
01/08/20
67
1
65
1
Victoria Mitchell
(until 31/03/24)
01/04/18
52
1
50
1
David Dyer
01/09/21
52
1
50
1
Anne Gunther
01/11/21
52
1
50
1
Sara Bennison
01/08/23
35
1
-
-
Total
532
9
480
9
Executive
Director
Basic salary
£000
Performance
- related
pay
(1)
£000
Pension
£000
Other
benefits
£000
Total
£000
Jonathan Westhoff
(Chief Executive Officer)
468
222
50
3
743
Manjit Hayre
(Chief Risk Officer)
275
121
29
1
426
Alex Pawley
(Chief Financial Officer)
260
119
28
1
408
Martin Boyle
(Chief Operations Officer from 03/04/23)
325
152
35
2
514
Total
1,328
614
142
7
2,091
Non-Executive Director fees (audited)
Notes:
1.
The Society’s Chair (John Maltby) and other Non-Executive Directors received a 4% increase in their base fee from April 2023.
2. In addition to the payment of fees, Non-Executive Directors receive expenses for travel and accommodation in relation to their attendance at meetings.
1.
Includes an element that is subject to deferral. The subsequent table headed ‘Executive Director deferred performance-related pay payable
in future years’ details the amount due for payment, subject to review by the Committee at the appropriate time.
Note: Benefits of £49,481 in lieu of pay and benefits for the period from April 2023 to November 2023 were paid to Ashraf Piranie under the
terms of his contract when he stepped down from his directorial role.
Executive Director Remuneration – 2023/24 (audited)
Martin Boyle was appointed to the Board at the beginning of the year as Chief Operations Officer and I am therefore pleased to
include him in the reporting of Executive Directors’ remuneration.
Section 2
- Annual Report on Remuneration
93
Annual Report and Accounts 2024:
Governance
Executive
Director
Basic salary
£000
Performance
- related
pay
(1)
£000
Pension
£000
Other
benefits
£000
Total
£000
Jonathan Westhoff
(Chief Executive Officer)
450
190
48
2
690
Ashraf Piranie
(Group Finance & Operations)
253
95
27
16
391
Manjit Hayre
(Chief Risk Officer)
250
99
26
1
376
Alex Pawley
(Chief Financial Officer)
2
166
65
18
9
258
Total
1,119
449
119
28
1,715
Objectives
% of overall
award potential
% of award
achieved
Customer
• Gross residential lending • Retention of lending • Customer satisfaction
• Ease of doing business
20%
20.00%
Financial
• Profitability • Net interest margin • Cost efficiency
15%
15.00%
Change
• System enhancement and implementation for savings and mortgages
15%
13.75%
Risk
• Operational resiliency • Support capability for lending
15%
12.50%
People
• Strengthening leadership and management capability
• Enhancing diversity and inclusivity
15%
15.00%
Overall assessment by the Board of Executive performance
20%
20.00%
Overall Society objectives
100%
96.25%
1.
Includes an element that is subject to deferral. The subsequent table headed ‘Executive Director deferred performance-related pay payable in future years’
details the amount due for payment, subject to review by the Committee at the appropriate time.
2.
Alex Pawley was appointed to the Board as Chief Financial Officer on 1 January 2023, hence the remuneration above reflects his total remuneration for the
year, including the period for which he was not an Executive Director.
Note: £55,900 in redundancy pay and an amount of £52,341 in lieu of pay and benefits due for the period from January 2023 to March 2023 were paid to Ashraf
Piranie under the terms of his contract.
Executive Director Remuneration – 2022/23 (audited)
Society overall objectives for the year include:
For 2023/24 a review of performance against objectives agreed
at the start of the year has generated awards for Executive
Directors of 47.38% for the Chief Executive Officer, 45.88% for
the Chief Financial Officer, 44.13% for the Chief Risk Officer and
46.88% for the Chief Operations Officer (against maximum
performance-related pay of 50%) resulting in the amounts shown
in the ‘Executive Director remuneration – 2023/24’ table. These
payments are based on performance against both Society and
personal objectives.
The performance against Society objectives generated awards of 28.875% for the Chief Executive Officer, for the Chief Financial Officer
and the Chief Operations Officer, 9.625% for the Chief Risk Officer.
For Jonathan Westhoff, Alex Pawley and Martin Boyle, 30% of
their maximum award is based on Society objectives and 20%
on personal objectives. For Manjit Hayre, 40% of his maximum
award is based on personal objectives and 10% on Society
objectives. A review of performance against personal objectives
agreed at the start of the year has generated awards of 18.5%
for the Chief Executive Officer, 17.0% for the Chief Financial Officer,
34.5% for the Chief Risk Officer and 18.0% for the Chief Operations
Officer. Awards agreed against Society objectives are detailed
below.
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Annual Report and Accounts 2024:
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A proportion of the Executive Directors’ performance-related
pay has been deferred as shown in the table below. Payment
of any deferred award is subject to review by the Remuneration
Committee and approval by the Board, and may be reduced or
cancelled as appropriate.
Payable in
future years
Payable after year ending
Executive Director
Deferred from
2023/24
£000
2024/25
£000
2025/26
£000
2026/27
£000
2027/28
£000
Jonathan Westhoff
2020/21
24
-
-
-
-
2021/22
17
17
17
-
-
2022/23
19
19
19
19
-
2023/24
-
22
22
22
22
Total
60
58
58
41
22
Ashraf Piranie
(until 31/12/2022)
2020/21
18
-
-
-
-
2021/22
12
12
12
-
-
2022/23
10
10
10
10
-
Total
40
22
22
10
-
Manjit
Hayre
2021/22
1
7
7
7
-
-
2022/23
10
10
10
10
-
2023/24
-
12
12
12
12
Total
17
29
29
22
12
Alex Pawley
2022/23
2
6
6
6
6
-
2023/24
-
12
12
12
12
Total
6
18
18
18
12
Martin Boyle
(from 03/04/23)
2023/24
-
15
15
15
15
Total
-
15
15
15
15
1.
The 2021/22 breakdown shown for Manjit Hayre includes elements subject to deferral from his total performance-related pay
awarded for the year, including the period for which he was not an Executive Director.
2.
The 2022/23 breakdown shown for Alex Pawley includes elements subject to deferral from his total performance-related pay
awarded for the year, including the period for which he was not an Executive Director.
95
Annual Report and Accounts 2024:
Governance
Chief Executive Officer (CEO) pay ratio
The Companies (Miscellaneous Reporting) Regulations 2018,
came into force for accounting periods starting 1 January
2019 and requires the publication of the ratio of the CEO’s
total remuneration. Whilst the requirement applies to ‘quoted’
companies with more than 250 UK employees, the Committee
has chosen to comply with the regulation.
We have chosen to use the government’s preferred methodology
(option A) which requires calculation of total full-time equivalent
of pay and benefits of all its UK employees for the financial year,
and compare the median, 25th and 75th percentiles against
the CEO single figure. The ratios shown below are based on the
Society’s employee base as at 31 March 2024.
Application of the Remuneration
Policy for 2024/25
The Remuneration Committee is required annually to review the
salaries of the Executive Directors.
The Remuneration Committee undertook a benchmarking
exercise of remuneration for Executive Directors in March 2024.
The Committee has again chosen not to apply its discretion to
increase the performance-related pay award.
The annual salary review for employees was based on robust
benchmarking data for every role, taking into account the level of
responsibility and the external market rate for each position. We
continue to review and apply equitable pay practices across the
Society, as demonstrated by completion of the pension alignment
Statement on member voting at
the 2023 AGM
At the 2023 AGM members voted on the Directors’ Remuneration
Report, the results of which are shown below.
Approval of the Directors’ Remuneration Report (advisory vote, i.e.
not conditional on resolution being passed):
At the 2023 AGM members also voted on the Directors’
Remuneration Policy, the results of which are shown below:
Approval of the Directors’ Remuneration Policy (binding vote):
programme which means that all employees (including Executive
Directors) are eligible to the same percentages.
The Committee’s focus next year will be to support the leadership
team, as the Society enters a strategically important and exciting
period of transformation, which will ensure the Society remains
strong and resilient for all its customers.
The Remuneration Committee will continue to strive to align
its decisions with industry best practice and regulatory
requirements whilst considering both the best interests of the
Society, its customers and colleagues.
Julie Hopes
Chair of Remuneration Committee
30 May 2024
Year
Method
25th
Percentile
Median
75th
Percentile
2023-24
Option A
30:1
23:1
16:1
2022-23
Option A
29:1
22:1
16:1
2021-22
Option A
30:1
23:1
15:1
2020-21
Option A
31:1
23:1
16:1
2019-20
Option A
31:1
24:1
16:1
Vote
Votes
for
% Votes
Votes
against
Withheld*
To approve
the Directors’
Remuneration
Report
9,974
92.12%
853
231
Vote
Votes
for
% Votes
Votes
against
Withheld*
To approve
the Directors’
Remuneration
Policy
9,965
92.15%
849
244
Remuneration
Element
25th
Percentile
(£)
Median
(£)
75th
Percentile
(£)
Total Pay and benefits
24,817
32,647
47,866
Salary
21,840
29,685
45,000
* The withheld figures are not included in the calculation of % ‘Votes for’.
96
Annual Report and Accounts 2024:
Governance
Report on the audit of the
annual accounts
Opinion
In our opinion, West Bromwich Building Society’s Group annual
accounts and Society annual accounts (the “annual accounts”):
• give a true and fair view of the state of the Group’s and of the
Society’s affairs as at 31 March 2024 and of the Group’s and
the Society’s income and expenditure and the Group’s and
the Society’s cash flows for the year then ended;
• have been properly prepared in accordance with UK-adopted
international accounting standards; and
• have been prepared in accordance with the requirements of
the Building Societies Act 1986.
We have audited the annual accounts, included within the
Annual Report and Accounts (the “Annual Report”), which
comprise: the Group and Society statements of financial position
as at 31 March 2024; the Group and Society income statements
and statements of comprehensive income, the Group and Society
statement of changes in members’ interests and equity for the
year then ended, and the Group and Society statement of cash
flows; and the notes to the annual accounts, comprising material
accounting policy information and other explanatory information.
Our opinion is consistent with our reporting to the Audit
Committee..
Separate opinion in relation to international financial
reporting standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union
As explained in note 1 to the annual accounts, the Group, in
addition to applying UK-adopted international accounting
standards, has applied international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as
it applies in the European Union.
In our opinion, the Group annual accounts have been properly
prepared in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as
it applies in the European Union.
Basis for opinions
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the
Auditors’ responsibilities for the audit of the annual accounts
section of our report. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We remained independent of the Group in accordance with
the ethical requirements that are relevant to our audit of the
annual accounts in the UK, which includes the FRC’s Ethical
Standard applicable to public interest entities and we have
fulfilled our other ethical responsibilities in accordance with these
requirements.
Other than those disclosed in the note 6 to the annual accounts,
we have provided no non-audit services to the Group in the
period from 1 April 2023 to 31 March 2024.
Our audit approach
Overview
Materiality
• £4.4m (2023: £4.3m) - Group annual accounts
• Based on 1% of Group net assets
• £3.7m (2023: £3.7m) - Society annual accounts
• Based on 1% of net assets
Scoping
• We conducted all of our audit work over the Group and its
components using one audit team, using information obtained
from the Groups’ staff and records based in West Bromwich.
• Audit procedures were performed over all material account
balances and financial information in the Society due to its
significance to the Group’s financial performance and position.
• The Group consists of the Society and five other entities. Our
audit procedures provide coverage over 99.7% of the interest
income of the Group and 99.9% of the total assets of the Group.
Independent auditors’ report to the members
of West Bromwich Building Society
97
Annual Report and Accounts 2024:
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Key audit matters
• Risk of inappropriate judgements and estimates relating
to the significant management judgements involved in
determining the appropriateness of account specific scenarios
and associated weightings given the historic facts and
circumstances in each account within the Commercial loan
portfolio (Group).
• Risk of inappropriate judgements and estimates relating to
future economic assumptions and post model adjustments
applied to the expected credit loss (ECL) allowance on loans
and advances to customers in the residential portfolios (Group
and Society).
• Risk of inappropriate manual adjustments made in the hedging
process (Group and Society).
• Risk of material misstatement in the valuation of investment
property through inappropriate assumptions applied in the
year end valuation (Group).
• Risk of incorrect assumptions applied in the valuation of the
year end defined benefit pension liability, in particular selection
of appropriate mortality rate, discount rate and inflationary
assumptions (Group and Society).
The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the annual
accounts. In particular, we looked at where the directors made
subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in
all of our audits we also addressed the risk of management
override of internal controls, including evaluating whether there
was evidence of bias by the directors that represented a risk of
material misstatement due to fraud.
Capability of the audit in detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with
our responsibilities, outlined in the Auditors’ responsibilities
for the audit of the annual accounts section, to detect material
misstatements in respect of irregularities, including fraud.
The extent to which our procedures are capable of detecting
irregularities, including fraud, is detailed below.
Based on our understanding of the Group/industry, we
identified that the principal risks of non-compliance with laws
and regulations related to breaches of banking regulations
including, but not limited to, the Financial Conduct Authority’s
regulations, the Prudential Regulation Authority’s regulations and
UK tax legislation, and we considered the extent to which non-
compliance might have a material effect on the annual accounts.
We also considered those laws and regulations that have a direct
impact on the annual accounts such as the Building Societies Act
1986. We evaluated management’s incentives and opportunities
for fraudulent manipulation of the annual accounts (including
the risk of override of controls), and determined that the principal
risks were related to posting inappropriate journal entries to
reduce expenditure or increase income and inappropriate
management bias in accounting estimates. Audit procedures
performed included:
• Agreement of the financial statement disclosures to underlying
supporting documentation;
• Review of correspondence with the Society’s regulators, the FCA
and the PRA, in relation to compliance with Financial Services
Regulations;
• Reviewing internal audit reports, and relevant meeting minutes
including those of the Audit Committee and the Board;
• Testing significant accounting estimates (see key audit matters
below);
• Obtaining completeness over journal entries and testing those
entries that contained unusual account combinations back to
corroborating evidence;
• Incorporating unpredictability into the nature, timing and/or
extent of our testing;
• Discussions with management and those charged with
governance in relation to known or suspected instances of
non-compliance with laws and regulation and fraud; and
• Specific audit procedures over non-interest revenue streams
significant to the Group accounts.
There are inherent limitations in the audit procedures described
above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related
to events and transactions reflected in the annual accounts. Also,
the risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error,
as fraud may involve deliberate concealment by, for example,
forgery or intentional misrepresentations or through collusion.
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Annual Report and Accounts 2024:
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Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the annual
accounts of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources
in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our
procedures thereon, were addressed in the context of our audit of the annual accounts as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
The key audit matters below are consistent with last year.
Key audit matter
How our audit addressed the key audit matter
Risk of inappropriate judgements and estimates relating to the significant
management judgement involved in determining the appropriateness of
commercial account specific scenarios and associated weightings.
The modelling of commercial loans, which is a closed book, is performed
separately to the residential portfolio, with management performing individual
assessments given the unique circumstances and large exposures. The focus
of our audit work was on the methodology used to determine the staging of
loans and the level of individual assessment required.
Management performs individual impairment assessments for stage 3 loan
exposures where unique circumstances mean that management judgement
is required to determine the different possible future scenarios and the level of
provision required for each one. Our focus was on the principal assumptions
applied by management in estimating impairment provisions such as the
valuation of collateral, forecast and timing of future cash flows and the
completeness and severity of future scenarios.
These assumptions are based on existing contracts between the Group
and borrowers or tenants and management’s best estimates of future work
out strategies, including alternative scenarios which are used as part of the
weighted final provision calculation.
See notes 14 and 33 to the financial statements for the directors’ IFRS
9 impairment disclosures.
We performed the following procedures to address the areas of judgement
and estimates used in the calculation of commercial ECL:
•
We performed a walkthrough of management’s process of determining the
commercial loans expected credit loss. We tested the design, modelling
methodology and reviewed the appropriateness of the assumptions used
in determining the expected credit loss.
•
With the assistance of risk modelling specialists, we assessed the
methodology used to stage the commercial loans for compliance with the
standard, including the application of this within the model itself.
•
We selected a sample of loans and tested them for consistency with the
individual scenarios modelled by management, agreeing key data points
back to supporting documents (eg. contracts, lease agreements and
valuation reports).
•
We challenged management’s assumptions where case reviews indicated
that alternative outcomes could occur and considered the impact on the ECL
of these.
•
We tested completeness of the provision by selecting an additional sample
of loans with nil provision and testing the ECL calculation to confirm this was
reasonable..
Based on the procedures performed and the evidence obtained, we found
management’s judgements used in the determination of the commercial ECL
to be reasonable.
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Annual Report and Accounts 2024:
Governance
Key audit matter
How our audit addressed the key audit matter
Risk of inappropriate judgements and estimates relating to
future
economic assumptions and post model adjustments applied to the
expected credit loss (ECL) allowance on loans and advances to customers
in the residential portfolios.
Under the IFRS 9 impairment models, losses are recognised on an ‘expected
credit loss’ (ECL) basis. The calculation of expected credit losses requires the
use of forward looking information, reflecting management’s view of potential
future economic scenarios. The standard also requires management to make
judgements regarding when a loan has experienced a ‘significant increase
in credit risk’ and to make assumptions regarding expected customer default
rates and repayment behaviour.
We focused our audit work on the areas of the methodology and assumptions
that we identified as most judgemental. This was informed by our understanding
of the model and areas of increased management judgement.
For the residential book ECL, the key assumptions were:
•
The key economic variables and scenarios used in the model, particularly
the severity and likelihood of the base and downturn economic scenarios
that form part of the forward looking modelling of default rates and house
price values and their impact on ECL;
•
The post model adjustments that are made to account for areas of credit
risk not captured within the base modelling solution.
See notes 14 and 33 to the financial statements for the directors’ IFRS 9
impairment disclosures.
We performed the following procedures to address the areas of judgement
and estimates used in the calculation of residential ECL:
•
We performed a walkthrough of management’s process of determining the
residential expected credit loss. We reviewed changes made to the model
in the current year and assessed the appropriateness and implementation
of these changes.
•
We compared the forward-looking economic assumptions to independent
forecasters. The severity and magnitude of the scenarios were compared
to external forecasts and data from historical economic downturns, and the
sensitivities of the scenarios were considered against consensus. .
•
We tested whether the economic scenarios used were appropriately
severe so as to capture nonlinear effects in credit losses which may arise
in economic downturns and weighted appropriately given the current
economic uncertainty.
•
We tested the appropriateness of the post model adjustments made by
management, including testing the underlying assumptions used in these
adjustments and consideration of completeness of adjustments made
through review of ECL coverage and comparison with wider industry levels.
Based on the procedures performed and the evidence obtained, we found
management’s judgements used in the determination of the residential ECL to
be reasonable.
Risk of inappropriate manual adjustments made in the hedging process
The Group & Society has designated hedge accounting relationships linked
to the migration of interest rate risk. They are exposed to interest rate risk as
a result of the mismatch between fixed and floating rate cash flows due to
entering into fixed interest income mortgage contracts with customers.
The risk of future movements in market rates of interest affecting the profitability
of the Group & Society is mitigated using derivative financial instruments in the
form of interest rate swap contracts. These are designated in hedge accounting
relationships so that the underlying hedged items are recorded at fair value,
as long as they can demonstrate that the hedge accounting arrangements are
effective in accordance with accounting standards.
We focused our work on the manual adjustments that are required to be
posted to system outputs to achieve compliance with accounting standards.
We focused our work on this area as the hedge accounting rules are complex
and given the nature of manual adjustments required can give rise to an
increased risk of error application.
The Group & Society disclosures are given in Note 12.
We performed the following procedures to address the risks in relation to
hedge accounting:
•
We re-performed the valuation of a sample of derivatives and underlying
hedged items using valuation specialists where appropriate.
•
We assessed the completeness and accuracy of the mortgage, deposit and
swap data flowing into hedging calculations.
•
We tested the completeness and accuracy of income statement
ineffectiveness recorded in the income statement in the year and challenged
management on the completeness of manual adjustments made to
achieve compliance with accounting standards.
•
We reconciled the output of hedging calculations to the general ledger to
ensure that the amounts recorded in the annual accounts are accurate.
•
We tested the disclosures in respect of hedge accounting and confirmed
that they were compliant with accounting standards.
Based on the evidence obtained, we found that the hedge accounting
methodology was compliant with accounting standards and the underlying
hedging calculations were materially accurate and valid.
Risk of material misstatement in the valuation of investment property
through inappropriate assumptions applied in the year end valuation
The Group holds a portfolio of investment properties within the West Bromwich
Homes Limited subsidiary. In line with the requirements of the accounting
standard these properties are held at fair value with changes in the fair value
recognised within the income statement.
Management calculates the year end valuation with the assistance of external
valuation experts who assess the current valuation through comparison to
expected market values at the balance sheet date.
In certain situations, management makes adjustments to the valuations
provided by their experts to capture specific risks identified.
Given the overall valuation of the investment property portfolio at the year end
and the potential reasonable range of reasonable valuations we determined
that this represents a significant risk within our audit plan.
Further disclosure is given within note 17 of the financial statements.
Our procedures over the year end valuation included:
•
We performed a walkthrough of management’s process of determining the
fair value of the property portfolio.
•
We evaluated the competence, objectivity and independence of experts
engaged by the directors to assist with the property valuations and review
of historical performance of the valuations against actual sales.
•
We engaged our internal Real Estate valuation experts to evaluate the work
performed by management’s experts and assessed the reasonableness of
any differences in the valuations used with regard to externally available
sources (such as land registry data).
•
We tested adjustments to the expert valuation made by management,
including assumed costs in relation to cladding, back to supporting
documentation or evidence.
Based on the evidence obtained, we determined the methodologies, inputs
and assumptions used in the investment property valuations to be materially
appropriate.
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Annual Report and Accounts 2024:
Governance
Key audit matter
How our audit addressed the key audit matter
Risk of incorrect assumptions applied in the valuation of the year end
defined benefit pension liability, in particular selection of appropriate
mortality, discount rate and inflationary assumptions
The Group & Society operates a defined benefit pension scheme for certain staff
members. The present value of the schemes is materially sensitive to a number
of judgements including the discount rate, inflation and mortality. Setting these
judgements is complex and small changes can have a significant impact on
the year end liability valuation.
Given the scheme assets are invested with an external party in diversified
market funds, with a portion of the liabilities also insured, we deem the
significant risk to relate specifically to the liability valuation of the scheme.
We focused our work on the judgements made by management, in conjunction
with third party actuaries, relating to the discount rate, inflation rate and
pensioner mortality.
The Group’s & Society’s disclosures are given in note 31 including relevant
sensitivity disclosures for the key assumptions used by the scheme actuary in
the valuation of the liability.
We performed the following procedures to address the valuation risks in
relation to the year end defined benefit pension liability:
•
We independently assessed, using our actuarial experts, the discount
rate, inflation rate and mortality assumptions used and compared these
to observable market rates at the year end. We assessed instances where
management’s judgements and that of their experts differed from market
consensus and assessed the reasonableness of explanations for these
deviations.
•
We considered the independence, objectivity and competence of the third
party actuaries engaged by management to perform their valuation.
•
We considered the recognition of the surplus by the Society with reference
to the requirements of the accounting standards and terms between the
Society and the Trustee.
From the evidence obtained, we found the assumptions used by management
in the actuarial valuations for pension obligations to be appropriate.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the annual
accounts as a whole, taking into account the structure of the
Group and the Society, the accounting processes and controls,
and the industry in which they operate.
Substantially all of the Group’s activities are in the United
business lines, being retail, commercial real estate and property
businesses (see note 38 of the financial statements).
We performed an audit of all material account balances and
other financial information for the Society and five subsidiaries,
together with the assessment of management’s going concern
assumption.
All audit work over the Group and its components was performed
by a single audit team.
Taken together, our audit procedures on the Society and its
subsidiary undertakings provided us with sufficient audit
evidence as a basis for our opinion on the Group financial
statements as a whole.
The impact of climate risk on our audit
As part of our audit we made enquiries of management to
understand the extent of the potential impact of climate risk on
the Society’s financial statements, and we remained alert when
performing our audit procedures for any indicators of the impact
of climate risk. Management considers the impact of climate
risk does not give rise to a potential material financial statement
impact as set out in the risk management report and our
procedures have not identified any material impact in the context
of our audit over the financial statements.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us
to determine the scope of our audit and the nature, timing
and extent of our audit procedures on the individual financial
statement line items and disclosures and in evaluating the effect
of misstatements, both individually and in aggregate on the
annual accounts as a whole.
Based on our professional judgement, we determined materiality
for the annual accounts as a whole as follows:
Group annual accounts
Society annual accounts
Overall materiality
£4.4m (2023: £4.2m).
£3.7m (2023: £3.7m).
How we determined it
1% of net assets.
1% of net assets.
Rationale for benchmark applied
We believe that the subscribed capital and reserves (“net assets”) is the most appropriate benchmark to
use for the Society and Group, whose strategy is not one of profit maximisation. Regulatory capital is a
key benchmark for management and regulators and hence we continue to use net assets, a proxy to
regulatory capital, as our benchmark.
101
Annual Report and Accounts 2024:
Governance
For each component in the scope of our Group audit, we
allocated a materiality that is less than our overall Group
materiality. The range of materiality allocated across components
was £0.1m to £4.2m.
We use performance materiality to reduce to an appropriately
low level the probability that the aggregate of uncorrected
and undetected misstatements exceeds overall materiality.
Specifically, we use performance materiality in determining
the scope of our audit and the nature and extent of our testing
of account balances, classes of transactions and disclosures,
for example in determining sample sizes. Our performance
materiality was 75% of overall materiality, amounting to £3.3m
for the Group financial statements and £2.8m for the Society
materiality.
In determining the performance materiality, we considered a
number of factors - the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls - and
concluded that an amount at the upper end of our normal range
was appropriate.
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above £0.2m
(2023: £0.2m) as well as misstatements below that amount that,
in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and
the Society’s ability to continue to adopt the going concern basis
of accounting included:
• Evaluation and challenge of key assumptions used by the
directors in their determination of the going concern of the
Group and Society;
• Consideration as to whether our audit work had identified
events or conditions which may give rise to uncertainty as to the
Group’s future ability to trade; and
• Review of legal and regulatory correspondence to ensure that
any compliance issues which may impact the going concern of
the Group had not been identified.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group’s and the Society’s ability to continue as a going concern
for a period of at least twelve months from the date on which the
annual accounts are authorised for issue.
In auditing the annual accounts, we have concluded that the
directors’ use of the going concern basis of accounting in the
preparation of the annual accounts is appropriate.
However, because not all future events or conditions can be
predicted, this conclusion is not a guarantee as to the Group’s
and Society’s ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections of
this report.
Reporting on other information
The other information comprises all of the information in the
Annual Report other than the annual accounts and our auditors’
report thereon. The directors are responsible for the other
information. Our opinion on the annual accounts does not cover
the other information and, accordingly, we do not express an
audit opinion or, except to the extent otherwise explicitly stated in
this report, any form of assurance thereon.
In connection with our audit of the annual accounts, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the annual accounts or our knowledge obtained in the audit,
or otherwise appears to be materially misstated. If we identify
an apparent material inconsistency or material misstatement,
we are required to perform procedures to conclude whether
there is a material misstatement of the annual accounts or
a material misstatement of the other information. If, based
on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required
to report that fact. We have nothing to report based on these
responsibilities.
With respect to the Annual Business Statement and Directors’
Report we also considered whether the disclosures required by
the Building Societies Act 1986 have been included.
Based on our work undertaken in the course of the audit, the
Building Societies Act 1986 requires us also to report certain
opinions and matters as described below.
102
Annual Report and Accounts 2024:
Governance
Annual Business Statement and Directors’ Report
In our opinion, based on our work undertaken in the course of the audit:
• the Annual Business Statement and the Directors’ Report have been prepared in accordance with the requirements of the Building
Societies Act 1986;
• the information given in the Directors’ Report for the year ended 31 March 2024 is consistent with the accounting records and the
annual accounts; and
•
the information given in the Annual Business Statement (other than the information upon which we are not required to report) gives
a true representation of the matters in respect of which it is given.
In light of the knowledge and understanding of the Group and Society and their environment obtained in the course of the audit, we
did not identify any material misstatements in the Directors’ Report.
Responsibilities for the annual accounts and the audit
Responsibilities of the directors for the annual accounts
As explained more fully in the Directors’ responsibilities in respect of the Annual Report, the Annual Business Statement, the Directors’
Report and the Annual Accounts, the directors are responsible for the preparation of the annual accounts in accordance with the
applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal
control as they determine is necessary to enable the preparation of annual accounts that are free from material misstatement,
whether due to fraud or error.
In preparing the annual accounts, the directors are responsible for assessing the Group’s and Society’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group and Society or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the annual accounts
Our objectives are to obtain reasonable assurance about whether the annual accounts as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual
accounts.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations.
We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit
sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the annual accounts is located on the Financial Reporting Council’s website
at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Society’s members as a body in accordance with Section
78 of the Building Societies Act 1986 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
103
Annual Report and Accounts 2024:
Governance
Other required reporting
Building Societies Act 1986 exception reporting
Under the Building Societies Act 1986 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the Society; or
• the Society annual accounts are not in agreement with the accounting records; or
• we have not received all the information and explanations and access to documents we require for our audit.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the audit committee, we were appointed by the members on 20 September 2020 to audit the
annual accounts for the year ended 31 March 2021 and subsequent financial periods. The period of total uninterrupted engagement
is 4 years, covering the years ended 31 March 2021 to 31 March 2024.
Other matter
In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial
statements will form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial
Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance
over whether the annual financial report will be prepared using the single electronic format specified in the ESEF RTS.
Daniel Brydon (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
30
May 2024
Annual Report and Accounts 2024:
Financial Statements
104
Financial Statements
In this section you will find our
primary financial statements
and related notes.
Annual Report and Accounts 2024:
Financial Statements
105
Income Statements
for the year ended 31 March 2024
Note(s)
Group
2024
£m
Group
2023
£m
Society
2024
£m
Society
2023
£m
Interest receivable and similar income
Calculated using the effective interest method
On instruments measured at fair value through profit or loss
Total interest receivable and similar income
2
Interest expense and similar charges
3
(183.4 )
(91.0 )
(183.3 )
(91.5 )
Net interest receivable
Fees and commissions receivable
Other operating income
4
Fair value (loss)/gain on financial instruments
5
(0.4 )
(0.4 )
Total income
Administrative expenses
6
(54.0 )
(39.9 )
(51.4 )
(38.2 )
Depreciation and amortisation
16,18
(5.5 )
(5.8 )
(5.5 )
(5.8 )
Operating profit before revaluation gains, impairment, provisions and
cost on debt buyback
Gains on investment properties
17
Impairment on loans and advances
14
(14.7 )
(24.1 )
(1.4 )
(1.1 )
Cost on debt buyback
28
(5.1 )
(5.1 )
Provisions against investments in subsidiary undertakings
15
(13.5 )
(14.3 )
Profit before tax
Taxation
9
(7.7 )
(5.6 )
(6.8 )
(7.1 )
Profit for the financial year
The profit for the year derives wholly from continuing operations.
The notes on pages 112 to 179 form part of these financial statements.
