TIDMCVBP
RNS Number : 1121H
Coventry Building Society
30 July 2019
30 July 2019
COVENTRY BUILDING SOCIETY REPORTS 2019 INTERIM FINANCIAL RESULTSCoventry Building Society performed strongly against its strategic
goals in the first half of 2019, continuing its track record of
savings and mortgage growth whilst taking forward its strategic
investment programmes for the benefit of existing and future members.
The Society's performance across the measures aligned to its strategic
goals is detailed below.
* Strong mortgage growth: Gross lending of GBP4.1
billion and net lending of GBP1.3 billion for the
first half of 2019 (30 June 2018: gross lending of
GBP4.6 billion, net lending of GBP1.5 billion). The
Society's mortgage balances are expected to have
grown by more than two and a half times the rate of
the market for the 12 months to 30 June 2019(1) .
* Savings growth outperforms market: Savings balances
increased by GBP1.9 billion in the first half of 2019
(30 June 2018: GBP0.4 billion) taking total deposits
to over GBP35 billion. In the 12 months to 30 June
2019, the Society's savings are expected to have
grown by three times the rate of the market(1) .
* Giving value to members: The average weighted savings
rate paid to members was 1.52%, 0.69% higher than the
average paid in the market (31 December 2018: 1.50%,
0.72% higher than the market)(2) .
* Delivering the right member outcomes: The Society's
overall Net Promoter Score has been maintained at a
very strong +75(3) (31 December 2018: +75), supported
by one of the lowest complaint overturn rates at the
Financial Ombudsman Service(4) .
* Leading cost efficiency: At 0.48%(5) (30 June 2018:
0.46%) the Society continues to report the lowest
cost to mean asset ratio of any UK building
society(6) , whilst continuing to invest
significantly in its technology infrastructure and
branch network.
* Low risk: Loans where arrears were greater than 2.5%
of the balance fell further to 0.09% compared to the
market average of 0.72%(7) (31 December 2018: 0.10%
compared to the market average of 0.74%).
* Continued capital and liquidity strength: Common
Equity Tier 1 (CET 1) ratio remained strong at 34.2%
(31 December 2018: 35.5%), one of the highest
reported by any top 20 UK lender(8) whilst the
Society's leverage ratio on a UK modified basis has
been broadly maintained at 4.5% (31 December 2018:
4.6%). The Liquidity Coverage Ratio (LCR) of 232%(9)
(31 December 2018: 202%) remains considerably above
the regulatory minimum requirement.
* Leading employee engagement: The Society was rated
'Outstanding' for employee engagement and as one of
the 100 Best Companies to Work For in the UK(10) .
* Supporting communities: 75% of colleagues (31
December 2018: 79%) have been actively involved in
the Society's community programmes over the last 12
months.
Commenting, Mark Parsons, Coventry Building Society Chief Executive
said:
This performance was achieved in what continues to be a challenging
environment. While demand for cash savings has strengthened,
economic and political uncertainty is affecting the UK's overall
growth rate with reduced activity in the housing market, lower
overall house price inflation and even some areas of house price
decline. This, and the depth of competition in both mortgages
and savings, has resulted in strong price competition.
In this context, our continued success in attracting and retaining
borrowers and savers demonstrates the strength of the Society's
business model and our ability to deliver tangible member value.
In the first six months of 2019 we grew savings balances by GBP1.9
billion (30 June 2018: GBP0.4 billion) helped by an average savings
rate of 1.52% compared with a market average of 0.83%(2) . The
strong demand we have experienced reflects both the value offered
by our savings products and the excellent service we deliver.
Throughout the first half of 2019 Net Promoter Scores(3) in our
branches averaged +90 (31 December 2018: +90), in our savings
contact centre they were +83 (31 December 2018: +83), and contact
with our mortgage intermediary partners averaged +86 (31 December
2018: +81), representing outstanding levels of customer service.
As a result, we estimate that in the 12 months to 30 June 2019
we have grown savings balances by three times the market rate
of growth(1) . Independent recognition of this performance came
from our continued status as a Which? recommended savings provider
and a Moneyfacts award for being the Best Building Society Savings
Provider, as well as being the most highly rated savings provider
by Fairer Finance. The growth was supported by our partnership
with Hargreaves Lansdown, through which we were the first provider
of an instant access savings account on its Active Savings platform.
We also delivered robust mortgage growth of GBP1.3 billion in
the six months to 30 June 2019 (30 June 2018: GBP1.5 billion),
a rate of growth that we estimate is more than two and a half
times that of the market(1) . This has been achieved without
losing sight of the Society's low risk approach to lending, which
is evident in the further reduction in arrears with mortgages
2.5% or more in arrears reducing to 0.09% (31 December 2018:
0.10%) or one eighth of the industry average (31 December 2018:
one seventh)(7) . We will continue to adapt our lending in a
changing market, but always with a low risk approach which protects
individual members and the Society as a whole.
Equally, it is in the interest of both current and future members
that we invest in developing our service capability and resilience
and we have made good progress in the last six months in pursuing
our three key strategic programmes.
Most visible amongst these is the branch redesign programme.
We view our branches differently from those of high street banks
- they are a successful channel for savings growth and an important
means of delivering our service to members and supporting local
communities. We are redesigning and updating our branches to
better fit this purpose and we have now delivered 15 new style
branches to much appreciation from members and colleagues alike,
with the programme continuing at a good pace. Our plan to update
our data centres is also progressing well. Having started to
migrate services in 2018, we expect to deliver the majority of
those remaining this year, enhancing resilience, service functionality
and flexibility.
The most complex element of our strategic investment is focussed
on our core technology platform. At the end of 2018 I reported
that we needed to re-plan this activity to reduce execution risks.
This re-planning work has now completed and a roadmap of initiatives
is in place to deliver the changes, albeit over a longer time
frame than originally expected and without the need to replace
our core technology platform. The first wave of initiatives will
mobilise in the second half of this year.
Our strong capital base, supported by our low cost, low risk
business model, allows us to take a long term view when investing.
