Annual Report

& Accounts2022

All together better

Annual Report

& Accounts

Visit us here wwwthecoventrycouk

Strategic Report

Our performance highlights 02

A statement from your Society’s Chair 04

Your Chief Executive's review of the year 07

Our business model and strategy 13

Our stakeholders 17

Building a sustainable Society 19

Our external environment and key

and emerging risks

Chief Financial Officer's review 26

Risk Management Report 34

Information about our capital liquidity and

funding position and how we manage key risks

relating to our operations

Our approach to climate change 66

This section outlines how the Society is

responding to climate change including its

climate related financial disclosures

Governance 78

Our Board of directors and a review of our

governance including the Directors'Report

and annual report on remuneration

Financial Statements 127

Our audited financial statements and related

notes including the Independent Auditors'

Report

Annual Business Statement 193

Glossary 195

The photography in this Annual Report & Accounts features some of our amazing colleagues and members and our home in the City of Coventry The term ‘Society’

is used in this Annual Report & Accounts to refer to the activities of the Society and its subsidiaries except where the context indicates otherwise Coventry Building

Society is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (firm reference

number150892wwwfcaorguk) Principal Office Coventry House, Harry Weston Road, Binley, Coventry CV3 2TQ.

We are a building society providing

savings and residential mortgage

products to individual savers and

borrowers across the UK We're as

committed today to remaining a

mutual organisation and putting our

members first in everything we do

as when we were founded in1884.

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

An overview of our

strategy and our financial

and non-financial

performance in2022.

Our performance in2022 02

A statement from your Society’s Chair 04

Your Chief Executive's review of the year 07

Our business model and strategy 13

Our stakeholders 17

Building a sustainable Society 19

Our external environment and top and

emerging risks

Chief Financial Officer's review 26

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

All together better

6.0%

Savings balance

growth

(2021:4.6%)

3.0%

Mortgage balance

growth

(2021:7.2%)

Our commitment to service

+75

Net Promoter Score

(2021:+76)

Engaging colleagues and supporting our communities

£3.2m

Total community

investment

(2021:£1.6m)

£230m

Value returned to

members

(2021:£201m)

207

Seconds average call

waiting time

(2021:49seconds)

77%

Great Places to Work

Trust Index® score

(2021:73%)

2022

2022Fairer Finance Gold

Ribbon for mortgages

2022award Fairer

Finance Clear and Simple

terms and conditions

Certified Great Place

To Work

Performance highlights

Delivering value to members

We helped

Savings Champion Best

Building Society

From the little things to the life-changing we make it all add up

5,400

customers buy their

first home

(2021:7,100)

Strategic Report

Coventry Building Society  Annual Report & Accounts2022

Sustainable financial performance

27.4%

Common Equity Tier1

(2021:36.2%)

Capital ratios

Profitability

£371m

Profit before tax

(2021:£233m)

Efficiency

0.52%

Cost as a percentage

of average assets

(2021:0.50%)

0.17%

of mortgages more

than3months in

arrears

(2021:0.17%)

Low risk

5.2%

UK leverage ratio

(2021:4.8%)

1.16%

Net interest margin

(2021:0.90%)

43.2%

Cost to income ratio

(2021:56.3%)

195%

Liquidity Coverage

Ratio

(2021:187%)

1. Based on the Society’s average month

end savings rate compared to the

CACI Ltd's Current Account and

Savings Database rest market average

rate for savings accounts excluding

current accounts and offset savings

for the12months of the year (2021:

first11months of the year)

2. A measure of customer advocacy

that ranges between -100and+100

representing how likely a customer

is to recommend our products and

services

3. Based on average call waiting times

between1January2022and31

December2022.

4. Total community investment made

by the Society in2022has been

determined in line with the Business

for Societal Impact (B4SI) framework

5. A measure indicating a trust-based

people first workplace based on

positive responses to the annual Great

Place to Work survey

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

A statement

from our Chair

Welcome to my first annual statement

as Chair of Coventry Building Society

I was appointed following the Society’s

Annual General Meeting in April2022

and am honoured to undertake this

role for an organisation I admire for

its purpose-led ethos and its focus on

members

Over forty-years of working in

a variety of financial services

organisations has taught me the

importance of understanding and

delivering to customers'changing

expectations and building a resilient

business to keep their savings safe

Coventry Building Society's record

of putting members first the social

purpose it delivers through its support

for charities and local communities

as well as colleagues together with

its impact on societal priorities such

as climate change and diversity and

inclusion shows the strength of the

mutual model and its relevance in

these challenging times

In2022,this purposeful ambition has

been needed more than ever

Strategic Report

 Annual Report & Accounts2022Coventry Building Society

The shocks to the UK economy resulting from the war in

Ukraine the Covid-19pandemic leaving the European Union

and political uncertainty need no explanation Each of these

events would be significant in its own right but together

they represent a degree of challenge to organisations and

individuals that feels unprecedented in peacetime

The result was a rapid increase in inflation and a strong

response from the Bank of England which raised the base rate

faster and further than many people expected at the start of

the year Our Chief Executive Steve Hughes will cover the

impact of these developments on our members colleagues and

the communities we serve and the Society's response along

with the performance highlights of the year in his review

But the important thing for me is that our focus throughout has

been on our members and the need to maintain the standards

of value and service that they expect from us

Our ability to do this is underpinned by our simple and

straightforward business model which enables us to

concentrate on the long term whilst providing reassurance and

stability during difficult times In a year of great uncertainty

the outcome is a strong and balanced performance which on

days saw record flows of savings and mortgage new business

but also enhanced our financial resilience and technology

infrastructure and means we face the future with confidence

We have delivered profit before tax of£371million (2021:

£233million) and continued to invest while protecting the

interests of our savers and borrowers

Supporting our members - our highlights in

2022

The Board takes its responsibility to members extremely

seriously and we prioritise opportunities to listen to their views

and opinions

Understandably their current concerns focus on the cost of

living crisis and making their money work as hard as possible

for them Providing long-term value is a key measure of

the Society’s success and a rapidly increasing interest rate

environment has created challenges but also opportunities

to do this The Society continues to pay a premium to savers

above the average in the market which increased to£230

million in2022.We have also been quick to reassure members

of changes to our savings rates following the Bank of England

announcements and we have seen a6%rise in our savings

balances in the year

The same is true on the mortgage side where market volatility

has placed intermediaries and their clients under considerable

pressure at times It is also equally clear that the Society’s

pledges to the sector in particular the notification of product

withdrawal are extremely valued

The speed of change in our markets together with our

increasing scale underline the importance of the investment

we are making in the technological transformation of the

Society Members expect a resilient ‘always on’ service that

they can access through a variety of means including mobile

devices and the digitisation of the Society’s savings and

mortgage services is a key strategic priority for the Board It

is really encouraging to report that the Society's investment

with its focus on technical resilience as well as enhancements

to the services we offer is clearly delivering real value with a

number of key milestones being achieved in2022.including

implementation of a new contact centre telephony system

As I said at the start of this review the Society is focused on

consistently meeting the needs of its members and at times

this year whether through the challenges of legacy technology

or the unprecedented new business volumes our service has

fallen below the high standards we set ourselves However we

also made significant progress during the year in modernising

our core banking systems and have begun to implement the

digital enhancements to our mortgage processes that will lead

to a more resilient and scalable service I expect this progress

to continue in2023as we make significant enhancements to

both our mortgage and savings operations aimed at improving

the customer experience

This combination of digital and personal interactions is

clearly what our members want with the ease and efficiency

of digital services being complemented by the warmth and

professionalism of services provided by front-line colleagues

The human touch is particularly valued by members who

experience our service through branches and the completion

of our four year multi-million pound redesign of the entire

branch network was an important milestone achieved during

the year

Whilst it is understandable that the current priorities of our

members are focusing the Board’s attention on providing the

best value and service possible the long-term challenges of

climate change remain an important driver of the Society’s

strategy for a sustainable future

Strategic ReportStrategic Report

I attended the Society’s Annual General Meeting in April2022

at which our first Climate Action Plan was overwhelmingly

endorsed by our membership and we will be updating

members with our progress this year

It is vital to retain the trust of the public and our own

stakeholders as we transition to the net zero goal in our

Climate Action Plan Our progression towards Science-Based

Targets is a part of this with our position being underpinned

in the meantime by ISO14064-1accreditation Despite

the external shocks we remain committed to our long-term

sustainable goals

I believe that the social and economic challenges of the past

year or so are having a long-term impact on the social contract

between businesses the Government and the public There

are greater expectations on businesses to play an active role

in addressing national issues whether in reducing the impact

of climate change addressing the country’s housing crisis or

creating inclusive opportunities for the more marginalised

in society Coventry Building Society is well placed to meet

this expectation with its mutual status and track record of

supporting people and communities helping to build trust over

a long period

The Society’s approach can be seen in the care it has shown

colleagues and local communities as thecost of living crisis

has worsened and the donation of an additional£1million

in2022to aid local charities providing front-line support to

the most hard-pressed shows how quickly we can make a

difference

Changes to the Board

I believe that one of the strengths of the mutual model is the

ability to take a long term view in the interests of the members

The Board's task is to ensure the Society is run in that way

by keeping an appropriate blend of experience and fresh

perspectives Recently we announced that Catherine Doran

a non-executive director since2016,will step down from the

Board following our Annual General Meeting in April And that

Peter Frost executive director and Chief Customer Officer will

retire in2023after more than ten years at the Society

Both have made significant contributions Catherine's IT

and transformational experience has been invaluable as the

Society has developed the infrastructure and services enabled

by innovations in technology Peter has been an outstanding

advocate of members and colleagues leading the operational

changes needed to protect the Society's future whilst retaining

the values and heritage that are the foundation of its success

I would like to take this opportunity to thank them both

on behalf of the Board their colleagues and the Society's

members

I would also like to welcome Vanessa Murden who joined

the Board in January as a non-executive director Vanessa

brings great financial services experience in customer service

technology and transformational roles and I look forward to

working with her as we continue to invest in the Society's

technology foundation operational resilience and service

experience

Board priorities for the year ahead

I talk more in the Governance section of this report about the

Board’s priorities plans and progress in2023.