Annual Report and Accounts 2024:
Financial Statements
106
Statements of Comprehensive Income
for the year ended 31 March 2024
Note
Group
2024
£m
Group
2023
£m
Profit for the financial year
Other comprehensive income/(expense)
Items that may subsequently be reclassified to profit or loss
Fair value through other comprehensive income investments
Valuation gains/(losses) taken to equity
(0.3 )
Taxation
30
(0.3 )
Items that will not subsequently be reclassified to profit or loss
Gains on revaluation of land and buildings
Actuarial losses on defined benefit assets
31
(7.2 )
(10.8 )
Taxation
30
Other comprehensive expense for the financial year, net of tax
(4.5 )
(8.2 )
Total comprehensive income for the financial year
Note
Society
2024
£m
Society
2023
£m
Profit for the financial year
Other comprehensive income/(expense)
Items that may subsequently be reclassified to profit or loss
Fair value through other comprehensive income investments
Valuation gains/(losses) taken to equity
(0.3 )
Taxation
30
(0.3 )
Items that will not subsequently be reclassified to profit or loss
Gains on revaluation of land and buildings
Actuarial losses on defined benefit assets
31
(7.2 )
(10.8 )
Taxation
30
Other comprehensive expense for the financial year, net of tax
(4.5 )
(8.2 )
Total comprehensive income for the financial year
The notes on pages 112 to 179 form part of these financial statements.
Annual Report and Accounts 2024:
Financial Statements
107
Statements of Financial Position
at 31 March 2024
Note
Group
2024
£m
Group
2023
£m
Society
2024
£m
Society
2023
£m
Assets
Cash and balances with the Bank of England
10
Loans and advances to credit institutions
Investment securities
11
Derivative financial instruments
12
Loans and advances to customers
13
Deferred tax assets
19
Trade and other receivables
20
Investments
15
Intangible assets
16
Investment properties
17
Property, plant and equipment
18
Retirement benefit asset
31
Total assets
Liabilities
Shares
21
Amounts due to credit institutions
Amounts due to other customers
22
Derivative financial instruments
12
Debt securities in issue
23
Current tax liabilities
Deferred tax liabilities
19
Trade and other payables
24
Provisions for liabilities
25
Subordinated liabilities
28
Total liabilities
Members' interests and equity
Core capital deferred shares
27
Subscribed capital
26
General reserves
Revaluation reserve
Fair value reserve
Total members' interests and equity
Total members' interests, equity and liabilities
The accounting policies and notes on pages 112 to 179 form part of these financial statements.
Approved by the Board of Directors on 30 May 2024 and signed on its behalf by:
John Maltby
Jonathan Westhoff
Alex Pawley
Chair
Chief Executive Officer
Group Financial Officer
Annual Report and Accounts 2024:
Financial Statements
108
Statements of Changes in Members’ Interests and Equity
for the year ended 31 March 2024
Group
Core capital
deferred
shares
£m
Subscribed
capital
£m
General
reserves
£m
Revaluation
reserve
£m
Fair value
reserve
£m
Total
£m
At 1 April 2023
Profit for the financial year
Other comprehensive (expense)/income for the year
(net of tax)
Retirement benefit assets
(5.5 )
(5.5 )
Gains on revaluation of land and buildings
Realisation of previous revaluation gains
(0.1 )
Fair value through other comprehensive income
investments
Total other comprehensive expense
(5.4 )
(0.1 )
(4.5 )
Total comprehensive income for the year
(0.1 )
Distribution to the holders of core capital deferred shares
(5.7 )
(5.7 )
At 31 March 2024
for the year ended 31 March 2023
Group
Core capital
deferred
shares
£m
Subscribed
capital
£m
General
reserves
£m
Revaluation
reserve
£m
Fair value
reserve
£m
Total
£m
At 1 April 2022
Profit for the financial year
Other comprehensive (expense)/income for the year (net
of tax)
Retirement benefit assets
(8.5 )
(8.5 )
Gains on revaluation of land and buildings
Realisation of previous revaluation gains
(0.4 )
Fair value through other comprehensive income
investments
(0.3 )
(0.3 )
Total other comprehensive expense
(8.1 )
(0.3 )
(8.2 )
Total comprehensive income for the year
(0.3 )
Distribution to the holders of core capital deferred shares
(4.8 )
(4.8 )
At 31 March 2023
Annual Report and Accounts 2024:
Financial Statements
109
Statements of Changes in Members’ Interests and Equity
for the year ended 31 March 2024
Society
Core capital
deferred
shares
£m
Subscribed
capital
£m
General
reserves
£m
Revaluation
reserve
£m
Fair value
reserve
£m
Total
£m
At 1 April 2023
Profit for the financial year
Other comprehensive (expense)/income for the year
(net of tax)
Retirement benefit assets
(5.5 )
(5.5 )
Gains on revaluation of land and buildings
Realisation of previous revaluation gains
(0.1 )
Fair value through other comprehensive income
investments
Total other comprehensive expense
(5.4 )
(0.1 )
(4.5 )
Total comprehensive income for the year
(0.1 )
Distribution to the holders of core capital deferred shares
(5.7 )
(5.7 )
At 31 March 2024
The notes on pages 112 to 179 form part of these financial statements.
for the year ended 31 March 2023
Society
Core capital
deferred
shares
£m
Subscribed
capital
£m
General
reserves
£m
Revaluation
reserve
£m
Fair value
reserve
£m
Total
£m
At 1 April 2022
Profit for the financial year
Other comprehensive (expense)/income for the year (net
of tax)
Retirement benefit assets
(8.5 )
(8.5 )
Gains on revaluation of land and buildings
Realisation of previous revaluation gains
(0.4 )
Fair value through other comprehensive income
investments
(0.3 )
(0.3 )
Total other comprehensive expense
(8.1 )
(0.3 )
(8.2 )
Total comprehensive income for the year
(0.3 )
Distribution to the holders of core capital deferred shares
(4.8 )
(4.8 )
At 31 March 2023
Annual Report and Accounts 2024:
Financial Statements
110
Statements of Cash Flows
for the year ended 31 March 2024
Group
2024
£m
Group
2023
£m
Society
2024
£m
Society
2023
£m
Net cash (outflow)/inflow from operating activities (below)
(13.8 )
(159.2 )
(192.2 )
Cash flows from investing activities
Purchase of investment securities
(333.0 )
(240.5 )
(333.1 )
(240.4 )
Proceeds from disposal of investment securities
Proceeds from disposal of investment properties
Purchase of property, plant and equipment, intangible assets
and investment properties
(9.7 )
(7.8 )
(8.7 )
(6.2 )
New funding to subsidiaries
(228.4 )
(18.8 )
Repayment of funding from subsidiaries
Net cash (outflow)/inflow from investing activities
(76.9 )
(34.8 )
Cash flows from financing activities
Repurchase of subordinated liabilities
(20.4 )
(20.4 )
Repayment of debt securities
(172.0 )
Interest paid on subordinated liabilities
(1.8 )
(2.5 )
(1.8 )
(2.5 )
Payment of lease liabilities
(0.4 )
(0.3 )
(0.4 )
(0.4 )
Distribution to the holders of core capital deferred shares
(5.8 )
(4.8 )
(5.8 )
(4.8 )
Net cash outflows from financing activities
(28.4 )
(179.6 )
(28.4 )
(7.7 )
Net decrease in cash
(119.1 )
(53.1 )
(88.4 )
(39.3 )
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
For the purposes of the statements of cash flows, cash and cash equivalents comprise the following balances with less than 90 days original maturity:
Group
2024
£m
Group
2023
£m
Society
2024
£m
Society
2023
£m
Cash in hand (including Bank of England Reserve account)
Loans and advances to credit institutions
The Group is required to maintain certain mandatory balances with the Bank of England which, at 31 March 2024, amounted to £nil (2022/23: £14.0 m).
The movement in these balances is included within cash flows from operating activities.
The Group’s loans and advances to credit institutions includes £nil (2022/23: £31.1 m) of balances belonging to the Society’s structured entities which are
not available for general use by the Society.
Annual Report and Accounts 2024:
Financial Statements
111
Statements of Cash Flows
(continued)
for the year ended 31 March 2024
Group
2024
£m
Group
2023
£m
Society
2024
£m
Society
2023
£m
Cash flows from operating activities
Profit before tax
Adjustments for non-cash items included in profit before tax
Impairment on loans and advances
Depreciation, amortisation and impairment
Disposal of property, plant and equipment and investment properties
Revaluations of investment properties
(2.5 )
(6.0 )
Provisions against investments in subsidiary undertakings
Interest on subordinated liabilities
Fair value (gains)/losses on equity release portfolio
(0.2 )
(0.2 )
Changes in fair value on hedged items in fair value hedge relationships
(36.7 )
(31.6 )
Changes in operating assets and liabilities
Loans and advances to customers
(391.9 )
(530.6 )
Loans and advances to credit institutions
Derivative financial instruments
(52.9 )
(53.1 )
Shares
Deposits and other borrowings
(64.1 )
(341.2 )
(63.0 )
(495.6 )
Trade and other receivables
(8.5 )
(8.7 )
Trade and other payables
Retirement benefit obligations
(2.4 )
(6.8 )
(2.4 )
(6.8 )
Tax paid
(0.2 )
(0.2 )
Net cash (outflow)/inflow from operating activities
(13.8 )
(159.2 )
(192.2 )
The notes on pages 112 to 179 form part of these financial statements.
112
Annual Report and Accounts 2024:
Financial Statements
The principal accounting policies applied consistently in the preparation of these consolidated Annual Accounts are set out below.
The Annual Accounts of the Group and the Society have been prepared in accordance to UK adopted
International Accounting Standards and conform with
the requirements of the Building Societies Act 1986. In addition to complying with international accounting standards in conformity with the requirements of the
Building Societies Regulations. .In addition to complying with international accounting standards in conformity with the requirements of the Building Societies
Regulations, the consolidated financial statements also comply with international financial reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
The Annual Accounts have been prepared under the historical cost convention as modified by the application of fair value revaluation of other comprehensive
income assets, derivatives, investment properties, property, plant and equipment and other financial assets through profit or loss.
The Directors have prepared forecasts for the Group, including its capital position, for a period in excess of 12 months from the date of approval of these financial
statements. The Directors have also considered the effect upon the Group’s business, financial position, liquidity and capital of more pessimistic, but plausible,
trends in its business using stress testing and scenario analysis techniques.
The Society’s Medium Term Plan (MTP) has been updated to reflect the continuing uncertainty in the UK economy.
The Directors consider that the Society and Group have adequate resources to continue in operational existence for the next 12 months. Accordingly they continue
There have been no changes to accounting standards in the period that have an impact on the Group’s accounting policies.
The International Accounting Standards Board (IASB) have issued a few amendments and improvements to accounting standards with an effective date of 1
The Group financial statements consolidate the financial statements of the Society and its subsidiary undertakings.
Subsidiaries are all entities controlled by the Society. Under IFRS 10 ‘Consolidated Financial Statements’ control is achieved where the Group has the power to
govern the financial and operating policies of an entity, has the exposure or rights to the variable returns from the involvement with the entity, and is able to use
its power to affect the amount of returns for the Group. In assessing control, potential voting rights that presently are exercisable or convertible are taken into
account. The financial statements of the subsidiaries are included in the results from the date that control commences until the date that control ceases.
The purchase method of accounting has been adopted, under which the results of subsidiary undertakings acquired or disposed of in a year are included in the
Income Statement from the date of acquisition or up to the date of disposal.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated
unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to
ensure consistency with the policies adopted by the Group.
Notes to the Accounts for the year ended 31 March 2024
Annual Report and Accounts 2024:
Financial Statements
113
Securitisation transactions
The Group has entered into securitisation transactions in which it sells mortgages to structured entities. Live mortgages were transferred and repayments on
these remain due at the time of securitisation. Cash flows received from the mortgage repayments are transferred to the structured entity. However the Society
has retained substantially all the risks and rewards including, but not limited to, holding the legal title of the mortgages. In accordance with IFRS 9 ‘Financial
Instruments’ the Group continues to recognise securitised assets as loans and advances to customers and consequently also shows a deemed loan liability to
the structured entities. The deemed loans are included within amounts due to other customers. In subsequent periods, income from the securitised mortgages
is recognised by the Group.
The equity of the structured entities created for these securitisations is not owned by the Group. However, to comply with IFRS 10, the structured entities are
included as subsidiaries in the consolidated financial statements, where certain criteria are met. The analysis of whether the criteria are met is subject to regular
reassessment. Where IFRS 10 consolidation criteria are no longer met, securitised mortgage assets continue to be recognised with an offsetting deemed loan
liability recorded in the Group financial statements.
Interest in unconsolidated structured entities - Group
As outlined further below, management has judged that the securitisation Sandwell Commercial Finance no. 1 plc and Sandwell Commercial Finance no. 2 plc
no longer meet the consolidation criteria as set out in IFRS 10. The principal activities of the entities is that of holding non-core commercial mortgage portfolios
– these being the assets that were transferred when the securitisations were established. Prior to deconsolidation, the deemed loan asset recorded in these
entities was offset by an equal and opposite deemed loan liability in West Bromwich Commercial Limited (WBCL). Following deconsolidation, the deemed loan
asset and external loan note liabilities recognised in these entities are no longer recognised in the Group financial statements. The deemed loan liability in WBCL
is no longer eliminated and is recorded in the Group balance sheet. The deemed loan liability is continually revalued to reflect the impairment provisions held
against the underlying commercial mortgages given the impairments are ultimately borne by the loan note holders as the Group is no longer exposed to the
structure. In these entities, the Group has limited exposure to credit losses, with risk transferred in part to third party investors who have purchased loan note
securities issued by the entities.
The table below indicates the interests in structured entities.
31 March 2024 | 31 March 2023 | |||||||
Notes | Maximum | Maximum | ||||||
Deemed | held in | exposure to loss | Deemed | Notes held | exposure to loss | |||
loan | Mortgages | structured | in unconsolidated | loan | Mortgages | in structured | in unconsolidated | |
balances | transferred | entities | structured entities | balances | transferred | entities | structured entities | |
Group | 5.2 | 5.0 | 0.5 | 0 | 6.3 | 6.4 | 0.5 | 0 |
IFRS 8 ‘Operating Segments’, requires operating segments to be identified on the basis of internal reports and components of the Group regularly reviewed by
the chief operating decision maker to allocate resources to segments and to assess their performance. In terms of the Group, the chief operating decision maker
is the Chief Executive Officer.
Each segment is determined according to the distinguishable operating component of the Group that is regularly reviewed by the Group’s chief operating decision
maker and for which discrete financial information is available.
Interest receivable and expense are recognised in the Income Statement for all instruments measured at amortised cost or fair value through other comprehensive
income using the effective interest rate method. Interest income on defaulted loans categorised as ‘stage 3’ under IFRS 9 is recognised by applying the effective
interest rate to the balances net of the provisions for expected credit losses.
Effective interest rate (EIR)
The EIR method is the method used to calculate the amortised cost of financial instruments and to recognise interest receivable or payable over the relevant
period. The effective interest rate is the rate that exactly discounts estimated future cash flows or receipts through the expected life of the instrument, or where
appropriate, a shorter period, to its carrying amount. In the prior year, changes were made to the judgements applied for EIR calculations. As a result, from
inception, mortgage products are treated as having distinct periods (initial and follow-on) and income in the follow-on period is recognised as it is received. In
1. Accounting policies
(continued)
114
Annual Report and Accounts 2024:
Financial Statements
Fees and commissions are generally recognised on an accruals basis when the service has been provided. Mortgage arrangement fees and other direct
costs are deferred and incorporated in the mortgage portfolio as part of the effective interest rate method. Commissions and fees arising from negotiating or
Investment properties are properties held for long-term rental yields and capital appreciation. Investment properties are carried in the Statement of Financial
Position at fair value, representing open market value determined annually and subject to review by independent specialist valuers. Changes in fair values are
recorded in the Income Statement in accordance with IAS 40
‘Investment Properties’. Leasehold properties held for long-term rental yields are classified as
Under IFRS 9, financial assets are classified as amortised cost or fair value (through other comprehensive income or through profit or loss), based on the business
model under which they are held and the characteristics of their contractual cash flows.
Amortised cost
Financial assets are measured at amortised cost if they are held for the purpose of collecting contractual cash flows (“held to collect” business model) and have
contractual terms which give rise on specified dates to cash flows which are solely payments of principal and interest (SPPI) on the outstanding amount.
This category includes cash and balances with the Bank of England, loans and advances to credit institutions and the majority of the Group’s loans and advances
to customers. All of the Group’s mortgage portfolios were originated or purchased for the purposes of collecting contractual cash flows comprising of both capital
and interest on the outstanding balance, apart from the closed equity release portfolio.
For the Society, loans to subsidiary undertakings and holdings of certain investment securities issued by Group entities are also measured at amortised cost
based on the business model and SPPI assessments. In the case of mortgage-backed securities, the SPPI criteria are only met where the underlying asset pools
contain mortgages which are SPPI and the exposure to credit risk inherent in the tranches held by the Society is equal to or lower than the exposure to credit risk
of the underlying mortgage pools.
Assets measured at amortised cost are initially recognised at fair value, being the cash consideration to originate or purchase the asset including any directly
attributable transaction costs, and subsequently measured using the effective interest rate method.
Fair value through other comprehensive income (FVOCI)
Financial assets are classified as FVOCI where the associated business model objective is achieved by both collecting contractual cash flows and selling the
assets (“held to collect and sell” business model). The contractual terms of FVOCI assets give rise on specified dates to cash flows which are solely payments of
principal and interest on the outstanding balance.
This category comprises the Group’s portfolio of investment securities held in order to meet current and future liquidity requirements and which have been
assessed by the Group to be in a “held to collect and sell” business model. Consistent with the criteria for FVOCI, the Group collects contractual cash flows which,
without exception, meet the IFRS 9 SPPI definition and periodically sells a proportion of the portfolio to evidence the liquidity of the investment assets. In the case
of mortgage-backed securities, the SPPI criteria are only met where the underlying asset pools contain mortgages which are SPPI and the exposure to credit risk
inherent in the tranches held by the Society is equal to or lower than the exposure to credit risk of the underlying mortgage pools.
FVOCI assets are recognised at fair value on trade date, which is the cash consideration including any directly attributable transaction costs, and measured
subsequently at fair value. Gains and losses from changes in fair value are recorded in other comprehensive income via the fair value reserve, except for
impairment losses which are recognised in the Income Statement. Gains or losses arising on sale, including any cumulative gains and losses previously
recognised in other comprehensive income, are recognised in the Income Statement. Interest is calculated using the effective interest rate method.
The fair values of FVOCI assets are based on quoted prices or, if these are not available, valuation techniques developed by the Group. These include, but are not
limited to, the use of discounted cash flow models, option pricing models and recent arm’s length transactions.
Financial assets which do not meet the classification criteria to be held at amortised cost or FVOCI are measured at FVTPL.
This category includes derivative assets and the closed equity release portfolio (presented within loans and advances to customers). An assessment of the
contractual terms of the equity release loans concluded that the SPPI criteria, which must be satisfied to carry an asset at amortised cost or FVOCI, were not met.
In the Society’s Statement of Financial Position, certain investment securities issued by Group structured entities are measured at FVTPL.
The fair values of derivatives are based on level 2 valuation techniques, as described in section (f) below. Changes in the fair value of derivative assets are
presented within fair value gains/(losses) on financial instruments in the Income Statement offset, where the derivatives are hedging instruments in a qualifying
IAS 39 ‘Financial Instruments: Recognition and Measurement’ fair value hedge relationship, by the fair value movements on the corresponding hedged items.
Interest arising on derivative financial instruments is recognised within net interest on an accruals basis.
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Due to the bespoke nature of equity release books, relevant market pricing data is not available. The fair value of the equity release portfolio is therefore
determined using an internal discounted cash flow model which estimates the amount and timing of future cash flows arising on redemption and discounts
these at assumed market rates to calculate the fair value of the mortgages. Model inputs are informed by the Society’s historic experience (e.g. redemption rates.
Under IFRS 13 ‘Fair Value Measurement’ and Amendments to IFRS 7 ‘Financial Instruments: Disclosures’, the fair value measurement of equity release mortgages
is categorised as level 3.
An entity may, at initial recognition or on adoption of IFRS 9, make an irrevocable designation to measure a financial asset at FVTPL, if doing so eliminates or
significantly reduces a measurement or recognition inconsistency that would arise if the asset were to be held at amortised cost or FVOCI. The Group and Society
In accordance with IFRS 9, all of the Group and Society’s financial liabilities are classified and subsequently measured at amortised cost except for financial
liabilities at fair value through profit or loss.
Amortised cost
This category includes shares, amounts due to credit institutions, amounts due to other customers, debt securities in issue and subordinated liabilities.
Liabilities subsequently measured at amortised cost are recognised initially at fair value, being the issue proceeds, net of premia, discounts and directly
attributable transaction costs incurred. They are subsequently measured at amortised cost using the effective interest rate method.
This category includes derivative liabilities for which changes in fair value are presented within fair value gains/(losses) on financial instruments in the Income
Statement offset, where the derivatives are hedging instruments in a qualifying IAS 39 fair value hedge relationship, by the fair value movements on the
corresponding hedged items. Interest arising on derivative financial instruments is recognised within net interest on an accruals basis.
The fair values of derivative liabilities are determined in accordance with the three tier valuation hierarchy as defined within IFRS 13
and in section (f) below.
An entity may, at initial recognition or on adoption of IFRS 9, make an irrevocable designation to measure a financial liability (that would otherwise be held at
amortised cost) at FVTPL if doing so eliminates or significantly reduces a measurement or recognition inconsistency. The Group and Society have not designated
Expected credit losses (ECLs) are recognised for all financial assets carried at amortised cost or FVOCI under IFRS 9, and also for undrawn loan commitments
where a mortgage offer has been made but the loan is yet to be advanced and recognised in the Statement of Financial Position.
The year end modelled ECL has been updated where necessary, for example:
• Account level assumptions for commercial provisions have been refined to reflect the latest developments on an individual account level. Factors such as
strategy, rental cover and exit value valuation assumptions have been considered when informing these decisions.
• The macroeconomic scenarios have been updated to reflect the latest economic position in the UK at the reporting date, including assumptions of the cost of
living challenges, interest rates and house price movements. .
Several residential Post Model Adjustments (PMAs) overlays have been recorded at the year end, total PMA’s in 2023/24 £3.7m (2022/23 £3.5m), detailed below:
• Flats attract a HPI haircut of 20% to reflect current conditions in the UK’s housing market,
this overlay was not taken in prior years.
• Probability of Default, PD, overlays have been recorded as PDs are considered to be understated in the historic data under certain macroeconomic scenarios.
PDs have been further uplifted on accounts deemed to be most at risk from cost of living challenges due to stretched affordability.
• The second charge book consists of legacy lending and it is anticipated that, for a proportion of accounts, underlying credit issues may exist which are not
reflected in our models. We therefore reflect an overlay for the impact of moving a proportion of loans from Stage 1 to Stage 2.
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Staging
At each reporting date, financial assets subject to the impairment requirements of IFRS 9 are categorised into one of three stages:
Stage 1 (initial recognition)
On initial recognition, financial assets which are not credit impaired and have not experienced a significant increase in credit risk (SICR) since initial recognition
are categorised as stage 1 and provision is made for 12 month ECLs, being the losses from default events expected to occur within the next 12 months. Assets
remain in stage 1 until such time as they meet the criteria for another stage or are derecognised.
Stage 2 (significant increase in credit risk)
Financial assets which are not in default, but have experienced a SICR since initial recognition, are categorised as stage 2.
The loss allowance recognised is
equivalent to lifetime ECL, being the loss arising from default events expected to occur over the lifetime of the financial asset.
Determining whether a SICR has occurred is a critical aspect of the IFRS 9 methodology and one which involves judgement, based on a combination of quantitative
and qualitative measures. As described in the ECL calculation sections which follow, the criteria applied vary across portfolios depending on the nature of the
portfolio and availability of relevant credit risk information but all include the IFRS 9 ‘backstop’ of 30 days past due as a stage 2 trigger.
Stage 3 (default)
Defaulted or credit-impaired financial assets are categorised as stage 3, requiring recognition of lifetime ECLs.
Transfers to lower stages (curing)
Financial assets in stages 2 or 3 can transfer back to stages 1 or 2, once the criteria for SICR or default cease to be met for a period of time, ranging from 6 month
to 24 months based on certain qualitative attributes defined within the ECL methodology for that portfolio, sometimes known as the ‘cure’ period. In practice, this
means that a stage 2 or 3 loan which ceases to breach the threshold(s)/criteria for that stage will remain in the higher stage for a pre-determined number of
months. The use of cure periods gives assurance that accounts have rehabilitated before re-entering lower stages and reduces the level of volatility that might
otherwise arise from accounts regularly migrating between stages.
Forward-looking ECL approach
ECL is measured as the present value of the difference between the cash flows contractually due on a financial asset or undrawn commitment and the cash flows
expected to be received. In the Statement of Financial Position, the loss allowance is presented as a reduction in the carrying value of the financial asset. In the
case of an undrawn loan commitment, the impairment provision is instead presented within provisions for liabilities.
For each of the Group and Society’s financial asset portfolios in the scope of IFRS 9 impairment, the estimate of ECL is unbiased and weighted to take into account
a range of possible outcomes.
In accordance with IFRS 9, forecasts of future economic conditions are integral to the ECL calculations for each portfolio. The Group currently models four forward-
looking macroeconomic scenarios: a central forecast with economic assumptions aligned to the Society’s Medium Term Plan (and therefore assigned the highest
weighting), together with upside, downside and stress scenarios. The scenarios have been updated to take into account the economic and geopolitical backdrop.
ECL calculation – core residential mortgages
For the core residential mortgage books, the impairment model employs industry-accepted statistical techniques to address the complex requirements of IFRS 9,
with model assumptions and parameters initially determined by regression analysis of historical default data. The assumptions are validated using ‘out of time’
samples, across a range of economic scenarios, enabling the predictive capabilities of the models to be confirmed.
The model incorporates quantitative factors for identifying a SICR by comparing reporting date lifetime PD with residual origination lifetime PD. For the purposes
of this quantitative staging assessment, mortgages are segmented by lending type (owner occupied or buy to let). Residual origination PD curves and (relative
and absolute) threshold levels are established via an iterative process involving statistical analysis of the Group’s default data. In addition, a range of internally
monitored potential impairment indicators has been selected as qualitative criteria for classifying an individual loan as stage 2. Examples of qualitative indicators
include cancelled direct debit instructions, certain forbearance measures and evidence of impaired credit history obtained from external agencies.
The default criteria for core residential loans are entirely aligned with those used for capital and credit risk management purposes. Loans are considered to be in
default or credit-impaired if they are in arrears by three or more months, in litigation, possession or LPA receivership, or meet one of a range of internal ‘unlikely
to pay’ indicators.
Within the core residential model, ECL is calculated by multiplying the forward-looking PD, exposure at default (EAD) and loss given default (LGD). The model
outputs monthly ECLs, which are aggregated over the first 12 months to obtain 12 month ECL and over the life of the loan to calculate lifetime ECL.
The model combines a number of account-specific variables and forecasts of future economic conditions within the calculation of PD. Macroeconomic variable
inputs to the model are reviewed quarterly and include house price index (HPI), interest rates, unemployment and GDP. The variables were selected based on
statistical tests and other analysis which evidenced their correlation with credit risk.
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The core residential impairment model aligns the Group’s capital and accounting approaches to the estimation of credit losses as closely as possible.
ECL calculation – undrawn commitments
The loss allowance for undrawn commitments is inferred from the core residential mortgage impairment model outputs for existing loans with similar risk
characteristics.
All undrawn commitments are currently allocated to stage 1 such that a 12-month ECL calculation is appropriate.
The Group’s IFRS 9 provision requirements for undrawn commitments were negligible for both 31 March 2024 and 31 March 2023.
ECL calculation – second charge residential mortgages
For the closed second charge loan book, a SICR is assessed using external credit agency PD indicators. Absolute thresholds have been set based on analysis of
monthly PD scores from origination (or earliest available date) to point of default.
Second charge mortgages are considered to be in default if they are in arrears by three or more months or in bankruptcy, litigation or possession.
Impairment provisions for the closed second charge mortgage book are determined using a simple discounted cash flow model which segregates accounts by
payment status. Estimated future cash flows, which consider the forced sale property valuation and level of first charge debt remaining, are discounted to their
present value using the effective interest rate of the loan and compared with the account balance at the reporting date. This estimated loss on possession is
multiplied by the probability of possession occurring to calculate the ECL requirement.
The key macroeconomic variable affecting the level of second charge impairment losses is HPI, as forecast within the Group’s central, upside, downside and
stress scenarios.
ECL calculation – commercial mortgages
The key indicator of a SICR for a commercial loan is a downward migration in internal credit rating, determined via an established internal credit risk assessment
process. The internal grade is determined at an individual account level, combining expert judgement with prescriptive measures including, but not limited to,
loan to value and income/debt service coverage ratios.
Commercial loans are categorised as default if an LPA Receiver (or equivalent) has been appointed, if they are in arrears by greater than or equal to three months,
and/or are past scheduled maturity (unless past maturity by no more than 3 months and active negotiations to extend are in progress with the customer). Loans
not meeting these criteria may be classified as stage 3 based on expert management judgment of the perceived risk of non-payment.
The ECL requirements for commercial mortgages are assessed on an individual loan basis, with the right to off-setting ECL requirements where cross-
collateralisation exists between connected commercial mortgages, using cash flow scenario modelling. This involves estimating the timing and amount of future
cash flows, in the event of default, for one or more probability weighted account-specific scenarios based on the Group’s central forecast of economic conditions.
Applying the Group’s macroeconomic scenarios effectively creates a range of alternative outcomes in addition to the central forecast.
Estimated future cash flows, comprising rental receipts and final sales proceeds (each net of costs), are discounted at the effective interest rate of the loan and
compared with its carrying value to determine the ECL under each combination of account-specific and macroeconomic scenarios. The relevant macroeconomic
weightings are then applied to calculate the overall provision requirement at the reporting date.
ECL calculation – liquid assets
For liquid assets, comprising cash and balances with the Bank of England, loans and advances to credit institutions and investment securities, a SICR is
determined by counterparty type and adverse movements in counterparty credit rating beyond specified thresholds.
None of the Group’s liquid assets are
categorised as stage 2 at the reporting date.
Liquid assets are in default if categorised as such by external credit rating agencies. The Group has never experienced an impairment loss or default on its
Treasury investment portfolio.
The ECL calculation for liquid assets multiplies the carrying value of the asset by a PD applicable to its credit rating at the reporting date. The PD is obtained from
publicly available external credit rating agency data tables. The macroeconomic weighted scenarios are translated to shifts in counterparty credit ratings thereby
changing the PDs applied in the calculation.
The Group’s liquid asset provision requirements at 31 March 2024 and 31 March 2023 were negligible.
Write off of financial assets
Where a loan is not recoverable, it is written off against the related provision for loan impairment once all the necessary procedures have been completed and
the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of impairment losses recorded in
The Group’s policy is to derecognise financial assets when the contractual right to the cash flows from the financial asset expires. The Group also derecognises
financial assets that it transfers to another party provided the transfer of the asset also transfers the right to receive the cash flows of the financial asset and
substantially all the risks and rewards of ownership.
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The Group may, in certain circumstances, renegotiate or otherwise modify the contractual cash flows of loans and advances to customers. If qualitative
assessments conclude that the new cash flows are substantially different to the original cash flows, the original loan is derecognised and a new financial asset
recognised in the Statement of Financial Position. If the modified cash flows are not substantially different, a modification gain or loss is recognised in profit or
loss, calculated by adjusting the loan’s gross carrying amount to the present value of the modified contractual cash flows discounted at the asset’s original
effective interest rate.
Where contractual terms are modified due to financial difficulties of the borrower (forbearance), the modification gain or loss is included within impairment on
loans and advances; otherwise it is presented within interest receivable.
For residential mortgages, a change of product at the end of a fixed rate deal period is not considered to be a modification to the contract but instead a repricing
The Group determines fair values by the three tier valuation hierarchy as defined within IFRS 13 and Amendments to IFRS 7.