Our capital ratios remain strong with a Common Equity Tier 1
ratio of 34.2% (31 December 2018: 35.5%) expected to be among
the highest of any top 20 UK lender(8) .
The impact of increasing strategic investment can be seen in
the increase to our management expense ratio to 0.48% (30 June
2018: 0.46%)(5) . We anticipate this will remain the lowest reported
by any UK building society, and the ratio excluding exceptional
strategic investment of 0.39%(11) (30 June 2018: 0.41%) demonstrates
our continued focus on running an efficient business. Higher
investment costs, together with reduced margins arising from
the competitive pricing environment and with our continuing focus
on returning value to members, contributed to profit before tax
for the first half of 2019 being GBP38 million lower than the
same period last year at GBP75 million (30 June 2018: GBP113
million). Profit was also impacted by fair value volatility and
non-repeat of the asset sale from 2018. At the same time we have
maintained the value we provide to our members through above
market average savings rates at GBP117 million (30 June 2018:
GBP117 million)(2) .
As a building society, delivering member value is clearly an
important measure of success but it is not the only one. I have
mentioned the Net Promoter Scores as a measure of our members'
satisfaction with the service we provide and we continue to work
hard to meet their expectations. Central to this is the professionalism
and commitment of all those who work here. I was delighted to
improve our standing amongst the UK's 100 Best Companies to Work
For earlier this year and more recently to win Employer of the
Year for Equality and Inclusion(12) . It is by providing colleagues
with the support and opportunities they need that we deliver
on our promise to members. In turn our colleagues are supported
and guided by a strong board and this year we have welcomed Shamira
Mohammed, who joined the Board as a Non-Executive Director bringing
extensive financial and executive experience from her work with
Aviva plc and the Phoenix Group.
Coventry Building Society is built on strong foundations and
through its long history has demonstrated its ability to thrive
through challenging market conditions. It has a long and successful
record of operating in the best interests of its members to earn
the trust of all those it serves. I am confident that the principles
which have sustained us in the past remain just as relevant as
we continue to grow and invest in our future.
1. Source: Bank of England - latest published data as at 31 May
2019.
2. Based on the Society's average month end savings rate compared
to the Bank of England average rate for household interest-bearing
deposits for the first five months of the year on the Society's
mix of products.
3. A measure of customer advocacy that ranges between -100 and
+100 which represents how likely a customer is to recommend our
products and services. The overall Net Promoter Score of +75 is
a calculated average from 6 surveys, branch survey of 16,500 customers,
savings contact centre survey of 18,803 callers, mortgage contact
centre survey of 2,050 callers, online survey of 4,051 users,
opening a savings account survey of 5,872 customers and a survey
of 1,824 brokers.
4. Source: Financial Ombudsman Service - latest published information:
1 July 2018 to 31 December 2018.
5. Administrative expenses, depreciation and amortisation/Average
total assets.
6. As at 29 July 2019.
7. Source: Prudential Regulation Authority - latest available
information as at 31 March 2019.
8. Source: UK Finance, 2018 top 20 mortgage lender (balance outstanding)
latest published CET 1 data as at 29 July 2019.
9. In 2019 the Society rebased certain stress assumption in the
LCR calculations which has the effect of reducing reported LCR.
Had these assumptions been in place at 31 December 2018, the reported
ratio would have been c. 175%.
10. Source: Best Companies Limited as at 31 December 2018.
11. Administrative expenses, depreciation excluding IFRS 16 and
amortisation less increase in strategic investment costs compared
to 2017/Average total assets.
12. Source: Employees network for equality & inclusion awards
2019.
Financial Review
The Society is committed to providing long-term sustainable value
to members through competitively priced savings and mortgage
products. Each year we retain only the profit we need to maintain
capital ratios, whilst investing to improve services and providing
favourable pricing for members.
Profits have fallen in the first half of the year, reflecting
continued price competition in the market and our commitment
to investing for the future whilst maintaining superior savings
rates for as long as possible coupled with a number of one-off
items. During the six months to 30 June 2019 we maintained the
value provided to members through superior savings rates compared
with the market average(1) at GBP117 million (30 June 2018: GBP117
million). Whilst member value was maintained, profit before tax
decreased by GBP38 million to GBP75 million. This was as a result
of continued spending on strategic investment programmes (GBP12
million) and volatility in the financial markets impacting the
fair value of financial instruments used to manage interest risk
exposures (GBP12 million). In addition, profits in the first
half of 2018 included a one-off gain of GBP15 million relating
to the sale of a GBP351 million buy to let loan portfolio. Without
the impacts of these items, profit before tax is broadly in line
with June 2018.
We added GBP33 million(2) (30 June 2018: GBP77 million) to General
reserves to support growth and investment, and broadly maintained
our leverage ratio(3) at 4.5% on a UK modified basis (31 December
2018: 4.6%).
Income Statement summary
Year ended
Period Period 31 Dec
to to 2018
30 Jun 30 Jun
2019 (Unaudited) 2018 (Unaudited) (Audited)
GBPm GBPm GBPm
============================= ================== ================== ==========
Net interest income 201.1 213.7 425.8
============================= ================== ================== ==========
Fees and commissions (1.1) (1.3) (2.3)
============================= ================== ================== ==========
Other income 2.2 0.3 1.1
============================= ================== ================== ==========
Losses on derivatives and
hedge accounting (12.4) (0.6) (0.3)
============================= ================== ================== ==========
Total income 189.8 212.1 424.3
============================= ================== ================== ==========
Management expenses (113.3) (99.6) (221.7)
============================= ================== ================== ==========
Impairment (charge)/credit (1.2) 1.0 0.4
============================= ================== ================== ==========
Provisions - 0.4 -
============================= ================== ================== ==========
Charitable donation to Poppy
Appeal (0.6) (0.8) (1.4)
============================= ================== ================== ==========
Profit before tax 74.7 113.1 201.6
============================= ================== ================== ==========
Net interest: Net interest income for the period was GBP201 million
(30 June 2018: GBP214 million). In 2018, net interest income included
a GBP15 million gain on sale of a GBP351 million buy to let loan
portfolio. Excluding the portfolio sale, Net Interest Income increased
by GBP2 million reflecting balance sheet growth offset by falling
new business margins as a result of continued price competition
in mortgages and savings acquisition and maintaining superior
average savings rates compared to the market. Net interest margin
was 0.86% (30 June 2018: 1.00%) which, for 30 June 2018, included
7 basis points as a result of the gain on sale of a GBP351 million
buy to let loan portfolio.