But in short we are committed to maintaining the long-term

value we offer members in a market that we expect to remain

volatile and subject to change We are also focussed on

delivering the excellent service they expect and deserve and

doing this consistently

This in turn requires a particular focus on operational risk

and resilience both in view of the external environment and

the technological journey the Society is undergoing I am

pleased with the progress we are making but not complacent

and your Board will do all we can to support the delivery of

this strategically important investment programme As part

of this it has been decided to strengthen our governance

arrangements with the introduction of a new Board

Technology Oversight Committee to be chaired by Vanessa

Overall it has been quite a year The external shocks and

domestic political volatility have meant that markets moved

more than anticipated and I am very aware of the impact of

the cost of living crisis on the lives of members and colleagues

alike My role as Chair is to ensure we protect all that is good

about the Society whilst supporting its transformation into a

digital resilient modern mutual We have strong foundations

in place with the financial strength and strategic clarity to

offer our members the security value and service they expect

now and in the future and I believe that we are well placed to

succeed and grow in the coming years

Chair’s statement Continued

David Thorburn

Chair of the Board

23February2023

Strategic Report

Coventry Building Society  Annual Report & Accounts2022

Your Chief

Executive’s

review of

the year

2022was marked by a number

of significant shocks to the UK

economy strong inflationary

pressures and the continued impact

of the pandemic At times of

uncertainty people look for support

and stability as well as value and

our priority in2022was to provide

this for members colleagues and the

communities we serve We adapted

to events managed our growth

in a disciplined way to ensure the

Society's long-term security whilst

delivering competitive products

and services We kept up the pace

of change that is transforming our

technology base digital capability

and the way we serve members

so laying the foundations of a

successful and sustainable future

The outcome was a strong financial

performance which balanced

the needs of today's and future

members whilst providing greater

support to the people in society who

need most help

Strategic Report

 Annual Report & Accounts2022Coventry Building Society

The events of2022have been well documented and were

remarkable in the range and severity of their impact A UK

economy that had little time to recover from the challenges of

the Covid-19pandemic was hit by supply issues affecting fuel

energy and food as the consequences of the heartbreaking

conflict in Ukraine spread across Europe and the world

These events were amplified by political instability at home

and unprecedented volatility in the financial markets which

contributed to significant swings in the costs of borrowing

The overall economic story was one of rising prices The UK

inflation rate hit its highest level for over40years with the

Bank of England increasing the base rate eight times during

the year from a position of0.25%on1January to3.50%on

31December in response The impact on people’s day-to-

day lives has left many struggling to cope with the rapidly

increasing prices of gas electricity fuel and food The UK

economy continues to face economic headwinds with the Bank

of England and other commentators forecasting a long period

of lower growth

We’ve seen that the housing market is not immune to these

challenges Following a period of high demand that began in

2021and was sustained by supportive government policies

ultra-low interest rates and changes in attitudes to home

ownership this year’s economic and political instability

combined with the steep rise in borrowing costs changed

people's behaviours There was a movement towards re-

mortgaging rather than new purchases and redemptions were

higher than usual as many borrowers chose to exit their existing

mortgages early and lock into longer-term fixed rates From

late summer we saw the expected drop in house price inflation

and activity levels as confidence fell amongst potential house

buyers and sellers alike

Whilst a rising interest rate environment is generally good

news for savers the cost of living crisis has made the need for

value even more important This has led to a significantly more

active savings market as consumers become more alert to the

rates on offer and this has benefitted the Society due to the

consistent value we offer

The benefits of mutuality have never been clearer One of the

strengths of our simple and straightforward business model is

its resilience to external stresses and this enables us to take

a long-term view even when there are significant short-term

challenges The clarity of direction that comes from mutual

ownership without the need to satisfy shareholder demands

means we make decisions based on what is best for members

This includes ensuring our capital strength and investing for

the future as well as managing our day-to-day products and

services

But it is the day to day that matters most to our members

It is not for them to make the connection between mutual

ownership and long-term stability and security They tell us very

clearly what they want – and that is great value great service

and the support we can give them their families and their

communities through good times and bad In such a volatile

year our ability to keep delivering these things is how we judge

success

Delivering value to members

We are a simple business focused purely on savings and

mortgages Doing the right thing for members means balancing

the needs of savers and borrowers who are affected by a rising

interest rate environment in very different ways Our aim to

offer competitive products over the long term means that

members trust us to get this balance right

We maintained our track record of increasing our savings rates

above the market which meant we paid an additional£230

million of interest to our members than if we'd simply matched

the average rates paid in the market (2021:£201million)

1

This

shows very clearly the difference in the way we approached the

rising interest rate environment compared with many of our

competitors

The strength of this approach was seen throughout the year

combining leading offers in both ISA and non-ISA markets with

consistent and quickly communicated movements as the base

rate changed We developed our loyalty proposition with a range

of bonds and this has proved extremely popular with eligible

members another reminder of the benefits that mutuality can

provide and nearly80,000members benefited from this It is

not surprising that our product offering has been independently

recognised with Moneynet awarding us ‘Best Building Society

Saving Provider’ Savings Champion naming us Best Building

Society and Fairer Finance awarding us its Gold Ribbon for

savings for the eighth year in a row

Our strong response to the rising interest rate environment has

driven an increase in savings balances of6.0%or£2.4billion

(31December2021:£1.7billion) with overall balances

exceeding£40billion for the first time Our ability to compete

attract and retain savings balances remains a hugely important

part of our business model but also our purpose in making

people better off through life This was very clear in the second

half of the year when we experienced a significant increase in

savings activity The continued rise in interest rates and broader

economic uncertainty meant that when members needed to

talk to us these conversations were significantly longer and

more complex than previously It put our services under real

challenge and I’m very proud of the way colleagues responded

and provided great outcomes even when it took us longer to

answer the phone

Our purpose drives our mortgage lending too Ensuring the

right outcomes for members whether in terms of individual

affordability or protecting people from the possibility of

Chief Executive’s review Continued

Strategic Report

Coventry Building Society  Annual Report & Accounts2022

negative equity are as important as ensuring competitive

pricing We also have a responsibility to ensure our mortgage

lending is profitable and supports the Society's future stability

and growth This meant that we took a deliberately cautious

approach to lending in the first half of the year As the

market position changed and despite the incredible volatility

following the mini-budget we kept our pledge to intermediary

partners and stayed open for business We saw record activity

levels in the second half of the year as a result and I want to

thank colleagues who put in fantastic efforts to make sure

our borrowers were able to change mortgages and move

house when they wanted to I know their efforts were much

appreciated by mortgage brokers and their clients and they

continue to deserve the independent recognition they receive

from Which? and Fairer Finance and Your Mortgage which

awarded us'Best Building Society'.

Our pricing remained competitive and we took purposeful

decisions not to increase all variable mortgage rates as the

Bank of England Base Rate moved We also extended our

participation in the mortgage market and following a very

successful pilot now includes a new-build proposition in our

range This fits well with our broader sustainability ambitions

being supportive of the first-time buyer market and through

the improved energy efficiency of new builds our Climate

Action Plan as well It is possible that the immediate cost of

living crisis and general economic uncertainty have affected

people’s desire to invest in enhancing the energy efficiency of

existing homes and the performance of our Green Together

Reward which offers incentives to do so seems to bear this

out Whilst I believe large-scale changes to people's behaviour

requires greater leadership and education from Government

as well as business we will continue to explore ways of

encouraging action in this area We also recognise that our

level of lending to first time buyers has fallen in2022.This is

partly driven by fewer first time buyers entering the market and

we retain our long term commitment to supporting first time

buyers

6.0%

Savings

balance

growth

(2021:4.6%)

Our mortgage growth of3.0%or£1.4billion (31December

2021:7.2%,£3.1billion) compares with the overall UK market

growth of4.1%

 At just0.17%

(2021:0.17%) we continue to

record very low levels of arrears but do expect more borrowers

will require our support in2023.

