Coventry Building Society announces excellent half year results
The Coventry, UK building society, has announced its interim results for the six months ended 30 June 2008.Highlights include:
Retail savings balances increased by £905 million (9%) during the first six months of the year and by £2,743 million (32%) in the twelve months since 30 June 2007
Mortgages and other loans grew by £862 million (7%) in the half year and by £1,930 million (18%) since 30 June 2007
Total assets reached £16.3 billion, an increase of 9% over 31 December 2007 and of 26% in the twelve months since 30 June 2007
Net retail receipts, before capitalised interest, of £707 million (2007 first half year: £82 million)
Gross mortgage advances totalled £1,909 million, an increase of 1% over the 2007 first half year
Net mortgage lending increased by 24% to £851 million, representing three times the Society's normal market share. This equates to almost 3% of the total market and around 25% of net lending by building societies
Cost to mean assets ratio fell to 0.43% (30 June 2007: 0.50%)
Profit before tax increased by 8% to £35.5 million (2007 first half year: £32.9 million)
Credit quality remains high - only 0.18% of accounts greater than six months in arrears, one third of the CML average
All growth is organic and concentrated in low risk, residential sectors. The Society has never purchased a mortgage book
No exposure to US sub-prime assets, no CDO or SIV investments
Established a covered bond programme in July 2008.
Commenting on the results, David Stewart, Chief Executive, said: "I am pleased with our performance in the first half of 2008. We have increased our market share and, as a result, I can report strong growth in savings and mortgages.
"There's no doubt that this is a tough climate for mortgage lenders. However, our ability to attract and retain retail savings and our consistent focus over many years on low risk lending means we have been able to meet the challenges that we have faced. These results testify that Coventry Building Society is in good shape.
"It has long been our strategy to fund most of our lending with retail savings balances and we have worked hard over a number of years to develop a comprehensive range of savings products to enable us to grow our mortgage book. This work proved invaluable as competition for retail savings increased throughout 2007 and in 2008 reached new levels of intensity.
"In response we have moved quickly to take advantage of market opportunities, helped enormously by the rich functionality that many of our accounts offer. Over the past six months, savings balances increased by £905 million, well above our natural market share, and this ensured that the very strong growth in mortgages was funded easily.
"In addition to building our retail savings balances, we have also given attention to the most effective way of managing our wholesale funding requirements. In July we issued our debut covered bond. This programme will enhance our already strong funding position, enabling us to attract further cost effective long term wholesale funding.
"This funding position has allowed us to maintain our appetite for new mortgage lending. Gross mortgage advances increased very slightly by 1% over the equivalent period in 2007 to reach £1,909 million.
"We have experienced a considerable reduction in redemption activity. During the first six months of 2008, redemptions and repayments represented 9% of mortgage assets at the start of the year. The equivalent proportion in 2007 was 12%. As a result, we can report mortgage growth in the half year of 7%.
"Coventry's net lending in 2008 of £851 million represents a share of approximately 2.9% of the UK mortgage market and equates to around 25% of the net lending made by building societies.
"The overwhelming majority of our lending continues to be in low risk sectors. All of our mortgage advances were fully secured on residential property. The average loan to value of our new lending in the first six months of 2008 was 57% and we expect this figure to fall further during the second half of the year.
"We continue to offer buy-to-let mortgages but these remain subject to strict underwriting and are at low loan to value ratios. During the first six months of the year, we advanced £376 million for buy-to-let properties where the loan to value ratio was below 65%. A further £35 million was advanced to buy-to-let investors at loan to value ratios of between 65% and 85%. No buy-to-let lending has ever been undertaken at a loan to value ratio of above 85% and, since March 2008, our maximum limit has been 65%.
"Credit impaired mortgages accounted for less than 2% of our activity, all of it in categories generally classed as ‘near prime' and at relatively low loan to value ratios.
"As in previous years, all of our mortgage growth was organic. The Society has never purchased a mortgage book, preferring to retain control of the origination and underwriting process.
"Just 0.18% of our borrowers were more than six months in arrears, a figure that represents less than one third of the Council of Mortgage Lenders' average. This strong position is also reflected in three month arrears levels. Only 0.58% of all mortgages were greater than three months in arrears. This is only 44% of the level experienced in the industry as a whole.
"For buy-to-let mortgages, our comparative position is, if anything, even stronger. At 30 June 2008, just 0.41% of buy-to-let cases were in arrears of over three months, significantly below the market average and indicative of the tight underwriting that has been in place over many years.
"At 30 June 2008, there were 26 accounts more than twelve months in arrears out of a total of 130,000 mortgages.
"Our small portfolio of unsecured loans reduced by £3 million and now totals £109 million. Its performance gives no cause for concern.
"In summary, we retain a high quality mortgage book and a strong funding position. There's no doubt that market conditions will remain challenging for the rest of the year and our approach must continue to reflect this. Nevertheless, I believe we have the right business model for today's uncertain times."