Other operating income: Other income for the period of GBP2.2
million (30 June 2018: GBP0.3 million) relates to income from
a small number of equity investments and included GBP1.4 million
of deferred contingent consideration received in the period following
the sale of our investment in VocaLink Holdings Limited in 2017.
Net losses from derivative financial instruments: The Society
uses derivative financial instruments to manage interest rate
and currency risk arising from its mortgage and savings activity
and from non-sterling wholesale funding. During the first half
of 2019 there has been considerable market volatility impacting
swap valuations. Whilst the Society's derivative financial instruments
have remained effective in economically hedging risks as they
were designed to do, hedge accounting relief has not been fully
obtained creating accounting volatility and, as a result, losses
of GBP12 million have been recognised (30 June 2018: GBP0.6 million
loss). These losses represent timing differences and are expected
to reverse over the remaining life of the derivatives although
further volatility may also be experienced.
Management expenses and depreciation: Management expenses including
depreciation and amortisation for the period were GBP113 million
(30 June 2018: GBP100 million). Substantially all of the increase
relates to the Society's strategic investment programmes, with
a GBP12 million increase in strategic investment costs(4) in addition
to a
GBP1 million increase in the ongoing costs of running the business.
The costs of the strategic investment programmes are substantial
and represent a GBP22 million increase in change activity since
2017(5) which we continue to regard as a reasonable benchmark
level of spend for change investment.
The Society's strategic investment reflects three key investment
projects:
* Branch redesign: Eight branches have been remodelled
as planned during the first half of the year,
bringing the total to 15, with a similar number
planned to be remodelled during the second half of
the year.
* Enhanced data infrastructure: Good progress has been
made with migrations continuing. We expect to
complete the majority of migrations by the end of
this year as reported previously.
* Core technology platform upgrade: As I said in our
year-end report, we experienced a number of
challenges with this activity in 2018 and identified
that progressing as planned was likely to be more
complicated and expensive than originally envisaged.
As a result we reported this as a risk event and set
up a review of options to meet our objectives while
reducing the risk of the upgrade. This review has now
finished and the activity has been re-planned as a
number of individual initiatives, giving us a roadmap
of change projects. This more modular approach is
designed to reduce execution risk and allow more
flexibility in scheduling both activity and cost. We
will start a number of these initiatives in the
second half of the year including a multi-year
programme to implement new mortgage origination tools
to improve our service to intermediaries and
borrowing members. The roadmap extends across the
Strategic Planning period and as a result, we expect
costs to remain elevated for a number of years. We
are not planning to progress the replacement of our
core technology platform within our planning horizon.
The level of strategic change investment we are making makes it
even more important that we focus on spending members' money wisely.
The cost to mean asset ratio of 0.48%(6) is expected to remain
the lowest reported of all UK building societies(7) (30 June 2018:
0.46%). Without the strategic investment costs incurred in the
period the Society's 'run cost' ratio is 0.39%(8) (30 June 2018:
0.41%) reflecting the continued efficiency of our core operations.
Arrears and impairment: The impairment charge during the period
was GBP1.2 million (30 June 2018: credit of GBP1.0 million). The
key measures of arrears and possessions have both improved in
the first half of 2019 with balances three or more months in arrears
falling to GBP60.1 million (31 December 2018: GBP67.6 million)
and only 27 cases in possession (31 December 2018: 34). Despite
this underlying improvement, we have increased impairment provisions
reflecting a management view of the market and economic uncertainty
driven by Brexit and a weakening macroeconomic backdrop.
Impairment provisions as a percentage of balances classified as
being in Stage 3 (default) under IFRS 9 remains low reflecting
our underlying low loss experience. Provisions as a percentage
of Stage 3 balances have increased to 6.1% (31 December 2018:
5.6%) with coverage for Stage 3 loans in arrears higher at 9.8%
(31 December 2018: 8.9%). Provisions continue to reflect 5.5 years
coverage of the losses we have seen over the last 12 months (31
December 2018: 5.5 years).
Provisions for liabilities and charges: Provisions now relate
almost exclusively to Payment Protection Insurance (PPI) with
no provision being held for Financial Services Compensation Scheme
(FSCS) charges given the repayment of the FSCS loans to HM Treasury
in 2018. Although we have seen some increase in the number of
PPI claims ahead of the August claims deadline, these have been
within provision estimates and no charge has been made in the
first six months of the year (30 June 2018: GBP0.4 million credit).
Charitable donation: The Society donated GBP0.6 million to The
Royal British Legion's Poppy Appeal during the period (30 June
2018: GBP0.8 million).
Tax: The corporation tax charge represented an effective rate
of tax of 18.9%. Following the amendments to IAS 12, the tax relief
on distributions to holders of our Additional Tier 1 (AT 1) capital
instruments are now shown in the tax charge rather than netted
off from the distribution. The effective rate at 30 June 2018,
after restating for the impact of this change, was 20.6%.