Delivering on our service promise

I said earlier that our members expect a good service and

this is a consistently strong part of who we are and what we

do In many ways we maintained this through2022,but it

was noticeable as the interest rate environment changed

and under pressure of the cost of living crisis our members

contacted us in greater numbers than ever before and needed

more time to deal with the complexity of decisions they were

facing

Offering great products was also a factor in the number of calls

being taken but the result was that our service came under

pressure with some of our members having to wait longer

than usual to speak to us What didn’t change was the brilliant

support they received from our branch and contact centre

teams when they did talk to us and our Net Promoter Score

(NPS) – the primary way we judge overall satisfaction with our

service – remained outstanding at+75(2021:+76) for the

Society as a whole

We set a very high bar when it comes to customer service and

I want to thank our members for their patience as well as my

colleagues for their fantastic efforts during these tough times

I also want to reassure members and colleagues alike that we

are recruiting and training new colleagues and will provide the

resources needed to deliver the brilliant service they expect

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

+75 Net

Promoter

Score

Our measure of excellent

service

(2021:+76)

Chief Executive’s review Continued

One thing that will help with this is the ongoing digitisation of

our mortgage and savings services and we continue to make

good progress with this work We rolled out digital product

switching capability across our intermediary network with

more than80,000switches undertaken by the end of the year

We launched SMS authentication and are in the final stages of

developing our mobile savings app With self-service options

also enhancing our savings maturity process we are beginning

to see the benefits of this investment in terms of the efficiency

and scalability which are fundamental to our future growth

plans

Making progress on our digital plans is hugely important to

us and to our members But so is the human touch and in

2022we completed the multi-million pound transformation

of our branch network by opening our flagship branch in the

heart of Coventry city centre All our branches have now been

transformed into warm and welcoming hubs at the heart of

their local communities and we have received great feedback

from the members who use them as well as the colleagues

who work in them It underlines our commitment to the high

street for many years to come What people might not see

is the integration of our customer-facing channels by which

colleagues in the branch network are increasingly able to

provide telephony and digital support – a flexible and joined-

up approach to providing the best possible service to members

however they contact us

The investment we’re making in frontline services is matched

and at times enabled by the technology transformation that

is happening behind the scenes and here too we are making

great progress These programmes are focused on improving

the Society’s operational resilience information security

and the transformation of our financial planning controls

and reporting as well as providing the building blocks of new

services During the year we achieved significant milestones

in moving core applications and systems into new more secure

data centres as well as building the underlying components of

new digital services The transformation to new technologies

is ongoing and on track and I expect the benefits to be even

more obvious during2023.

We are making significant investments in our future Our

capital and revenue investment expenditure of£94million in

technology and change programmes shows the importance we

attach to this work Our cost to income ratio has improved to

43%as a result of our strong income performance However

our cost to mean asset ratio and total management expenses

increased to0.52%

(2021:0.50%) and£295million (2021:

£264million) respectively

Investing in our services is hugely important to us The

impending Consumer Duty regulations also lay out the

expectations on us to deliver the right customer outcomes

Our purpose and culture are aligned to meet this expectation

as we have shown this year whether by making our branches

more accessible supporting vulnerable customers delivering

value to savers or proactively contacting borrowers who may

be struggling in a rising interest rate environment Enabling the

convenience accessibility and ease of our digital services will

go hand in hand with the warmth of our human touch

Supporting our communities

I said earlier that members are clear about what they want

from us and I have talked about what we delivered in terms of

value and service during2022.They also want us to support

the communities they live in and conduct our business in a way

that contributes positively to some of the larger issues facing

society such asfinancial education food poverty climate

change and equal opportunities

Despite the external challenges I remain absolutely committed

to the Society’s sustainability agenda and recommend

taking the time to read our annual Sustainability Report

which provides more detail on our Environmental Social and

Governance progress and plans

We have worked hard over the last two years to embed a new

community strategy that focuses on issues affecting people

in Coventry the surrounding area and the communities

our branches serve During this time we have built brilliant

partnerships in the public private and third sectors to

deliver against three objectives where we believe we can add

resources knowledge and opportunities Better Foundations

which targets housing issues Better Futures which deals with

aspiration employability and career development and Better

Connections which supports the isolated and vulnerable

members of our community

Coventry Building Society  Annual Report & Accounts2022

£3.2m total

community

investment

(2021:£1.6m)

