Results announcement for year ended 31 March 2011

West Bromwich Building Society

Preliminary Results announcement for the year ended 31 March 2011

The West Brom today announces the financial results for the year ended 31 March 2011, reporting continued progress with its Back to Basics strategy.

Key highlights from the 2010/11 financial year include:

− The Core Tier 1 capital ratio strengthened from 11.8% to 12.8%, one of the strongest amongst UK banks and building societies.

− Saving members benefited from consistent market-leading rates, with savers earning, on average, 1.2% higher relative to Bank Rate than two years ago.

− Retail savings inflows of £1.9bn, attracting some 29,500 new savers, with residential mortgages covered 1.22 times by retail deposits.

− The net interest margin increased from 0.30% to 0.43%.

− A reduction in credit impairment charges, down 18%.

− Liquidity balances maintained at a comfortable surplus above the more rigorous requirements established for banks and building societies since the credit crisis.

− A marked improvement in the Group's performance with a further reduction in the post tax loss for the financial year to £10.4m (2009/10:£17.0m).

− A return to profit at the operating level, at £9.3m.

Jonathan Westhoff, Chief Executive, commented:

"The West Brom has maintained good progress over the past year, reinforcing the benefits of our Back to Basics approach with its focus on the distinctive building society activities of retail savings, investments and prime residential lending.

"In recognising the pressure put on traditional savers through a combination of historically low interest rates and relatively high inflation, the West Brom has continued to offer attractive market-leading products to savers. This has meant that savings rates throughout the year have, on average, been some 1.2% higher relative to Bank Rate than two years ago. At the same time, the vast majority of the Society's residential mortgage borrowers have benefited from very low rates linked to the Bank Rate.

"Once again, we have strengthened our Core Tier 1 capital ratio. Already one of the highest amongst UK banks and building societies, we increased this ratio to 12.8%, ensuring that the Society remains a safe and secure home for savers' money.

"Without doubt, the economic outlook is unsettled but the Society is clearly seeing the continuing positive impact of its Back to Basics strategy. As several exciting initiatives launched during the year also illustrated, notably the refreshed brand image, the beginning of an extensive branch modernisation programme and proposals for a new head office in West Bromwich, the Society has every reason to look ahead with real confidence as the leading building society in Birmingham and the Black Country, and the 6th largest in the UK."

26th May 2011

Enquiries:

Chief Executive's Review

Performance

Our progress over the past year has again proved the effectiveness of the Society's Back to Basics strategy, which emphasises the West Brom's identity as a traditional regional building society with a clear focus on the core activities of savings, investments and prime residential lending.

While the Society has reported a post tax loss for the year of £10.4m, this represents a further reduction from last year's £17.0m - and, more significantly, we have seen profits return at the operating profit level, at £9.3m. This performance is very encouraging, especially in light of the unrelenting pressure on interest margins from Bank Rate which, at 0.5%, has remained at an all-time low for a prolonged period of time.

Despite this, and prevailing difficulties in the trading environment, the Society has continued to offer its savers a range of diverse products offering returns well above the Bank Rate. Indeed, the Society featured consistently in the Best Buy tables throughout the year, illustrating the competitiveness both of our branch-based accounts and new WeBSave channel, which proved an immediate success with customers who prefer the convenience and flexibility of managing their accounts online.

During the financial year, the Society attracted £1.9bn of new retail balances. As a result, at the year end, the Society's residential lending was covered 1.22 times by retail deposits.

The Society keeps its operating costs under constant review, especially given the challenges of the current economic landscape and our responsibility to members to run the business efficiently. In this context, the Society has delivered a further reduction in its underlying cost base, down some 4.2%, although we expect a small increase going forward as the Society re-establishes itself in the residential lending market.

The Society's capital and liquidity positions continue to be strong, with an emphasis on enhancing the quality of our liquid assets. During 2010, the Financial Services Authority introduced 'Individual Liquidity Guidance', which determines the minimum level of high quality assets that the Society is required to hold. The Society has consistently maintained a comfortable surplus above this requirement.

Given the economic turbulence of recent years, the level of capital held by financial institutions has been under scrutiny. This focus is primarily on Core Tier 1, which is the highest quality capital. Here again, the Society has continued its progress with the Group's Core Tier 1 ratio strengthened still further to 12.8%, up from the previous year's figure of 11.8%. This represents one of the strongest amongst UK banks and building societies.

Effective management of the exit from non-core operations

Integral to the Society's Back to Basics strategy has been the concerted and carefully managed run-off of non-core operations - commercial lending, residential property letting, second charge mortgage lending and mortgage broking - where, once more, continued progress is evident from the year's performance.

The commercial property sector is facing a particularly demanding operating environment, but our highly experienced work-out teams are making major strides in managing the Group's commercial lending book, which was closed to new business in 2008. The effect of this approach is reflected by a 12.1% reduction to £1.4bn in the total exposure to commercial lending.

With regards to the residential letting operation - West Bromwich Homes - a thorough review of the property portfolio, as well as the appointment of a new property manager, resulted in an underlying trading profit for the year of £0.2m, compared with a loss of £1.2m in the previous year. While our intention is to withdraw from this market altogether this may take some time to realise in view of the subdued housing market and its effect on sale prices.

In terms of the Group's second charge mortgage business - Insignia - it was decided, in 2009, that no further lending would take place. With careful management of the portfolio, we have seen a reduction in outstanding balances from £50.6m to £44.8m in the course of the last financial year.

In March 2011, we completed the sale of the Group's mortgage broking business - Mortgage Force - to its existing management team.

Building on change

The Society's Back to Basics strategy is very much about our identity as a traditional and independent regional building society. It also reflects our determination to re-establish the West Brom as a modern, forward-thinking building society that is equipped to meet the needs of its customers within a highly competitive market place.

Accordingly, during the last year, the Society has taken the opportunity presented by the requirement to modernise the branch network to launch a new brand identity. The new colours and logo, which has consciously retained the image of the oak tree with its connotations of strength and growth, reflects a modern style as befits a Society which is looking to the future with genuine optimism. We have embarked on this extensive modernisation programme throughout the branch network, which will provide customers and staff with the modern, comfortable surroundings and facilities they rightly expect of the region's largest building society.

Outlook - a picture of promise

It would appear that the fallout from one of the worst economic crises in generations will continue to have an impact for some time to come. Operating in such challenging conditions, our aim has been to position the Society to withstand these pressures and, as we look ahead, to be able to compete as opportunities arise.

The financial environment remains a demanding one but, I can confidently say that the initial goals set by my predecessor, Robert Sharpe, have been realised, in particular returning the Society to strength and putting in place a high quality management team that can take the West Brom forward.

The improvement in our performance, our new brand image, branch modernisation programme and proposed new head office, serve to emphasise the progress the West Brom has made in the last year. We are clearly heading in the right direction with an assured leadership team who share my fervent belief that the Society should always have at its heart the aim of serving its members and earning their loyalty.

Jonathan Westhoff

Chief Executive

25 May 2011