Balance Sheet summary 30 Jun 30 Jun 31 Dec
2019 2018 (Unaudited) 2018 (Audited)
(Unaudited)
GBPm GBPm GBPm
================================ ============= ================= ===============
Assets
================================ ============= ================= ===============
Loans and advances to customers 40,586.5 37,409.3 39,264.6
================================ ============= ================= ===============
Liquidity 7,575.6 5,973.2 6,401.9
================================ ============= ================= ===============
Other 572.0 384.0 404.4
================================ ============= ================= ===============
Total assets 48,734.1 43,766.5 46,070.9
================================ ============= ================= ===============
Liabilities
================================ ============= ================= ===============
Retail funding 35,158.7 31,442.5 33,281.6
================================ ============= ================= ===============
Wholesale funding 10,906.0 9,900.9 10,313.7
================================ ============= ================= ===============
Subordinated liabilities
and subscribed capital 67.1 67.1 67.1
================================ ============= ================= ===============
Other 420.1 299.9 288.1
================================ ============= ================= ===============
Total liabilities 46,551.9 41,710.4 43,950.5
================================ ============= ================= ===============
Equity
================================ ============= ================= ===============
General reserve 1,725.4 1,631.2 1,693.5
================================ ============= ================= ===============
Other equity instruments 429.9 396.9 396.9
================================ ============= ================= ===============
Other 26.9 28.0 30.0
================================ ============= ================= ===============
Total equity 2,182.2 2,056.1 2,120.4
================================ ============= ================= ===============
Total liabilities and equity 48,734.1 43,766.5 46,070.9
================================ ============= ================= ===============
Loans and advances to customers: The Society's business model
remains focused on high quality, low loan to value owner-occupier
and buy to let lending within the prime residential market, distributed
mainly through mortgage intermediaries. During the period, the
Society advanced GBP4.1 billion of mortgages (30 June 2018: GBP4.6
billion), with net mortgage lending of GBP1.3 billion (30 June
2018: GBP1.5 billion). We continue to focus on low risk lending
and the average loan to value (balance weighted average) of loans
originated in the six months to 30 June 2019 has remained unchanged
at 54.6% (31 December 2018: 54.6%), despite a house price inflation
environment which has been flatter and has notably seen falls
in some locations. This reflects the low risk nature of the Society's
lending activities.
Liquidity: On-balance sheet liquid assets have increased to GBP7.6
billion (31 December 2018: GBP6.4 billion) and the Liquidity
Coverage Ratio (LCR) at 30 June 2018 was 232% (31 December 2018:
202%), significantly in excess of the regulatory minimum. During
the period the Society revised a number of the stress outflow
assumptions used in calculating the LCR to better reflect expected
customer behaviour and regulatory guidelines. Had these been
used at December 2018, LCR would have been reported at c. 175%.
The increase in LCR despite this change reflects an increase
in liquid assets held, partly to mitigate any Brexit risks. The
cost of this extra liquidity of c. GBP5 million is absorbed within
Net Interest Income in the period.
Retail savings: The Society continues to be predominantly funded
by retail savings, with balances of GBP35.2 billion at 30 June
2019 (31 December 2018: GBP33.3 billion) and has achieved particularly
strong growth of GBP1.9 billion (30 June 2018: GBP0.4 billion)
during the first six months of the year.
Wholesale funding: The Society uses wholesale funding to provide
diversification by source and term and also to provide value
to members through lowering the overall cost of funding. During
the period, wholesale funding(9) has increased to GBP10.9 billion
(31 December 2018: GBP10.3 billion) reflecting a Covered Bond
issuance and GBP525 million of Bi-lateral funding, offset by
maturities during the year.
Pension benefit surplus (included in Other assets): During the
period the Society has taken steps to transfer its Defined Benefit
pension scheme to a new provider. The transfer was undertaken
to improve the long term sustainability of the fund by ensuring
continued governance and providing access to improved investment
opportunities at lower cost in line with the Society's aim of
achieving self sufficiency for the pension scheme. In line with
this aim, the Society made a one-off contribution to the fund
of GBP6 million bringing total contributions in the period to
GBP6.6 million (six months to 30 June 2018: GBP0.7 million).
This contribution fully covers the deficit reported in the last
triennial valuation and therefore the Society expects to make
no further contributions until the next valuation. Despite this
contribution, the Pension surplus has remained stable at GBP22.9
million (31 December 2018: GBP22.9 million) as volatility in
the financial markets impacted the valuation of the schemes assets
by less than the movement in its obligations.
General reserves: The growth in General reserves of GBP33 million(2)
(30 June 2018: GBP77 million) reflects retained profit for the
period of GBP61 million (30 June 2018: GBP90 million), offset
by a number of items. Volatility in the financial markets has
impacted the valuation of the Defined Benefit pension scheme
reducing General reserves by GBP5.1 million (30 June 2018: nil).
During the first half of the year, the Society successfully tendered
to repurchase the Additional Tier 1 (AT 1) instrument issued
in 2014 ahead of its November 2019 call date and issued new AT
1. The costs of the tender and reissue totalling GBP11.8 million
are deducted from General reserves (31 December 2018: nil) along
with distributions to holders of the AT 1 instruments of GBP11
million (30 June 2018: GBP12.7 million).
Other Equity Instruments: The tender for the 2014 Additional
Tier 1 instruments (AT1) resulted in the repurchase of GBP385
million of the GBP400 million AT1 capital instruments and the
issue of a further GBP415 million of new instruments, with a
first call date in 2024, were issued bringing total AT1 to GBP430
million (December 2018: GBP397 million). This transaction maintains
the level of Tier 1 capital whilst de-risking the potential effect
of Brexit on the wholesale markets.
Capital Ratios
The table below provides a summary of the Society's capital resources
and CRD IV ratios on an end-point basis (i.e. assuming all CRD
IV requirements were in force in full with no transitional provisions
permitted).
End-point End-point End-point
30 Jun 30 Jun 31 Dec
2019 2018 2018
GBPm GBPm GBPm
============================= ========= ========= =========
Capital resources:
============================= ========= ========= =========
Common Equity Tier 1 (CET 1)
capital 1,643.6 1,537.6 1,614.8
================================ ========= ========= =========
Total Tier 1 capital 2,058.6 1,934.5 2,011.7
================================ ========= ========= =========
Total capital 2,058.6 1,974.5 2,011.7
================================ ========= ========= =========
Risk weighted assets 4,811.8 4,336.9 4,548.5
================================ ========= ========= =========
CRD IV ratios: %% %
============================= ========= ======== =========
Common Equity Tier 1 (CET 1)
ratio 34.2 35.5 35.5
================================ ========= ========= =========
CRR Leverage ratio(10) 4.1 4.1 4.2
================================ ========= ========= =========
UK Leverage ratio(3) 4.5 4.6 4.6
================================ ========= ========= =========
In line with its strategy of maintaining capital ratios, the
leverage ratio, which the Society regards as its binding constraint,
on both a CRR and UK modified basis has been broadly maintained
at 4.1% and 4.5% (31 December 2018: 4.2% and 4.6%)
The CET 1 ratio has fallen to 34.2% (31 December 2018: 35.5%).