everything possible to meet member expectations and deliver

a great service In turn we have worked hard to recognise and

reward their contribution and give them the support they and

their families need

At a time of great change and uncertainty when the headlines

have been full of discord and instability it would have been

understandable for engagement and motivation to falter

Instead our second year participating in the Great Place to

Work survey showed an increase in overall engagement and

a rise in72of the78measures the survey covered I am very

proud of this result which positions the Society as one of the

best organisations of its size and shows the commitment we

make on an organisational and individual level to do the right

things for our people

A key aim is to recruit and develop talent that shares our

values and I am really encouraged by the personal and career

development we’re achieving at the Society In2022,over45%

of vacancies were filled by internal candidates something that

I believe is motivational for the individual but also great for the

Society’s culture and future success

As part of this we want to build a colleague base that reflects

the diversity of our city and the communities we serve We

have been recognised by Great Place to Work as being one of

the best places to work for women ranking14th amongst the

top39super large companies in this regard Our aim is50:50

representation on our Board and40%female representation

in our management roles by2025.We had more women than

men on our management development programmes this year

and as well as on our apprentice and graduate cohorts too

We continue to develop our working environment to provide

whatever support is needed

We have a similar ambition for25%of our manager roles to

be held by colleagues with an ethnic minority background by

2025.Progress on this is slower than I would wish despite a lot

of initiatives and a lot of support across the business As I have

said before we will make a difference and I am hopeful that

initiatives that include a tailored talent programme mentoring

and reverse mentoring and diversity and inclusion programmes

for recruiting managers will start to deliver real change

Colleague wellbeing is something we are passionate about

We measure it every quarter and have been able to track the

impact of the cost of living crisis on colleagues'mental and

financial wellbeing We anticipated some of the impact in

our2022pay award but took the additional step of a£1,000

cost of living allowance for all colleague's that were basic rate

taxpayers This payment was made in a series of instalments

from September2022through to February2023and was

massively appreciated But whether it is being proactive in the

face of clear evidence of need or anticipating and surprising

colleagues with our range of wellbeing initiatives the result is

clear in the brilliant engagement we have I have said before

that our people are our greatest asset and we will continue to

recognise and appreciate them for all that they do

I am very proud that as the cost of living crisis hit harder in the

latter half of the year we were able to use these partnerships to

donate£1million in addition to our normal support directly

to Coventry schools and local charities helping those most

at risk as well as a contribution to every one of our branches

across the UK to support food banks in their communities

2022also brought to an end our long-standing and very

successful partnership with The Royal British Legion We have

worked together for nearly15years and during that time

the Society has donated over£20million to fund the Legion’s

work The new community strategy is the reason for the

change We'll announce our new corporate partner very soon

and are very excited about the opportunities this partnership

will bring in tackling one of our priority issues nationally and at

a local level

We also continue to make good progress in pursuit of our

climate change objectives We received overwhelming support

at our2022Annual General Meeting for our Climate Action

Plan and have backed that up with atransformation plan to

achieve our Net Zero ambition by2040.This forms part of

The Climate Pledge which we signed early in2022and which

commits us to report our progress accurately and transparently

I believe our actions in joining the Science-Based Targets

initiative shows that we are serious about our climate change

ambitions

Engaging colleagues

The role played by my colleagues across the Society cannot

be overstated In a very challenging year they continued to do

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

A strong and balanced performance

I wrote this thinking about what matters most to our members

They expect great value and service and they expect us to do

the right things for the wider community we serve In times

of uncertainty and volatility they also expect us to keep their

money safe and secure and ensure the Society’s financial

strength and stability

Looking to the future with confidence

There seems little doubt that2023will see further economic

challenges We can hope that inflation has peaked and we see

greater market stability but the impact on our members and

colleagues of a ‘new normal’ in the cost of living will continue

with rising mortgage rates for existing members andmortgage

demand likely to remain subdued

Having said that the Society is well positioned In2022,we

took prompt decisions to communicate and reassure our

savers and continued to pay the best rates we could afford

We protected borrowers from the extremes of the rising

interest rate environment supported them through the

flexibility of our product design and kept the confidence of

mortgage intermediaries by maintaining our commitments

to them despite the fast-moving market We grew but grew

appropriately with the right focus on margin capital strength

and economic outlook that balanced the needs of all our

stakeholders

Just as importantly our investment in technology and the

transformation of our business is realising the benefits we

aimed for In2023we expect to complete further steps

towards the digitisation of our savings and mortgage services

which will deliver operational efficiencies greater capacity

and improvements in the ease and convenience our members

expect We will continue to expand our participation in

the mortgage market and support more people in buying

their homes Saving members can expect a consistently

great service supported by new digital capabilities And our

resilience will continue to be strengthened by our ongoing

investment in our technological foundations

Our performance makes me confident that we can continue

to protect our members and invest for the future despite the

challenges of economic and competitive headwinds I would

like to echo David's words on the fantastic contributions made

by Catherine Doran and Peter Frost who I have thoroughly

enjoyed working with and will miss very much And I join him

also in welcoming Vanessa Murden to the Board

I will finish by thanking our members customers and partners

for their continued support and loyalty and my colleagues

across the Society for their passion professionalism and

commitment

Steve Hughes

Chief Executive

23February2023

1.Based on the Society’s average month end savings rate compared to the CACI Ltd's Current Account and Savings Database rest of market average rate for savings accounts excluding current

accounts and offset savings for the12months of the year (2021:first11months of the year)

2.Source Bank of England

3.Percentage of mortgages with more than three months of arrears

4.Net Promoter Score (NPS) is a measure of customer advocacy that ranges between -100and+100,which represents how likely a customer is to recommend our products and services

5.Administrative expenses depreciation and amortisationAverage total assets

6.Total community investment made by the Society in2022has been determined in line with the Business for Societal Impact (B4SI) framework

Chief Executive’s review Continued

£371m

Profit

before tax

(2021:£233m)

In2022,we delivered a strong and balanced performance

across all these objectives Our profit before tax of£371

million was higher than in2021(£233million) This has been

supported by the increases in the Bank of England Base Rate

which has improved our margin and income performance

notwithstanding the strong value provided to members More

importantly we took prudent decisions to deliver the capital

strength that will be needed to support future growth and

investment particularly in view of a less certain economic

outlook

It is a very positive thing for the Society and its members that

we continue to maintain a strong capital position Our leverage

ratio increased to5.2%(2021:4.8%) and our Liquidity

Coverage Ratio was195%(2021:187%) Our Common Equity

Tier1ratio at27.4%(2021:36.2%) is well above regulatory

requirements and the2022reduction reflects a change

in industry wide regulation This clearly demonstrates our

financial strength and shows that we provide a safe home for

savers and borrowers alike

Strategic Report

Coventry Building Society  Annual Report & Accounts2022

Our business model is how we deliver our products services and strategy

Our business model

andstrategy

Inputs

Financial

We use the retained profits from our138years of trading

plus other forms of financial capital and funding from outside

investors together with the savings of our members to fund

our mortgage loans to customers

Natural

We are investing and changing to enable us to contribute to

a Net Zero world We use only renewable electricity and FSC

certified paper and are committed to reducing the carbon

footprint of both our own business activities and the homes

that we provide mortgages on

Infrastructure

Our critical technology systems were available99%of the

time during2022.These systems supported the distribution

of our products via our64branches our telephone channels

and our self-service options such as our online services and

cash machines

In addition to our branches we have a number of owned and

leased buildings in Coventry and Warwickshire that provide

accommodation for our other customer service and head

office teams

Suppliers and intermediaries

We distribute over90%of our mortgage products via

mortgage brokers and intermediaries and have started to

make our savings products available on platforms such as the

cash marketplace offered by Hargreaves Lansdown

Our business is supported by over600suppliers of which

90provide critical services and we also buy in specialist

expertise and additional labour where needed to support our

own colleagues

Our customers

We provide residential mortgages and cash savings accounts

to personal customers based in the UK We believe in Putting

Members First treating all our customers fairly and giving

them choice and flexibility in how they interact with us and

providing extra help to customers in vulnerable situations

and those in financial difficulty This means keeping savers'