Level 1:
For financial instruments traded in active markets, the determination of fair values of financial assets and financial liabilities is based on quoted market
prices or dealer price quotations. This includes listed equity securities and quoted debt instruments on major exchanges (for example, FTSE) and broker quotes
(for example, Bloomberg).
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry
group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions in an orderly transaction between
market participants. If the above criteria are not met, the market is regarded as being inactive. Indications that a market is inactive are when there is a wide bid-
offer spread or there are few recent transactions.
Level 2:
For all other financial instruments, fair value is determined using valuation techniques. In these techniques, fair values are estimated from observable
data in respect of similar financial instruments, using models to estimate the present value of expected future cash flows or other valuation techniques, using
inputs (for example, SONIA yield curve, volatilities and counterparty spreads) existing at the reporting dates.
The Group uses widely recognised valuation models for determining fair values of non-standardised financial instruments of lower complexity, such as interest
rate swaps. For these financial instruments, inputs into models are generally market observable.
Level 3:
Fair value is determined using valuation techniques where significant inputs are not based on observable market data.
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
g) Sale and repurchase agreements
Investment and other securities may be lent or sold subject to a commitment to repurchase them. Where substantially all of the risks and rewards of ownership
remain with the Group, the securities are retained on the Statement of Financial Position. The counterparty liability is recognised separately in the Statement of
Financial Position as appropriate. The difference between the sale and repurchase price is accrued over the life of the agreements.
The Group uses derivative financial instruments to hedge its exposure to interest rate risk arising from operational, financing and investment activities.
In accordance with its Treasury and Financial Risk Management Policy and the Building Societies Act 1986, the Group does not hold or issue derivative financial
instruments for trading purposes.
Derivative financial instruments (both assets and liabilities) are initially recognised and subsequently held at fair value in the Statement of Financial Position with
changes in their fair value going through the Income Statement. However, by applying the hedge accounting rules set out in IAS 39, the changes in fair value of
derivatives used to hedge particular risks can be offset in the Income Statement.
i) Fair value hedges
– The Group undertakes hedges of the fair value of recognised assets or liabilities (fair value hedges) provided that certain criteria are met.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the Income Statement, together with any changes
in the fair value of the hedged asset or liability that are attributable to the hedged risk. The Group undertakes hedge accounting on both an individual and a
portfolio basis. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item, for which the effective
interest rate method is used, is amortised to profit or loss over the remaining expected life of the previously hedged item.
The Group documents, at the inception of any hedging transaction, the relationship between the hedging instrument and the hedged items, as well as its risk
management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an
ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged
items.
ii) Derivatives that do not qualify for hedge accounting
– Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any
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Offsetting financial assets and financial liabilities are offset and the net amount presented within the Statement of Financial Position when, and only when,
the Group has a legally enforceable right to offset the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability
simultaneously.
Currently there are no financial assets or liabilities which are offset within the Statement of Financial Position and all financial assets and liabilities are presented
on a gross basis. Income and expenses are presented on a net basis only when permitted under IFRS.
Equity instruments
Equity instruments, comprising core capital deferred shares (CCDS), subscribed capital and, in previous years, profit participating deferred shares (PPDS) are
financial instruments issued which do not give rise to a contractual obligation to deliver cash or another financial asset to the holder. Where such an obligation
exists, the instrument is classified as a financial liability.
The proceeds of issuing equity instruments are recognised within equity, net of directly attributable costs and tax.
Computer software
Computer software which is not an integral part of the related hardware is recorded as an intangible asset. The identifiable and directly associated external and
internal costs of acquiring and developing software are capitalised where the software is controlled by the Group, and where it is probable that future economic
benefits that exceed its cost will flow from its use over more than one year. Intangible assets are held at amortised cost; amortisation is charged to the Income
Statement on a straight line basis over the estimated useful life of 3 to 10 years. Intangible assets are subject to regular impairment reviews. Costs associated
revaluation of property are recognised in the revaluation reserve when they arise. Freehold branches are revalued every 3 to 5 years by an independent firm
of valuers The Head Office building and plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the
Income Statement during the financial period in which they are incurred.
Land is not depreciated. Depreciation on other assets is calculated using the straight line method (unless otherwise stated) to allocate their cost less their residual
values over their estimated useful lives, as follows:
Freehold branches | Up to 50 years |
Head office | Up to 25 years |
Leasehold improvements | Annual instalments over the period of the lease |
Equipment, fixtures and fittings and motor vehicles | |
• Office equipment | 3 to 7 years |
• Computer equipment | 3 to 7 years |
• Motor vehicles | 25% per annum reducing balance |
• Refurbishments | 5 to 10 years |
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each year end date. Assets that are subject to amortisation are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset’s carrying amount is written
down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the
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When the Group enters into a contract which conveys the right to control the use of an identified asset for a period of time in excess of 12 months in exchange
for consideration, it recognises a right-of-use (ROU) asset and a corresponding lease liability in the Statement of Financial Position. The majority of the Group’s
leases relate to its branch property network.
The lease liability is measured at the present value of the remaining lease payments at the commencement date, discounted using the Group’s incremental
borrowing rate. The lease term incorporates lease extension or termination options where they are reasonably certain to be exercised. The incremental borrowing
rate is determined with reference to the market pricing of securities with similar risk characteristics and terms to the leased assets at the commencement date.
The carrying value of the lease liability is adjusted for interest charged and repayments. The lease liability is remeasured for changes in future lease payments,
the lease term or the Group’s assessment of whether it will exercise a lease extension or termination option. Any remeasurement results in a corresponding
adjustment to the ROU asset. Interest is charged on the lease liability at the Group’s incremental borrowing rate and recorded in interest expense and similar
charges within the Income Statement.
The ROU asset is measured at cost, less any accumulated depreciation and impairment losses, and adjusted for remeasurement of the corresponding lease
liability. The initial measurement of the ROU asset includes the lease liability, initial direct costs, lease payments made prior to the commencement date and lease
incentives received. It is subsequently depreciated using the straight line method over the shorter of the asset’s estimated useful life and the period to the end of
the lease term. ROU assets are subject to an annual impairment assessment.
As permitted by IFRS 16 ‘Leases’, the Group does not recognise a ROU asset or lease liability for leases of low value or with lease terms of less than 12 months.
For these leases, payments are recognised on a straight line basis over the lease term and disclosed within administrative expenses in the Income Statement.
The Group has elected to separate its lease components and non-lease components for its property leases (e.g. service charges).
In the Statement of Cash Flows, payments of lease liabilities are categorised as cash flows from financing activities.
Where the Group acts as a lessor, these leases are treated as operating leases. The Group recognises lease payments received in line with receipt of payments
in the Income Statement.
Determining the incremental borrowing rate used to discount the future lease payments involves a degree of estimation uncertainty. However, these judgements
For the purposes of the Statement of Cash Flows, cash comprises cash in hand and loans and advances to credit institutions repayable on demand. Cash
equivalents comprise highly liquid investments that are convertible into cash with an insignificant risk of changes in value, with maturities of 90 days or less from
Tax on the profit/loss for the year comprises current tax and deferred tax. Income tax is recognised in the Income Statement except to the extent that it relates
to items recognised directly in equity, in which case it is recognised in other comprehensive income within the Statement of Comprehensive Income or directly
in equity.
Current tax is the expected tax payable/receivable on the taxable income/expense for the year, using the tax rate which applies to the accounting period ending
at the date of the Statement of Financial Position, and any adjustment to tax payable in respect of previous years.
for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is determined using tax rates (and laws) that have been substantively enacted by the year end date and are expected to apply when the related
deferred income tax asset is realised or the deferred income tax liability is settled.
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of
resources will be required to settle the obligation and the amount can be reliably estimated.
A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain
future events, not wholly within the control of the Group, is a contingent liability. A contingent liability is disclosed but not recognised in the Statement of Financial
The Group provides both a defined benefit scheme (closed to new employees from 2002/3 and accruals from 2009/10) and a defined contribution scheme
on behalf of staff and Directors. The defined benefit scheme is funded by contributions from the Society at rates assessed by independent actuaries. These
contributions are invested separately from the Group’s assets. The Scheme assets are measured at market value at each year end date and the liabilities are
measured using the projected unit valuation method, by qualified actuaries, discounted using a corporate bond rate. The resulting pension scheme surplus or
deficit is recognised in the Statement of Financial Position.
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Actuarial gains and losses are recognised in full in the period in which they occur. As permitted by the revised standard (IAS 19 ‘Employee Benefits’), actuarial
gains and losses are recognised outside profit or loss in other comprehensive income, as an increase or decrease in general reserves.
Net interest, comprising interest income on plan assets less interest costs on scheme liabilities, and other expenses relating to the defined benefit pension
scheme are recognised in the Income Statement. Actuarial gains or losses, that are gains or losses arising from differences between previous actuarial
assumptions and actual experience, are recognised in the Statement of Comprehensive Income.
For defined contribution plans, the contributions are recognised as employee benefit expenses in the Income Statement when they are due, in accordance with
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.
Significant judgements in applying accounting policies
Impairment
For IFRS 9 impairment, judgement is required to define the staging criteria, i.e. what constitutes a significant increase in credit risk (stage 2) and what circumstances
give rise to a default (stage 3). Where assets meet the stage 2 or 3 criteria, lifetime ECL must be recognised.
The staging methodologies for each portfolio are detailed within the “Impairment of financial assets” accounting policy in this note. Model monitoring and model
validation procedures are used to continually evaluate the appropriateness of the staging criteria and macroeconomic variable inputs.
Securitisation transactions
In order to determine whether the Group controls a structured entity or not, the Group has to make judgements about the degree of control and assess the ability
to make operational decisions for the structured entity in question. In many instances, elements are present that, when considered in isolation, indicate control
or lack of control over a structured entity, but when considered together make it difficult to reach a clear conclusion. When assessing whether the Group has to
consolidate a structured entity it evaluates a range of factors following the rules and guidance of IFRS 10.
Where the Group has concluded that it does, in substance, control the entity to which financial assets have been transferred, the structured entity is included in
these financial statements and the transferred assets are recognised in the Group’s Statement of Financial Position. Where the securitised assets were originated
by the Society they continue to be recognised in the Society’s Statement of Financial Position. In the case of Sandwell Commercial Finance no. 1 plc and Sandwell
Commercial Finance no. 2 plc, management judge that these entities no longer met consolidation criteria as set out in IFRS 10. In particular, the Group’s limited
exposure to credit losses in these entities (through deferred consideration and subordinated debt) has been fully written down, with little prospect of recovery,
meaning that there is no longer any future exposure to variability of returns from these entities. As a result, these entities are no longer consolidated within the
Group. Consequently the Group accounts do not include the results of these entities after deconsolidation.
Sources of estimation uncertainty
Impairment on loans and advances – forward-looking ECL approach
The estimation of ECLs is inherently uncertain and the IFRS 9 impairment models incorporate a number of assumptions and estimates, changes in which could
materially affect the carrying amounts of assets and liabilities within the next financial year. The IFRS 9 requirements to incorporate forward-looking information
within the ECL calculation, including forecasts of future macroeconomic conditions, necessitate judgement thereby increasing the potential for volatility in future
periods.
The Group’s impairment models incorporate four macroeconomic forecasts (central, upside, downside and stress), each comprising a number of economic
variables considered to be credit risk drivers. As already explained, economic scenarios and weightings have been updated to reflect the changing economic
conditions to which the Group is exposed.
Impairment on loans and advances - residential mortgages (core and second charge)
The following table indicates the main economic variables included within the IFRS 9 macroeconomic scenarios at 31 March 2024 and the associated
weightings, along with the sensitivity to the total residential and commercial ECL provision arising from the application of 100% weightings to each scenario. The
macroeconomic scenarios and associated weightings at 31 March 2023 are also provided for comparative purposes.
The forward looking macroeconomic scenarios are updated with reference to third party published economic data and forecasts. Management judgement is
applied to the relative weighting of the scenarios in line with the prevailing conditions and uncertainty in the UK economy.
1. Accounting policies
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Macroeconomic scenarios as at 31 March 2024:
Current scenario (%) | Increase/ | ||||||||
Increase/ | (decrease) in | ||||||||
(decrease) in | provision with | ||||||||
provision with | 10% increase | ||||||||
Scenario | 5 year | 100% scenario | in scenario | ||||||
weighting | 2024/25 | 2025/26 | 2026/27 | 2027/28 | 2028/29 | average | weighting (£m) | weighting* (£m) | |
Bank Rate | 4.5 | 3.8 | 3.5 | 3.5 | 3.3 | 3.7 | |||
HPI | (2.9) | (1.0) | 1.2 | 3.0 | 3.8 | 0.8 | |||
Central | |||||||||
50% | (8.9) | - | |||||||
scenario | |||||||||
Unemployment | 4.5 | 4.7 | 4.8 | 4.7 | 4.9 | 4.7 | |||
GDP | 0.5 | 1.3 | 1.6 | 1.8 | 1.7 | 1.4 | |||
Bank Rate | 4.3 | 3.5 | 3.0 | 3.0 | 3.0 | 3.4 | |||
HPI | 2.8 | 2.8 | 4.1 | 4.7 | 5.6 | 4.0 | |||
Upside | |||||||||
5% | (12.2) | (0.4) | |||||||
scenario | |||||||||
Unemployment | 4.0 | 3.8 | 3.7 | 3.7 | 3.7 | 3.8 | |||
GDP | 1.1 | 2.0 | 2.5 | 2.3 | 2.3 | 2.0 | |||
Bank Rate | 6.5 | 5.8 | 5.3 | 4.8 | 4.0 | 5.3 | |||
HPI | (9.2) | (6.7) | (3.5) | 1.6 | 2.4 | (3.2) | |||
Downside | |||||||||
30% | 5.8 | 1.4 | |||||||
scenario | |||||||||
Unemployment | 5.0 | 5.8 | 6.9 | 7.1 | 7.6 | 6.5 | |||
GDP | (0.5) | (0.2) | 0.5 | 0.9 | 1.0 | 0.3 | |||
Bank Rate | 2.3 | 0.3 | 0.3 | 0.3 | 0.3 | 0.7 | |||
HPI | (10.4) | (15.2) | (8.3) | 7.2 | 6.6 | (4.5) | |||
Stress | |||||||||
15% | 22.2 | 3.2 | |||||||
scenario | |||||||||
Unemployment | 7.6 | 8.3 | 7.7 | 7.1 | 6.5 | 7.4 | |||
GDP | (4.1) | 0.1 | 1.2 | 1.3 | 1.4 | - |
*(increase in 10% weighting with a corresponding reduction in the central scenarios).
Annual Report and Accounts 2024:
Financial Statements
123
1. Accounting policies
(continued)
Macroeconomic scenarios as at 31 March 2023:
Current scenario (%) | Increase/ | ||||||
Increase/ | (decrease) in | ||||||
(decrease) in | provision with | ||||||
provision with | 10% increase | ||||||
Scenario | 100% scenario | in scenario | |||||
weighting | 2023/24 | 2024/25 | 5 year average | weighting (£m) | weighting* (£m) | ||
Bank Rate | 4.3 | 3.8 | 3.7 | ||||
Central | HPI | (5.9) | (4.5) | (0.3) | |||
60% | (6.3) | - | |||||
scenario | |||||||
Unemployment | 4.3 | 4.7 | 4.7 | ||||
GDP | (0.6) | - | (0.1) | ||||
Bank Rate | 4.5 | 3.5 | 3.4 | ||||
Upside | HPI | 0.2 | 1.0 | 3.5 | |||
5% | (9.7) | (0.3) | |||||
scenario | |||||||
Unemployment | 3.7 | 3.8 | 3.8 | ||||
GDP | 0.9 | - | 0.2 | ||||
Bank Rate | 6.0 | 5.5 | 5.2 | ||||
Downside | HPI | (6.5) | (9.1) | (3.6) | |||
25% | 9.2 | 1.5 | |||||
scenario | |||||||
Unemployment | 5.8 | 6.9 | 6.5 | ||||
GDP | (4.3) | - | (0.9) | ||||
Bank Rate | 5.3 | 0.1 | 1.1 | ||||
HPI | (10.4) | (15.2) | (4.5) | ||||
Stress | |||||||
10% | 19.9 | 2.6 | |||||
scenario | |||||||
Unemployment | 9.8 | 10.7 | 9.1 | ||||
GDP | (7.5) | - | (1.5) |
*(increase in 10% weighting with a corresponding reduction in the central scenarios).
Key assumptions for the residential portfolios are the weightings of the macroeconomic forecasts, which each incorporate a different outlook for the economic
variables shown in the table above, the forecast of future house price inflation and the relative threshold used to identify a significant increase in credit risk. The
sensitivity of the residential provision calculations to the key assumptions in the current and prior year is as follows:
Increase/(Decrease) in | Increase/(Decrease) in | ||
impairment provision | impairment provision | ||
2024 | 2023 | ||
Assumption | Change to current assumption | £m | £m |
HPI growth | Increase of 5.0% | (0.3) | (0.2) |
HPI growth | Decrease of 5.0% | 0.4 | 0.3 |
Quantitative threshold for identifying | |||
*Relative increase of 10% / decrease of 7% | 0.1 | 0.9 | |
a significant increase in credit risk |
*A decrease of 7% was assumed in FY23
Impairment on loans and advances - commercial mortgages
Consistent with residential mortgages, the IFRS 9 ECL calculation for the commercial portfolio incorporates central, upside, downside and stress economic
scenarios with weightings of 50%, 5%, 30% and 15% respectively.
1. Accounting policies
(continued)
124
Annual Report and Accounts 2024:
Financial Statements
In addition to the scenario weightings and account-specific factors that impact cash flows, 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 provision
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 0.96% and 2.17% in the downside and stress scenarios respectively and reduced by 0.21% in the upside scenario. This compares to an average exit
yield of 7.69%.
The tables below illustrates the sensitivity of the commercial ECL calculation to the central scenario weighting and exit yield requirement.
Increase/(Decrease) in | Increase/(Decrease) in | ||
impairment provision | impairment provision | ||
2024 | 2023 | ||
Assumption | Change to current assumption | £m | £m |
Exit yield requirement | Increase of 0.5% across all scenarios | 1.7 | 1.9 |
Investment properties
Independent specialist valuers have undertaken a valuation review of the portfolio of residential investment properties on an open market value for existing use
basis, calculated on the net income allowing for reversionary potential. In making the judgment, consideration has been given to assumptions that are mainly
based on market conditions existing at the Statement of Financial Position date. These estimates are regularly compared to actual market data and actual
transactions entered into by the Group. The calculation of the fair value of investment properties incorporates house price assumptions which are regularly
reviewed by management.
If house prices were to change by 5%, the carrying value of the investment properties would change by £7.5m (2022/23: £7.6m) with a corresponding change
to Gains on investment properties.
Pensions
The Group operates a defined benefit pension scheme. The year end valuation of the scheme assets and liabilities relies on estimates of future interest, inflation
and mortality rates informed by external advice from the scheme actuaries. The main assumptions used in the valuation, together with sensitivity analysis of
the impact of movements in key variables, are outlined in note 31 to the Accounts.
ECL calculation – investments in subsidiary undertakings
Investments in subsidiary undertakings comprise (minimal) share capital and intercompany loans. Intercompany loans are financial assets of the Society which
are measured at amortised cost and therefore subject to the impairment requirements of IFRS 9.
For lending subsidiaries, a SICR is deemed to occur when the net assets of the subsidiary are lower than the amount owed to the Society, calling into question
the recoverability of the amount owed to the Society. Where there is a significant increase in credit risk , the intercompany loan is categorised as stage 2; all
other intercompany loans are recorded as Stage 1. The ultimate recovery of these amounts is linked to the recoverability of the underlying loans and advances,
for which the ECL methodology, including related judgments and estimation techniques, has been provided above. The impairment provision requirement is
Annual Report and Accounts 2024:
Financial Statements
125
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
On financial assets not at fair value through profit or loss: | ||||
Loans fully secured on residential property | 180.9 | 116.7 | 126.4 | 79.3 |
Other loans | ||||
Connected undertakings | - | - | 44.1 | 17.3 |
Loans fully secured on land | 4.2 | 5.1 | - | 0.5 |
Investment securities | 19.5 | 8.8 | 22.4 | 19.6 |
Other liquid assets | 24.8 | 15.3 | 24.5 | 14.2 |
On financial assets at fair value through profit or loss: | ||||
Loans fully secured on residential property | 0.9 | 0.8 | 0.9 | 0.8 |
Net Income on derivative financial instruments | 56.7 | 27.5 | 56.6 | 26.0 |
Total interest receivable and similar income | 287.0 | 174.2 | 274.9 | 157.7 |
Interest receivable includes: | ||||
Income from fixed income securities | 3.7 | 2.1 | 3.7 | 2.1 |
During the year ended 31 March 2024, the total interest receivable and similar income calculated using the effective interest method was: Group £209.8m (2022/23:
£137.1m) and Society £195.0m (2022/23: £122.1m) for financial assets held at amortised cost, and Group £19.5m (2022/23: £8.8m) and Society £22.4m (2022/23:
£19.6m) for financial assets held at fair value through other comprehensive income. Accrued interest on qualifying derivative financial instruments is recognised in
interest receivable/payable depending on whether they hedge assets/liabilities respectively.
Included within interest receivable and similar income is interest accrued on impaired residential mortgage assets: Group £1.4m (2022/23: £1.0m) and Society £1.8m
(2022/23: £0.9m) and interest accrued on impaired commercial mortgage assets: Group £5.4m (2022/23: £4.3m) and Society £nil (2022/23: £nil). For the purposes
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
On financial liabilities not at fair value through profit or loss: | ||||
Shares held by individuals | 142.5 | 64.0 | 142.4 | 64.0 |
Deposits from banks and other deposits | 39.8 | 22.6 | 39.5 | 22.7 |
Debt securities in issue | - | 1.8 | - | - |
Subordinated liabilities | 0.8 | 2.5 | 0.8 | 2.5 |
Deemed loans | (0.3) | (0.2) | - | 2.0 |
Lease liabilities | - | - | - | - |
On financial liabilities at fair value through profit or loss: | ||||
Net income on derivative financial instruments | 0.6 | 0.3 | 0.6 | 0.3 |
Total interest expense and similar charges | 183.4 | 91.0 | 183.3 | 91.5 |
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Financial Statements
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Other operating income includes: | ||||
Rent receivable on investment property | 7.5 | 7.3 | - | - |
Operating expenses on investment property | (3.4) | (3.3) | - | - |
Pension fund net interest (note 31) | 0.5 | 0.4 | 0.6 | 0.4 |
Total other operating income | 4.6 | 4.4 | 0.6 | 0.4 |
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Fair value hedges | ||||
Derivatives designated as fair value hedges | (41.2) | 40.9 | (41.2) | 40.9 |
Adjustments to hedged items in fair value hedge relationships | 37.2 | (40.1) | 37.2 | (40.1) |
Fair value (loss)/gain on hedge accounting | (4.0) | 0.8 | (4.0) | 0.8 |
Other derivatives | 3.4 | 6.4 | 3.4 | 7.0 |
Financial instruments mandatorily at fair value through profit or loss | 0.2 | (0.6) | 0.2 | (0.6) |
Total fair value (loss)/gain on financial instruments | (0.4) | 6.6 | (0.4) | 7.2 |
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Staff costs | ||||
Wages and salaries | 27.2 | 23.4 | 26.6 | 22.8 |
Social security costs | 2.8 | 2.2 | 2.7 | 2.2 |
Other pension costs | 2.1 | 1.9 | 2.1 | 1.8 |
Other administrative expenses | 21.9 | 12.4 | 20.0 | 11.4 |
54.0 | 39.9 | 51.4 | 38.2 | |
Other administrative expenses include: | ||||
Remuneration of auditors (excluding VAT element) | ||||
Audit of these financial statements | 0.4 | 0.3 | 0.4 | 0.3 |
Audit of the subsidiary financial statements | 0.2 | 0.1 | - | - |
Wages and salaries include £0.3m (2022/23: £0.1m) redundancy costs paid as part of the restructuring and rationalisation undertaken during the year.
Other assurance services provided by the external auditors comprise £6,000 (2022/23: £5,000) in respect of audit-related assurance services and £nil (2022/23:
Annual Report and Accounts 2024:
Financial Statements
127
Group and | Group and | |
Society | Society | |
2024 | 2023 | |
The average number of employees employed throughout the year was: | ||
Full time | 505 | 435 |
Part time | 196 | 198 |
701 | 633 | |
Building Society | ||
Central administration (Society and subsidiaries) | 523 | 460 |
Branches | 178 | 173 |
701 | 633 |
8. Directors’ emoluments
Total Directors’ emoluments including expenses amounted to £2.7m (2022/23: £2.3m). Full details are given in the Directors’ Remuneration Report on pages 82 to 95.
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
UK corporation tax at 25% (2022/23: 19%) | 2.6 | 1.9 | 2.5 | 4.4 |
Corporation tax - adjustment in respect of prior years | (0.5) | - | 0.1 | 1.5 |
Total current tax | 2.1 | 1.9 | 2.6 | 5.9 |
Deferred tax | ||||
Current year | 5.3 | 4.8 | 4.7 | 2.7 |
Adjustment in respect of prior periods | 0.3 | (1.4) | (0.5) | (1.4) |
Effect of changes in tax rates | - | 0.3 | - | (0.1) |
Tax on profit on ordinary activities | 7.7 | 5.6 | 6.8 | 7.1 |
UK corporation tax has been calculated at the applicable prevailing rate.
The tax charge is reconciled to the profit before tax in the Income Statement as follows:
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Profit before tax | 32.1 | 31.8 | 15.7 | 15.7 |
Profit before tax multiplied by the UK standard rate of tax of 25% (2022/23: 19%) | 8.0 | 6.0 | 3.9 | 3.0 |
Effects of: | ||||
Income not taxable and expenses not deductible for tax purposes | 0.2 | 0.1 | 3.5 | 2.8 |
Changes to tax rate | - | 0.3 | - | (0.1) |
Adjustment in respect of prior years | (0.2) | (1.4) | (0.4) | 0.1 |
Transfer pricing adjustments | - | - | (0.2) | 1.3 |
Deconsolidation adjustments | - | 0.1 | - | - |
Write down/(utilisation and recognition) of deferred tax assets | - | 0.1 | - | - |
Revaluation | (0.3) | 0.4 | - | - |
Tax charge/(credit) | 7.7 | 5.6 | 6.8 | 7.1 |
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Financial Statements
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Cash in hand | 1.2 | 1.4 | 1.2 | 1.4 |
Cash ratio deposit with the Bank of England | - | 14.0 | - | 14.0 |
Other deposits with the Bank of England | 490.4 | 582.8 | 490.4 | 582.8 |
491.6 | 598.2 | 491.6 | 598.2 |
Cash ratio deposits are mandatory deposits with the Bank of England which are not available for use in the Group’s day-to-day operations. The Cash ratio deposit
scheme was closed in 2023/24 and replaced by the Bank of England Levy, for which the Group has accrued £0.5m (2022/23: £nil). Cash in hand and the mandatory
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Listed transferable investment securities: | ||||
Fair value through other comprehensive income | 391.1 | 315.2 | 391.1 | 315.2 |
Amortised cost | - | - | - | 370.6 |
Fair value through profit or loss | 0.4 | 0.4 | 0.4 | 0.4 |
Total investment securities | 391.5 | 315.6 | 391.5 | 686.2 |
The movement in investment securities is summarised as follows:
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
At beginning of year | 315.6 | 286.9 | 686.2 | 740.6 |
Investment securities with maturities > 3 months at date of acquisition: | ||||
Additions | 333.0 | 240.5 | 333.0 | 240.5 |
Disposals (sale and redemption) | (258.4) | (211.4) | (629.0) | (294.5) |
Gains/(Losses) from changes in fair value | 1.3 | (0.4) | 1.3 | (0.4) |
At end of year | 391.5 | 315.6 | 391.5 | 686.2 |
The Directors consider that the primary purpose for holding investment securities is as liquid assets with the intention of use on a continuing basis in
Annual Report and Accounts 2024:
Financial Statements
129
(a) Use of derivative financial instruments for interest rate risk management purposes
The Group is exposed to the risk that movements in interest rates change the value of, or income arising from, its assets and liabilities. This type of market risk is known
as interest rate risk.
The Group has an integrated approach to interest rate risk management, taking advantage of natural hedges which exist within the Group Statement of Financial
Position and using derivatives where no such natural hedges exist. Derivatives are financial instruments whose value is derived from one or more underlying price,
rate or index (such as interest rates, exchange rates or stock market indices) but have a smaller or no initial net investment relative to financial assets/liabilities offering
the same risk/return, as cash flows are generally settled at a future date.
The derivatives currently held by the Group comprise interest rate swaps with highly rated counterparties. Counterparty credit risk is mitigated by the posting of
collateral and the use of central clearing counterparties. In accordance with the Building Societies Act 1986, derivatives are solely used for risk mitigation and never
for trading purposes. From an accounting perspective, where the IAS 39 criteria are met, the derivatives are designated as hedging instruments in fair value hedge
relationships and hedge accounting is adopted. Otherwise, the derivatives are held as economic hedges and valued at fair value through profit or loss. The accounting
policies for derivatives and hedge accounting are described in note 1 to the accounts.
The following table describes the significant activities undertaken by the Group, the associated risks, the type of derivatives typically used in managing such risks and
related hedge relationships.
Hedge | Hedge | |||
Activity | Risk | Derivative type | relationship | accounting |
Fixed rate mortgage lending | Sensitivity to changes in interest rates | Pay fixed receive floating interest rate swaps | Fair value hedge | Yes |
Fixed rate investment securities | Sensitivity to changes in interest rates | Pay fixed receive floating interest rate swaps | Fair value hedge | Not at present |
Fixed rate savings products | Sensitivity to changes in interest rates | Receive fixed pay floating interest rate swaps | Fair value hedge | Not at present |
Commercial mortgage loss | ||||
Sensitivity to changes in interest rates | Pay fixed receive floating interest rate swaps | Economic hedge | No | |
provisions |
These arrangements have been established solely for the mitigation of interest rate risk. Other risks, such as credit risk, are separately managed but not hedged.
The interest rate risk component of the hedge relationship is ascertained with reference to the benchmark rate of interest being hedged.
(b) Derivative financial instruments in the Statement of Financial Position
The following tables show the notional and carrying amounts of derivative financial instruments at the year-end date.
Carrying value in the | |||
Statement of Financial Position | |||
Notional amount | Assets | Liabilities | |
2024 | 2024 | 2024 | |
Group | £m | £m | £m |
Interest rate swaps | |||
Designated as fair value hedges | 2,237.8 | 58.0 | (12.3) |
Economic hedges | 159.8 | 3.8 | (0.5) |
Total derivatives held for hedging purposes | 2,397.6 | 61.8 | (12.8) |
Carrying value in the | |||
Statement of Financial Position | |||
Notional amount | Assets | Liabilities | |
2023 | 2023 | 2023 | |
Group | £m | £m | £m |
Interest rate swaps | |||
Designated as fair value hedges | 1,970.2 | 94.1 | (5.5) |
Economic hedges | 284.4 | 6.4 | (1.2) |
Total derivatives held for hedging purposes | 2,254.6 | 100.5 | (6.7) |
12. Derivative financial instruments and hedge accounting
(continued)
130
Annual Report and Accounts 2024:
Financial Statements
Carrying value in the | |||
Statement of Financial Position | |||
Notional amount | Assets | Liabilities | |
2024 | 2024 | 2024 | |
Society | |||
£m | £m | £m | |
Interest rate swaps | |||
Designated as fair value hedges | 2,237.8 | 58.0 | (12.3) |
Economic hedges | 159.8 | 3.7 | (0.5) |
Total derivatives held for hedging purposes | 2,397.6 | 61.7 | (12.8) |
Carrying value in the | |||
Statement of Financial Position | |||
Notional amount | Assets | Liabilities | |
2023 | 2023 | 2023 | |
Society | £m | £m | £m |
Interest rate swaps | |||
Designated as fair value hedges | 1,970.2 | 94.0 | (5.5) |
Economic hedges | 284.4 | 6.5 | (1.1) |
Total derivatives held for hedging purposes | 2,254.6 | 100.5 | (6.6) |
(c) Hedge accounting
(i) Fair value hedges
Hedges of the fair value of recognised assets or liabilities are termed ‘fair value hedges’. Under hedge accounting rules, changes in the fair value of derivatives
(hedging instruments) are offset against changes in the fair value of hedged assets or liabilities (hedged items) in the Income Statement. The hedging ratio is the ratio
of the notional value of the derivatives to the principal of the assets or liabilities being hedged.