Risk weighted Assets grew by 6% in the period in line with balance
sheet growth. Capital resources have been impacted by the volatility
in the financial markets which led to fair value adjustments
in addition to the costs of tendering for and reissuing the Additional
Tier 1 capital instruments. These factors taken together accounted
for c. 60 bps of the reduction in CET 1 capital. The remaining
reduction reflects the lower profits as a result of tightening
margins and continuing strategic investment spend.
In 2018, the Society was issued with a Total Capital Requirement
by the PRA equal to 11.2% of risk weighted assets or GBP539 million.
This sets the minimum capital which the Society must hold under
Pillar 1 and Pillar 2A and is driven by both balance sheet growth
factors and risk factors determined by the PRA. With a CET 1
ratio of 34.2%, the Society significantly exceeds this requirement
with CET 1 capital alone.
The capital disclosures above are on a Group basis, including
all subsidiary entities. For regulatory purposes the Group also
reports on an Individual Consolidated basis, which only includes
those subsidiaries meeting particular criteria contained within
CRD IV. The Individual Consolidated CET 1 ratio on an end-point
basis at 30 June 2019 is 1.1% higher than the Group ratio due
to assets held by entities that sit outside of the Individual
Consolidation, primarily those held by the Group's securitisation
and covered bond entities.
1. Based on the Society's average month end savings rate compared
to the Bank of England average rate for household interest-bearing
deposits for the first five months of the year on the Society's
mix of products.
2. Movement in General reserves after restating for the changes
on initial application of IFRS 16.
3. Leverage ratio modified under the UK regulatory regime by
excluding central bank reserves from the calculation of leverage
exposures.
4. Includes the increase in depreciation and amortisation net
of the adoption of IFRS 16.
5. Increase in H1 2019 compared to H1 2017 after indexation.
6. Administrative expenses, depreciation and amortisation/Average
total assets.
7. As at 29 July 2019.
8. Administrative expenses, depreciation excluding IFRS 16 and
amortisation less increase in strategic investment costs compared
to 2017/Average total assets.
9. Deposits from banks, Other deposits, Amounts owed to other
customers and Debt securities in issue.
10. The CRR leverage ratio is calculated in accordance with
the definitions of CRD IV as amended by the European Commission
delegated regulation. The calculation reflects constraints on
the inclusion of Additional Tier 1 capital, in accordance with
the Financial Policy Committee's leverage ratio regime.
Top and Emerging Risks
The Society's risk philosophy is to be a below median risk mutual,
taking risks within appetite where those risks are understood
and can be managed.
A description of the Top and Emerging risks is given as an update
to those set out at 31 December 2018 on page 26 of the 2018 Annual
Report & Accounts. The Society's principal risk categories are
described on page 12 of the 2018 Annual Report & Accounts, with
more detail provided on pages 30 to 61, and the Society's view
of these has not materially changed during 2019.
UK political and economic uncertainty
During 2019, there has been continued uncertainty around both
Brexit and the wider UK political environment. As a result, there
is ongoing potential for this uncertainty to reduce confidence
in the UK economy and therefore impact the wholesale funding
market, house prices and employment. There is also a risk that
the very low interest rate environment will continue in the medium
term. Alongside this, global macro-economic risks have also increased
and may spill-over into the UK economy.
Whilst the Society's UK focus means that it is protected from
direct impacts of Brexit outside of wholesale funding, the Society
could be impacted by a wider UK economic downturn.
The UK mortgage and savings market fundamentals are expected
to remain strong over the medium to long term. This, coupled
with the Society's simple business model, focussed on straightforward,
low-risk mortgages and retail savings products means that the
Society expects to remain resilient to these economic challenges.
The Society's mortgage book is geographically spread which mitigates
the risk from a fall in London house prices and its low risk
lending policy means that its mortgage book is expected to continue
to perform well in a downturn. The Society has continued to attract
both retail savings and well-priced wholesale funding in 2019,
and this performance is set to continue, allowing it to manage
risks in this area.
Market environment
The market environment has remained competitive during 2019 and
there has been a further decrease in Net Interest Margin. This
competition continues to reflect new entrants particularly in
the savings market, and continuing competition in the mortgage
market impacted both by the UK retail banks and the absence of
notable growth in the housing market.
The Society's simple business model means that we continue to
focus on simple, low risk mortgage products and are able to leverage
our deep experience and effective partnerships with intermediaries.
These strong business fundamentals mean that we can respond to
market pressures effectively. In addition, our focus on low risk
lending, combined with our cost-efficient business model allows
us to remain financially strong whist continuing to offer superior
value to members. At the same time our strong retail franchise
ensures ongoing access to retail funding.
Change and execution risk
The Society is undertaking a number of strategic investment programmes
which are more wide reaching than any that the Society has completed
previously. This activity increases cost and execution risk.
The change programmes will deliver additional resilience and
flexibility and therefore reduce risk once implemented. In particular,
the programmes are focussed on enhancing the Society's data centre
capability and upgrading our core technology platform.
The Society believes that it is putting the necessary risk management
processes for change management programmes in place which will
ensure change is delivered safely, without disruption to core
operations, and within expectations. These control processes
include detailed feasibility work and testing before change is
made and a focus on looking for options which reduce execution
and cost risk. In addition, following the re-planning of the
core technology platform upgrade the more modular approach we
are taking to this activity is designed to reduce execution risk
and allow more flexibility on scheduling. The Society is satisfied
that it has set appropriate investment budgets within its Strategic
Plan.
