Annual report and accounts 2009 (PDF) - Coventry Building Society

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DIRECTORS’ REPORT(continued)MortgagesThe main focus of the Society is to provide responsiblemortgage finance to help people buy their own homes. Theability of the Society to maintain this focus throughout aneconomic recession and, in particular, at a time when manycompetitors have been unable to carry on lending, istestament to Coventry’s fundamental strength.The Society advanced £2.7 billion in 2009. This equates to arecord share of new loans of almost 2%, compared toCoventry’s natural market share of 1.1%, and represents 15%of all building society lending.In 2007 the directors estimated that Coventry’s market shareof net lending was 1.6%, a figure which was achieved in arecord year’s lending by the Society. In 2008, this figure hadincreased to 3.4% and in 2009 this has more than doubledagain to 8.0%, with net lending of £919 million.The Society has achieved this record market share in 2009 bybeing fundamentally strong, well funded, well capitalised, withexcellent asset quality and high levels of operationalefficiency.Being in a position to lend has also meant that the Societyhas been able to maintain its key strategic goal of prudentand responsible lending. Recognising the impact of theeconomic recession on house values and the increased threatof mortgage fraud, additional checks have been put in placeto maintain the Society’s strong track record in safeguardingthe money lent for house purchases.As in previous years, lending was concentrated in low risksegments. The Society continues to experience relatively lowlevels of arrears and repossessions. At 31 December 2009,only 0.80% of mortgage balances were 2.5% or more inarrears, very substantially lower than industry norms. At thetime of the latest available data (30 September 2009),Coventry’s arrears were just under one third of the industryaverage, according to figures published by FSA.This favourable position is reflected in the number of accountsin arrears at 31 December 2009 where just 1.18% ofmortgages were more than three months in arrears,significantly less than the CML average of 2.38%, and in sixmonths arrears levels, where Coventry’s rate of 0.55% is 39%of that of CML members as a whole. These figures are statedexcluding cases where a receiver of rent has been appointed.In addition, despite the overall fall in house values recorded inthe last two years, the average loan to value of the Society’smortgage book remains low at 51% (2008 - 53%).The Society’s strong arrears performance is reflected in therelatively low amount required to cover non-payment of loans.As in 2008, impairment charges are certain to be amongst thelowest of any large UK mortgage lender meaning that theSociety’s strong profitability was not been eroded by creditlosses.The Society has never purchased a mortgage book orundertaken second charge or commercial lending.FundingThe Society continues to fund its mortgage lending with retailsavings deposits and has demonstrated its ability to competevery successfully in an intensely competitive savings market.As at 31 December 2009, all of the Society’s mortgage bookwas funded by retail savings, capital and reserves.The importance of understanding and quickly addressing theneeds of current and future members is central to thissuccess. The Society has shown that by continuing to developand deliver its comprehensive portfolio of savings products itis able to fund further mortgage growth.The launch of new products has been supported by strongretention rates for maturing products and overall retailbalances increased substantially by £833 million in 2009 andhave grown by £5 billion (61%) in the last three years.Since 2008 the action taken on variable rate savings accountsmeant that over 95% of balances have seen an increase intheir rate relative to the Bank of England base rate. Theannualised benefit of this action is an additional £70 million ofinterest paid to members based upon the balances held at1 January 2009.The growth in savings and mortgages also attracted over100,000 new members to the Society taking the total numberof members to more than 1.2 million.In addition, the Society has maintained strong credit ratingswith both Fitch (A) and Moody’s (A3). As a result, the Societycontinued to attract significant deposits from institutionalinvestors despite the restrictions in the wholesale market.The Society’s ability to attract long term deposits is worthy ofparticular note. In October 2009, it was able to complete a£350 million 10 year unsecured note issuance, in a deal thatwas heavily oversubscribed. Coventry remains one of only twobuilding societies to have been able to attract such long termfunds from institutional investors since the onset of the creditcrunch in 2007.10