(ii) Hedge effectiveness
For a fair value hedge of interest rate risk, hedge effectiveness is determined by comparing changes in the fair value of the derivative with changes in the fair value of
the hedged asset or liability attributable to changes in interest rates.
The primary sources of ineffectiveness for the Society’s fair value hedge relationships are:
• Differences in the timing of cash flows between the interest rate swaps and the hedged mortgages or savings products.
• Differences between actual and expected prepayment profiles of the hedged items.
• Differences between the contractual start dates and maturity dates of the derivatives and the hedged items.
(iii) Portfolio hedges
The Society designates fair value hedge relationships in which derivative financial instruments hedge a portfolio of fixed rate mortgages or savings products, reducing
the Income Statement volatility that would otherwise arise from the derivatives being measured at fair value through profit or loss and the related hedged items at
amortised cost.
The Society’s hedging approach is dynamic, as the mortgage portfolios are constantly changing due to new advances, contractual repayments and early redemptions.
To manage the interest rate risk inherent within fixed rate mortgage lending, the Society frequently enters into and closes interest rate swap arrangements. It assesses
hedging ratios and hedge effectiveness on a monthly basis.
(iv) Derivatives not in a designated hedge relationship
In cases where the Group holds derivatives for hedging purposes, but the prescriptive IAS 39 criteria for application of hedge accounting are not met, the derivatives
are held at fair value through profit or loss. Changes in the fair value of these derivatives are included within ‘Fair value gains/(losses) on financial instruments’ on the
Income Statement.
Annual Report and Accounts 2024:
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131
The following tables analyse the notional value and average fixed rate of interest rate swaps in designated hedge relationships by contractual maturity date.
At 31 March 2024
Group and Society | Less than 3 months | 3 to 12 months | 1 to 5 years | Over 5 years |
Fair value hedge of fixed rate residential loans | ||||
Interest rate swap notional (£m) | 60.6 | 79.1 | 1,974.1 | 89.6 |
Average fixed rate | 2.84% | 0.61% | 2.83% | 2.74% |
Fair value hedge of fixed rate investment securities | ||||
Interest rate swap notional (£m) | - | - | - | - |
Average fixed rate | - | - | - | - |
Fair value hedge of fixed rate savings products | ||||
Interest rate swap notional (£m) | - | - | - | - |
Average fixed rate | - | - | - | - |
Group | ||||
Fair value hedge of fixed rate commercial loans | - | - | 34.4 | - |
Interest rate swap notional (£m) | - | - | 4.91% | - |
Average fixed rate | ||||
Society | ||||
Fair value hedge of intercompany loans* | ||||
Interest rate swap notional (£m) | 3.9 | 3.1 | 183.8 | 2.0 |
Average fixed rate | 1.85% | 0.60% | 3.81% | 3.09% |
At 31 March 2023 | ||||
Group and Society | ||||
Less than 3 months | 3 to 12 months | 1 to 5 years | Over 5 years | |
Fair value hedge of fixed rate residential loans | ||||
Interest rate swap notional (£m) | 129.6 | 478.3 | 1,279.3 | 39.7 |
Average fixed rate | 0.88% | 0.53% | 1.41% | 2.47% |
Fair value hedge of fixed rate investment securities | ||||
Interest rate swap notional (£m) | - | - | - | - |
Average fixed rate | - | - | - | - |
Fair value hedge of fixed rate savings products | ||||
Interest rate swap notional (£m) | - | - | - | - |
Average fixed rate | - | - | - | - |
Group | ||||
Fair value hedge of fixed rate commercial loans | ||||
Interest rate swap notional (£m) | - | - | 43.2 | - |
Average fixed rate | - | - | 4.71% | - |
Society | ||||
Fair value hedge of intercompany loans* | ||||
Interest rate swap notional (£m) | 3.7 | 18.6 | 177.5 | 0.4 |
Average fixed rate | 0.88% | 0.60% | 3.06% | 1.74% |
*The Society holds interest rate swaps to mitigate interest rate risk on commercial and residential mortgages originated by its subsidiaries West Bromwich Commercial
Limited (WBCL) and West Bromwich Mortgage Company Limited (WBMC). At Group level the derivatives and mortgages are in designated IAS 39 hedge relationships.
In the Society’s individual financial statements, the interest rate swaps are held in a hedge relationship against intercompany loans with equivalent terms to the third
party commercial and residential mortgages.
12. Derivative financial instruments and hedge accounting
(continued)
132
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Financial Statements
The impact of hedge accounting on the Group and Society Income Statement and Statement of Financial Position (SOFP) is indicated in the tables which follow.
Hedging instruments at 31 March 2024
Change in fair | Ineffectivess | ||||||
Carrying value | |||||||
value used for | charge/(credit) | ||||||
in the SOFP | |||||||
Notional | recognising | in the Income | |||||
Interest rate swaps | |||||||
amount | Assets | Liabilities | ineffectiveness | Statement | |||
Group and Society | £m | £m | £m | SOFP line | £m | £m | Income Statement line |
Fair value hedge of fixed rate | Derivative financial | Fair value (loss)/gain on | |||||
2,203.4 | 58.0 | (11.5) | (41.7) | 3.5 | |||
residential loans | instruments | financial instruments | |||||
Fair value hedge of fixed rate | Derivative financial | Fair value (loss)/gain on | |||||
- | - | - | - | - | |||
investment securities | instruments | financial instruments | |||||
Fair value hedge of fixed rate | Derivative financial | Fair value (loss)/gain on | |||||
- | - | - | - | - | |||
savings products | instruments | financial instruments | |||||
Group | |||||||
Fair value hedge of fixed rate | Derivative financial | Fair value (loss)/gain on | |||||
34.4 | - | (0.8) | 0.5 | 0.5 | |||
commercial loans | instruments | financial instruments | |||||
Society | |||||||
Fair value hedge of | Derivative financial | Fair value (loss)/gain on | |||||
192.8 | 4.4 | (1.5) | (4.8) | (0.1) | |||
intercompany loans* | instruments | financial instruments |
Hedging instruments at 31 March 2023
Change in fair | Ineffectivess | ||||||
Carrying value | |||||||
value used for | charge/(credit) | ||||||
in the SOFP | |||||||
Notional | recognising | in the Income | |||||
Interest rate swaps | amount | Assets | Liabilities | ineffectiveness | Statement | ||
Group and Society | £m | £m | £m | SOFP line | £m | £m | Income Statement line |
Fair value hedge of fixed rate | 1,926.9 | 94.0 | (4.0) | Derivative financial | 34.4 | (4.0) | Fair value gains on |
residential loans | instruments | financial instruments | |||||
Fair value hedge of fixed rate | - | - | - | Derivative financial | - | - | Fair value gains on |
investment securities | instruments | financial instruments | |||||
Fair value hedge of fixed rate | - | - | - | Derivative financial | - | - | Fair value gains on |
savings products | instruments | financial instruments | |||||
Group | |||||||
Fair value hedge of fixed rate | 43.2 | 0.2 | (1.5) | Derivative financial | 6.5 | 3.2 | Fair value gains on |
commercial loans | instruments | financial instruments | |||||
Society | |||||||
Fair value hedge of | 200.2 | 9.5 | (1.9) | Derivative financial | 10.4 | 3.7 | Fair value gains on |
intercompany loans* | instruments | financial instruments |
Hedged items at 31 March 2024
Change in fair value | ||||
Carrying value | Accumulated fair | used for recognising | ||
Hedged assets and liabilities | ||||
in the SOFP | value adjustments | ineffectiveness | ||
Group and Society | ||||
£m | £m | SOFP line | £m | |
Loans and advances | ||||
Fixed rate residential loans | 2,036.2 | (43.3) | 38.2 | |
to customers | ||||
Fixed rate investment securities | - | - | Investment securities | - |
Fixed rate savings products | - | - | Shares | - |
Group | ||||
Loans and advances | ||||
Fixed rate commercial loans | 35.6 | 2.4 | to customers | (1.0) |
Society | ||||
Loans and advances | ||||
Intercompany loans* | 183.5 | (1.2) | to customers | 4.9 |
Annual Report and Accounts 2024:
Financial Statements
133
Hedged items at 31 March 2023
Change in fair value | ||||
Carrying value | Accumulated fair | used for recognising | ||
Hedged assets and liabilities | ||||
in the SOFP | value adjustments | ineffectiveness | ||
Group and Society | ||||
£m | £m | SOFP line | £m | |
Loans and advances | ||||
Fixed rate residential loans | 1,830.1 | (81.6) | (30.4) | |
to customers | ||||
Fixed rate investment securities | - | - | Investment securities | - |
Fixed rate savings products | - | - | Shares | - |
Group | ||||
Loans and advances | ||||
Fixed rate commercial loans | 44.5 | 3.5 | (9.7) | |
to customers | ||||
Society | ||||
Loans and advances | ||||
Intercompany loans* | 190.4 | (6.0) | (14.1) |
to customers
*The Society holds interest rate swaps to mitigate interest rate risk on commercial and residential mortgages originated by its subsidiaries West Bromwich Commercial
Limited (WBCL) and West Bromwich Mortgage Company Limited (WBMC). At Group level the derivatives and mortgages are in designated IAS 39 hedge relationships. In
the Society’s individual financial statements, the interest rate swaps are held in a hedge relationship against intercompany loans with equivalent terms to the third party
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Amortised cost | ||||
Loans fully secured on residential property | 4,701.4 | 4,299.1 | 3,822.3 | 3,289.9 |
Loans fully secured on land | 220.6 | 230.0 | - | - |
4,922.0 | 4,529.1 | 3,822.3 | 3,289.9 | |
At fair value through profit or loss | ||||
Loans fully secured on residential property | 7.0 | 8.6 | 7.0 | 8.6 |
4,929.0 | 4,537.8 | 3,829.3 | 3,298.5 | |
Fair value adjustment for hedged risk | (40.9) | (78.1) | (39.7) | (72.0) |
Less: impairment provisions | (103.0) | (89.4) | (3.6) | (2.2) |
4,785.1 | 4,370.3 | 3,786.0 | 3,224.3 |
Included within loans and advances to customers are £223.0m (2022/23: £233.5m) of commercial lending balances of which £5.0m (2022/23: £6.4m) have been sold
by the Group to bankruptcy remote structured entities. A balance of £nil (2022/23: £359.0m) of residential mortgage balances, included within loans and advances, have
also been sold by the Group to structured entities. The structured entities have been funded by issuing mortgage backed securities (MBSs), a proportion of which are held
134
Annual Report and Accounts 2024:
Financial Statements
Group | Society | |||
Loans fully secured on | Loans fully secured | Loans fully secured on | ||
residential property | on land | Total | residential property | |
Group | £m | £m | £m | £m |
At 1 April 2023 | 10.2 | 79.1 | 89.3 | 2.3 |
Amounts written off | 0.2 | (0.7) | (0.5) | (0.1) |
Charge for the year comprising: | ||||
Provision for loan impairment | 1.5 | 13.7 | 15.2 | 1.8 |
Change in carrying value of deemed loan | - | 0.5 | 0.5 | - |
Adjustments to provisions resulting from recoveries | (1.0) | - | (1.0) | (0.4) |
Charge for the year | 0.5 | 14.2 | 14.7 | 1.4 |
Non-recourse finance on securitised advances | - | (0.5) | (0.5) | - |
At 31 March 2024 | 10.9 | 92.1 | 103.0 | 3.6 |
Group | Society | |||
Loans fully secured on | Loans fully secured | Loans fully secured on | ||
residential property | on land | Total | residential property | |
Group | £m | £m | £m | £m |
At 1 April 2022 | 7.7 | 99.9 | 107.6 | 1.5 |
Amounts written off | (0.5) | (41.3) | (41.8) | (0.3) |
Charge for the year comprising: | ||||
Provision for loan impairment | 3.8 | 20.6 | 24.4 | 1.3 |
Change in carrying value of deemed loan | - | 0.5 | 0.5 | - |
Adjustments to provisions resulting from recoveries | (0.8) | - | (0.8) | (0.2) |
Charge for the year | 3.0 | 21.1 | 24.1 | 1.1 |
Non-recourse finance on securitised advances | - | (0.6) | (0.6) | - |
10.2 | 79.1 | 89.3 | 2.3 |
At 31 March 2023
During the year there were impairment gains of £0.5m (2022/23: £0.5m gain) against mortgages transferred to structured entities, Sandwell Commercial Finance No.1
Plc: £nil gain (2022/23: £0.2m gain) and Sandwell Commercial Finance No. 2 Plc: £0.5m gain (2022/23: £0.3m gain). The gains or losses from these impairments are
borne by the external loan note holders as they exceed the first loss exposure held by the Group. Impairment provisions at the end of the year include £nil (2022/23:
£nil) against loans in structured entity, Sandwell Commercial Finance No. 2 Plc. The carrying value of the deemed loan has been adjusted by an equivalent amount.
Non-recourse finance refers to the Notes issued by the securitised entites which represent obligations solely of the issuer. Non payment of these notes does not create
Annual Report and Accounts 2024:
Financial Statements
135
Shares in subsidiary undertakings | Loans to subsidiary undertakings | Total | ||||
2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |
Society | £m | £m | £m | £m | £m | £m |
Cost | ||||||
At beginning of year | 0.6 | 0.6 | 1,109.6 | 1,226.3 | 1,110.2 | 1,226.9 |
Increase/(Decrease) for the year | - | - | 187.5 | (116.7) | 187.5 | (116.7) |
At end of year | 0.6 | 0.6 | 1,297.1 | 1,109.6 | 1,297.7 | 1,110.2 |
Provisions | ||||||
At beginning of year | 0.5 | 0.5 | 213.4 | 199.1 | 213.9 | 199.6 |
Charge for the year | - | - | 13.5 | 14.3 | 13.5 | 14.3 |
At end of year | 0.5 | 0.5 | 226.9 | 213.4 | 227.4 | 213.9 |
Net book value at end of year | 0.1 | 0.1 | 1,070.2 | 896.2 | 1,070.3 | 896.3 |
The Society’s approach to the assessment of impairment against investments in subsidiary undertakings is discussed within the accounting policies for ECL loans. The
value of the Society’s investment in West Bromwich Commercial Limited has been assessed by comparison of the amount owed to the Society against the net assets of
the subsidiary. Following continued contraction of the commercial mortgage book and the additional losses recognised within West Bromwich Commercial Limited, it has
been necessary to write down the value of the investment by £14.3m (2022/23: £12.6m). An assessment has also been performed in respect of the value of the Society’s
investment in West Bromwich Mortgage Company Limited for which a credit of £0.8m has been recognised against the investment (2022/23: £1.7m charge).
The Society holds directly (unless otherwise stated) the following interests in key subsidiary undertakings, all of which are registered in England:
Class of | Interest | ||
Name | Major activities | shares held | of Society |
West Bromwich Mortgage Company Limited | Residential mortgage lending | Ordinary £1 shares | 100% |
West Bromwich Commercial Limited | Commercial mortgage lending | Ordinary £1 shares | 100% |
CL Mortgages Limited (1) | Residential mortgage lending | Ordinary £1 shares | 100% |
West Bromwich Homes Limited | Investment in property for rental | Ordinary £1 shares | 100% |
Insignia Finance Limited | Holding company | Ordinary £500 shares | 100% |
White Label Lending Limited (2) | Second charge lending | Ordinary £1 shares | 100% |
(1)
CL Mortgages Limited was dissolved on 7 May 2024.
(2)
The entire share capital of White Label Lending Limited is held by Insignia Finance Limited.
The registered office of the subsidiary undertakings listed above is the Group’s registered office as detailed in note 37.
Securitisation entities
The results of the following securitisation entities are consolidated into the results of the Group under the rules and guidance of IFRS 10:
Name | Country of incorporation | Principal activity |
Hawthorn Asset Co Limited (1) | United Kingdom | Securitisation entity |
Hawthorn Finance Limited (1) | Jersey | Securitisation entity |
Kenrick No. 3 Holdings Limited | United Kingdom | Holding company |
Kenrick No. 3 Plc | United Kingdom | Securitisation entity - non trading |
Kenrick No.4 Holdings Limited | United Kingdom | Holding company |
Kenrick No.4 Plc | United Kingdom | Securitisation entity - non trading |
(1) The assets and liabilities held by Hawthorn Asset Co Limited and Hawthorn Finance Limited were transferred into West Bromwich Mortgage Company Limited on 1
June 2023. Both entities ceased principal activity on that date.
The registered office of Hawthorn Asset Co Limited is 7th Floor 21 Lombard Street London EC3V 9AH.
The registered office of Hawthorn Finance Limited is 26 New Street, St. Helier, Jersey, JE2 3RA.
The registered office of Kenrick No.4 Plc and Kenrick No.4 Holdings Limited is 280 Bishopsgate, London, United Kingdom, EC2M 4RB from the 5 April 2024. The
previous address was 11th Floor 200 Aldersgate Street, London, EC1A 4HD.
The registered office of Kenrick No. 3 Plc is 40a Station Road, Upminster, Essex, RM14 2TR.
The registered office of Kenrick No.3 Holdings Limited is 11th Floor 200 Aldersgate Street, London, EC1A 4HD.
Kenrick No.3 Plc and Kenrick No.3 Holdings Limited were disolved on 17 April 2024 and 30 April 2024 respectively.
Kenrick No.4 Plc and Kenrick No.4 Holdings Limited did not trade during the year and were both dormant. On 21 May 2024, Kenrick No.4 Plc legally changed their
name to Kenrick 2018-1 Plc and Kenrick No.4 Holdings Limited legally changed their name to Kenrick 2018-1 Holdings Limited.
The Society has no shareholdings in any of the companies listed above. Unless stated otherwise above, all are incorporated in the United Kingdom and operate in
136
Annual Report and Accounts 2024:
Financial Statements
Purchased | Development | Purchased | Development | |||||
Goodwill | software | costs | Total | Goodwill | software | costs | Total | |
2024 | 2024 | 2024 | 2024 | 2023 | 2023 | 2023 | 2023 | |
Group | £m | £m | £m | £m | £m | £m | £m | £m |
Cost | ||||||||
At beginning of year | 0.5 | 19.3 | 28.6 | 48.4 | 0.5 | 19.3 | 26.2 | 46.0 |
Additions | - | 0.2 | 7.4 | 7.6 | - | - | 5.5 | 5.5 |
Write off of previously capitalised costs | - | - | (0.2) | (0.2) | - | - | (3.1) | (3.1) |
At end of year | 0.5 | 19.5 | 35.8 | 55.8 | 0.5 | 19.3 | 28.6 | 48.4 |
Aggregate amortisation | ||||||||
At beginning of year | 0.5 | 16.0 | 22.0 | 38.5 | 0.5 | 15.4 | 19.9 | 35.8 |
Charge for the year | - | 0.4 | 3.2 | 3.6 | - | 0.6 | 3.3 | 3.9 |
Disposals | - | - | (0.2) | (0.2) | - | - | (1.2) | (1.2) |
At end of year | 0.5 | 16.4 | 25.0 | 41.9 | 0.5 | 16.0 | 22.0 | 38.5 |
Net book value at end of year | - | 3.1 | 10.8 | 13.9 | - | 3.3 | 6.6 | 9.9 |
Net book value at beginning of year | - | 3.3 | 6.6 | 9.9 | - | 3.9 | 6.3 | 10.2 |
Computer | Development | Computer | Development | |||||
Goodwill | software | costs | Total | Goodwill | software | costs | Total | |
2024 | 2024 | 2024 | 2024 | 2023 | 2023 | 2023 | 2023 | |
Society | £m | £m | £m | £m | £m | £m | £m | £m |
Cost | ||||||||
At beginning of year | - | 19.3 | 28.6 | 47.9 | - | 19.3 | 26.2 | 45.5 |
Additions | - | 0.2 | 7.4 | 7.6 | - | - | 5.5 | 5.5 |
Write off of previously capitalised costs | - | - | (0.2) | (0.2) | - | - | (3.1) | (3.1) |
At end of year | - | 19.5 | 35.8 | 55.3 | - | 19.3 | 28.6 | 47.9 |
Aggregate amortisation | ||||||||
At beginning of year | - | 16.0 | 22.0 | 38.0 | - | 15.4 | 19.9 | 35.3 |
Charge for the year | - | 0.4 | 3.2 | 3.6 | - | 0.6 | 3.3 | 3.9 |
Disposals | - | - | (0.2) | (0.2) | - | - | (1.2) | (1.2) |
At end of year | - | 16.4 | 25.0 | 41.4 | - | 16.0 | 22.0 | 38.0 |
Net book value at end of year | - | 3.1 | 10.8 | 13.9 | - | 3.3 | 6.6 | 9.9 |
Net book value at beginning of year | - | 3.3 | 6.6 | 9.9 | - | 3.9 | 6.3 | 10.2 |
Write off of previously capitalised costs predominantly relates to the development of an online savings platform. The decision was taken not to progress this development
Group | Group | |
2024 | 2023 | |
£m | £m | |
Valuation | ||
At beginning of year | 152.7 | 147.3 |
Additions | 1.0 | 1.5 |
Disposals | (7.5) | (2.1) |
Revaluation gains | 2.5 | 6.0 |
At end of year | 148.7 | 152.7 |
Annual Report and Accounts 2024:
Financial Statements
137
The Group applies the fair value model to its investment property portfolio.
Management have engaged independent specialist valuers to undertake a valuation review of the residential investment properties held by West Bromwich Homes
Limited with adjustments made by management as necessary. Whilst the adjustments are not material in the Investments carrying value, we deem it appropriate given
the current Investments property conditions.
This fair value measurement is categorised as a Level 3 fair value measurement, based on an assessment of the inputs to the valuation methodology, as described
in Note 1f (2023: Level 3).
If the investment properties were carried at cost, the carrying amount would be £76.7m (2022/23: £81.4m).
The Group leases investment properties to non-commercial individuals for a contract period of up to 36 months. The future minimum lease receipts under non-
cancellable operating leases that end within 12 months are £1.8m (2022/23: £2.5m), and an additional £1.0m up to 36 months (2022/23: £2.7m). The Group has not
Land and buildings | ||||||
Equipment, | ||||||
Freehold | Leasehold | fixtures, fittings | Right-of-use | |||
branches | Head Office | improvements | and vehicles | assets | Total | |
Group | £m | £m | £m | £m | £m | £m |
Cost or valuation | ||||||
At 1 April 2023 | 5.0 | 21.2 | 0.6 | 20.9 | 3.2 | 50.9 |
Additions | - | - | - | 1.1 | - | 1.1 |
Revaluation | - | - | - | - | - | - |
Lease modifications and remeasurements | - | - | - | - | (0.1) | (0.1) |
Disposals | - | - | - | - | - | - |
At 31 March 2024 | 5.0 | 21.2 | 0.6 | 22.0 | 3.1 | 51.9 |
Accumulated depreciation | ||||||
At 1 April 2023 | - | 6.5 | 0.4 | 19.8 | 1.5 | 28.2 |
Charge for the year | 0.1 | 0.9 | - | 0.6 | 0.3 | 1.9 |
Revaluation | - | - | - | - | - | - |
Disposals | - | - | - | - | - | - |
At 31 March 2024 | 0.1 | 7.4 | 0.4 | 20.4 | 1.8 | 30.1 |
Net book value | ||||||
At 31 March 2024 | 4.9 | 13.8 | 0.2 | 1.6 | 1.3 | 21.8 |
Land and buildings | ||||||
Equipment, | ||||||
Freehold | Leasehold | fixtures, fittings | Right-of-use | |||
branches | Head Office | improvements | and vehicles | assets | Total | |
Group | £m | £m | £m | £m | £m | £m |
Cost or valuation | ||||||
At 1 April 2022 | 4.9 | 21.2 | 0.6 | 20.1 | 2.9 | 49.7 |
Additions | - | - | - | 0.8 | - | 0.8 |
Revaluation | 0.1 | - | - | - | - | 0.1 |
Lease modifications and measurements | - | - | - | - | 0.3 | 0.3 |
At 31 March 2023 | 5.0 | 21.2 | 0.6 | 20.9 | 3.2 | 50.9 |
Accumulated depreciation | ||||||
At 1 April 2022 | 0.5 | 5.5 | 0.4 | 19.3 | 1.2 | 26.9 |
Charge for the year | 0.1 | 1.0 | - | 0.5 | 0.3 | 1.9 |
Revaluation | (0.6) | - | - | - | - | (0.6) |
At 31 March 2023 | - | 6.5 | 0.4 | 19.8 | 1.5 | 28.2 |
Net book value | ||||||
At 31 March 2023 | 5.0 | 14.7 | 0.2 | 1.1 | 1.7 | 22.7 |
18. Property, plant and equipment
(continued)
138
Annual Report and Accounts 2024:
Financial Statements
Land and buildings | ||||||
Equipment, | ||||||
Freehold | Leasehold | fixtures, fittings | Right-of-use | |||
branches | Head Office | improvements | and vehicles | assets | Total | |
Society | £m | £m | £m | £m | £m | £m |
Cost or valuation | ||||||
At 1 April 2023 | 5.0 | 21.2 | 0.6 | 20.6 | 3.2 | 50.6 |
Additions | - | - | - | 1.1 | - | 1.1 |
Revaluation | - | - | - | - | - | - |
Lease modifications and remeasurements | - | - | - | - | (0.1) | (0.1) |
Disposals | - | - | - | - | - | - |
At 31 March 2024 | 5.0 | 21.2 | 0.6 | 21.7 | 3.1 | 51.6 |
Accumulated depreciation | ||||||
At 1 April 2023 | - | 6.6 | 0.4 | 19.4 | 1.5 | 27.9 |
Charge for the year | 0.1 | 0.9 | - | 0.6 | 0.3 | 1.9 |
Revaluation | - | - | - | - | - | - |
Disposals | - | - | - | - | - | - |
At 31 March 2024 | 0.1 | 7.5 | 0.4 | 20.0 | 1.8 | 30.1 |
Net book value | ||||||
At 31 March 2024 | 4.9 | 13.7 | 0.2 | 1.7 | 1.3 | 21.8 |
Land and buildings | ||||||
Equipment, | ||||||
Freehold | Leasehold | fixtures, fittings | Right-of-use | |||
branches | Head Office | improvements | and vehicles | assets | Total | |
Society | £m | £m | £m | £m | £m | £m |
Cost or valuation | ||||||
At 1 April 2022 | 4.9 | 21.2 | 0.6 | 19.9 | 2.9 | 49.5 |
Additions | - | - | - | 0.7 | - | 0.7 |
Revaluation | 0.1 | - | - | - | - | 0.1 |
Lease modifications and remeasurements | - | - | - | - | 0.3 | 0.3 |
At 31 March 2023 | 5.0 | 21.2 | 0.6 | 20.6 | 3.2 | 50.6 |
Accumulated depreciation | ||||||
At 1 April 2022 | 0.5 | 5.7 | 0.4 | 18.9 | 1.2 | 26.7 |
Charge for the year | 0.1 | 0.9 | - | 0.5 | 0.3 | 1.8 |
Revaluation | (0.6) | - | - | - | - | (0.6) |
At 31 March 2023 | - | 6.6 | 0.4 | 19.4 | 1.5 | 27.9 |
Net book value | ||||||
At 31 March 2023 | 5.0 | 14.6 | 0.2 | 1.2 | 1.7 | 22.7 |
The average remaining term of right-of-use assets at 31 March 2024 was 4.0 years (2022/23: 5.0 years).
The net book value of land and buildings occupied for the Society’s own activities at 31 March is £18.8m (2022/23: £19.8m).
The Group’s freehold branches were revalued at 31 March 2023 by Colliers International, a firm of independent chartered surveyors. The valuations were
undertaken in accordance with the Valuation Standards issued by the Royal Institution of Chartered Surveyors in the United Kingdom. These valuations were
incorporated into the financial statements and the resulting revaluation adjustments taken to the revaluation reserve. This fair value measurement is categorised
as a Level 3 fair value measurement in the current year as described in Note 1f (2023: Level 3).
If land and buildings were carried at historical cost less depreciation, the carrying amount would be £14.7m (2022/23: £15.5m).
As part of the ongoing funding agreement for the West Bromwich Building Society Staff Retirement Scheme (the SRS), the Trustees of the SRS have been granted a
charge over the Society’s Head Office. The charge may be exercised only in the event of the Society defaulting on its pension obligations and in such circumstances
Annual Report and Accounts 2024:
Financial Statements
139
Deferred tax is calculated on all temporary differences under the liability method using an effective tax rate of 25% (2022/23: 25%). The movement on the deferred
tax account is as follows:
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
At beginning of year | 9.6 | 12.4 | 12.4 | 12.7 |
Current year income statement charge | (5.3) | (5.1) | (4.7) | (2.6) |
Amount recognised directly in other comprehensive income | 0.7 | 0.9 | 0.7 | 0.9 |
Adjustments in respect of prior years | (0.2) | 1.4 | 0.5 | 1.4 |
At end of year | 4.8 | 9.6 | 8.9 | 12.4 |
Deferred tax assets and liabilities are attributable to the following items:
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Deferred tax assets | ||||
Accelerated tax depreciation | 5.8 | 8.2 | 5.7 | 8.0 |
Carried forward tax losses | 9.1 | 11.6 | 6.1 | 8.0 |
Other temporary differences | 4.1 | 5.2 | 0.8 | 1.0 |
19.0 | 25.0 | 12.6 | 17.0 | |
Deferred tax liabilities | ||||
Property valuations | (11.6) | (11.8) | (1.1) | (1.0) |
Other temporary differences | (1.0) | (0.9) | (1.0) | (0.9) |
Pensions and other post retirement benefits | (1.6) | (2.7) | (1.6) | (2.7) |
(14.2) | (15.4) | (3.7) | (4.6) |
The deferred tax charge in the Income Statement comprises the following temporary differences:
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Accelerated tax depreciation | (2.4) | (0.8) | (2.3) | (0.8) |
Other provisions | (0.8) | (0.7) | - | - |
Carried forward tax losses | (2.6) | (0.4) | (1.9) | (0.4) |
Property valuations | 0.2 | (1.8) | - | - |
(5.6) | (3.7) | (4.2) | (1.2) |
Deferred tax assets are recognised only to the extent that realisation of the related tax benefit against future taxable profits is probable over the foreseeable future. The
deferred tax asset balances attributable to carried forward losses are expected to be substantially recovered against future taxable profits (as projected in the latest
Mid Term Plan) within five years. The assumptions surrounding future expected credit losses and increases in the Bank Rate of interest represent the most subjective
areas of judgement in management’s projections of future taxable profits. The deferred tax assets have not been discounted. Unused tax losses, which have not been
recognised within deferred tax assets at 31 March 2024, amounted to Group: £23.0m (2022/23: £23.0m) and Society: £nil (2022/23: £nil). These losses, which are
trading losses, will be available to offset against future taxable profits, subject to certain loss restriction rules set by HMRC.