deposits and all data safe and secure offering good long-term

value and ensuring good conduct outcomes for both savers

and borrowers

We also support landlords who provide homes to those

who use the private rental sector for their current housing

needs Our Buy to Let business diversifies our income and

helps create value for our wider membership through better

savings rates and services than we could otherwise afford

Our business model

We earn interest and fee income from mortgage customers

We then pay interest to savings members and wholesale

investors who have placed deposits with us or bought our

debt securities The difference between these two provides

the net interest income to pay our colleagues and suppliers

to cover potential losses on our mortgage loans to invest in

improved technology products and services The remaining

profit is then retained as capital to fund future growth and

provide financial resilience in the event of an economic

downturn Unlike a listed bank we don’t pay shareholders

dividends or aim to maximise our share price Instead we

only retain sufficient profits to remain financially resilient

whilst

• Giving better long term value and service levels and

• Investing so that our service and product propositions

continue to meet the needs and expectations of our

current and future members

We have a lower risk approach to lending than the average

UK mortgage provider which also supports this financial

resilience and strength over the long term This resilience is

reflected in our financial performance low arrears rates and

low repossession rates relative to others

We believe this mutual business model is consistent with

the value and ethos of those who founded the Society over

138years ago and promotes the competitiveness of the UK

mortgage and savings market as a whole

Outputs

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

Our business model andstrategy Continued

Inputs

Colleagues

We depend on an engaged and diverse workforce of over

2,800UK-based colleagues who deliver our services to

around2million customers across every region of the UK

Outputs

Our products and services

We provide residential mortgages to individuals to

enable them to buy their own home or to let property as

an investment Our mortgage lending is lower risk than

average protecting our borrowers investors and the

Society's members from economic shocks This resilience is

reflected in our financial performance low arrears and low

repossession rates relative to other firms

We provide cash savings accounts and our product range

supports those of all ages wanting to save for their future

whether thats for the shorter or longer term Our products

include instant notice and restricted access products fixed

rate bonds and tax free Individual Savings Accounts (ISAs)

We choose not to provide current accounts or provide

investment advice or to lend on anything except secured

residential property

We serve our customers through our network of branches

and agencies online via the telephone and through our

intermediary partners

Strategic Report

All together

better

A people and purpose-led building society

responding to the needs of all stakeholders

In recent years we reviewed our purpose values and strategic priorities

This review allowed us to recognise what has made us great while

focusing on continuing to deliver to our full potential and acting in the

long-term interests of members and other stakeholders

Our belief

Putting Members First

We believe that remaining an independent customer owned

mutual delivers the best outcomes for our savings and

borrowing members and for wider society Putting Members

First means considering the impact of our decisions and

strategy on our current and future membership and has

consistently led us to ‘do the right thing’ to be more resilient

and to outperform the markets in which we operate over the

long term

Our purpose

We exist to make people better off through life

Our business is made up of a network of relationships with

multiple stakeholders We need to balance the interests of

all these stakeholders – making them all better off through

life Delivering on our purpose empowers our customers

colleagues and others to be better off through life at the

same time creating a wider society that is fair confident and

resilient Our purpose is reflected in our branding as adding

up to something All together better

Our values

Our CARES values are to be Caring Ambitious Responsible

Empowering and Straightforward in our dealings with

each other with members and customers and with other

stakeholders as a key driver of employee trust and to sustain

a strong culture

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

These strategic priorities support our focused strategy with members and

people at the core They guide our activities and are also aligned to our

performance measures and targets

Making people better off through life

A purpose-led approach to

business the environment

and wider society

A responsible business supporting sustainable growth and employment and whilst doing so reducing

our carbon footprint and use of natural resources We will also provide lending to support customers

with reducing the carbon footprint of their homes Our purpose extends to our support to our

local communities changing our city for the better through increasing financial literacy and career

aspirations improving access to quality housing and reducing loneliness

Our purpose also drives us to be open honest and transparent in our dealings with our members

employees partners and regulators and in reporting our performance

An inclusive and inspiring

workplace for everyone

We are creating an inspiring place to work which better reflects the diversity of our city communities

and membership We provide a safe and engaging workplace for our employees supporting their

health and wellbeing

Offering the best value products and services we can

Making home ownership

a reality and building a

society of savers

Empowering customers to make better financial decisions and helping them achieve their financial and

life goals through simple mortgage and savings propositions that offer good long-term value

Market-leading'digital first

human always'customer

service

We want customers to feel confident they have chosen the right provider for their mortgage and

savings by

• Offering digital services that provide a better choice of product options better servicing and

better technology for our colleagues

• Backed up by friendly caring and well-trained employees offering tailored support and guidance

to customers when they need it most

All delivered in a resilient way

Protecting our members'

money and operational

resilience

Keeping money safe and accessible for our customers and their information secure through

investment in resilient technology processes and infrastructure

A resilient and sustainable

financial performance

Our strategy is to deliver a sustainable and resilient financial performance consistent with continuing

to support UK economic growth and employment whilst ensuring good outcomes for our customers

To achieve this we stress test our capital and liquidity resources to ensure we can continue to grow

and remain profitable under severe but plausible scenarios We are also careful to spend our members’

money wisely and efficiently as an enabler of growth good long-term value and service whilst

continuing to invest to meet stakeholders'and regulatory expectations

Our people and purpose-led strategy Continued

Strategic Report

Coventry Building Society  Annual Report & Accounts2022

As directors we work to promote the success of the Society for the benefit of all of its stakeholders In doing so we voluntarily

comply with Section172of the Companies Act2006.More information on who our stakeholders are and how we engage with

them is set out below and in the Governance section

Our stakeholders

Stakeholder

group

Customers Colleagues Suppliers

This group includes our members

other mortgage and savings

customers and mortgage brokers

This group includes all of the

Society’s employees

This group includes third-party

organisations and contractors who

provide goods and services to us

Stakeholder

needs – what

do they expect

from us?

• Great value savings and mortgage

products

• Excellent service through

whatever channel they use to

interact with us

• Human service where that is the

most convenient option with a

branch network in our heartland

• A business model which is

resilient so we are safe and

secure over the long term

• High availability of IT systems

with data kept secure

• Simple and clear communications

• An inclusive and inspiring

workplace for everyone

• A great place to build and develop

their careers

• An approach to reward which is

fair and consistent

• Support for career development

and training

• A culture which promotes

wellbeing supported by

straightforward policies and

processes

• To do business with us on

terms which are commercially

beneficial

• To be paid promptly

• To work with consistent and

understandable procurement

processes

• Decisions that are made in a

consistent ethical and fair way

• For local SME suppliers

procurement processes

which are proportionate and

straightforward

How do we

engage with

them?