Condensed Consolidated Income Statement Period
For the period ended 30 June 2019 Period to Year ended
to 30 Jun 31 Dec
30 Jun 2018 (Unaudited) 2018 (Audited)
2019 (Unaudited) Restated(2) Restated(2)
Notes GBPm GBPm GBPm
========================================== ===== ================= ================= ===============
Interest receivable and similar income(1) 3 501.7 480.5 976.3
=========================================== ===== ================= ================= ===============
Interest payable and similar charges 4 (300.6) (266.8) (550.5)
=========================================== ===== ================= ================= ===============
Net interest income 201.1 213.7 425.8
=========================================== ===== ================= ================= ===============
Fees and commissions receivable 3.9 4.1 8.1
=========================================== ===== ================= ================= ===============
Fees and commissions payable (5.0) (5.4) (10.4)
=========================================== ===== ================= ================= ===============
Other operating income 5 2.2 0.3 1.1
=========================================== ===== ================= ================= ===============
Net losses from derivative financial
instruments 6 (12.4) (0.6) (0.3)
=========================================== ===== ================= ================= ===============
Total income 189.8 212.1 424.3
=========================================== ===== ================= ================= ===============
Administrative expenses 7 (99.3) (89.2) (200.2)
=========================================== ===== ================= ================= ===============
Amortisation of intangible assets (7.1) (6.7) (13.7)
=========================================== ===== ================= ================= ===============
Depreciation of property, plant and
equipment (6.9) (3.7) (7.8)
=========================================== ===== ================= ================= ===============
Impairment (charge)/credit on loans
and advances to customers 8 (1.2) 1.0 0.4
=========================================== ===== ================= ================= ===============
Provisions for liabilities and charges 9 - 0.4 -
=========================================== ===== ================= ================= ===============
Charitable donation to Poppy Appeal (0.6) (0.8) (1.4)
=========================================== ===== ================= ================= ===============
Profit before tax 74.7 113.1 201.6
=========================================== ===== ================= ================= ===============
Taxation (14.1) (23.3) (38.6)
=========================================== ===== ================= ================= ===============
Profit for the financial period 60.6 89.8 163.0
=========================================== ===== ================= ================= ===============
1. Interest receivable and similar income within the comparative
periods includes GBP14.9 million gain on derecognition of financial
assets held at amortised cost.
2. Taxation and Profit for the financial period have been restated
in the comparative periods following amendments to IAS 12.
Profit for the financial period arises from continuing operations
and is attributable to the members of the Society.
Condensed Consolidated Statement of Comprehensive Income
For the period ended 30 June 2019
Profit for the financial period (restated)(1) 60.6 89.8 163.0
================================================== === ===== ====== ======
Other comprehensive income
================================================= === ===== ====== ======
Items that will not be transferred
to the Income Statement:
================================================= === ===== ====== ======
Remeasurement of defined benefit plan (6.9) - 2.5
================================================== === ===== ====== ======
Taxation 1.9 - (0.6)
================================================== === ===== ====== ======
Effect of change in corporation tax
rate (0.1) - 0.1
================================================== === ===== ====== ======
Items that may be transferred to the
Income Statement:
================================================= === ===== ====== ======
Fair value through other comprehensive
income investments:
================================================= === ===== ====== ======
Fair value movements taken to reserves 6.4 (10.6) (12.4)
================================================== === ===== ====== ======
Amount transferred to Income Statement 16 (9.6) 9.7 13.4
================================================== === ===== ====== ======
Taxation 0.9 0.2 (0.2)
================================================== === ===== ====== ======
Effect of change in corporation tax
rate (0.1) - -
================================================== === ===== ====== ======
Cash flow hedges:
================================================= === ===== ====== ======
Fair value movements taken to reserves 4.7 5.0 24.4
================================================== === ===== ====== ======
Amount transferred to Income Statement (5.6) (0.2) (18.9)
================================================== === ===== ====== ======
Taxation 0.3 (1.3) (1.5)
================================================== === ===== ====== ======
Effect of change in corporation tax
rate (0.1) 0.1 0.1
================================================== === ===== ====== ======
Other comprehensive (expense)/income for
the period, net of tax (8.2) 2.9 6.9
======================================================= ===== ====== ======
Total comprehensive income for the period,
net of tax (restated)(1) 52.4 92.7 169.9
======================================================= ===== ====== ======
1. Taxation and Profit for the financial period have been
restated in the comparative periods following amendments to IAS
12.