140
Annual Report and Accounts 2024:
Financial Statements
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Prepayments and accrued income | 3.8 | 10.3 | 3.8 | 10.3 |
Other | 0.1 | 0.4 | - | 0.4 |
3.9 | 10.7 | 3.8 | 10.7 |
2023 | 2022 | |
Group and Society | £m | £m |
Held by individuals | 4,670.6 | 4,305.2 |
Other shares | - | 1.1 |
4,670.6 | 4,306.3 |
22. Amounts due to other customers
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Deemed loans | 5.2 | 6.3 | - | - |
Other customers | 31.8 | 56.8 | 31.7 | 56.8 |
37.0 | 63.1 | 31.7 | 56.8 |
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Certificates of deposit | - | - | - | - |
Non-recourse finance on securitised advances | - | - | - | - |
- | - | - | - |
The non-recourse finance comprised 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 (see note 13).
For the purposes of the Statements of Cash Flows, debt securities in issue are classified as liabilities arising from financing activities.
The following table analyses
movements in debt securities in issue.
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
At beginning of year | - | 171.2 | - | - |
Financing cash flows | ||||
Repayments of debt securities in issue | - | (172.0) | - | - |
Non-cash flows: | ||||
Accrued interest | - | 0.7 | - | - |
Amortisation | - | 0.1 | - | - |
At end of year | - | - | - | - |
Annual Report and Accounts 2024:
Financial Statements
141
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Accruals | 11.0 | 11.0 | 10.6 | 10.4 |
Lease liabilities | 1.5 | 1.9 | 1.5 | 1.9 |
Other creditors | 5.1 | 4.2 | 4.8 | 3.7 |
17.6 | 17.1 | 16.9 | 16.0 |
The maturity analysis of lease liabilities is included in note 36.
The movement in lease liabilities in the year is analysed in the table below:
2024 | 2023 | |
Group and Society | £m | £m |
At beginning of year | 1.9 | 1.9 |
Modifications/remeasurements of existing lease liabilities | (0.1) | 0.3 |
Interest charged | 0.1 | 0.1 |
Lease payments | (0.4) | (0.4) |
At end of year | 1.5 | 1.9 |
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
At beginning of year | 0.5 | 0.5 | 0.4 | 0.4 |
At end of year | 0.5 | 0.5 | 0.4 | 0.4 |
Provisions for liabilities
Provisions for liabilities represent the Group’s best estimate regarding various provisions, of which none are individually significant. The calculation is based on a series
Number of shares | Carrying value | |||
2024 | 2023 | 2024 | 2023 | |
Group and Society | £m | £m | ||
Permanent interest bearing shares | ||||
At beginning of year | 7,847 | 7,847 | 7.8 | 7.8 |
At end of year | 7,847 | 7,847 | 7.8 | 7.8 |
The Society’s permanent interest bearing shares (PIBS) comprise 7,847 PIBS of £1,000 each issued at a price of 99.828% of their principal amount, with the issue
premium amortised.
The PIBS became repayable at the option of the Society on the 5 April 2021 or at any scheduled interest payment date thereafter, subject to PRA approval.
In a winding up or dissolution of the Society the claims of the holders of permanent interest bearing shares (PIBS) would rank behind all other creditors of the
Society, with the exception of the claims of holders of core capital deferred shares (CCDS). The holders of PIBS are not entitled to any share in any final surplus upon
winding up or dissolution of the Society.
Whilst noting that any interest payments on the PIBS are at the sole discretion of the Society, the Society announced during its capital restructuring in 2018 that any
future payments on PIBS will be made only if and to the extent that they would have been permitted had the Liability Management Exercise (LME) not taken place,
and in the context of determining the equivalent annual yield that would have been paid to holders of the Society’s Profit Participating Deferred Shares (PPDS)
had they remained in issue on their original terms. Under the terms and conditions of the PPDS, the Society’s ability to pay PPDS distributions was constrained by
reference to a percentage of profits generated in the relevant financial year, and to the extent of any positive balance on a special PPDS reserve account (to which
a percentage of profits or losses of the Society was allocated each year).
Interest payments on the PIBS will therefore be limited to the lower of (i) the equivalent annual yield that would have been paid to holders of PPDS (had they
remained in issue on their original terms); and (ii) the annual rate set out in the Special Conditions of Issue of the PIBS (the “Specified Rate”), being 6.15% prior to 5
April 2021 and thereafter, a rate of interest reset periodically and equal to the applicable 5-year gilt rate plus a margin of 2.8% (currently 3.0827%).
Whilst PPDS instruments no longer exist (having been exchanged during the LME), the Society continues to monitor a notional PPDS reserve. For the year ended 31
March 2024, the Society generated a reported profit after tax of £24.4m. During the year to 31 March 2024 the Society repurchased £20.4m of the 11% Subordinated
Tier 2 Notes, and a cost of £5.1m has been recorded for the buyback, being the premium paid of £4.5m and write-off of unamortised fees of £0.6m. The net profit,
disregarding the Tier 2 buyback premium and interest payable (after tax), would have been £29.1m, meaning the notional PPDS reserve had a positive balance of
£7.3m at 31 March 2024 that could have been distributed to PPDS holders. The equivalent annual yield that would have been paid to PPDS holders would therefore
Number of | CCDS nominal | Share | ||
shares | amount | premium | Total | |
Group and Society | £m | £m | £m | |
At 31 March 2023 | 1,288,813 | 1.3 | 125.7 | 127.0 |
At 31 March 2024 | 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. The Directors declared an interim distribution of £2.25 per
CCDS in respect of the period to 30 September 2023 which was paid in February 2024.
This distribution has been recognised in the Statement of Changes in Members’
Interests and Equity. In May 2024 the Directors declared a final distribution for the period to 31 March 2024 of £2.25 per CCDS, in line with current distribution policy
published on 24 November 2021. The final distribution is not reflected in these financial statements as distributions to the CCDS holders are recognised with reference
to the date they are declared.
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
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Annual Report and Accounts 2024:
Financial Statements
Annual Report and Accounts 2024:
Financial Statements
143
2024 | 2023 | |
Group and Society | £m | £m |
Subordinated notes due 2038 – 11.0% | 2.1 | 22.9 |
The Society’s subordinated notes rank behind all other creditors of the Society, with the exception of holders of CCDS and PIBS.
During the year the Society repurchased £20.4m of the 11% Subordinated Tier 2 Notes; £17.3m in June 2023 (at 122.5p) and £3.1m in July 2023 (at 118.5p). A cost of
£5.1m has been recorded for the buyback, being the premium paid of £4.5m and write-off of unamortised fees of £0.6m. The repurchased notes were subsequently
cancelled leaving £2.1m aggregate notional outstanding and £0.1m of unamortised fees on balance sheet at 31 March 2024.
For the purposes of the Statements of Cash Flows, subordinated liabilities are classified as liabilities arising from financing activities. The following table analyses
movements in subordinated liabilities.
2024 | 2023 | |
Group and Society | £m | £m |
At beginning of year | 22.9 | 22.9 |
Financing cash flows | ||
Interest paid on subordinated liabilities | (1.8) | (2.5) |
Repurchase of subordinated liabilities | (20.4) | - |
Non-cash flows: | ||
Accrued interest (settled during the year) | 0.7 | 1.3 |
Accrued interest (carried forward) | 0.1 | 1.2 |
Movement in unamortised issue costs | 0.6 | - |
At end of year | 2.1 | 22.9 |
Financial assets mandatorily measured at FVTPL
The Society's closed portfolio of equity release mortgages is held at FVTPL under IFRS 9. The movements on the portfolio during the year are analysed in the table below.
2024 | 2023 | |
Group and Society | £m | £m |
At beginning of year | 8.6 | 11.5 |
Interest added | 0.9 | 0.8 |
Redemptions | (2.7) | (3.2) |
Changes in fair value | 0.2 | (0.5) |
At end of year | 7.0 | 8.6 |
Fair value of equity release mortgages
Under IFRS 9, the mature and closed book of equity release mortgages is held at FVTPL with fair values determined using a discounted cash flow model which
incorporates a number of judgemental assumptions to determine the amount and timing of future cash flows arising on mortgage redemption. Certain model
inputs, such as redemption rates, are informed by historic experience, with observed closure curves extrapolated to give an expected maturity profile for the
remaining book. Other model assumptions, such as house price indices, are based on the Group’s view of future economic conditions. The discount factor used
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Financial Statements
30. Tax effects relating to each component of other comprehensive income
Before tax | Net of tax | ||
amount | Taxation | amount | |
2024 | 2024 | 2024 | |
Group | £m | £m | £m |
Fair value through other comprehensive income investments | 1.3 | (0.3) | 1.0 |
Retirement benefit obligations | (7.2) | 1.7 | (5.5) |
Revaluation reserve | - | - | - |
Other comprehensive income | (5.9) | 1.4 | (4.5) |
Net of tax | |||
Before tax amount | Taxation | amount | |
2023 | 2023 | 2023 | |
Group | £m | £m | £m |
Fair value through other comprehensive income investments | (0.3) | 0.1 | (0.3) |
Retirement benefit obligations | (10.8) | 2.3 | (8.5) |
Revaluation reserve | 0.7 | (0.1) | 0.6 |
Other comprehensive income | (10.4) | 2.3 | (8.2) |
Before tax | Net of tax | ||
amount | Taxation | amount | |
2024 | 2024 | 2024 | |
Society | £m | £m | £m |
Fair value through other comprehensive income investments | 1.3 | (0.3) | 1.0 |
Retirement benefit obligations | (7.2) | 1.7 | (5.5) |
Revaluation reserve | - | - | - |
Other comprehensive income | (5.9) | 1.4 | (4.5) |
Net of tax | |||
Before tax amount | Taxation | amount | |
2023 | 2023 | 2023 | |
Society | £m | £m | £m |
Fair value through other comprehensive income investments | (0.3) | 0.1 | (0.3) |
Retirement benefit obligations | (10.8) | 2.3 | (8.5) |
Revaluation reserve | 0.7 | (0.1) | 0.6 |
Other comprehensive income | (10.4) | 2.3 | (8.2) |
Annual Report and Accounts 2024:
Financial Statements
145
2024 | 2023 | 2022 | 2021 | 2020 | |
Group and Society | £m | £m | £m | £m | £m |
Net defined benefit pension scheme (asset)/obligation | (6.1) | (10.9) | (14.9) | (1.1) | 2.7 |
Defined benefit plans
The Society operates the West Bromwich Building Society Staff Retirement Scheme (SRS), a funded pension scheme providing benefits for some of its employees
based on final pensionable emoluments. The assets of the Scheme are held in a separate Trustee administered fund. In addition, the Society has an unregistered
arrangement in place in respect of one former Director. The financial effect of this arrangement is included in this note.
The results of a formal actuarial valuation at 31 March 2022 carried out by the appointed actuary to the Scheme have been rolled forward to the accounting date
by an independent qualified actuary and updated in accordance with IAS 19, ‘Employee Benefits’. Pension obligations are valued differently for accounting and
funding purposes. In accordance with IAS 19, best estimate assumptions are used to determine the retirement benefit obligation shown in the Statement of
Financial Position whereas the funding valuations use more prudent assumptions and also include allowance for future administration costs, which are not
included in the IAS 19 valuation. An additional liability of £3.8m has been recorded to cover the potential cost of payments to early retirees (under certain conditions)
owing to potential discrepancies in Trust documentation. The assumptions used to calculate the impact on liabilities are the same as those used to calculate the
IAS19 liabilities as at 31 March 2024. All or part of this liability may be recovered through an ongoing resolution exercise.
The Company is aware of a case involving Virgin Media and NTL Pension Trustee, which could potentially lead to additional liabilities for some pension schemes
and sponsors, including (if applicable) the Company. This case is subject to appeal. The impact is not known and will be assessed as relevant in future.
The Society closed the Scheme to the future accrual of benefits with effect from 1 August 2009, at which date all previously active members became entitled to
deferred pensions in the Scheme.
As part of the ongoing funding agreement for the SRS, the Trustee of the SRS has been granted a charge over the Society’s Head Office, which may be exercised
only in the event of the Society defaulting on its pension obligations and in such circumstances assigns the rights of ownership of the building to the SRS. The 31
March 2022 valuation was formally agreed in June 2023. Under the new Schedule of Contributions agreed as part of the 2022 valuation, £2.3m in contributions
were paid to the Scheme during 2023/24 with no further scheduled contributions required.
There is risk that there will be a shortfall in the value of the pension fund assets over and above the liability to its employees under the defined benefit pension
scheme.
This may result from a number of sources including increased longevity, poor or volatile returns on scheme assets such as equities, gilts or bonds linked
to long-term interest rates (requiring the Society to contribute more to the scheme). The Scheme’s investment advisors provide support to fulfil the future funding
requirements of the Scheme, as well as hedging interest rate and inflation risks to protect the pension liabilities against market volatility.
The Scheme is subject to the funding legislation outlined in the Pensions Act 2004 and the Pensions Act 2021, which received royal assent in February 2021. This,
together with associated regulations and documents issued by the Pensions Regulator, sets out the framework for funding defined benefit occupational pension
schemes in the UK.
IAS 19 allows an employer to recognise a surplus as an asset to the extent that it is able to recover a surplus either through reduced contributions in the future or
through refunds from the Scheme, even if the refunds may only be available at some distant time in the future, such as after the last benefit has been paid. The
Society believes that under the Scheme Rules a surplus would be recoverable by the Society. The Society believes that under the Scheme Rules a surplus would be
recoverable on the basis that once members’ benefits have been secured and any wind-up expenses have been paid, any balance of the fund then remaining
shall be paid to the participating employers in such proportions as the Trustee shall determine.
The weighted average duration of the expected benefit payments from the Scheme is around 13 years.
The key assumptions used by the actuary in the updated calculation were:
Group and Society | 2024 | 2023 | 2022 | 2021 | 2020 |
Pension increases in payment (RPI capped at 5%) | 3.1% | 3.1% | 3.4% | 3.1% | 2.5% |
Pension increases in payment (CPI capped at 2.5%) | 1.8% | 1.9% | 2.1% | 1.9% | 1.5% |
Discount rate | 4.8% | 4.8% | 2.8% | 2.1% | 2.3% |
Life expectancy of male aged 65 at year end date | 21.2 | 21.5 | 21.6 | 21.8 | 21.8 |
Life expectancy of female aged 65 at year end date | 23.5 | 23.7 | 23.8 | 23.9 | 23.7 |
Life expectancy of male aged 65 at year end date | |||||
| plus 20 years | 22.5 | 22.8 | 22.9 | 23.1 | 23.1 |
Life expectancy of female aged 65 at year end date | |||||
| plus 20 years | 24.9 | 25.2 | 25.2 | 25.3 | 25.2 |
The sensitivity of the defined benefit obligation to changes in the significant actuarial assumptions is shown in the table below (on a gross basis, prior to the application
of hedging arrangements which are described in the 'Scheme assets' section of this note):
2024 | 2023 | |
Group and Society | (Decrease)/Increase £m | (Decrease)/Increase £m |
Discount rate | ||
Effect on defined benefit obligation of a 1% increase | (9.6) | (9.9) |
Inflation | ||
Effect on defined benefit obligation of a 1% increase | 7.1 | 7.2 |
Life expectancy | ||
Effect on defined benefit obligation of a 1 year increase | 3.2 | 3.2 |
31. Retirement benefit obligations
(continued)
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Annual Report and Accounts 2024:
Financial Statements
The amounts recognised in the Statement of Financial Position are as follows:
2024 | 2023 | 2022 | 2021 | 2020 | |
Group and Society | £m | £m | £m | £m | £m |
Present value of funded obligations | 82.3 | 83.9 | 109.7 | 119.9 | 108.2 |
Present value of unfunded obligations | 0.5 | 0.5 | 0.7 | 0.8 | 0.7 |
82.8 | 84.4 | 110.4 | 120.7 | 108.9 | |
Fair value of scheme assets | (88.9) | (95.3) | (125.3) | (121.8) | (106.2) |
Net (asset)/obligations in the Statement | (6.1) | (10.9) | (14.9) | (1.1) | 2.7 |
| of Financial Position | |||||
The amounts recognised in the Income Statement are as follows:
2024 | 2023 | 2022 | |
Group and Society | £m | £m | £m |
Interest cost | 3.9 | 3.0 | 2.5 |
Interest receivable on plan assets | (4.5) | (3.5) | (2.6) |
Running costs | 0.5 | 0.5 | 0.4 |
Total pension fund cost | (0.1) | - | 0.3 |
Past service cost and running costs, other than those associated with management of scheme assets, are shown in administrative expenses whilst interest cost and
interest receivable on plan assets are disclosed as other operating income.
The amounts recognised in the Statement of Comprehensive Income are as follows:
2024 | 2023 | |
Group and Society | £m | £m |
Actuarial losses arising from: | ||
Financial assumptions | (1.2) | (32.5) |
Demographic assumptions | (0.7) | (0.3) |
Experience adjustments | 0.4 | 7.6 |
Loss on plan assets (excluding interest) | 8.7 | 36.0 |
Total amount recognised in Other Comprehensive Income | 7.2 | 10.8 |
Change in benefit obligations
2024 | 2023 | 2022 | |
Group and Society | £m | £m | £m |
Benefit obligations at beginning of year | 84.4 | 110.4 | 120.7 |
Interest cost | 3.9 | 3.0 | 2.5 |
Actuarial gains | (1.5) | (25.2) | (8.9) |
Benefits paid | (4.0) | (3.8) | (3.9) |
Benefit obligations at end of year | 82.8 | 84.4 | 110.4 |
Annual Report and Accounts 2024:
Financial Statements
147
Change in scheme assets
2024 | 2023 | 2022 | |
Group and Society | £m | £m | £m |
Fair value of scheme assets at beginning of year | 95.3 | 125.3 | 121.8 |
Interest receivable on plan assets | 4.5 | 3.5 | 2.6 |
Actuarial (losses)/gains | (8.7) | (36.0) | 0.7 |
Contribution by employer | 2.3 | 6.8 | 4.5 |
Running costs | (0.5) | (0.5) | (0.4) |
Benefits paid | (4.0) | (3.8) | (3.9) |
Fair value of scheme assets at end of year | 88.9 | 95.3 | 125.3 |
The amount recognised outside profit and loss in the Statement of Comprehensive Income for 2023/24 is an actuarial loss of £7.2m (2022/23: loss £10.8m). The
cumulative amount recognised outside profit and loss at 31 March 2024 is an actuarial loss of £67.1m.
History of experience gains and losses
Group and Society | 2024 | 2023 | 2022 | 2021 | 2022 |
Experience (losses)/gains on scheme assets: | |||||
Amount (£m) | (8.7) | (36.0) | 0.7 | 13.2 | (4.7) |
Percentage of scheme assets | 9% | 29% | 1% | 12% | (4%) |
Experience (gains)/losses on scheme liabilities: | |||||
Amount (£m) | (1.5) | 7.6 | 2.0 | (0.6) | 0.3 |
Percentage of scheme liabilities | (2%) | 7% | 2% | (1%) | 0% |
Scheme assets
The value of the invested assets at 31 March 2024 was £88.9m, analysed as follows:
2024 | 2023 | 2022 | |
Group and Society | £m | £m | £m |
Diversified growth fund (Quoted) | - | 1.8 | 43.3 |
Global equities (Quoted) | - | - | 16.2 |
Corporate bonds (Quoted) | 11.8 | 14.2 | - |
Fixed interest government bonds (Quoted) | 7.6 | - | - |
Index-linked government bonds (Quoted) | 21.1 | - | - |
Liability driven investment (Quoted) | 12.6 | 25.0 | 31.0 |
Short duration credit (Quoted) | 2.5 | 14.4 | 17.0 |
Insurance asset (Unquoted) | 12.4 | 12.9 | 16.5 |
Cash and other assets (Quoted) | 20.9 | 27.0 | 1.3 |
88.9 | 95.3 | 125.3 |
As part of its asset and liability matching investment strategy, designed to mitigate inflation and interest rate risk exposure, the SRS has invested in liability driven
investment funds and corporate bonds. In addition, an insurance policy has been purchased to provide income which provides a specific match against the
liabilities arising from a large proportion of the SRS’s current pensioners. The SRS is targeted to be c90% hedged on movements in interest rates and inflation rates
based on the estimated buy-in premium an insurer may charge to fully cover the SRS liabilities.
Stakeholder scheme
The total cost for the year of the stakeholder plan to the Group and Society was £1.5m (2022/23: £1.3m).
For the period through to 31 July 2009 staff could contribute between 2% and 9% with the Society contributing on a sliding scale between 2% and 7%. From 1 August
2009 to 31 March 2018 staff were able to contribute between 2% and 10% with the Society providing matched funding. From 1 April 2018 staff within the stakeholder
scheme were required to contribute between 3% and 10%, with the Society providing matched funding plus 0.6%. From 1 April 2019 staff within the stakeholder
148
Annual Report and Accounts 2024:
Financial Statements
A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity of another entity.
The Group is a retailer of financial instruments, mainly in the form of mortgages and savings. The Group uses wholesale financial instruments to invest liquid asset
balances and raise wholesale funding, and to manage the risks arising from its operations. As a result of these activities, the Group is exposed to a variety of risks, the
most significant of which are credit risk, liquidity risk and market risk (principally interest rate risk). These risks are described in notes 34 to 36.
The use of derivative financial instruments for risk management purposes is described in note 12.
Classification of financial assets and financial liabilities
The following tables show the classification of the Group's and Society's financial assets and liabilities:
At 31 March 2024
Fair value | ||||
through other | ||||
comprehensive | Fair value through | |||
Amortised cost | income | profit or loss | Total | |
Group | £m | £m | £m | £m |
Assets | ||||
Cash and balances with the Bank of England | 491.6 | - | - | 491.6 |
Loans and advances to credit institutions | 46.3 | - | - | 46.3 |
Investment securities | - | 391.1 | 0.4 | 391.5 |
Derivative financial instruments | - | - | 61.8 | 61.8 |
Loans and advances to customers | 4,778.1 | - | 7.0 | 4,785.1 |
Total financial assets | 5,316.0 | 391.1 | 69.2 | 5,776.3 |
Non-financial assets | 213.4 | |||
Total assets | 5,989.7 | |||
Fair value through | ||||
Amortised cost | profit or loss | Total | ||
£m | £m | £m | ||
Liabilities | ||||
Shares | 4,670.6 | - | 4,670.6 | |
Amounts due to credit institutions | 788.2 | - | 788.2 | |
Amounts due to other customers | 37.0 | - | 37.0 | |
Derivative financial instruments | - | 12.8 | 12.8 | |
Debt securities in issue | - | - | - | |
Subordinated liabilities | 2.1 | - | 2.1 | |
Total financial liabilities | 5,497.9 | 12.8 | 5,510.7 | |
Non-financial liabilities | 34.3 | |||
Total liabilities | 5,545.0 |
Annual Report and Accounts 2024:
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149
At 31 March 2023
Fair value | ||||
through other | ||||
comprehensive | Fair value through | |||
Amortised cost | income | profit or loss | Total | |
Group | £m | £m | £m | £m |
Assets | ||||
Cash and balances with the Bank of England | 598.2 | - | - | 598.2 |
Loans and advances to credit institutions | 72.8 | - | - | 72.8 |
Investment securities | - | 315.2 | 0.4 | 315.6 |
Derivative financial instruments | - | - | 100.5 | 100.5 |
Loans and advances to customers | 4,361.7 | - | 8.6 | 4,370.3 |
Total financial assets | 5,032.7 | 315.2 | 109.5 | 5,457.4 |
Non-financial assets | 231.9 | |||
Total assets | 5,689.3 | |||
Fair value through | ||||
Amortised cost | profit or loss | Total | ||
£m | £m | £m | ||
Liabilities | ||||
Shares | 4,306.3 | - | 4,306.3 | |
Amounts due to credit institutions | 826.2 | - | 826.2 | |
Amounts due to other customers | 63.1 | - | 63.1 | |
Derivative financial instruments | - | 6.7 | 6.7 | |
Debt securities in issue | - | - | - | |
Subordinated liabilities | 22.9 | - | 22.9 | |
Total financial liabilities | 5,218.5 | 6.7 | 5,225.2 | |
Non-financial liabilities | 33.6 | |||
Total liabilities | 5,258.8 |
32. Financial instruments
(continued)
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Annual Report and Accounts 2024:
Financial Statements
At 31 March 2024
Fair value | ||||
through other | ||||
comprehensive | Fair value through | |||
Amortised cost | income | profit or loss | Total | |
Society | ||||
£m | £m | £m | £m | |
Assets | ||||
Cash and balances with the Bank of England | 491.6 | - | - | 491.6 |
Loans and advances to credit institutions | 44.7 | - | - | 44.7 |
Investment securities | - | 391.1 | 0.4 | 391.5 |
Derivative financial instruments | - | - | 61.7 | 61.7 |
Loans and advances to customers | 3,779.0 | - | 7.0 | 3,786.0 |
Investments | 1,070.3 | - | - | 1,070.3 |
Total financial assets | 5,385.6 | 391.1 | 69.1 | 5,845.8 |
Non-financial assets | 58.2 | |||
Total assets | 5,904.0 | |||
Fair value through | ||||
Amortised cost | profit or loss | Total | ||
£m | £m | £m | ||
Liabilities | ||||
Shares | 4,670.6 | - | 4,670.6 | |
Amounts due to credit institutions | 788.2 | - | 788.2 | |
Amounts due to other customers | 31.7 | - | 31.7 | |
Derivative financial instruments | - | 12.8 | 12.8 | |
Subordinated liabilities | 2.1 | - | 2.1 | |
Total financial liabilities | 5,492.6 | 12.8 | 5,505.4 | |
Non-financial liabilities | 23.0 | |||
Total liabilities | 5,528.4 |
Annual Report and Accounts 2024:
Financial Statements
151
At 31 March 2023
Fair value | ||||
through other | ||||
comprehensive | Fair value through | |||
Amortised cost | income | profit or loss | Total | |
Society | £m | £m | £m | £m |
Assets | ||||
Cash and balances with the Bank of England | 598.2 | - | - | 598.2 |
Loans and advances to credit institutions | 40.5 | - | - | 40.5 |
Investment securities | 370.6 | 315.2 | 0.4 | 686.2 |
Derivative financial instruments | - | - | 100.5 | 100.5 |
Loans and advances to customers | 3,215.7 | - | 8.6 | 3,224.3 |
Investments | 896.3 | - | - | 896.3 |
Total financial assets | 5,121.3 | 315.2 | 109.5 | 5,546.0 |
Non-financial assets | 71.2 | |||
Total assets | 5,617.2 | |||
Fair value through | ||||
Amortised cost | profit or loss | Total | ||
£m | £m | £m | ||
Liabilities | ||||
Shares | 4,306.3 | - | 4,306.3 | |
Amounts due to credit institutions | 826.6 | - | 826.6 | |
Amounts due to other customers | 56.3 | - | 56.3 | |
Derivative financial instruments | - | 6.6 | 6.6 | |
Subordinated liabilities | 22.9 | - | 22.9 | |
Total financial liabilities | 5,212.1 | 6.6 | 5,218.7 | |
Non-financial liabilities | 21.6 | |||
Total liabilities | 5,240.3 |
32. Financial instruments
(continued)
152
Annual Report and Accounts 2024:
Financial Statements
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 and Society’s financial assets and liabilities held at amortised cost in the Statements of Financial Position, analysed
according to the fair value hierarchy described above.
At 31 March 2024
Carrying | Fair value | Fair value | Fair value | Fair value | |
value | Level 1 | Level 2 | Level 3 | Total | |
Group | |||||
£m | £m | £m | £m | £m | |
Financial assets | |||||
Loans and advances to credit institutions | 46.3 | - | 46.3 | - | 46.3 |
Loans and advances to customers | 4,778.1 | - | - | 4,866.9 | 4,866.9 |
4,824.4 | - | 46.3 | 4,866.9 | 4,913.2 | |
Financial liabilities | |||||
Shares | 4,670.6 | - | - | 4,650.6 | 4,650.6 |
Amounts due to credit institutions | 788.2 | - | 788.2 | - | 788.2 |
Amounts due to other customers | 37.0 | - | 31.8 | 5.0 | 36.8 |
Debt securities in issue | - | - | - | - | - |
Subordinated liabilities | 2.1 | - | 2.1 | - | 2.1 |
5,497.9 | - | 822.1 | 4,655.6 | 5,477.7 |
At 31 March 2023
Carrying | Fair value | Fair value | Fair value | Fair value | |
value | Level 1 | Level 2 | Level 3 | Total | |
Group | |||||
£m | £m | £m | £m | £m | |
Financial assets | |||||
Loans and advances to credit institutions | 72.8 | - | 72.8 | - | 72.8 |
Loans and advances to customers | 4,361.7 | - | - | 4,465.2 | 4,465.2 |
4,434.5 | - | 72.8 | 4,465.2 | 4,538.0 | |
Financial liabilities | |||||
Shares | 4,306.3 | - | - | 4,308.9 | 4,308.9 |
Amounts due to credit institutions | 826.2 | - | 826.2 | - | 826.2 |
Amounts due to other customers | 63.1 | - | 56.8 | 6.0 | 62.8 |
Debt securities in issue | - | - | - | - | - |
Subordinated liabilities | 22.9 | - | 22.9 | - | 22.9 |
5,218.5 | - | 905.9 | 4,314.9 | 5,220.8 |
Annual Report and Accounts 2024:
Financial Statements
153
At 31 March 2024 | |||||
Carrying | Fair value | Fair value | Fair value | Fair value | |
value | Level 1 | Level 2 | Level 3 | Total | |
Society | £m | £m | £m | £m | £m |
Financial assets | |||||
Loans and advances to credit institutions | 44.7 | - | 44.7 | - | 44.7 |
Investment securities | - | - | - | - | - |
Loans and advances to customers | 3,779.0 | - | - | 3,966.2 | 3,966.2 |
Investments | 1,070.3 | - | - | 1,070.3 | 1,070.3 |
4,894.0 | - | 44.7 | 5,036.5 | 5,081.2 | |
Financial liabilities | |||||
Shares | 4,670.6 | - | - | 4,650.6 | 4,650.6 |
Amounts due to credit institutions | 788.2 | - | 788.2 | - | 788.2 |
Amounts due to other customers | 31.7 | - | 31.7 | - | 31.7 |
Debt securities in issue | - | - | - | - | - |
Subordinated liabilities | 2.1 | - | 2.1 | - | 2.1 |
5,492.6 | - | 822.0 | 4,650.6 | 5,472.6 | |
At 31 March 2023 | |||||
Carrying | Fair value | Fair value | Fair value | Fair value | |
value | Level 1 | Level 2 | Level 3 | Total | |
Society | |||||
£m | £m | £m | £m | £m | |
Financial assets | |||||
Loans and advances to credit institutions | 40.5 | - | 40.5 | - | 40.5 |
Investment securities | 370.6 | - | 370.6 | - | 370.6 |
Loans and advances to customers | 3,215.7 | - | - | 3,535.8 | 3,535.8 |
Investments | 896.3 | - | - | 896.3 | 896.3 |
4,523.1 | - | 411.1 | 4,432.1 | 4,843.2 | |
Financial liabilities | |||||
Shares | 4,306.3 | - | - | 4,308.9 | 4,308.9 |
Amounts due to credit institutions | 826.6 | - | 826.6 | - | 826.6 |
Amounts due to other customers | 56.3 | - | 56.3 | (0.1) | 56.2 |
Subordinated liabilities | 22.9 | - | 22.9 | - | 22.9 |
5,212.1 | - | 905.8 | 4,308.8 | 5,214.6 |
32. Financial instruments
(continued)
154
Annual Report and Accounts 2024:
Financial Statements
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 it were sold at 31 March 2024.
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 31 March 2024.
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 and Society’s financial assets and liabilities held at fair value in the Statements of Financial Position, analysed
according to the fair value hierarchy described previously.