Financial performanceThe Society achieved excellent results in 2009, remainingstrongly profitable and continuing to grow.The uncertainty that prevailed particularly over the first half ofthe year, the high cost of acquiring retail savings and anunpredictable housing market meant that the directorsfocused on prudent lending at lower volume levels than in theprevious year.The Society’s successful track record of competing for retailsavings was maintained, ensuring a high level of liquidity at23.9% and enabling the continued growth in mortgages to befunded comfortably.The Society continues to achieve the lowest managementexpense to mean assets ratio reported by any UK buildingsociety. Despite significant growth in savings and mortgages,costs grew by only 5.6%. Operating costs fell as a percentageof average assets from 0.40% to 0.38%.The result was record profit before impairments andexceptional items of £75.0 million.A further provision for payment to the Financial ServicesCompensation Scheme of £2.0 million was made in relation tothe bailout of failed institutions. Profit before tax increasedsubstantially from £26.4 million to £56.2 million. Afterprovision for tax of £12.7 million, profit for the financial yearwas £43.5 million (2008 - £18.8 million), furtherstrengthening the Society’s capital position.AwardsThe directors are pleased to report that the Society won manyawards in 2009, with particular recognition going to twomembers of staff who were independently assessed as beingthe best in their respective fields.The achievement of Joanne Taylor, an advisor in the Society’sCoventry-based customer service centre, was exceptional.The Customer Contact Association, which assesses customerservice across many industries, named Joanne not only theAdvisor of the Year but also the Overall Professional of theYear – the first time this has been awarded to an advisor.Diane Kennedy, who works as the national account managerin Coventry’s Intermediary sales team, was awarded BusinessDevelopment Manager of the Year in the British MortgageAwards.It is perhaps unsurprising that the Society should win anumber of mortgage awards when its mortgage performancehas been so outstanding. Among the many awards won,some stand out: Mortgage Strategy magazine awarded theSociety ‘Mortgage Strategist of the Year’ and the Which?Mortgage Customer Satisfaction Survey, based on the opinionof customers of all organisations, rated the Society best highstreet lender. In addition, the Mortgage Finance Gazettenamed Coventry the largest organisation that has done themost to treat customers fairly.The directors were also pleased that the Society won anumber of awards for savings products, including being highlyrated in the equivalent Which? Customer Satisfaction Surveyfor savings and ‘Best Over 50s Account Provider’ byMoneyfacts.In 2008 the Society’s Coventry-based customer service centrefeatured in the Sunday Times Top 20 UK Call Centres list.This was repeated in 2009. The team was also awarded thetitle 'Best Medium to Large Call Centre in Europe' in the 2009European Call Centre Awards. The customer service centrewas also presented with an award for innovation in back officeoperations, reflecting the work on flexibility, planning andefficiency that underpinned the performance of the Society in2009.The Society was recognised in the Coventry and WarwickshireEmployer of Choice awards and re-awarded its Investors inPeople accreditation. The fact that these reflect the strengthof commitment between Society and staff is extremelyimportant to the Society.In 2009, the Financial Ombudsman Service published detailsfor the first time of the complaints that had been referred to itafter failing to be resolved by individual financialorganisations. A minimum of 30 complaints had to bereferred within a six month period for an organisation to beincluded. The Society was the largest mortgage lender not tofeature in the tables, and, although not an award, thedirectors believe this is tangible and independent recognitionthat the Society aims to deliver a service that meets theexpectations of its membership. This was repeated inFebruary 2010.The directors believe that all the awards won by the Society in2009 reflect the commitment for excellence that is shared byall staff and it is notable that the awards span a broad crosssectionof the Society’s activities.11
Page 1 and 2: ANNUAL REPORT & ACCOUNTS 2009
Page 3: ChairmanDavid HardingDeputy Chairma
Page 11: DIRECTORS’ REPORTBUSINESS OBJECTI
Page 15 and 16: ASSETSThe assets of the Group incre
Page 17 and 18: KEY PERFORMANCE INDICATORSNET MORTG
Page 19 and 20: Remuneration CommitteeConsisting of
Page 21 and 22: RISK MANAGEMENT REPORTPRINCIPAL RIS
Page 23 and 24: CORPORATE GOVERNANCEThe board is ac
Page 25 and 26: APPOINTMENTS TO THE BOARDThe appoin
Page 27 and 28: DIRECTORS’ REMUNERATION REPORTINT
Page 29 and 30: STATEMENT OF DIRECTORS’RESPONSIBI
Page 31 and 32: OPINIONIn our opinion:the Annual Ac
Page 33 and 34: BALANCE SHEETSas at 31 December 200
Page 35 and 36: CASH FLOW STATEMENTSfor the year en
Page 37 and 38: Improvements to IFRSThe improvement
Page 39 and 40: FINANCIAL LIABILITIESFinancial liab
Page 41 and 42: PENSION COSTSThe Society operates b
Page 43 and 44: Loan impairment and other provision
Page 45 and 46: 7. OTHER OPERATING INCOMEGroup Soci
Page 47 and 48: 11. DIRECTORS’ EMOLUMENTS (contin
Page 49 and 50: 12. PENSION SCHEME (continued)2009
Page 51 and 52: 13. IMPAIRMENT PROVISIONS ON LOANS
Page 53 and 54: 14. PROVISION FOR FSCS LEVIESAll de
Page 55 and 56: 20. DEBT SECURITIESGroup Society Gr
Page 57 and 58: 21. DERIVATIVES AND OTHER FINANCIAL
Page 59 and 60: 24. INTANGIBLE FIXED ASSETSGroup So
Page 61 and 62: 26. DEFERRED TAXDeferred tax assets
Page 63 and 64:
32. OTHER LIABILITIESGroup Society
Page 65 and 66:
38. FINANCIAL COMMITMENTSGroup Soci
Page 67 and 68:
40. FINANCIAL INSTRUMENTS (continue
Page 69 and 70:
Page 71 and 72:
Page 73 and 74:
Page 75 and 76:
41. RELATED PARTY TRANSACTIONSULTIM
Page 77 and 78:
42. NOTES TO THE CASH FLOW STATEMEN
Page 79 and 80:
2. OTHER PERCENTAGES2009 2008% %As
Page 81 and 82:
3. INFORMATION RELATING TO DIRECTOR
Page 84:
www.thecoventry.co.ukCoventry Build
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