30 Jun 30 Jun 31 Dec
Condensed Consolidated Balance Sheet 2019 (Unaudited) 2018 (Unaudited) 2018 (Audited)
As at 30 June 2019 Notes GBPm GBPm GBPm
======================================== ===== ================= ================= ===============
Assets
======================================= ===== ================= ================= ===============
Cash and balances with the
Bank of England 6,044.2 4,799.9 5,219.4
======================================== ===== ================= ================= ===============
Loans and advances to credit
institutions 380.7 215.4 231.3
======================================== ===== ================= ================= ===============
Debt securities 1,150.7 957.9 951.2
======================================== ===== ================= ================= ===============
Loans and advances to customers 10 40,586.5 37,409.3 39,264.6
======================================== ===== ================= ================= ===============
Hedge accounting adjustment 175.8 (12.6) 6.5
======================================== ===== ================= ================= ===============
Derivative financial instruments 242.0 275.8 268.9
======================================== ===== ================= ================= ===============
Investment in equity shares 4.0 2.8 3.1
======================================== ===== ================= ================= ===============
Intangible assets 35.1 48.9 37.2
======================================== ===== ================= ================= ===============
Property, plant and equipment 76.8 37.1 48.8
======================================== ===== ================= ================= ===============
Pension benefit surplus 22.9 19.4 22.9
======================================== ===== ================= ================= ===============
Prepayments and accrued income 15.4 12.6 17.0
======================================== ===== ================= ================= ===============
Total assets 48,734.1 43,766.5 46,070.9
======================================== ===== ================= ================= ===============
Liabilities
======================================= ===== ================= ================= ===============
Shares 35,158.7 31,442.5 33,281.6
======================================== ===== ================= ================= ===============
Deposits from banks 5,320.7 5,239.4 5,453.8
======================================== ===== ================= ================= ===============
Other deposits 12.5 3.0 9.5
======================================== ===== ================= ================= ===============
Amounts owed to other customers 677.6 763.6 496.5
======================================== ===== ================= ================= ===============
Debt securities in issue 12 4,895.2 3,894.9 4,353.9
======================================== ===== ================= ================= ===============
Hedge accounting adjustment 58.8 45.4 36.5
======================================== ===== ================= ================= ===============
Derivative financial instruments 255.2 167.2 167.4
======================================== ===== ================= ================= ===============
Current tax liabilities 10.1 26.7 15.4
======================================== ===== ================= ================= ===============
Deferred tax liabilities 14.7 11.4 17.2
======================================== ===== ================= ================= ===============
Accruals and deferred income 38.0 32.4 38.1
======================================== ===== ================= ================= ===============
Other liabilities 41.5 12.3 10.5
======================================== ===== ================= ================= ===============
Provisions for liabilities
and charges 9 1.8 4.5 3.0
======================================== ===== ================= ================= ===============
Subordinated liabilities 13 25.5 25.5 25.5
======================================== ===== ================= ================= ===============
Subscribed capital 14 41.6 41.6 41.6
======================================== ===== ================= ================= ===============
Total liabilities 46,551.9 41,710.4 43,950.5
======================================== ===== ================= ================= ===============
Equity
======================================= ===== ================= ================= ===============
General reserve 1,725.4 1,631.2 1,693.5
======================================== ===== ================= ================= ===============
Other equity instruments 15 429.9 396.9 396.9
======================================== ===== ================= ================= ===============
Fair value through other comprehensive
income reserve 3.2 4.1 5.6
======================================== ===== ================= ================= ===============
Cash flow hedge reserve 23.7 23.9 24.4
======================================== ===== ================= ================= ===============
Total members' interests and
equity 2,182.2 2,056.1 2,120.4
======================================== ===== ================= ================= ===============
Total members' interests, liabilities
and equity 48,734.1 43,766.5 46,070.9
======================================== ===== ================= ================= ===============
Condensed Consolidated Statement of Changes in Members' Interests
and Equity
For the period ended 30 June 2019
==================================================================================================
Fair value Cash
Other through other flow
General equity comprehensive hedge
reserve instruments income reserve reserve Total
Period to 30 June 2019 Notes GBPm GBPm GBPm GBPm GBPm
=============================== ===== ======== ============ =============== ======== =======
As at 1 January 2019 (Audited) 1,693.5 396.9 5.6 24.4 2,120.4
=============================== ===== ======== ============ =============== ======== =======
Changes on initial application
of IFRS 16 (0.8) - - - (0.8)
=============================== ===== ======== ============ =============== ======== =======
Restated balance at 1 January
2019 1,692.7 396.9 5.6 24.4 2,119.6
=============================== ===== ======== ============ =============== ======== =======
Profit for the financial
period 2 60.6 - - - 60.6
=============================== ===== ======== ============ =============== ======== =======
Net remeasurement of defined
benefit plan (5.1) - - - (5.1)
=============================== ===== ======== ============ =============== ======== =======
Net movement in Fair value
through other comprehensive
income reserve - - (2.4) - (2.4)
=============================== ===== ======== ============ =============== ======== =======
Net movement in Cash flow
hedge reserve - - - (0.7) (0.7)
=============================== ===== ======== ============ =============== ======== =======
Additional Tier 1 Capital
repurchased (net of tax) 15 (9.3) (382.0) - - (391.3)
=============================== ===== ======== ============ =============== ======== =======
Additional Tier 1 Capital
issued (net of tax) 15 (2.5) 415.0 - - 412.5
=============================== ===== ======== ============ =============== ======== =======
Total comprehensive income 43.7 33.0 (2.4) (0.7) 73.6
=============================== ===== ======== ============ =============== ======== =======
Distribution to Additional
Tier 1 capital holders 2,15 (11.0) - - - (11.0)
=============================== ===== ======== ============ =============== ======== =======
As at 30 June 2019 (Unaudited) 1,725.4 429.9 3.2 23.7 2,182.2
=============================== ===== ======== ============ =============== ======== =======
Period to 30 June 2019 (restated)(1)
===================================== ==== ======= ===== ===== ==== =======
As at 1 January 2018 (Audited) 1,553.1 396.9 5.7 20.3 1,976.0
===================================== ==== ======= ===== ===== ==== =======
Changes on initial application
of IFRS 9 1.0 - (0.9) - 0.1
===================================== ==== ======= ===== ===== ==== =======
Restated balance at 1 January
2018 1,554.1 396.9 4.8 20.3 1,976.1
===================================== ==== ======= ===== ===== ==== =======
Profit for the financial period(1) 2 89.8 - - - 89.8
===================================== ==== ======= ===== ===== ==== =======
Net movement in Fair value
through other comprehensive
income reserve - - (0.7) - (0.7)
===================================== ==== ======= ===== ===== ==== =======
Net movement in Cash flow
hedge reserve - - - 3.6 3.6
===================================== ==== ======= ===== ===== ==== =======
Total comprehensive income(1) 89.8 - (0.7) 3.6 92.7
===================================== ==== ======= ===== ===== ==== =======
Distribution to Additional
Tier 1 capital holders(1) 2,15 (12.7) - - - (12.7)
===================================== ==== ======= ===== ===== ==== =======
As at 30 June 2018 (Unaudited) 1,631.2 396.9 4.1 23.9 2,056.1
===================================== ==== ======= ===== ===== ==== =======
Year ending 31 December 2018
(restated)(1)
================================= ==== ======= ===== ===== ==== =======
As at 1 January 2018 (Audited) 1,553.1 396.9 5.7 20.3 1,976.0
================================= ==== ======= ===== ===== ==== =======
Changes on initial application
of IFRS 9 1.0 - (0.9) - 0.1
================================= ==== ======= ===== ===== ==== =======
Restated balance at 1 January
2018 1,554.1 396.9 4.8 20.3 1,976.1
================================= ==== ======= ===== ===== ==== =======
Profit for the financial year(1) 2 163.0 - - - 163.0
================================= ==== ======= ===== ===== ==== =======
Net remeasurement of defined
benefit plan 2.0 - - - 2.0
================================= ==== ======= ===== ===== ==== =======
Net movement in Fair value
through other comprehensive
income reserve - - 0.8 - 0.8
================================= ==== ======= ===== ===== ==== =======
Net movement in Cash flow
hedge reserve - - - 4.1 4.1
================================= ==== ======= ===== ===== ==== =======
Total comprehensive income(1) 165.0 - 0.8 4.1 169.9
================================= ==== ======= ===== ===== ==== =======
Distribution to Additional
Tier 1 capital holders(1) 2,15 (25.6) - - - (25.6)
================================= ==== ======= ===== ===== ==== =======
As at 31 December 2018 (Audited) 1,693.5 396.9 5.6 24.4 2,120.4
================================= ==== ======= ===== ===== ==== =======
1. Profit for the financial period/year, Total comprehensive
income and Distributions to Additional Tier 1 capital holders have
been restated in the comparative periods following amendments to
IAS 12.