Group
Level 1 | Level 2 | Level 3 | Total | |
2024 | 2024 | 2024 | 2024 | |
£m | £m | £m | £m | |
Financial assets | ||||
Investment securities | ||||
At fair value through other comprehensive income | 391.1 | - | - | 391.1 |
At fair value through profit or loss | 0.4 | - | - | 0.4 |
Derivative financial instruments | - | 61.8 | - | 61.8 |
Loans and advances to customers | - | - | 7.0 | 7.0 |
391.5 | 61.8 | 7.0 | 460.3 | |
Financial liabilities | ||||
Derivative financial instruments | - | 12.8 | - | 12.8 |
- | 12.8 | - | 12.8 |
Level 1 | Level 2 | Level 3 | Total | |
2023 | 2023 | 2023 | 2023 | |
Group | £m | £m | £m | £m |
Financial assets | ||||
Investment securities | ||||
At fair value through other comprehensive income | 315.2 | - | - | 315.2 |
At fair value through profit or loss | 0.4 | - | - | 0.4 |
Derivative financial instruments | - | 100.5 | - | 100.5 |
Loans and advances to customers | - | - | 8.6 | 8.6 |
315.6 | 100.5 | 8.6 | 424.7 | |
Financial liabilities | ||||
Derivative financial instruments | - | 6.7 | - | 6.7 |
- | 6.7 | - | 6.7 |
Annual Report and Accounts 2024:
Financial Statements
155
Level 1 | Level 2 | Level 3 | Total | |
2024 | 2024 | 2024 | 2024 | |
Society | ||||
£m | £m | £m | £m | |
Financial assets | ||||
Investment securities | ||||
At fair value through other comprehensive income | 391.1 | - | - | 391.1 |
At fair value through profit or loss | 0.4 | - | - | 0.4 |
Derivative financial instruments | - | 61.7 | - | 61.7 |
Loans and advances to customers | - | - | 7.0 | 7.0 |
391.5 | 61.7 | 7.0 | 460.2 | |
Financial liabilities | ||||
Derivative financial instruments | - | 12.8 | - | 12.8 |
- | 12.8 | - | 12.8 | |
Level 1 | Level 2 | Level 3 | Total | |
2023 | 2023 | 2023 | 2023 | |
Society | £m | £m | £m | £m |
Financial assets | ||||
Investment securities | ||||
At fair value through other comprehensive income | 315.2 | - | - | 315.2 |
At fair value through profit or loss | 0.4 | - | - | 0.4 |
Derivative financial instruments | - | 100.5 | - | 100.5 |
Loans and advances to customers | - | - | 8.6 | 8.6 |
315.6 | 100.5 | 8.6 | 424.7 | |
Financial liabilities | ||||
Derivative financial instruments | - | 6.6 | - | 6.6 |
- | 6.6 | - | 6.6 |
The Society’s equity release mortgage portfolio is measured at fair value using a discounted cash flow model for which key inputs are not based on observable
market data. The calculation therefore meets the definition of a level 3 valuation technique. Details of the key model assumptions and the fair value impact of
changes in those assumptions are given in the accounting policies.
The table below analyses movements in the level 3 portfolio during the period.
2024 | 2023 | |
Group and Society | £m | £m |
Equity release portfolio | ||
At 1 April | 8.6 | 11.5 |
Items recognised in the Income Statement | ||
Interest receivable and similar income | 0.9 | 0.8 |
Fair value gains/(losses) on financial instruments | 0.2 | (0.5) |
Redemptions | (2.7) | (3.2) |
At 31 March | 7.0 | 8.6 |
156
Annual Report and Accounts 2024:
Financial Statements
(a) Credit risk definition and management
Credit risk can be described as the risk of customers or counterparties being unable to meet their financial obligations to the Group as they become due.
The Group is exposed to this risk through its lending to:
- individuals (consumers - residential mortgages, including buy to let);
- businesses (non-consumers - previous commercial lending and elements of buy to let exposure); and
- wholesale counterparties (including other financial institutions). Specifically within the treasury portfolio, where credit risk arises from the investments held by the
Group in order to meet liquidity requirements and for general business purposes.
Changes in the credit quality and the recoverability of loans and amounts due from counterparties influence the Group’s exposure to credit risk. Adverse changes
in the credit quality of counterparties, collateral values or deterioration in the wider economy, including rising unemployment, worsening household finances and
tightening in the UK property market, resulting in declining property values, could affect the recoverability and value of the Group’s assets and influence its financial
performance. An economic downturn and future falls in property values (either residential or commercial) could affect the level of impairment losses recognised.
The controlled management of credit risk is critical to the Group’s overall strategy. The Group has therefore embedded a comprehensive and robust credit risk
management framework with clear lines of accountability and oversight as part of its overall governance framework. The Group has effective policies and
procedures to identify, measure, monitor, manage and report credit risk within the Group’s risk appetite.
The Risk Committee is responsible for the oversight of credit risk appetite that has been established by the Board and for approving lending policy and setting
limits on credit exposures, which are monitored and reviewed on a monthly basis. The minutes of this committee are presented to the Board. This committee is
supported by four Executive sub-committees/Groups: the Executive Risk Committee, the Residential Credit Group, the Commercial Loan Risk Committee and the
Model Risk Group. The role of each within the credit risk framework is outlined below:
- The Executive Risk Committee (ERC) is responsible for providing the Risk Committee with an enterprise wide view of the risk profile of the Society including current
and potential risks. The ERC is also accountable for driving the detailed implementation of the Society’s Risk Management Framework. In the context of credit
risk, the ERC proposes to the Risk Committee any recommendations for Board approval regarding the Residential Lending Statement and Credit Risk Appetite
Statement.
The ERC approves material changes to the Lending and Security Policies, and reviews these policies annually. A summary of the minutes of this
committee are presented to the Risk Committee.
- The Residential Credit Group is responsible for the monitoring of the Group’s residential credit exposures and approving changes to the credit scoring systems that
are utilised. In addition, the Committee reviews the type and quality of approved residential mortgage business and appraises actual arrears and repossession
levels against trends and industry averages. A summary of the minutes of this committee are presented to the ERC.
- The Commercial Loan Risk Committee reviews individual commercial loans at levels mandated by the Board. This may involve reviewing individual cases on a
quarterly, half yearly or annual basis.
- The Model Risk Group supports the Society’s development and maintenance of models, including those related to the management of credit risk.
The Committee
oversees the initiation, development, approval, implementation, performance, monitoring and validation of the Society’s models in the context of compliance
with both Regulation and the Society’s own governance requirements. A summary of the minutes of this committee are presented to the ERC.
The Group adopts a responsible approach to lending ensuring that loans are, and are expected to remain, affordable and the Responsible Lending Policy is
approved annually by the Board.
The maximum credit risk exposure is the carrying value as shown in the tables on pages 152 to 155.
The Group’s most significant exposures to credit risk are loans secured on UK residential properties and loans secured on UK land.
(b) Residential assets held at amortised cost
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
Concentration by loan type | £m | £m | £m | £m |
Prime owner occupied | 3,676.0 | 3,122.1 | 3,615.9 | 3,052.6 |
Buy to let | 995.2 | 1,141.3 | 206.0 | 236.9 |
Other | 29.9 | 35.2 | 0.4 | 0.5 |
Gross balances | 4,701.1 | 4,298.6 | 3,822.3 | 3,290.0 |
Expected credit loss provisions | (10.9) | (10.2) | (3.6) | (2.3) |
Fair value hedge adjustments | (43.3) | (81.6) | (39.7) | (72.0) |
4,646.9 | 4,206.8 | 3,779.0 | 3,215.7 |
Annual Report and Accounts 2024:
Financial Statements
157
(i) Credit quality
The Group assesses credit risk on owner occupied and buy to let residential mortgages using behavioural scorecard and other analysis to determine probabilities
of default across a number of rating grades. The IFRS 9 impairment models make use of this data, incorporating forecasts of future economic conditions and
account-specific factors to produce forward-looking probabilities of default by account and allocating loans to one of three stages (as explained in note 1).
The table below analyses gross exposures to residential assets by 12-month probability of default and IFRS 9 stage at the reporting date, with the exception of the
closed second charge lending portfolio for which probability of possession is used as a credit risk measure, rather than probability of default.
At 31 March 2024
Group | Society | |||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |
Probability of default range (%) | £m | £m | £m | £m | £m | £m | £m | £m |
0.00 to < 0.25 | 3,099.4 | 164.7 | 70.1 | 3,334.2 | 2,792.4 | 148.7 | 30.0 | 2,971.1 |
0.25 to < 0.50 | 208.4 | 34.4 | - | 242.8 | 92.2 | 18.7 | - | 110.9 |
0.50 to < 0.75 | 329.4 | 32.9 | - | 362.3 | 327.0 | 32.0 | - | 359.0 |
0.75 to < 1.00 | 42.3 | 25.5 | - | 67.8 | 10.1 | 13.2 | - | 23.3 |
1.00 to < 5.00 | 309.9 | 314.1 | - | 624.0 | 61.7 | 258.6 | - | 320.3 |
5.00 to < 10.00 | 6.3 | 2.3 | - | 8.6 | 3.9 | 1.9 | - | 5.8 |
10.00 to < 100.00 | 10.1 | 32.4 | (0.1) | 42.4 | 4.8 | 22.4 | - | 27.2 |
100.00 (default) | - | - | 14.0 | 14.0 | - | - | 4.6 | 4.6 |
Second charge | 2.9 | 1.3 | 0.8 | 5.0 | - | 0.1 | - | 0.1 |
4,008.7 | 607.6 | 84.8 | 4,701.1 | 3,292.1 | 495.6 | 34.6 | 3,822.3 | |
At 31 March 2023 | ||||||||
Group | Society | |||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |
Probability of default range (%) | £m | £m | £m | £m | £m | £m | £m | £m |
0.00 to < 0.25 | 2,997.9 | 108.6 | - | 3,106.5 | 2,576.6 | 101.5 | - | 2,678.1 |
0.25 to < 0.50 | 476.4 | 64.7 | - | 541.1 | 312.3 | 37.2 | - | 349.5 |
0.50 to < 0.75 | 41.4 | 10.1 | - | 51.5 | 11.5 | 2.0 | - | 13.5 |
0.75 to < 1.00 | 85.6 | 13.3 | - | 98.9 | 5.9 | 5.9 | - | 11.8 |
1.00 to < 5.00 | 228.3 | 130.9 | - | 359.2 | 69.6 | 103.0 | - | 172.6 |
5.00 to < 10.00 | 5.8 | 2.6 | - | 8.4 | 2.9 | 2.3 | - | 5.2 |
10.00 to < 100.00 | 31.7 | 31.3 | - | 63.0 | 11.5 | 21.7 | - | 33.2 |
100.00 (default) | - | - | 63.8 | 63.8 | - | - | 25.9 | 25.9 |
Second charge | 3.7 | 1.4 | 1.0 | 6.1 | 0.1 | 0.1 | - | 0.2 |
3,870.8 | 362.9 | 64.8 | 4,298.5 | 2,990.4 | 273.7 | 25.9 | 3,290.0 |
The table below provides further information on the Group's residential loans and advances to customers by payment due status at 31 March.
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Not past due | 4,630.8 | 4,248.3 | 3,788.7 | 3,266.7 |
Past due 1 to 3 months | 26.0 | 23.9 | 14.6 | 11.6 |
Past due 3 to 6 months | 15.8 | 14.2 | 7.1 | 6.2 |
Past due 6 to 12 months | 17.5 | 7.0 | 7.0 | 4.1 |
Past due over 12 months | 7.8 | 2.2 | 4.1 | 1.1 |
Possessions | 3.2 | 3.0 | 0.8 | 0.3 |
4,701.1 | 4,298.6 | 3,822.3 | 3,290.0 |
33. Credit risk
(continued)
158
Annual Report and Accounts 2024:
Financial Statements
(ii) Expected credit losses
The table below illustrates the IFRS 9 staging distribution of residential loans and advances to customers held at amortised cost, loan commitments and related
expected credit loss provisions at the year end. 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 significant increase in credit risk (SICR), and those which meet other SICR criteria as detailed in note 1 to the accounts.
At 31 March 2024
Group | Society | |||||
Expected credit | Provision | Expected credit | Provision | |||
Gross exposure | loss provision | coverage | Gross exposure | loss provision | coverage | |
£m | £m | % | £m | £m | % | |
Residential loans at amortised cost | ||||||
Stage 1 | 4,008.7 | 1.1 | 0.03% | 3,292.0 | 0.4 | 0.01% |
Stage 2 | ||||||
> 30 days past due | 16.7 | 0.2 | 1.20% | 9.8 | 0.2 | 2.04% |
Other SICR indicators | 590.9 | 2.0 | 0.34% | 485.8 | 1.0 | 0.21% |
Provision overlays | - | 3.9 | - | - | 1.0 | - |
Stage 3 | 84.8 | 3.7 | 4.36% | 34.7 | 1.0 | 2.88% |
4,701.1 | 10.9 | 0.23% | 3,822.3 | 3.6 | 0.09% | |
Loan commitments | ||||||
Stage 1 | 347.0 | - | 0.00% | 346.5 | - | 0.00% |
At 31 March 2023 | ||||||
Group | Society | |||||
Expected credit | Provision | Expected credit | Provision | |||
Gross exposure | loss provision | coverage | Gross exposure | loss provision | coverage | |
£m | £m | % | £m | £m | % | |
Residential loans at amortised cost | ||||||
Stage 1 | 3,870.8 | 0.9 | 0.02% | 2,990.4 | 0.2 | 0.01% |
Provision overlays | - | 0.2 | - | - | - | - |
Stage 2 | ||||||
> 30 days past due | 8.6 | 0.1 | 1.16% | 4.9 | - | 0.00% |
Other SICR indicators | 354.4 | 1.2 | 0.34% | 268.8 | 0.6 | 0.22% |
Provision overlays | - | 5.4 | - | - | 1.0 | - |
Stage 3 | 64.7 | 2.4 | 3.72% | 25.9 | 0.5 | 1.93% |
4,298.5 | 10.2 | 0.24% | 3,290.0 | 2.3 | 0.07% | |
Loan commitments | ||||||
Stage 1 | 243.1 | - | 0.00% | 218.0 | - | 0.00% |
For the purposes of the disclosure above, gross exposures and expected credit loss provisions are rounded to the nearest £0.1m whereas the provision coverage
percentages are based on the underlying data prior to rounding.
Annual Report and Accounts 2024:
Financial Statements
159
The tables below analyse the movement in gross residential exposures and the related expected credit loss allowances for the year ended 31 March 2024:
Group | Society | |||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |
£m | £m | £m | £m | £m | £m | £m | £m | |
Gross exposure | ||||||||
At 1 April 2023 | 3,870.8 | 362.9 | 64.8 | 4,298.5 | 2,990.4 | 273.7 | 25.9 | 3,290.0 |
Transfers due to increased | ||||||||
credit risk: | ||||||||
From stage 1 to stage 2 | (376.7) | 376.7 | - | - | (317.6) | 317.6 | - | - |
From stage 1 to stage 3 | (16.9) | - | 16.9 | - | (5.9) | - | 5.9 | - |
From stage 2 to stage 3 | - | (25.2) | 25.2 | - | - | (11.1) | 11.1 | - |
Transfers due to decreased | ||||||||
credit risk: | ||||||||
From stage 2 to stage 1 | 67.4 | (67.4) | - | - | 53.6 | (53.6) | - | - |
From stage 3 to stage 1 | 0.9 | - | (0.9) | - | 0.3 | - | (0.3) | - |
From stage 3 to stage 2 | - | 4.1 | (4.1) | - | - | 2.4 | (2.4) | - |
Mortgage advances | 1,064.1 | - | - | 1,064.1 | 1,057.6 | - | - | 1,057.6 |
Net redemptions and | ||||||||
(602.8) | (43.5) | (16.7) | (663.0) | (488.3) | (33.4) | (5.6) | (527.3) | |
repayments | ||||||||
Amounts written off | - | - | (0.3) | (0.3) | - | - | - | - |
Other movements | 1.9 | - | (0.1) | 1.8 | 2.0 | - | - | 2.0 |
At 31 March 2024 | 4,008.7 | 607.6 | 84.8 | 4,701.1 | 3,292.1 | 495.6 | 34.6 | 3,822.3 |
Group | Society | |||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |
£m | £m | £m | £m | £m | £m | £m | £m | |
Gross exposure | ||||||||
At 1 April 2022 | 4,005.1 | 509.4 | 62.6 | 4,577.1 | 3,076.4 | 332.9 | 25.6 | 3,434.9 |
Transfers due to increased | ||||||||
credit risk: | ||||||||
From stage 1 to stage 2 | (154.9) | 154.9 | - | - | (120.1) | 120.1 | - | - |
From stage 1 to stage 3 | (15.1) | - | 15.1 | - | (4.4) | - | 4.4 | - |
From stage 2 to stage 3 | - | (15.8) | 15.8 | - | - | (8.1) | 8.1 | - |
Transfers due to decreased | ||||||||
credit risk: | ||||||||
From stage 2 to stage 1 | 203.5 | (203.5) | - | - | 114.1 | (114.1) | - | - |
From stage 3 to stage 1 | 2.9 | - | (2.9) | - | 0.9 | - | (0.9) | - |
From stage 3 to stage 2 | - | 5.8 | (5.8) | - | - | 3.2 | (3.2) | - |
Mortgage advances | 690.7 | - | - | 690.7 | 640.1 | - | - | 640.1 |
Net redemptions and | ||||||||
(868.9) | (82.2) | (19.4) | (970.5) | (712.7) | (60.2) | (8.0) | (780.9) | |
repayments | ||||||||
Amounts written off | (0.1) | - | (0.4) | (0.5) | - | - | (0.1) | (0.1) |
Other movements | 7.6 | (5.7) | (0.2) | 1.7 | (3.9) | (0.1) | - | (4.0) |
At 31 March 2023 | 3,870.8 | 362.9 | 64.8 | 4,298.5 | 2,990.4 | 273.7 | 25.9 | 3,290.0 |
33. Credit risk
(continued)
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Annual Report and Accounts 2024:
Financial Statements
Group | Society | |||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |
£m | £m | £m | £m | £m | £m | £m | £m | |
Expected credit loss provision | ||||||||
At 1 April 2023 | 1.1 | 6.7 | 2.4 | 10.2 | 0.2 | 1.6 | 0.5 | 2.3 |
Transfers due to increased | ||||||||
credit risk: | ||||||||
From stage 1 to stage 2 | (0.1) | 1.6 | - | 1.5 | - | 0.9 | - | 0.9 |
From stage 1 to stage 3 | (0.1) | - | 0.6 | 0.5 | - | - | 0.2 | 0.2 |
From stage 2 to stage 3 | - | (0.2) | 0.7 | 0.5 | - | (0.1) | 0.2 | 0.1 |
Transfers due to decreased | ||||||||
credit risk: | ||||||||
From stage 2 to stage 1 | - | (0.2) | - | (0.2) | - | (0.1) | - | (0.1) |
From stage 3 to stage 2 | - | 0.1 | (0.1) | - | - | - | - | - |
Remeasurement of expected | ||||||||
credit losses with no stage | 0.4 | (0.2) | 1.0 | 1.2 | 0.2 | (0.1) | 0.3 | 0.4 |
transfer | ||||||||
Redemptions | (0.2) | (0.1) | (0.5) | (0.8) | - | - | (0.1) | (0.1) |
Amounts written off | - | - | (0.3) | (0.3) | - | - | - | - |
Other movements | 0.2 | (0.1) | (0.1) | - | - | - | (0.1) | (0.1) |
Movement in provision overlays | (0.2) | (1.5) | - | (1.7) | - | - | - | - |
At 31 March 2024 | 1.1 | 6.1 | 3.7 | 10.9 | 0.4 | 2.2 | 1.0 | 3.6 |
Group | Society | |||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |
£m | £m | £m | £m | £m | £m | £m | £m | |
Expected credit loss provision | ||||||||
At 1 April 2022 | 1.3 | 4.1 | 2.3 | 7.7 | 0.2 | 0.6 | 0.7 | 1.5 |
Transfers due to increased | ||||||||
credit risk: | ||||||||
From stage 1 to stage 2 | - | 0.6 | - | 0.6 | - | 0.3 | - | 0.3 |
From stage 1 to stage 3 | (0.2) | - | 0.6 | 0.4 | - | - | 0.1 | 0.1 |
From stage 2 to stage 3 | - | (0.2) | 0.3 | 0.1 | - | (0.1) | 0.1 | - |
Transfers due to decreased | ||||||||
credit risk: | ||||||||
From stage 2 to stage 1 | 0.2 | (0.7) | - | (0.5) | - | (0.1) | - | (0.1) |
From stage 3 to stage 2 | - | - | (0.1) | (0.1) | - | - | - | - |
Remeasurement of expected | ||||||||
credit losses with no stage | 0.3 | (0.1) | - | 0.2 | 0.2 | - | (0.1) | 0.1 |
transfer | ||||||||
Redemptions | (0.5) | (0.1) | (0.4) | (1.0) | (0.1) | - | (0.1) | (0.2) |
Amounts written off | (0.1) | - | (0.4) | (0.5) | - | - | (0.1) | (0.1) |
Other movements | (0.1) | - | 0.1 | - | (0.1) | 0.1 | (0.1) | (0.1) |
Movement in provision overlays | 0.2 | 3.1 | - | 3.3 | - | 0.8 | - | 0.8 |
At 31 March 2023 | 1.1 | 6.7 | 2.4 | 10.2 | 0.2 | 1.6 | 0.5 | 2.3 |
Annual Report and Accounts 2024:
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161
(iii) Geographical analysis
The table below shows the geographic spread of the residential loan portfolio at the year end date:
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
East Anglia | 121.0 | 104.0 | 98.7 | 78.2 |
East Midlands | 491.0 | 449.9 | 414.8 | 361.6 |
Greater London | 461.9 | 447.1 | 272.7 | 235.0 |
Northern Ireland | 2.4 | 2.9 | - | 0.1 |
North | 225.6 | 210.3 | 192.9 | 171.3 |
North West | 678.4 | 600.1 | 573.5 | 478.4 |
Scotland | 46.6 | 58.3 | 11.3 | 14.7 |
South East | 874.1 | 759.0 | 700.9 | 563.9 |
South West | 362.7 | 330.1 | 306.8 | 264.9 |
Wales | 227.6 | 215.9 | 189.8 | 172.3 |
West Midlands | 675.1 | 635.7 | 594.4 | 542.7 |
Yorkshire | 534.7 | 485.3 | 466.5 | 406.9 |
4,701.1 | 4,298.6 | 3,822.3 | 3,290.0 |
The table below shows analysis of the indexed loan to value distribution of the residential loan portfolio at the year end date:
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
>95% | 135.2 | 37.5 | 135.0 | 37.1 |
91% - 95% | 323.1 | 119.7 | 322.9 | 119.3 |
86% - 90% | 286.8 | 123.1 | 286.6 | 122.9 |
76% - 85% | 502.0 | 335.1 | 413.7 | 250.6 |
51% - 75% | 1,993.7 | 2,008.1 | 1,581.6 | 1,581.6 |
<51% | 1,460.3 | 1,675.1 | 1,082.5 | 1,178.5 |
4,701.1 | 4,298.6 | 3,822.3 | 3,290.0 |
The Group’s average indexed loan to value at the year end date is 54.0% (2022/23: 48.4%), calculated as a simple average across all residential loans.
The following table indicates collateral held against residential loans and advances to customers by IFRS 9 stage:
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
Fair value of collateral held | £m | £m | £m | £m |
Stage 1 | 8,656.8 | 8,936.7 | 7,034.1 | 6,878.0 |
Stage 2 | 1,222.4 | 830.7 | 956.4 | 600.9 |
Stage 3 | 207.6 | 174.8 | 86.9 | 75.7 |
10,086.8 | 9,942.2 | 8,077.4 | 7,554.6 |
The collateral held consists of properties included within the above categories. The use of such collateral is in line with terms that are usual and customary to
33. Credit risk
(continued)
162
Annual Report and Accounts 2024:
Financial Statements
(v) Forbearance
A range of forbearance strategies are employed in order to work with borrowers to control arrears and, wherever possible, avoid repossession. These are set out in
the relevant Group policies. The agreed strategy will reflect the customer’s individual circumstances, appropriately taking any vulnerabilities into consideration, and will
be used in line with industry guidance. Forbearance arrangements include extended payment terms, a reduction in interest or principal repayments, and approved
external debt management plans.
The table below analyses residential mortgage balances with renegotiated terms at the year end date:
Arrangements | Concessions | Capitalisation | Term extensions | Total | |
2024 | 2024 | 2024 | 2024 | 2024 | |
Group | £m | £m | £m | £m | £m |
Not past due | 7.9 | - | 1.0 | 0.5 | 9.4 |
Past due 1 to 3 months | 1.5 | - | 0.3 | - | 1.8 |
Past due 3 to 6 months | 0.7 | - | 0.1 | - | 0.8 |
Past due 6 to 12 months | 1.3 | - | - | - | 1.3 |
Past due over 12 months | 2.3 | - | - | - | 2.3 |
13.7 | - | 1.4 | 0.5 | 15.6 | |
Arrangements | Concessions | Capitalisation | Term extensions | Total | |
2023 | 2023 | 2023 | 2023 | 2023 | |
Group | £m | £m | £m | £m | £m |
Not past due | 9.2 | 0.1 | 1.3 | 0.8 | 11.4 |
Past due 1 to 3 months | 2.0 | 0.1 | 0.1 | - | 2.2 |
Past due 3 to 6 months | 2.0 | - | - | - | 2.0 |
Past due 6 to 12 months | 1.1 | - | - | - | 1.1 |
Past due over 12 months | 0.9 | - | - | - | 0.9 |
15.2 | 0.2 | 1.4 | 0.8 | 17.6 |
(c) Commercial assets
Commercial assets comprise a closed portfolio of non-core commercial loans which is analysed in the table below.
Group | Group | |
2024 | 2023 | |
£m | £m | |
Concentration by loan type | ||
Loans secured on commercial property | 220.5 | 229.9 |
Loans secured on residential property | 0.7 | 0.7 |
Gross balances | 221.2 | 230.6 |
Fair value adjustments | 2.4 | 3.5 |
Gross exposures | 223.6 | 234.1 |
Impairment provisions | (92.1) | (79.1) |
131.5 | 155.0 |
Of the Group fair value adjustments, £2.6m (2022/23: £3.5m) relate to loans secured on commercial property and £nil (2022/23 £nil) relate to loans secured on
residential property. The Society has no exposure to commercial loans after balances redeemed during 2022/23.
Annual Report and Accounts 2024:
Financial Statements
163
(i) Credit quality
The internal credit risk grading approach for the closed commercial loan book does not use scorecards or probability of default calculations. Instead loans are
individually assessed against a series of prescriptive and judgmental criteria, by subject matter experts following a clearly defined methodology, to arrive at a risk
grade. The distribution of the portfolio by grade and IFRS 9 stage at 31 March is set out in the table below.
At 31 March 2024
Group | ||||
Stage 1 | Stage 2 | Stage 3 | Total | |
£m | £m | £m | £m | |
Performing | 29.6 | - | - | 29.6 |
Watchlist | - | 7.2 | - | 7.2 |
Default: | ||||
In Law of Property Act Receivership | - | - | 184.9 | 184.9 |
Other default | - | - | 1.9 | 1.9 |
29.6 | 7.2 | 186.8 | 223.6 | |
At 31 March 2023 | ||||
Group | ||||
Stage 1 | Stage 2 | Stage 3 | Total | |
£m | £m | £m | £m | |
Performing | 18.1 | 4.0 | - | 22.1 |
Watchlist | - | 8.9 | - | 8.9 |
Default: | ||||
In Law of Property Act Receivership | - | - | 203.1 | 203.1 |
18.1 | 12.9 | 203.1 | 234.1 |
The risk grades have been updated during the 2023/2024 financial year
to include only the ‘Performing’, ‘Watchlist’ and ‘Default’ grades. These revised grades
have been reflected in the comparative 2022/23 table above.
The table below provides further information on the Group's commercial assets by payment due status at 31 March:
Group | Group | |
2024 | 2023 | |
£m | £m | |
Not past due | 110.9 | 132.4 |
Past due up to 3 months | 1.3 | 32.4 |
Past due 3 to 6 months | 11.8 | - |
Past due 6 to 12 months | 32.8 | 2.0 |
Past due over 12 months | 66.8 | 67.3 |
223.6 | 234.1 |
33. Credit risk
(continued)
164
Annual Report and Accounts 2024:
Financial Statements
(ii) Expected credit losses
The table below illustrates the IFRS 9 staging distribution of commercial loans and advances to customers and related expected credit loss provisions at the year
end. 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 significant increase in
credit risk (SICR), and those which meet other SICR criteria as detailed in note 1 to the accounts.
At 31 March 2024
Group | |||
Gross exposure | Expected credit loss provision | Provision coverage | |
£m | £m | % | |
Commercial loans | |||
Stage 1 | 29.6 | 0.1 | 0.34% |
Stage 2 | |||
Other SICR indicators | 7.2 | 1.1 | 15.48% |
Stage 3 | 186.8 | 90.9 | 48.66% |
223.6 | 92.1 | 41.20% | |
At 31 March 2023 | |||
Group | |||
Gross exposure | Expected credit loss provision | Provision coverage | |
£m | £m | % | |
Commercial loans | |||
Stage 1 | 18.1 | - | 0.00% |
Stage 2 | |||
> 30 days past due | - | - | 0.00% |
Other SICR indicators | 12.9 | 0.2 | 1.55% |
Stage 3 | 203.1 | 77.4 | 38.10% |
Provision overlays | - | 1.6 | - |
234.1 | 79.2 | 33.83% |
For the purposes of the disclosure above, gross exposures and expected credit loss provisions are rounded to the nearest £0.1m whereas the provision coverage
percentages are based on the underlying data prior to rounding.
Annual Report and Accounts 2024:
Financial Statements
165
The tables below analyse the movement in gross commercial exposures and the related expected credit loss allowances at 31 March:
| Group | |||||
Stage 1 | Stage 2 | Stage 3 | Total | ||
Gross exposure | |||||
£m | £m | £m | £m | ||
At 1 April 2023 | 18.1 | 12.8 | 203.1 | 234.0 | |
Transfers due to increased credit risk: | |||||
From stage 1 to stage 2 | (0.2) | 0.2 | - | - | |
Transfers due to decreased credit risk: | |||||
From stage 2 to stage 1 | 11.5 | (11.5) | - | - | |
From stage 3 to stage 1 | 2.1 | - | (2.1) | - | |
From stage 3 to stage 2 | - | 7.0 | (7.0) | - | |
Net redemptions, repayments and fair value adjustments for | |||||
(1.9) | (1.3) | (6.4) | (9.6) | ||
hedged risk | |||||
Amounts written off | - | - | (0.8) | (0.8) | |
At 31 March 2024 | 29.6 | 7.2 | 186.8 | 223.6 | |
Group | Society | ||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | |
Gross exposure | |||||
£m | £m | £m | £m | £m | |
At 1 April 2022 | 47.9 | 50.3 | 250.3 | 348.5 | 30.8 |
Transfers due to increased credit risk: | |||||
From stage 1 to stage 2 | - | - | - | - | - |
From stage 1 to stage 3 | (1.5) | - | 1.5 | - | - |
From stage 2 to stage 3 | - | (26.4) | 26.4 | - | - |
Transfers due to decreased credit risk: | |||||
From stage 2 to stage 1 | 4.4 | (4.4) | - | - | - |
From stage 3 to stage 2 | - | 0.1 | (0.1) | - | - |
Net redemptions, repayments and fair value adjustments for | |||||
(32.6) | (6.7) | (33.7) | (73.0) | (30.8) | |
hedged risk | |||||
Amounts written off | - | - | (41.3) | (41.3) | - |
Other movements | (0.1) | - | - | (0.1) | - |
At 31 March 2023 | 18.1 | 12.9 | 203.1 | 234.1 | - |
33. Credit risk
(continued)
166
Annual Report and Accounts 2024:
Financial Statements
Group | |||||
Stage 1 | Stage 2 | Stage 3 | Total | ||
£m | £m | £m | £m | ||
Expected credit loss allowance | |||||
At 1 April 2023 | - | 0.2 | 79.0 | 79.2 | |
Transfers due to decreased credit risk: | |||||
From stage 2 to stage 1 | 0.1 | (0.2) | - | (0.1) | |
From stage 3 to stage 2 | - | 1.1 | (0.6) | 0.5 | |
Remeasurement of expected credit losses with no stage | |||||
- | - | 14.9 | 14.9 | ||
transfer | |||||
Amounts written off | - | - | (0.8) | (0.8) | |
Movement in provision overlays | - | - | (1.6) | (1.6) | |
At 31 March 2024 | 0.1 | 1.1 | 90.9 | 92.1 | |
Group | Society | ||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | |
£m | £m | £m | £m | £m | |
Expected credit loss allowance | |||||
At 1 April 2022 | - | 8.8 | 91.1 | 99.9 | - |
Transfers due to increased credit risk: | |||||
From stage 2 to stage 3 | - | (8.5) | 9.4 | 0.9 | - |
Remeasurement of expected credit losses with no stage | |||||
- | (0.1) | 18.3 | 18.2 | - | |
transfer | |||||
Redemptions | - | - | (0.2) | (0.2) | - |
Amounts written off | - | - | (41.3) | (41.3) | - |
Other movements | - | - | 0.1 | 0.1 | - |
Movement in provision overlays | - | - | 1.6 | 1.6 | - |
At 31 March 2023 | - | 0.2 | 79.0 | 79.2 | - |
Annual Report and Accounts 2024:
Financial Statements
167
(iii) Industry analysis of commercial loans
The analysis of commercial loans by industry type is as follows:
Group | Group | |
2024 | 2023 | |
£m | £m | |
Healthcare | 43.8 | 47.3 |
Leisure | 38.1 | 40.9 |
Industrial and warehouse | 3.8 | 3.9 |
Retail | 136.2 | 140.3 |
Residential | 0.7 | 0.7 |
Other | 1.0 | 1.0 |
223.6 | 234.1 |
(iv) Geographical analysis
The table below shows the geographic spread of the commercial loan portfolio at the year end date:
Group | Group | |
2024 | 2023 | |
£m | £m | |
East Anglia | 11.5 | 11.8 |
East Midlands | 19.9 | 19.7 |
Greater London | 12.8 | 14.7 |
North | 19.7 | 21.3 |
North West | 102.4 | 104.6 |
Scotland | 0.3 | 0.3 |
South East | 25.2 | 28.8 |
South West | 6.2 | 6.5 |
West Midlands | 6.4 | 6.4 |
Yorkshire | 19.2 | 20.0 |
223.6 | 234.1 |
33. Credit risk
(continued)
168
Annual Report and Accounts 2024:
Financial Statements
(v) Collateral
The Group’s average unindexed loan to value at the year end date is 101.5% (2022/23: 93.1%), calculated as a simple average across all commercial loans.
The following table indicates collateral held against commercial loans and advances to customers by IFRS 9 stage at 31 March:
Group | Unindexed | Unindexed |
2024 | 2023 | |
Value of collateral held | £m | £m |
Stage 1 | 54.6 | 40.9 |
Stage 2 | 9.0 | 14.9 |
Stage 3 | 120.9 | 139.6 |
184.5 | 195.4 |
The collateral held consists of properties, land or other guarantees or cash included within the above categories. The use of such collateral is in line with terms that are
usual and customary to standard lending activities.
(vi) Forbearance
Certain forbearance activities are applied on a small number of commercial mortgages. Loans that have been restructured (generally via a term extension) and would
otherwise have been past due are classified as renegotiated. The carrying amount of loans that have been classified as renegotiated retain this classification until
maturity or derecognition. Interest is recorded on renegotiated loans on the basis of new contractual terms following renegotiation.
The analysis below sets out the commercial mortgage gross exposures with evidence of forbearance and renegotiated terms at the year end date.
Arrangements | Capitalisation | Term extensions | Total | |
2024 | 2024 | 2024 | 2024 | |
Group | £m | £m | £m | £m |
Not past due | 10.5 | 10.1 | 2.7 | 23.3 |
Past due over 12 months | 7.3 | - | - | 7.3 |
17.8 | 10.1 | 2.7 | 30.6 | |
Arrangements | Capitalisation | Term extensions | Total | |
2023 | 2023 | 2023 | 2023 | |
Group | £m | £m | £m | £m |
Not past due | 11.7 | 10.3 | 23.0 | 45.0 |
Past due up to 3 months | - | - | 8.4 | 8.4 |
Past due 6 to 12 months | - | - | - | - |
Past due over 12 months | 7.5 | - | - | 7.5 |
19.2 | 10.3 | 31.4 | 60.9 |
Annual Report and Accounts 2024:
Financial Statements
169
(d) Loans and advances to credit institutions and investment securities
The Group holds treasury investments in order to meet liquidity requirements and for general business purposes. The credit risk arising from these investments is
monitored, managed and controlled closely by the Group.
At 31 March 2024, the Group and Society’s loans and advances to credit institutions and investment securities held at amortised cost or FVOCI were all categorised
as stage 1 and the associated ECLs were negligible. At the reporting date, 100% (2022/23: 100%) of the Group’s treasury assets were invested in or deposited with
counterparties rated single A or better or classified as a Global Systemically Important Counterparty (GSIC).
The tables below show the relative concentrations of the Group’s treasury investment portfolio, all of which are denominated in sterling:
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Concentration by credit grading | ||||
AAA | 296.3 | 239.8 | 296.3 | 239.8 |
AA+ to AA- | 565.7 | 663.3 | 565.7 | 663.3 |
A+ to A- | 67.0 | 83.0 | 65.4 | 50.6 |
Other | 0.5 | 0.5 | 0.5 | 371.1 |
929.5 | 986.6 | 927.9 | 1,324.8 | |
Concentration by sector | ||||
Financial institutions | 92.6 | 148.1 | 91.0 | 115.8 |
Asset backed securities | 252.1 | 190.4 | 252.1 | 561.1 |
Supranational institutions | 44.8 | 49.9 | 44.8 | 49.9 |
Sovereign | 540.0 | 598.2 | 540.0 | 598.2 |
929.5 | 986.6 | 927.9 | 1,325.0 | |
Concentration by region | ||||
UK | 838.4 | 871.6 | 836.8 | 1,209.9 |
Europe (excluding UK) | 20.7 | 19.3 | 20.7 | 19.3 |
North America | - | 35.7 | - | 35.7 |
Australasia | 25.6 | 10.2 | 25.6 | 10.2 |
Supranational | 44.8 | 49.9 | 44.8 | 49.9 |
929.5 | 986.7 | 927.9 | 1,325.0 |
(e) Intercompany loans
An ECL provision of £226.8m (2022/23: £213.4m) is held against intercompany loans of £961.8m (2022/23: £784.6m) to West Bromwich Commercial Limited and West
Bromwich Mortgage Company where there is currently a shortfall in net assets; these loans are classified as Stage 3. The balance of £108.4m (2022/23: £116.0m) of
170
Annual Report and Accounts 2024:
Financial Statements
Market risk is the potential adverse change in Group income, or the Group economic value, arising from movements in interest rates, exchange rates, equity prices
or other market prices. The Board recognises that the effective management of market risk is essential to the maintenance of stable earnings and the preservation of
member value.
The Group’s exposure to market risk is governed by the Board approved Treasury and Financial Risk Management Policy, which sets out the nature of risks that may
be taken and defines aggregate risk limits. Within this Policy, the Board has delegated responsibility for the management and control of market risk to the Assets &
Liabilities Committee (ALCo). At each meeting, ALCo reviews reports which show the Group’s current and forecast exposure to market risks together with the results of
extensive stress testing.
The Society’s Assets and Liabilities Management function is responsible for operational management of the Group’s exposure to market risk. It achieves this by taking
advantage of natural hedges arising within the Group’s businesses and, for the purpose of reducing risk, transacting appropriate hedging instruments where no
natural hedges exist.
The Group’s use of derivative financial instruments to manage interest rate risk is explained in note 12 to the accounts.
Interest rate risk
The Group’s exposure to interest rate risk is reported against target operating ranges set by ALCo, which themselves fall within Board Policy limits. The effect upon the
Group’s current and forecast net market value of assets and liabilities is determined for parallel yield curve shifts in the range +2.5% to -2.5%, subject to a defined floor,
and for a variety of stressed non-parallel yield curve shifts. The impact upon net interest income is also assessed for rate movements using parallel shifts in the range
+2.5% to -2.5%.
Analysis is also presented to show the mismatches between assets and liabilities whose rates move in line with different variable rate benchmarks such as Bank Rate,
SONIA and rates administered by the Group. Such mismatches generate additional interest rate risks (basis risk) to those assessed by parallel shift analysis. The Board
has a defined risk appetites for basis mismatch.
To ensure that the overall reported interest rate risk position does not mask excessive offsetting concentrations in different periods, reprice gap concentration limits are
in place to limit the maximum mismatch between assets and liabilities repricing in future time periods. In conducting this analysis, general reserves, CCDS and PIBS are
allocated over a range of time buckets against treasury and other assets in accordance with targets set by ALCo. The resulting ‘reverse cumulative gap report’ allows
the income and market value sensitivity of a one basis point movement in interest rates upon the whole balance sheet to be calculated.
The levels of Group pre-tax interest rate risk exposures to applicable parallel shifts through the reporting period were as follows:
At | Average | High | Low | |
31 March 2024 | 2024 | 2024 | 2024 | |
£m | £m | £m | £m | |
Market value | (3.6) | (4.6) | (8.2) | (1.8) |
Net interest income | (4.8) | (3.8) | (5.6) | (1.6) |
At | Average | High | Low | |
31 March 2023 | 2023 | 2023 | 2023 | |
£m | £m | £m | £m | |
Market value | (6.5) | (4.2) | (8.3) | (0.9) |
Net interest income | (0.7) | (2.6) | (6.5) | (0.2) |
In the tables above market value represents the sensitivity in economic value of core portfolio assets and liabilities to a shift in the yield curve of +/-2.5 and net interest
income is P/L sensitivity to shift in interest rates of +/-2.5%.
Capital Risk
Annual Report and Accounts 2024:
Financial Statements
171
The contractual maturity of the mortgages is typically up to 30 years although loans are often repaid early due to borrowers moving house or remortgaging. In
contrast, the majority of members’ savings are available on demand or at short notice. It is this inherent mismatch between the maturity profile of mortgage lending
and the easy accessibility of savings that creates liquidity risk.
The Group’s exposure to liquidity risk is governed by the Liquidity and Funding Policy sections of the Board approved Treasury and Financial Risk Management Policy,
taken together with its Individual Liquidity Adequacy Assessment Process (ILAAP).
The Liquidity and Funding limits are designed to ensure that adequate liquid assets are held to cover statutory, regulatory and operational cash requirements in both
business-as-usual and stressed environments.
The Group’s liquidity risk is managed as follows:
• The Board has delegated authority for the management of liquidity risk to the Assets & Liabilities Committee (ALCo) within risk tolerances set out in the Treasury and
Financial Risk Management Policy. ALCo meets monthly;
• Operational management of liquidity risk is further delegated to the Liquidity Management Group (LMG). LMG meets regularly (typically weekly) to agree, based upon
detailed customer behavioural analysis, the amount of funding required to maintain the adequacy of Group liquidity over horizons of up to three months. LMG plans
cash requirements at a higher level over an extended rolling 12 month plan period; and
• LMG also considers a series of daily, weekly and monthly stress tests which are designed to ensure that the Group maintains sufficient liquidity to meet its cash
flow needs under a number of adverse scenarios. These scenarios simulate both Group specific, general market and combined events including severe savings
outflows and the unavailability of wholesale funding.
The Overall Liquidity Adequacy Rule (OLAR) states that a regulated firm must at all times maintain liquidity resources which are adequate, both as to amount and
quality, to ensure that there is no significant risk that its liabilities cannot be met as they fall due. There are three measures that the Group considers key to meeting
the OLAR:
• Liquidity ratios - the amount of liquidity necessary to meet its LCR and to maintain overall liquidity adequacy as determined by the society’s ILAAP is assessed daily;
• Liquidity stress tests - adequacy of Group liquidity under a number of different stress scenarios is modelled and maintained within the Board’s liquidity risk tolerance;
and
• Refinancing gaps - the level of wholesale and combined retail/wholesale funding permitted to mature over given time periods is subject to Board approved limits.
35. Liquidity risk
(continued)
172
Annual Report and Accounts 2024:
Financial Statements
The table below analyses the Group’s assets and liabilities across maturity periods that reflect the residual maturity from the year end date to the contractual maturity
date. The Group’s liquidity management processes consider the actual repayment profiles of financial assets and liabilities which are likely to be significantly different
to that shown in the analysis. Gross loan committments are expected to mature within 3 months.
At 31 March 2024 | |||||||
Repayable | Less than | 3 to 12 | 1 to 5 | Over | No specific | ||
on demand | 3 months | months | years | 5 years | maturity | Total | |
Group | £m | £m | £m | £m | £m | £m | £m |
Financial assets | |||||||
Cash and balances with the Bank of England | 491.6 | - | - | - | - | - | 491.6 |
Loans and advances to credit institutions | 7.5 | 38.8 | - | - | - | - | 46.3 |
Investment securities | - | 102.5 | 76.0 | 121.3 | 91.7 | - | 391.5 |
Derivative financial instruments | - | 0.8 | 2.0 | 55.4 | 3.6 | - | 61.8 |
Loans and advances to customers | - | 170.4 | 22.1 | 426.3 | 4,309.8 | (143.5) | 4,785.1 |
Total financial assets | 499.1 | 312.5 | 100.1 | 603.0 | 4,405.1 | (143.5) | 5,776.3 |
Financial liabilities | |||||||
Shares | 2,709.1 | 465.8 | 762.1 | 733.6 | - | - | 4,670.6 |
Amounts due to credit institutions | - | 125.1 | 247.7 | 415.4 | - | - | 788.2 |
Amounts due to other customers | 5.2 | 26.8 | 3.6 | 1.4 | - | - | 37.0 |
Derivative financial instruments | - | - | - | 12.6 | 0.2 | - | 12.8 |
Subordinated liabilities | - | - | - | - | 2.1 | - | 2.1 |
Total financial liabilities | 2,714.3 | 617.7 | 1,013.4 | 1,163.0 | 2.3 | - | 5,510.7 |
At 31 March 2023 | |||||||
Repayable | Less than | 3 to 12 | 1 to 5 | Over | No specific | ||
on demand | 3 months | months | years | 5 years | maturity | Total | |
Group | £m | £m | £m | £m | £m | £m | £m |
Financial assets | |||||||
Cash and balances with the Bank of England | 584.2 | - | - | - | - | 14.0 | 598.2 |
Loans and advances to credit institutions | 35.9 | 36.9 | - | - | - | - | 72.8 |
Investment securities | - | 25.5 | 147.8 | 104.4 | 37.9 | - | 315.6 |
Derivative financial instruments | - | 1.4 | 13.4 | 82.7 | 3.0 | - | 100.5 |
Loans and advances to customers | - | 181.3 | 19.6 | 447.3 | 3,892.2 | (170.1) | 4,370.3 |
Total financial assets | 620.1 | 245.1 | 180.8 | 634.4 | 3,933.1 | (156.1) | 5,457.4 |
Financial liabilities | |||||||
Shares | 2,844.1 | 144.6 | 403.0 | 914.6 | - | - | 4,306.3 |
Amounts due to credit institutions | - | 109.5 | - | 716.7 | - | - | 826.2 |
Amounts due to other customers | 5.2 | 47.0 | 8.1 | 2.8 | - | - | 63.1 |
Derivative financial instruments | - | - | 0.8 | 5.7 | 0.2 | - | 6.7 |
Subordinated liabilities | - | - | - | - | 22.9 | - | 22.9 |
2,849.3 | 301.1 | 411.9 | 1,639.8 | 23.1 | - | 5,225.2 |
Total financial liabilities
Annual Report and Accounts 2024:
Financial Statements
173
At 31 March 2024 | |||||||
Repayable | Less than | 3 to 12 | 1 to 5 | Over | No specific | ||
on demand | 3 months | months | years | 5 years | maturity | Total | |
Society | £m | £m | £m | £m | £m | £m | £m |
Financial assets | |||||||
Cash and balances with the Bank of England | 491.6 | - | - | - | - | - | 491.6 |
Loans and advances to credit institutions | 5.9 | 38.8 | - | - | - | - | 44.7 |
Investment securities | - | 102.5 | 76.0 | 121.3 | 91.7 | - | 391.5 |
Derivative financial instruments | - | 0.8 | 2.0 | 55.3 | 3.6 | - | 61.7 |
Loans and advances to customers | - | 7.7 | 8.3 | 112.9 | 3,697.2 | (40.1) | 3,786.0 |
Investments: loans in subsidiary undertakings | - | - | - | - | - | 1,070.3 | 1,070.3 |
Total financial assets | 497.5 | 149.8 | 86.3 | 289.5 | 3,792.5 | 1,030.2 | 5,845.8 |
Financial liabilities | |||||||
Shares | 2,709.1 | 465.8 | 762.1 | 733.6 | - | - | 4,670.6 |
Amounts due to credit institutions | - | 125.1 | 247.7 | 415.4 | - | - | 788.2 |
Amounts due to other customers | 5.2 | 26.6 | - | (0.1) | - | - | 31.7 |
Derivative financial instruments | - | - | - | 12.6 | 0.2 | - | 12.8 |
Subordinated liabilities | - | - | - | - | 2.1 | - | 2.1 |
Total financial liabilities | 2,714.3 | 617.5 | 1,009.8 | 1,161.5 | 2.3 | - | 5,505.4 |
At 31 March 2023 | |||||||
Repayable | Less than | 3 to 12 | 1 to 5 | Over | No specific | ||
on demand | 3 months | months | years | 5 years | maturity | Total | |
Society | £m | £m | £m | £m | £m | £m | £m |
Financial assets | |||||||
Cash and balances with the Bank of England | 584.2 | - | - | - | - | 14.0 | 598.2 |
Loans and advances to credit institutions | 3.6 | 36.9 | - | - | - | - | 40.5 |
Investment securities | - | 25.5 | 147.9 | 104.4 | 408.4 | - | 686.2 |
Derivative financial instruments | - | 1.4 | 13.4 | 82.7 | 3.0 | - | 100.5 |
Loans and advances to customers | - | 7.6 | 7.8 | 119.4 | 3,162.7 | (73.2) | 3,224.3 |
Investments: loans in subsidiary undertakings | - | - | - | - | - | 896.2 | 896.2 |
Total financial assets | 587.8 | 71.4 | 169.1 | 306.5 | 3,574.1 | 837.0 | 5,545.9 |
Financial liabilities | |||||||
Shares | 2,844.1 | 144.6 | 403.0 | 914.6 | - | - | 4,306.3 |
Amounts due to credit institutions | - | 109.5 | - | 717.0 | - | - | 826.5 |
Amounts due to other customers | 5.2 | 46.3 | 5.3 | (0.5) | - | - | 56.3 |
Derivative financial instruments | - | - | 0.8 | 5.7 | 0.1 | - | 6.6 |
Subordinated liabilities | - | - | - | - | 22.9 | - | 22.9 |
Total financial liabilities | 2,849.3 | 300.4 | 409.1 | 1,636.8 | 23.0 | - | 5,218.6 |
35. Liquidity risk
(continued)
174
Annual Report and Accounts 2024:
Financial Statements
The significant development of liquidity stress testing and forecast models has continued throughout 2024 due to economic and market conditions. A wide range of
scenarios is considered including mild and severe stresses, credit downgrades and a total closure of the wholesale market. An analysis of the liquidity portfolio is set
out in the table below:
2024 | 2024 | 2023 | 2023 | |
Group | £m | % | £m | % |
Cash in hand and balances with the Bank of England | 491.6 | 53.2 | 598.2 | 60.7 |
Cash with banks and building societies | 46.3 | 5.0 | 72.8 | 7.4 |
Certificates of deposit | 46.3 | 5.0 | 75.3 | 7.6 |
Fixed rate bonds | 58.5 | 6.3 | - | - |
Floating rate notes | 29.9 | 3.2 | 49.8 | 5.0 |
Covered bonds | 165.0 | 17.8 | 152.6 | 15.5 |
Residential mortgage backed securities | 86.9 | 9.4 | 37.9 | 3.8 |
Total | 924.5 | 99.9 | 986.6 | 100.0 |
The following table is an analysis of the gross contractual cash flows payable/(receivable) under financial liabilities:
At 31 March 2024 | |||||
Less than 3 months | 3 to 12 months | 1 to 5 years | Over 5 years | Total | |
Group | £m | £m | £m | £m | £m |
Liabilities | |||||
Shares | 3,152.3 | 839.3 | 766.4 | 0.3 | 4,758.3 |
Amounts due to credit institutions and other | |||||
165.3 | 269.9 | 424.0 | - | 859.2 | |
customers | |||||
Derivative financial instruments | (0.2) | 0.5 | 13.8 | 0.5 | 14.6 |
Subordinated liabilities | 0.1 | 0.1 | 0.9 | 4.2 | 5.3 |
3,317.5 | 1,109.8 | 1,205.1 | 5.0 | 5,637.4 | |
Loan commitments | 347.0 | - | - | - | 347.0 |
At 31 March 2023 | |||||
Less than 3 months | 3 to 12 months | 1 to 5 years | Over 5 years | Total | |
Group | £m | £m | £m | £m | £m |
Liabilities | |||||
Shares | 3,140.7 | 474.6 | 746.5 | 4.4 | 4,366.2 |
Amounts due to credit institutions and other | |||||
167.9 | 28.1 | 749.6 | - | 945.6 | |
customers | |||||
Derivative financial instruments | 0.5 | 1.1 | 3.4 | - | 5.0 |
Subordinated liabilities | 1.2 | 1.2 | 9.9 | 48.5 | 60.8 |
3,310.3 | 505.0 | 1,509.4 | 52.9 | 5,377.6 | |
Loan commitments | 243.1 | - | - | - | 243.1 |
Annual Report and Accounts 2024:
Financial Statements
175
At 31 March 2024 | |||||
Less than 3 months | 3 to 12 months | 1 to 5 years | Over 5 years | Total | |
Society | |||||
£m | £m | £m | £m | £m | |
Liabilities | |||||
Shares | 3,152.3 | 839.3 | 766.4 | 0.3 | 4,758.3 |
Amounts due to credit institutions and other | |||||
165.3 | 269.9 | 424.0 | - | 859.2 | |
customers | |||||
Derivative financial instruments | (0.2) | 0.5 | 13.8 | 0.5 | 14.6 |
Subordinated liabilities | 0.1 | 0.1 | 0.9 | 4.2 | 5.3 |
3,317.5 | 1,109.8 | 1,205.1 | 5.0 | 5,637.4 | |
Loan commitments | 346.5 | - | - | - | 346.5 |
At 31 March 2023 | |||||
Less than 3 months | 3 to 12 months | 1 to 5 years | Over 5 years | Total | |
Society | £m | £m | £m | £m | £m |
Liabilities | |||||
Shares | 3,140.7 | 474.6 | 746.5 | 4.4 | 4,366.2 |
Amounts due to credit institutions and other | |||||
167.9 | 28.1 | 749.6 | - | 945.6 | |
customers | |||||
Derivative financial instruments | 0.5 | 1.1 | 3.4 | - | 5.0 |
Subordinated liabilities | 1.2 | 1.2 | 9.9 | 48.5 | 60.8 |
3,310.3 | 505.0 | 1,509.4 | 52.9 | 5,377.6 | |
Loan commitments | 218.0 | - | - | - | 218.0 |
The maturity analysis of lease liabilities is analysed in the table shown below:
Group | Group | Society | Society | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
a) Leasing commitments | ||||
Less than three months | 0.1 | 0.1 | 0.1 | 0.1 |
Greater than three months and less than one year | 0.3 | 0.3 | 0.3 | 0.3 |
Between one and five years | 1.2 | 1.4 | 1.2 | 1.4 |
After five years | 0.2 | 0.3 | 0.2 | 0.3 |
1.8 | 2.1 | 1.8 | 2.1 |
The Society earns rental income on subletting parts of three (2022/23: three) of its freehold branches to residential and commercial tenants.
The income received from
this is negligible and is regarded as rental income.
b) Loan commitments | ||||
Undrawn loan facilities | 347.0 | 243.1 | 346.5 | 218.0 |
c) Capital commitments | ||||
Capital expenditure contracted but not yet provided for in the accounts | - | - | - | - |
176
Annual Report and Accounts 2024:
Financial Statements
i)
Subsidiary, parent and ultimate controlling party
The Group is controlled by West Bromwich Building Society
15. The Group's registered office and principal place of business is 2 Providence Place, West Bromwich , B70 8AF.
The Board considers key management personnel to comprise Executive and Non-Executive Directors. Details of Directors’ emoluments are disclosed in note 8 and the
Directors' Remuneration report on pages 82 to 95.
iii) Transactions with key management personnel and their close family members
The table below shows outstanding balances and transactions with key management personnel, which comprises Group Directors, and their close family members:
Amount in respect of key | Amount in respect of key | |||
No. of key | management personnel | No. of key | management personnel | |
management | and their close family | management | and their close family | |
personnel | members | personnel | members | |
2024 | 2024 | 2023 | 2023 | |
Group and Society | £000 | £000 | ||
Savings balances at 31 March | 12 | 149 | 11 | 130 |
Interest payable on savings balances | 12 | 4 | 11 | 1 |
Mortgage loans and savings are available to key management personnel and members of their close family at normal commercial terms. At 31 March 2024 , there was
1 mortgage loan outstanding to Directors and their connected persons of £0.2m (31 March 2023: 1 outstanding of £0.2m).
A register is maintained by the Society containing details of loans, transactions and arrangements made between the Society or its subsidiary undertakings and Directors
of the Society or persons connected with Directors of the Society. The register will be available for inspection by members at the Annual General Meeting and during
iv) Contributions to pension schemes
During the year the Group paid contributions of £2.3m (2022/23: £6.8m) to defined benefit pension schemes, which are classified as related parties.
As part of the ongoing funding agreement for the West Bromwich Building Society Staff Retirement Scheme (the SRS), the Trustees of the SRS have been granted a charge
over the Society’s Head Office, which may be exercised only in the event of the Society defaulting on its pension obligations and in such circumstances assigns the rights
of ownership of the building to the SRS.
v) Transactions with subsidiary companies
Interest paid | Interest paid | |
to Society | to Society | |
2024 | 2023 | |
£m | £m | |
Insignia Finance Limited | 0.1 | 0.1 |
West Bromwich Commercial Limited | 13.3 | 5.5 |
West Bromwich Homes Limited | 2.7 | 2.8 |
West Bromwich Mortgage Company Limited | 28.0 | 8.9 |
44.1 | 17.3 |
At the year end the following balances were outstanding with subsidiary companies:
Loans owed by | Loans owed by | |
subsidiaries | subsidiaries | |
2024 | 2023 | |
£m | £m | |
Insignia Finance Limited | 0.8 | 1.8 |
West Bromwich Commercial Limited | 325.0 | 350.2 |
West Bromwich Homes Limited | 107.6 | 114.3 |
West Bromwich Mortgage Company Limited | 636.8 | 430.2 |
1,070.2 | 896.5 |
Transactions and balances between Group companies are on normal commercial terms and conditions.
The loans owed by West Bromwich Commercial Limited are net of impairment provisions of £213.9m (2022/23: £199.6m) and the loans owed by West Bromwich
Annual Report and Accounts 2024:
Financial Statements
177
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.
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.
Income Statements for the year ended 31 March 2024
Commercial | Consolidation | ||||
Retail | real estate | Property | adjustments | Total Group | |
£m | £m | £m | £m | £m | |
Interest receivable and similar income | |||||
Calculated using the effective interest method | 238.1 | 8.3 | - | (17.0) | 229.4 |
On instruments measured at fair value through profit or loss | 57.5 | 0.1 | - | - | 57.6 |
Total interest receivable and similar income | 295.6 | 8.4 | - | (17.0) | 287.0 |
Interest expense and similar charges | (183.3) | (14.4) | (2.7) | 17.0 | (183.4) |
Net interest receivable/(expense) | 112.3 | (6.0) | (2.7) | - | 103.6 |
Fees and commissions receivable | 1.1 | - | - | - | 1.1 |
Other operating income | 0.5 | - | 4.1 | - | 4.6 |
Fair value (loss)/gain on financial instruments | (2.3) | 1.9 | - | - | (0.4) |
Total income | 111.6 | (4.1) | 1.4 | - | 108.9 |
Administrative expenses | (52.9) | (0.9) | (0.2) | - | (54.0) |
Depreciation and amortisation | (5.5) | - | - | - | (5.5) |
Operating profit before revaluation gains, impairment, | |||||
53.2 | (5.0) | 1.2 | - | 49.4 | |
provisions and cost on debt buyback | |||||
Gains on investment properties | - | - | 2.5 | - | 2.5 |
Impairment on loans and advances | (0.5) | (14.2) | - | - | (14.7) |
Cost on debt buyback | (5.1) | - | - | - | (5.1) |
Profit/(Loss) before tax | 47.6 | (19.2) | 3.7 | - | 32.1 |
Statements of Financial Position at 31 March 2024
Commercial | Consolidation | ||||
Retail | real estate | Property | adjustments | Total Group | |
£m | £m | £m | £m | £m | |
Total assets | 6,100.3 | 148.9 | 152.1 | (411.6) | 5,989.7 |
Total liabilities | 5,694.6 | 370.7 | 118.4 | (638.7) | 5,545.0 |
Capital expenditure | 8.7 | - | - | - | 8.7 |
38. Business segments
(continued)
178
Annual Report and Accounts 2024:
Financial Statements
Income Statements for the year ended 31 March 2023
Commercial | Consolidation | ||||
Retail | real estate | Property | adjustments | Total Group | |
£m | £m | £m | £m | £m | |
Interest receivable and similar income | |||||
Calculated using the effective interest method | 145.5 | 8.2 | - | (7.8) | 145.9 |
On instruments measured at fair value through profit or loss | 27.1 | 1.2 | - | - | 28.3 |
Total interest receivable and similar income | 172.6 | 9.4 | - | (7.8) | 174.2 |
Interest expense and similar charges | (91.3) | (4.8) | (2.8) | 7.9 | (91.0) |
Net interest receivable/(expense) | 81.3 | 4.6 | (2.8) | 0.1 | 83.2 |
Fees and commissions receivable | 1.3 | 0.1 | - | - | 1.4 |
Other operating income | 0.4 | - | 4.0 | - | 4.4 |
Fair value gain on financial instruments | 4.6 | 2.0 | - | - | 6.6 |
Total income | 87.6 | 6.7 | 1.2 | 0.1 | 95.6 |
Administrative expenses | (38.7) | (1.1) | (0.2) | - | (39.9) |
Depreciation and amortisation | (5.8) | - | - | - | (5.8) |
Operating profit before revaluation gains, impairment | |||||
43.2 | 5.6 | 1.0 | 0.1 | 49.9 | |
and provisions | |||||
Gains on investment properties | - | - | 6.0 | - | 6.0 |
Impairment on loans and advances | (2.9) | (21.1) | - | - | (24.1) |
Provisions for liabilities | - | - | - | - | - |
Profit/(Loss) before tax | 40.3 | (15.5) | 6.9 | 0.1 | 31.8 |
Statements of Financial Position at 31 March 2023
Commercial | Consolidation | ||||
Retail | real estate | Property | adjustments | Total Group | |
£m | £m | £m | £m | £m | |
Total assets | 5,808.7 | 163.0 | 156.2 | (438.6) | 5,689.3 |
Total liabilities | 5,419.5 | 371.9 | 125.4 | (658.0) | 5,258.8 |
Capital expenditure | 6.3 | - | - | - | 6.3 |
Annual Report and Accounts 2024:
Financial Statements
179
Certain financial assets have been utilised as collateral to support the wholesale funding initiatives of the Group. As the Group has retained substantially all of the risks and
rewards of ownership, the assets remain on the Statement of Financial Position but are encumbered and cannot be utilised for other purposes.