Condensed Consolidated Statement of Cash Flows
For the period ended 30 June 2019
========================================================================================================
Period Period
to to Year ended
30 Jun 30 Jun 31 Dec
2019 (Unaudited) 2018 (Unaudited) 2018 (Audited)
GBPm GBPm GBPm
================================================ ================= ================= ===============
Cash flows from operating activities
================================================ ================= ================= ===============
Profit before tax 74.7 113.1 201.6
================================================= ================= ================= ===============
Adjustments for:
================================================ ================= ================= ===============
Impairment provisions and other provisions 1.2 (1.4) (0.4)
================================================= ================= ================= ===============
Depreciation and amortisation 14.0 10.4 21.5
================================================= ================= ================= ===============
Interest on subordinated liabilities
and subscribed capital 3.3 3.3 6.7
================================================= ================= ================= ===============
Changes to fair value adjustment of
hedged risk (42.8) (2.0) (19.4)
================================================= ================= ================= ===============
Other non-cash movements(1) 1.3 (37.4) 17.1
================================================= ================= ================= ===============
Non-cash items included in profit
before tax (23.0) (27.1) 25.5
================================================= ================= ================= ===============
Loans and advances to credit institutions (156.4) (48.3) (69.8)
================================================= ================= ================= ===============
Loans and advances to customers (1,323.1) (1,477.3) (3,333.2)
================================================= ================= ================= ===============
Prepayments, accrued income and other
assets (5.3) (2.9) (8.5)
================================================= ================= ================= ===============
Changes in operating assets (1,484.8) (1,528.5) (3,411.5)
================================================= ================= ================= ===============
Shares 1,907.6 454.4 2,238.4
================================================= ================= ================= ===============
Deposits and other borrowings 51.0 1,764.0 1,713.7
================================================= ================= ================= ===============
Debt securities in issue 3.2 (210.7) (229.0)
================================================= ================= ================= ===============
Accruals, deferred income and other
liabilities(1) (2.4) 7.2 9.2
================================================= ================= ================= ===============
Changes in operating liabilities 1,959.4 2,014.9 3,732.3
================================================= ================= ================= ===============
Interest paid on subordinated liabilities
and subscribed capital (3.3) (3.3) (6.7)
================================================= ================= ================= ===============
Interest paid on lease liabilities(1) (0.4) - -
================================================= ================= ================= ===============
Taxation (15.9) (19.6) (41.6)
================================================= ================= ================= ===============
Net cash flows from operating activities 506.7 549.5 499.6
================================================= ================= ================= ===============
Cash flows from investing activities
================================================ ================= ================= ===============
Purchase of investment securities (596.9) (340.7) (454.2)
================================================= ================= ================= ===============
Sale and maturity of investment securities
and equities 385.8 358.8 477.1
================================================= ================= ================= ===============
Purchase of property, plant and equipment
and intangible assets (12.2) (19.6) (31.5)
================================================= ================= ================= ===============
Net cash flows from investing activities (223.3) (1.5) (8.6)
================================================= ================= ================= ===============
Cash flows from financing activities
================================================ ================= ================= ===============
Distributions paid to Additional Tier
1 capital holders (11.0) (12.8) (25.6)
================================================= ================= ================= ===============
Repurchase of Additional Tier 1 capital(2) (393.6) - -
================================================= ================= ================= ===============
Issue of Additional Tier 1 capital(2) 411.6 - -
================================================= ================= ================= ===============
Repurchase and repayment of debt securities (13.9) (765.4) (780.7)
================================================= ================= ================= ===============
Principal elements of lease payments(1) (3.2) - -
================================================= ================= ================= ===============
Issue of debt securities 544.6 - 499.0
================================================= ================= ================= ===============
Net cash flows from financing activities 534.5 (778.2) (307.3)
================================================= ================= ================= ===============
Net increase/(decrease) in cash 817.9 (230.2) 183.7
================================================= ================= ================= ===============
Cash and cash equivalents at start
of period 5,122.3 4,938.6 4,938.6
================================================= ================= ================= ===============
Cash and cash equivalents at end of
period 5,940.2 4,708.4 5,122.3
================================================= ================= ================= ===============
Cash and cash equivalents:
================================================ ================= ================= ===============
Cash and balances with the Bank of
England(3) 5,940.2 4,708.4 5,122.3
================================================= ================= ================= ===============
1. Relates to the first time adoption of IFRS 16 from 1 January
2019.
2. Net of transaction fees.
3. Excludes GBP104.0 million mandatory reserve with the Bank
of England (30 June 2018: GBP91.5 million, 31 December 2018:
GBP97.1 million).
Other Information
A copy of the Interim Financial Report is placed on the website
of Coventry Building Society, at www.coventrybuildingsociety.co.uk/interim2019.
The directors are responsible for the maintenance and integrity
of the information on the Society's website. Information published
on the internet is accessible in many countries with different
legal requirements. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from legislation
in other jurisdictions.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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