As described in note 13, the Group has previously established a number of securitisation structures funded by the issue of mortgage backed securities (MBSs). Retained
MBSs and designated mortgage loan pools may be pledged as collateral for participation in Bank of England funding schemes.
For liquidity management purposes, the Society also enters into sale and repurchase agreements whereby it sells investment securities to third parties with a commitment
to repurchase them at a future date. The proceeds of the sale and repurchase agreements are included within amounts due to credit institutions.
An analysis of Group assets pledged at 31 March is set out below.
Encumbered | Unencumbered | Encumbered | Unencumbered | |
2024 | 2024 | 2023 | 2023 | |
£m | £m | £m | £m | |
Cash and balances at the Bank of England | - | 491.6 | 14.0 | 584.2 |
Loans and advances to credit institutions | 38.8 | 7.5 | 37.9 | 35.9 |
Investment securities | 104.7 | 286.8 | - | 315.6 |
Derivative financial instruments | - | 61.8 | - | 100.5 |
Loans and advances to customers | 823.5 | 3,961.6 | 922.2 | 3,448.1 |
Other assets | - | 213.4 | - | 231.0 |
967.0 | 5,022.7 | 974.0 | 4,715.3 |
Included in the above, at 31 March 2024, Group loans and advances to credit institutions included £38.9m (2022/23: £36.9m) of collateral pledged against derivative
2024
2023
Average number of Group employees, all of which employed in the UK
701
633
Arising in the UK:
£m
£m
Group total income
108.9
95.6
Group profit before tax
32.1
31.8
Group corporation tax payments/(receipts)
-
0.2
Capital Requirements (Country-by-Country Reporting) Regulations
The Capital Requirements (Country-by-Country Reporting) Regulations 2013 aim to give increased transparency regarding the activities of institutions.
West Bromwich Building Society (the Society) is the 7th largest building society in the United Kingdom (UK). As a mutual organisation, the Society is owned and run
for the benefit of its members with the safety of members’ funds being paramount. In providing a safe haven for members’ funds, the Society can fulfil its primary
purpose of enabling home ownership through the provision of mortgages.
These consolidated financial statements of the West Bromwich Building Society Group (the Group) include the audited results of the Society, its subsidiary
undertakings and a number of securitisation entities. The consolidated entities, their principal activities and countries of incorporation are detailed in note 15. All of
the consolidated entities are incorporated in the UK. Hawthorn Finance Limited was incorporated in Jersey.
Basis of preparation
• The number of employees has been calculated as the average number of full and part-time employees, on a monthly basis, as disclosed in note 7.
• Turnover represents Group total income as disclosed in the Group Income Statement. Total income comprises net interest, fees and commissions receivable and
other operating income, together with fair value gains/losses and net realised profits/losses on financial instruments.
• Pre-tax profit or loss represents the Group profit or loss before tax, as reported in the Group Income Statement.
• Corporation tax receipts/payments represent the amount of tax received/paid during the year, as disclosed in the Group Cash Flow Statement.
• Public subsidies received represent direct support by the government and exclude any central bank operations that are designed for financial stability purposes
or operations that aim to facilitate the functioning of the monetary policy transmission mechanism.
Hawthorn Finance Limited did not transact with entities outside the Group and had no employees (2022/23: nil).
Country-by-Country Reporting
Annual Report and Accounts 2024:
Financial Statements
180
Report on the audit of the country-by-country information
Opinion
In our opinion, West Bromwich Building Society’s country-by-country information for the year ended 31 March 2024 has been properly
prepared, in all material respects, in accordance with the requirements of the Capital Requirements (Country-by-Country Reporting)
Regulations 2013.
We have audited the country-by-country information for the year ended 31 March 2024 in the Country-by-Country Report.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”), including ISA (UK) 800 and ISA (UK)
805, and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the
country-by-country information section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
Independence
We remained independent of the Society in accordance with the ethical requirements that are relevant to our audit of the country-by-
country information in the UK, which includes the FRC’s Ethical Standard, as applicable to public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements.
Emphasis of matter - Basis of preparation
In forming our opinion on the country-by-country information, which is not modified, we draw attention to the basis of preparation note
of the country-by-country information which describes the basis of preparation. The country-by-country information is prepared for the
directors for the purpose of complying with the requirements of the Capital Requirements (Country-by-Country Reporting) Regulations
2013. The country-by-country information has therefore been prepared in accordance with a special purpose framework and, as a
result, the country-by-country information may not be suitable for another purpose.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Society’s ability to continue to adopt the going concern basis of accounting included:
•
Understanding and evaluating the Group and Society’s financial forecasts;
•
Evaluation and challenge of key assumptions used by the directors in their determination of the going concern of the Group and
Society;
•
Consideration as to whether our audit work had identified events or conditions which may give rise to uncertainty as to the Group’s
future ability to trade;
•
Review of legal and regulatory correspondence to ensure that any compliance issues which may impact the going concern of the
Group is identified; and
•
Evaluating the adequacy and appropriateness of the going concern disclosures made in the financial statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Society’s ability to continue as a going concern for a period of at least twelve
months from the date on which the country-by-country information is authorised for issue.
In auditing the country-by-country information, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the country-by-country information is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Society’s ability to
continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this
report.
Responsibilities for the country-by-country information and the audit
Responsibilities of the directors for the country-by-country information
The directors are responsible for the preparation of the country-by-country information in accordance with the requirements of the
Capital Requirements (Country-by-Country Reporting) Regulations 2013 as explained in the basis of preparation statement to the country-
by-country information, and for determining that the basis of preparation and accounting policies are acceptable in the circumstances.
The directors are also responsible for such internal control as they determine is necessary to enable the preparation of country-by-
country information that is free from material misstatement, whether due to fraud or error.
Independent auditors’ report to the directors of
West Bromwich Building Society
Annual Report and Accounts 2024:
Financial Statements
181
In preparing the country-by-country information, the directors are responsible for assessing the Society’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Society or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the country-by-country information
It is our responsibility to report on whether the country-by-country information has been properly prepared in accordance with the
relevant requirements of the Capital Requirements (Country-by-Country Reporting) Regulations 2013.
Our objectives are to obtain reasonable assurance about whether the country-by-country information as a whole is free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of this country-by-country
information.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Society/industry, we identified that the principal risks of non-compliance with laws and regulations
related to breaches of banking regulations including, but not limited to, the Financial Conduct Authority’s regulations, the Prudential
Regulation Authority’s regulations and UK tax legislation, and we considered the extent to which non-compliance might have a material
effect on the country-by-country information. We also considered those laws and regulations that have a direct impact on the country-
by-country information such as applicable tax legislation and the Capital Requirements (Country-by-Country Reporting) Regulations 2013.
We evaluated management’s incentives and opportunities for fraudulent manipulation of the country-by-country information (including
the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to reduce
expenditure and increase income and inappropriate management bias in accounting estimates. Audit procedures performed included:
•
Review of the financial statement disclosures to underlying supporting documentation;
•
Review of correspondence with and reports to the regulators;
•
Testing significant accounting estimates;
•
Testing of the assumptions used within the effective interest rate method for recognising interest income for their appropriateness;
•
Testing of journal entries which contained unusual account combinations back to corroborating evidence;
•
Discussions with management and those charged with governance in relation to known or suspected instances of non-compliance
with laws and regulation and fraud; and
•
Specific audit procedures over non-interest revenue streams significant to the Group accounts.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely related to events and transactions reflected in the
country-by-country information. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of
not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
A further description of our responsibilities for the audit of the country-by-country information is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinion, has been prepared for and only for the Society’s directors in accordance with the Capital
Requirements (Country-by-Country Reporting) Regulations 2013 and for no other purpose. We do not, in giving this opinion, accept or
assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come,
save where expressly agreed by our prior consent in writing.
The engagement partner responsible for this audit is Daniel Brydon.
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors Birmingham
30 May 2024
Annual Report and Accounts 2024:
Financial Statements
182
1. Statutory percentages
2024
%
Statutory
limit
%
Proportion of business assets not in the form of loans secured on residential property
6.3
25.0
Proportion of shares and borrowings not in the form of shares held by individuals
15.0
50.0
The above percentages have been calculated in accordance with the provisions of the Building Societies Act 1986.
Business assets are the total assets of the Group plus allowance for losses on loans and advances less liquid assets, investment properties, intangible assets and
property, plant and equipment as shown in the Group Statement of Financial Position.
Securitised assets and related liabilities are excluded from the lending limit and funding limit calculations in line with the Building Societies Act 1986 as updated by
the Modification of the Lending Limit and Funding Limit Calculations Order 2004.
The statutory limits are as laid down under the Building Societies Act 1986 as amended by the Building Societies Act 1997 and ensure that the principal purpose of a
building society is that of making loans which are secured on residential property and are funded substantially by its members.
Annual Business Statement
2. Other percentages
2024
%
2023
%
As a percentage of shares and borrowings:
Gross capital
8.13
8.73
Free capital
4.77
5.16
Liquid assets
16.91
18.99
As a percentage of mean total assets:
Profit for the financial year
0.42
0.45
Management expenses
1.02
0.78
The above percentages have been prepared from the Group's accounts and in particular:
•
‘Shares and borrowings’ represent the total of shares, amounts owed to credit institutions, amounts owed to other customers and debt securities in issue, in each
case including accrued interest.
• ‘Gross capital’ represents the aggregate of general reserves, revaluation reserve, fair value reserve, core capital deferred shares, subscribed capital and
subordinated liabilities.
•
‘Free capital’ represents the aggregate of gross capital and collective impairment provisions for losses on loans and advances less intangible assets, investment
properties and property, plant and equipment.
•
‘Mean total assets’ represent the amount produced by halving the aggregate of total assets at the beginning and end of the financial year.
•
‘Liquid assets’ represent the total of cash and balances with the Bank of England, loans and advances to credit institutions and investment securities.
•
‘Management expenses’ represent the aggregate of administrative expenses, depreciation and amortisation.
Annual Report and Accounts 2024:
Financial Statements
183
Information relating to Directors’ and Officers’ other directorships and interests at 31 March 2024
Name, qualification
and age
Sara Bennison
MA (Oxon)
Age 5
6
Role
Non-Executive Director
Date of appointment
1 August 2023
Other directorships and interests
Dual Corporate Risks Limited
Lawn Tennis Association
LTA Operations Limited
Openwork Holdings Limited
Openwork Limited
Sara Bennison Limited
Northbailey Ltd
Brandface Ltd
Dave Dyer
BA Hons. (Cantab.), MBA,
FCMA
Non-Executive Director
1 September 2021
DAD Associates Limited
Age 67
Anne Gunther
Non-Executive Director
1 November 2021
Mattioli Woods Plc
BSc, MBA, ACIB, FSCIB
Age 69
Julie Hopes
MBA, ACIB
Age 56
Deputy Chair
1 April 2016
MS Amlin Underwriting Limited
SAGA Services Limited
SAGA Plc
Kingston Gorse Estate (Sussex) Limited
John Maltby
Age 62
Chair
1 January 2021
Allica Bank Limited
Max Nicholas Renewables Limited
Nordea Bank
Lynne Shamwana
BA FCA
Non-Executive Director
1 February 2019
Southbank Centre Enterprises Limited
Southbank Centre Limited
Age 61
61 Queens Gardens (Freehold) Ltd
Overs Farm Residents Company Ltd
Antin Infrastructure Partners AS
David Thomas
MSc, ACIB, FIB (Ireland)
Age 62
Non-Executive Director
1 August 2020
Harrogate Homeless Project Limited
TD Bank Europe Limited
Manjit Hayre
Age 5
6
Chief Risk Officer
1 September 2021
Martin Boyle
Age 53
Chief Operating Officer
3 April 2023
West Bromwich Mortgage Company Limited
Insignia Finance Ltd
White Label Lending Limited
Alex Pawley
Age 41
Chief Financial Officer
1 January 2023
Insignia Finance Limited
White Label Lending Limited
CL Mortgages Limited
Jonathan Westhoff
BA (Hons) Financial Services,
FCMA, CGMA, ACIB
Age 59
Chief Executive Officer
5 May 2009
CL Mortgages Limited
West Bromwich Commercial Limited
West Bromwich Homes Limited
West Bromwich Mortgage Company Limited
Insignia Finance Limited
White Label Lending Limited
West Bromwich Building Society Foundation
All Directors are members of the Society. None of the Directors have at any time in the year, or at the year end, any beneficial interest in shares or debentures of any
associated body of the Society.
Service contracts
The Society’s policy in relation to the duration of contracts for the Executive Directors is that their contract would normally continue until termination by either party,
subject to the required notice or until retirement. The service contract is terminable with 12 months’ notice if given by the Society or six months’ notice if given by the
Director. Jonathan Westhoff entered into his contract as Chief Executive on 25 May 2011, Alex Pawley entered into his service contract as Chief Financial Officer on 1
January 2023, Manjit Hayre entered into his service contract as Chief Risk Officer on 1 September 2021 and Martin Boyle entered into his service contract as Chief
Operating Officer on 3 April 2023, on this basis.
For further details of the Executive Directors’ service contracts, see the Directors’ Remuneration Report on pages 82 to 95.
Documents may be served on any of the above named Directors at the following address: Addleshaw Goddard, 3 Sovereign Square, Sovereign Street, Leeds, LS1 4ER.
Annual Report and Accounts 2024:
Financial Statements
184
Senior management
Role
Group directorships
Alex Windle
BA (Oxon), MSt. (Oxon)
Chief Customer Officer
John McErlean
MIIA, FIIA
Chief Internal Auditor
Sophie Pazzaglia
BSc (Hons), FCCA, ACG
Chief People Officer and Group Secretary
Annual Report and Accounts 2024:
Financial Statements
185
Set out below are the definitions of the terms used within the Annual
Report and Accounts to assist the reader and to facilitate comparison
with other financial institutions:
Arrears
– Customers are said to be in arrears when they are behind
in fulfilling their obligations with the result that an outstanding loan
commitment is unpaid or overdue. The value of the arrears is the
value of the payments that have been missed.
Asset backed securities (ABS)
– Securities that represent an interest
in an underlying pool of referenced assets. Typically these assets are
pools of residential or commercial mortgages.
Basel lll framework
– The Basel Committee on Banking Supervision’s
strengthened global regulatory standards on bank capital adequacy
and liquidity, defining the methods by which firms should calculate
their regulatory capital requirements in order to protect the financial
system against unexpected losses.
Capital Requirements Directive (CRD) and Capital Requirements
Regulation (CRR)
– CRD IV, comprising the Capital Requirements
Regulation and the Capital Requirements Directive, was the
legislative package which implemented the Basel III agreement. The
legislation has been subsequently updated with the latest package
commonly referred to as CRD V/CRR II. The elements of CRD V and
CRR II, which did not come into force in the EU until after the end of
the Brexit transition period, have subsequently been implemented in
the UK via the PRA Rulebook.
Commercial lending
– Loans secured on commercial property
assets which can include office buildings, industrial property, hotels,
medical centres, shopping centres, farm land, buy to let and housing
association properties.
Commercial mortgage backed securities (CMBS)
– Securities that
represent interests in a pool of commercial mortgages. Investors in
these securities have the right to cash received from future mortgage
payments (interest and/or principal).
Common Equity Tier 1 (CET 1) capital
– CET 1 capital comprises
internally generated capital from general reserves and other reserves
less intangible assets, goodwill and other regulatory adjustments.
Common Equity Tier 1 capital ratio
– Common Equity Tier 1 capital
as a percentage of risk weighted assets.
Contractual maturity
– The final payment date of a loan or other
financial instrument, at which point all the remaining outstanding
principal and interest is due to be paid.
Core Capital Deferred Shares (CCDS)
– A form of Common Equity
Tier 1 (CET 1) capital issued by building societies.
Credit risk
– The risk that a customer or counterparty is unable to
honour their obligations as they fall due.
Debt securities in issue
– Transferable certificates of indebtedness
of the Group to the bearer of the certificates. These are liabilities of the
Group and include certificates of deposit and non-recourse finance.
Derivative financial instruments
– A derivative financial instrument
is a type of financial instrument (or an agreement between two
parties) whose value depends on the underlying asset, index or
reference rate it is linked to. The Group uses derivative financial
instruments to hedge its exposures to market risks such as interest
rate risk.
Equity, Diversity and Inclusion (EDI)
– A framework which ensures
fair treatment and opportunity for all. It aims to eradicate prejudice
and discrimination on the basis of an individual or group of
individual's protected characteristics.
Effective interest method
– The method used to measure the
carrying value of a financial asset or a liability and to allocate
associated interest income or expense over the relevant period. The
calculation includes all fees and penalties paid or received between
parties to the contract that are considered integral.
Encumbered assets
– Assets held on the Statement of Financial
Position which have been used as security for funding or otherwise
pledged.
Environmental, Social and Governance (ESG)
– a framework that
helps stakeholders understand how an organisation is managing
risks and opportunities related to environmental, social, and
governance criteria.
Expected credit loss (ECL)
– A term used in the calculation of
impairment provisions under accounting standard IFRS 9 ‘Financial
Instruments’. The ECL is the present value of all cash shortfalls over
the expected life of a financial instrument.
Exposure at default (EAD)
– An estimate of the outstanding balance
on a financial asset at the time of default.
Fair value
– 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.
Fair value through other comprehensive income (FVOCI) assets
– Financial assets held at fair value in the Statement of Financial
Position with changes in fair value being recognised through other
comprehensive income.
Fair value through profit or loss (FVTPL) assets
– Financial assets
held at fair value in the Statement of Financial Position with changes
in fair value being recognised through the Income Statement.
Financial Conduct Authority (FCA)
– The conduct regulator for
financial services firms in the UK, with objectives to protect consumers
and financial markets and to promote competition.
Financial Services Compensation Scheme (FSCS)
– The UK’s
compensation fund of last resort for customers of authorised financial
services firms. The FSCS may pay compensation to customers if a
firm is unable, or likely to be unable, to pay claims against it, usually
because it has stopped trading or has been declared in default. The
FSCS is funded by the financial services industry. Every deposit-taking
firm authorised by the FCA and PRA is obliged to pay an annual levy,
which goes towards its running costs and compensation payments.
Forbearance
– Support offered to borrowers experiencing genuine
financial hardship to enable them to remain in their homes, where
this action is not expected to increase the level of debt in the long
term.
Free capital
– Gross capital less intangible assets, investment
properties and property, plant and equipment. In 2017/18, free
capital was adjusted for collective mortgage impairment provisions
which are no longer applicable under IFRS 9.
Funding limit
– Measures the proportion of shares and borrowings
not in the form of shares held by individuals excluding non-recourse
finance. The calculation of the funding limit is explained in the Annual
Business Statement.
General Data Protection Regulation (GDPR)
– A legal framework
that sets guidelines for the collection and processing of personal
information from individuals who live in the EU.
Goodwill
– Goodwill arises on the acquisition of subsidiary
undertakings,
joint
ventures,
associates
or
businesses
and
represents the excess of the fair value of consideration over the fair
value of identifiable net assets and contingent liabilities acquired at
the date of acquisition.
Glossary
Annual Report and Accounts 2024:
Financial Statements
186
Greenhouse gas (GHG) emissions
– A greenhouse gas (GHG) is
a gas that absorbs and emits radiant energy at thermal infrared
wavelengths, and that contribute to the greenhouse effect and
global climate change.
Gross capital
– The aggregate of reserves, subscribed capital,
subordinated liabilities and core capital deferred shares.
House Price Index
– This is a measure of the housing price change,
in percentage terms, from a specific start date.
Interbank Offered Rate (IBOR)
– A benchmark interest rate at which
banks lend to and borrow from one another in interbank markets.
Impaired loans
– Under IFRS 9, impaired loans are those assessed
as stage 3 (default). In previous years, under IAS 39, impaired loans
were defined as loans where there was evidence to suggest that the
Group would not receive all of the contractual cash flows or there
was an expectation that the cash flows would be received at a later
date than when they were contractually due.
Individual Liquidity Adequacy Assessment (ILAA)
– The Group’s
internal assessment of the levels of liquidity that need to be held by
the Society to meet its regulatory liquidity requirements.
Individually/collectively assessed
– Prior to IFRS 9 adoption on 1 April
2018 the Group assessed, at each reporting date, whether or not there
was objective evidence that individual financial assets were impaired.
If no objective evidence of impairment existed for an individually
assessed financial asset, it was included in a group of financial
assets with similar credit risk characteristics and collectively assessed
for impairment. A collective provision was made against a group of
financial assets where there was evidence that credit losses had been
incurred, but not individually identified, at the reporting date.
Interest rate risk
– Interest rate risk is the risk that the fair value of
future cash flows of a financial instrument will fluctuate because of
changes in market interest rates.
Internal Capital Adequacy Assessment Process (ICAAP)
– The
Group’s own assessment, as part of regulatory requirements, of the
levels of capital that it needs to hold in respect of the risks it faces
under a business as usual scenario and a variety of stress scenarios.
Internal Liquidity Adequacy Assessment Process (ILAAP)
– The
Group’s own assessment of the controls required to mitigate liquidity
risk, including the minimum volume and quality of liquidity to be held
in respect of the risks it faces under a variety of stress scenarios.
International Swaps and Derivatives Association (ISDA) 2020
IBOR Fallbacks Protocol
– A protocol created to address the
expected cessation of LIBOR and other IBORs. It enable parties to
Protocol Covered Documents to amend the terms of each such
Protocol Covered Document.
Investment
securities
–
Assets
representing
certificates
of
indebtedness
of
credit
institutions,
public
bodies
or
other
undertakings.
Law of Property Act (LPA) Receiver
– A receiver appointed to
manage a property, held as security for a mortgage, where the
contractual terms of the mortgage have not been met.
Lending limit
– Measures the proportion of business assets not in
the form of loans fully secured on residential property. The calculation
of the lending limit is explained in the Annual Business Statement.
Leverage ratio
– Tier 1 capital as a percentage of total exposures
which include on and off balance sheet assets after netting
derivatives.
Liquid assets
– Total of cash in hand and balances with the Bank of
England, loans and advances to credit institutions and investment
securities.
Liquidity coverage ratio (LCR)
– A measure which aims to ensure
that an entity maintains an adequate level of liquidity to meet its
needs for a 30 day period under severe stress conditions.
Liquidity risk
– The risk that the Group does not have sufficient
financial resources to meet its obligations as they fall due, or will
have to do so at an excessive cost. This risk arises from mismatches
in the timing of cash inflows and outflows.
Loan to value (LTV)
– A ratio which expresses the balance of a
mortgage as a percentage of the value of the property on which it
is secured. The Group calculates residential mortgage LTV on an
indexed basis. The value of the property is updated on a quarterly
basis to reflect changes in the House Price Index (HPI).
Loans past due/past due loans
– Loans on which payments are
overdue including those on which partial payments are being made.
London Inter-Bank Offered Rate (LIBOR)
– A benchmark interest
rate, expected to cease in 2021, at which a selection of banks on the
London money market are prepared to lend to one another.
Loss given default (LGD)
– The difference between exposure at
default (EAD) and the net amount expected to be recovered on a
defaulted loan, expressed as a percentage of EAD.
Management expenses
– Management expenses represent
administrative expenses plus depreciation and amortisation.
The management expenses ratio is calculated as management
expenses expressed as a percentage of mean total assets.
Market risk
– The risk of changes in the value of, or income arising
from, assets and liabilities as a result of unexpected changes in
financial prices, primarily interest rates, property prices, bond yields
and inflation.
Mean total assets
– Represents the amount produced by halving the
aggregate of total assets at the beginning and end of the financial
year.
Medium term notes (MTN)
– Securities offered by a company to
investors, through a dealer, across a range of maturities.
Member
– A person who has a share investment or a mortgage
loan with the Society.
Mortgage backed securities (MBS)
– Securities that represent an
interest in an underlying pool of mortgage assets.
Net interest income
– The difference between interest received on
assets and interest paid on liabilities.
Net interest margin
– Net interest income as a percentage of mean
total assets.
Net Promoter Score (NPS)
– A measure, ranging from -100 to +100, of
the likelihood that a customer would recommend a product, service
or brand. Net Promoter Score and NPS are trademarks of Satmetrix
Systems, Inc., Bain & Company, Inc., and Fred Reichheld.
Net stable funding ratio (NSFR)
– A ratio calculated as the amount
of available stable funding against the amount of required stable
funding.
Non-recourse finance
– A secured loan (debt) that is secured by
a pledge of collateral but for which the borrower is not personally
liable. If the borrower defaults, the lender can seize the collateral, but
the lender’s recovery is limited to the collateral alone.
Operational risk
– The risk of loss arising from inadequate or failed
internal processes, people and systems or from external events.
Other income
– The income received from selling non-mortgage
and savings products (e.g. home and contents insurance, investment
products, other insurances. It also includes rental income from
investment property).
Annual Report and Accounts 2024:
Financial Statements
187
Permanent interest bearing shares (PIBS)
– Unsecured, deferred
shares that rank behind the claims of all depositors, payables and
investing members of the West Brom with the exception of the claims
of holders of core capital deferred shares and (in prior years) profit
participating deferred shares.
Prime
– Prime mortgages are those granted to the most credit
worthy category of borrower.
Probability of default (PD)
– The estimated probability that a
borrower will default on their credit obligations.
Probability of Possession given default
– The estimated probability
that a borrower moves to possession from a default status.
Profit participating deferred shares (PPDS)
– A form of unsecured
Common Equity Tier 1 capital, fully cancelled following the Liability
Management Exercise completed in April 2018.
Prudential Regulation Authority (PRA)
– The prudential regulator for
UK banks, building societies and insurers, with a general objective to
promote the safety and soundness of the firms it regulates.
Renegotiated loans
– Loans are classed as renegotiated with the
customer’s consent, when their terms have changed during the year.
Loans and advances are generally renegotiated either as part of an
ongoing customer relationship or in response to an adverse change
in the circumstances of the borrower.
Repo/Reverse repo
– Short to medium-term funding agreements
which allow a borrower to sell a financial asset, such as asset backed
securities (ABS) or government bonds as security for cash. As part
of the agreement the borrower agrees to repurchase the security at
some later date. For the party selling the security (and agreeing to
repurchase it in the future) it is a repo; for the party on the other end of
the transaction (buying the security and agreeing to sell in the future),
it is a reverse repurchase agreement or reverse repo.
Residential loans
– Mortgage lending secured against residential
property.
Residential mortgage backed securities (RMBS)
– A category of
asset backed securities (ABS) that represents interests in a group of
residential mortgages. Investors in these securities have the right
to cash received from future mortgage payments (interest and/or
principal).
Risk appetite
– The articulation of the level of risk that the Society is
willing to accept (or not accept) in order to safeguard the interests of
its members whilst achieving business objectives.
Risk weighted assets (RWA) or risk-weighted exposure amount
(RWEA)
– The value of an on or off-balance sheet exposure adjusted
under Pillar 1 rules to reflect the degree of risk it presents.
Royal Institution of Chartered Surveyors (RICS)
– A professional
body promoting and enforcing international standards in the
valuation, management and development of land, real estate,
construction and infrastructure.
Securitisation
– A process by which a group of assets, usually loans,
are aggregated into a pool which is used to back the issuance of
new securities. An entity transfers these assets to a structured entity
which then issues securities backed by the assets. The Group has
established securitisation structures as part of its funding activities.
Shares
– Money deposited by a person in a retail savings account
with the Society. Such funds are recorded as liabilities for the Society.
Shares and borrowings
– The total of shares, amounts owed to credit
institutions, amounts owed to other customers and debt securities
in issue, including accrued interest and fair value adjustments for
hedged risk.
Significant increase of credit risk (SICR)
– A term used in IFRS 9
where quantitative and/or qualitative factors indicate that the credit
risk associated with a non-defaulted loan has increased significantly
since it was initially recognised in the Statement of Financial Position.
Where a SICR has occurred, the loan is categorised as stage 2
requiring the recognition of lifetime expected credit losses.
Solely payments of principal and interest (SPPI) test
– An
assessment of whether the contractual terms of a financial asset
give rise to cash flows which are solely payments of principal and
interest on the principal amount outstanding. It is used to determine
the appropriate measurement basis for the financial asset under
IFRS 9.
Stage 1
– The IFRS 9 category to which financial assets held at
amortised cost or FVOCI, which have not experienced a SICR since
initial recognition, are assigned. 12-month ECLs are recognised for
stage 1 assets and interest income is calculated by applying the
effective interest rate to the gross carrying amount.
Stage 2
– The IFRS 9 category to which financial assets held at
amortised cost or FVOCI, which have experienced a SICR since initial
recognition, are assigned. Lifetime ECLs are recognised for stage 2
assets and interest income is calculated by applying the effective
interest rate to the gross carrying amount.
Stage 3
– The IFRS 9 category to which defaulted financial assets
held at amortised cost or FVOCI are assigned. Lifetime ECLs are
recognised for stage 3 assets and interest income is calculated by
applying the effective interest rate to the net (of impairment provision)
carrying amount.
Sterling Overnight Index Average (SONIA)
– A benchmark interest
rate administered by the Bank of England, SONIA is a measure of the
rate at which interest is paid on sterling short-term wholesale funds
in circumstances where credit, liquidity and other risks are minimal.
Streamlined Energy & Carbon Reporting (SECR)
– A framework
which aims to bring the benefits of carbon and energy reporting to
more businesses.
Subordinated liabilities
– A form of unsecured Tier 2 capital. The
Society's subordinated notes rank behind all other creditors of the
Society, with the exception of holders of CCDS and PIBS.
Taskforce on Climate-Related Financial Disclosures (TCFD)
–
The Society’s Taskforce on Climate-Related Financial Disclosure
(TCFD) aligned disclosure in the areas of Governance, Strategy, Risk
Management, and Metrics & Targets.
Term Funding Scheme (TFS)
– A scheme launched by the Bank of
England, providing term funding to banks and building societies
with the aim of promoting UK lending growth. Term Funding Scheme
with additional incentives for SMEs (TFSME) is an equivalent scheme
launched in March 2020.
Tier 1 capital
– An element of regulatory capital and measure of
financial strength, comprising Common Equity Tier 1 and Additional
Tier 1 capital. Additional Tier 1 capital is not deemed to be fully loss
absorbing and can only be included in capital under the transitional
arrangements of CRD IV.
Tier 2 capital
– An element of regulatory capital comprising
subordinated liabilities, eligible collective impairment allowances (in
2017/18) and certain regulatory deductions made for the purposes of
assessing capital adequacy.
Total Capital Requirement (TCR)
– The minimum amount of capital
the Society is required to hold, set by the PRA and informed by the
ICAAP.
Wholesale funding
– The total of amounts owed to credit institutions,
amounts owed to other customers and debt securities in issue.
Annual Report and Accounts 2024:
Financial Statements
188
189
1627-05/24-01
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Head Office: 2 Providence Place, West Bromwich B70 8AF.
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Registered Number: 651B
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Regulation Authority. Register No. 104877. ‘the West Brom’ is a trading
name of West Bromwich Building Society.
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