• Our Member Panel which is an

online forum of10,000members

• Regular research with customers

prospects and intermediaries

• Complaints monitoring

• Regular events for executives

and Board members to meet

customers online and in person

• Our Annual General Meeting

where members vote on key

matters to the Society and

interact with the Board

• ‘My Society’ our employee forum

• The annual Great Place to Work

survey and surveys on specific

issues

• Structured meetings with the

Chief Executive and other

executives

• Online internal communications

tools and networks

• By working closely with our

recognised union Unite

• Suppliers are provided with

feedback on sourcing activities

they are involved in and we

engage with unsuccessful

suppliers

• Supplier Relationship

Management processes

• Bi-annual supplier surveys to gain

an understanding of the views of

our suppliers

• Supplier strategy events

What’s been

important for

them in2022?

• Products that reward loyalty and

offer good long-term value

• The ability to access our online

services in an easier way whilst

maintaining security standards

• Maintaining a consistent presence

in the mortgage market

• A safe environment for customers

using our branch network

• Less paper and a mobile savings

App

• Our remuneration strategy and

focus on financial wellbeing

• Embedding flexibility in ways of

working

• How we respond to the broader

diversity and inclusion agenda

• Maintaining positive wellbeing

including mental health support

• Improving opportunities for

career development

• Understanding more about our

strategy

• Prompt payment

• Finding out about opportunities

that might be available to local

suppliers

Our response

and key

decisions taken

by the Board

• The Board approved a multi-year

digital strategy and roadmap

backed by customer research

• We significantly improved

our digital and self service

capabilities

• We introduced loyalty products

and enhanced our mortgage

proposition for first time buyers

and Green Together Reward

product

• The Board engaged in two-way

discussions with the My Society

forum focusing on diversity and

inclusion branding ESG reward

wellbeing and health and safety

• Committed to giving colleagues

the greater flexibility that comes

with a hybrid working model

• Investment in modern

collaborative working

environments

• The Board approved aligning

our procurement practices to

the international standards for

sustainable procurement

• We made changes to our

procurement policies and

sustainable procurement strategy

based on supplier feedback

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

Stakeholder

group

Investors Communities Environment

This group includes wholesale

investors and ratings agencies

This group includes those

supporting the communities we

serve

Our direct and indirect impact on

the world around us

What do they

expect from

us?

• A stable and sustainable

performance with resilient capital

and liquidity levels

• An organisation that is focused

on the mortgage and savings

markets that is well governed and

manages risks effectively

• Clear disclosures to enable

informed investment decisions to

be made

• Focus on environmental social

and governance impacts

• Support – financial and in kind –

and to benefit from our skills and

knowledge

• Help to raise awareness of key

issues and signposting those in

need

• A community strategy which

makes clear what we support and

how this can be accessed

• Funding commitment across the

medium term

• To contribute towards tackling

climate change

• Measurement and reporting of

our emissions

• The reduction of our own

emissions and broader

environmental impacts

• Helping members make the

transition to housing which

reduces greenhouse gas (GHG)

emissions

How do we

engage with

them?

• A programme of investor and

analyst meetings

• Public updates on our

performance or other material

matters for disclosure

• Information about our funding

programmes and the Annual

Report & Accounts published on

our website

• Engaging regularly with our

strategic partnerships charities

public sector and schools both

individually and as part of

the Coventry Business in the

Community Place Leadership

Group

• We have established key

points of contact in each of the

organisations we work with

• Working with a range of

external bodies and suppliers to

monitor manage and reduce our

environmental impacts

• Working with third parties for

assurance to conform with ISO

14064-1standards to validate

our GHG emissions data

What’s been

important for

them in2022?

• Impact of the cost of living crisis

on our borrowers and how we're

supporting members

• The Society's roadmap to

achieving Net Zero ambitions

• Product propositions aimed at

helping members improve the

energy efficiciency of their homes

• Our plans for a green or social

bond

• Building successful partnerships

which bring value to community

organisations

• Certainty of funding as well as

responding to changing external

events by providing additional

funding to support services

through cost of living pressures

• Creating access to opportunities

and raising aspirations

• We are reviewing our Climate

Action Plan which was published

for the first time in the prior

year This sets out in detail how

the Society will respond to the

climate challenge

• We achieved our short-term

climate targets we are now

Carbon Neutral for Scope1

emissions claim Net Zero

merits for Scope2emissions

and we achieved ISO14064-1

certification against our2020

and2021GHG emissions data

Our response

and key

decisions taken

by the Board

• Feedback used to develop the

Annual Report and Sustainability

Report to ensure the emerging

needs of investors are met

• The Board discussed the

feedback from rating agencies

and their assessment of our

performance

• £1m additional investment

approved to support local

communities impacted by the

cost of living pressures

• The Board considered our

ongoing investment in the

Coventry Building Society Arena

and its support of our community

strategy

• New corporate partnership

progressed to be announced in

early2023.

• The Board considered the impact

of climate change on both the

Society and its customers and

approved the multi-year Climate

Action Plan published on our

website

Our stakeholders Continued

Strategic Report

Coventry Building Society  Annual Report & Accounts2022

Building a sustainable Society

Our achievements in2022

over 3,500

Young people helped

through our education

and employability

programmes

Carbon

77%

External associations include

We are signatories of

The Climate Pledge UN Global Compact UN Sustainable Development Goals

UN Principles for Responsible Banking Task Force for Climate-related Financial

Disclosures Bankers for Net Zero UK Sustainable Investment and Finance

Association Race at Work Charter Women in Finance Charter

561

People supported

by Access to

Housing advice

£3.2m

Total community

investment

43%

Suppliers rated

green by EcoVadis

Employee

engagement

neutral

since2021for our

own operations

We have been awarded

Fair Tax Mark - Fair Tax is at the heart of a fair society a strong economy and a

functioning democracy Its aim is to help those people who believe in a fair society

and playing by the rules to say so publicly

ISO14064-1certification - an international standard that quantifies the reporting

of greenhouse gas (GHG) emissions and the verification

ISO

14064-1



certification

retained

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

Sustainability in the Strategic Plan

Our sustainability strategy is embedded within the Society’s

people and purpose-led Strategic Plan This is approved by

our Board annually and guides decision making for a five year

period More detailed decision making on this topic including

identifying specific actions and accountabilities is considered

by the Board twice annually in specific sustainability strategy

updates

Making the Plan's objective of the Society being a'people and

purpose-led mutual'a reality is achieved by the strategic goals

as outlined on page16:

1. Having a purpose-led approach to business the

environment and wider society

2. Creating an inclusive and inspiring workplace for

everyone

The term sustainability covers all three areas of Environmental

Social and Governance (ESG) and the Society considers them

as follows

Our sustainability strategy

Sustainability is at the core of the Society’s strategy and aligns with our

purpose and values This sustainability strategy is framed by the three key

external United Nations (UN) benchmarks which we have committed

to Delivering against these external benchmarks forms the core of the

Society’s sustainability strategy

Environmental

We believe that climate change is a critical

issue for the UK and the wider world We are

committed to making a positive contribution to

the challenge of climate change by reducing the

environmental impact of our business activities

At the heart of this is progressing our decar-

bonisation strategy which aims to deliver on

ambitious Net Zero targets

Social

As a people and purpose-led organisation we

aim to meet the needs of multiple stakeholders

For members offering long-term value good

customer outcomes and superior customer

service For colleagues providing work that sup-

ports engages and enables them to unlock their

full potential And we support local communi-

ties and national causes creating opportunities

for the most disadvantaged in society

Governance

Maintaining the highest standards of govern-

ance is integral to the successful delivery of the

Society's sustainability strategy Our governance

framework ensures that the Board is effective

in making decisions and maintaining oversight

whilst keeping to our well-established purpose

and values

The Society's commitment to sustainability

Since2021,the Society has been committed to the UN Global

Compact corporate responsibility initiative and its principles in

the areas of human rights labour the environment and anti-

corruption

The Society is also a signatory of the UN Principles for

Responsible Banking and has identified four of the17UN

Sustainable Development Goals (UN SDGs) to prioritise as

our areas of focus The priority goals are

• UN SDG4:Quality education

• UN SDG8:Decent work and economic growth

• UN SDG11:Sustainable cities and communities and

• UN SDG13:Climate Action

For each of these priority goals we have agreed ambitions

and specific targets which are outlined on the following page

These measures help to define measure and report on our

broader sustainability activities

More information on the Society’s approach to sustainability is

provided on our website at wwwthecoventrycouk

Strategic Report

Coventry Building Society  Annual Report & Accounts2022

Our sustainability priority goals

Why we make a difference

• We are a leading local employer wanting to provide

employment opportunities for our local communities

• We are committed to enhancing the skills of our

employees

• We have the resources to make a positive impact on

education in Coventry

Our targets and ambitions

• 250apprenticeships over five years from2021.

• 50%of senior management roles from internal recruits

by2025.

• 10,000children and young people in Coventry

supported via education programmes over three years

from2021.

In2022,we delivered

• 103apprenticeships since2021.

• 57%of senior managers recruited internally (2021:

49%)

• 14,984children and young people supported since

2021.

Why we can make a difference

• We provide career opportunities at differing levels of

seniority

• We spend over£172million annually with our supply

chain enabling us to drive positive changes with our

suppliers

• We can offer underrepresented groups career pathways

Our targets and ambitions

• We will offer career development to enable colleagues to

achieve their potential

• Progress the sustainability agenda with our suppliers

• 40%of all senior manager and above roles held by women

by2025.

• 25%of manager roles and above held by colleagues from

ethic minority groups by2025.

• All key suppliers have committed to the CBS Supplier

Code of Conduct by2023.

In2022,we delivered

• 45%of roles filled by internal candidates

• Sustainability questions feature in supplier due diligence

questionnaires and request for proposal documents

• 38%of all senior manager and above roles held by women

(2021:37%)

• 12%of manager and above roles held by colleagues from

ethnic minority groups (2021:12%)

• 100%of our suppliers committed to the CBS Supplier

Code of Conduct

Why we can make a difference

• We provide financing for housing and can help first time

buyers onto the housing ladder

• We can help homeowners with the transition to Net Zero

• Our community programme focuses on access to housing

Our targets and ambitions

• Number of people supported through'Access to Housing'

is1,000between2021and2025.

• Double first time buyer numbers in2021(3,200to

7,500) and move to supporting10,000first time buyers

annually by2023.

In2022,we delivered

• 561people supported through Access to Housing

• We supported5,400first time buyers and we are working

on new build propositions to help them

Sustainable Development

Goal - Climate Action

Sustainable Development Goal

- Decent Work and Economic

Growth

Sustainable Development

Goal - Quality Education

Sustainable Development

Goal - Sustainable Cities

and Communities

Why we can make a difference

• Our own operations emit GHG emissions

• Our borrowing members will need help to deal with the

transition to Net Zero

Our targets and ambitions

• Carbon Neutral Scope1and claim Net Zero merits for

Scope2emissions by the end of2021.

• Net Zero Scope3upstream emissions by the end of

2030.

• Ambition to be entirely Net Zero by2040.

• 50%reduction in paper by2023,compared to2017

levels

In2022,we delivered

• Remained carbon Neutral for Scope1and Net Zero for

Scope2emissions

• We have reduced our Scope3emissions by5%.

• Reduced our Scope1and2emissions by16%.

• 49%reduction in paper consumption since2017.

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

Privacy and data security

Our operations are based in the UK and we undertake the

requirements set out by our regulators the Financial Conduct

Authority and Prudential Regulation Authority alongside

relevant data security and privacy legislation We disclose

information to HMRC and other government bodies when

we are required or permitted to do so We partner with

experienced cyber security firms to help manage our risks and

strengthen our capability and we have comprehensive cyber

insurance The Board receives regular updates with regards the

Society's compliance with data protection legislation from the

Data Protection Officer who reports directly to the General

Counsel All employees undertake regular mandatory data

protection and information security training as a minimum and

there is a wealth of experience in our data and security teams

that support the business Further information on how we use

and store data is in our Privacy Notice which can be found on

our website at wwwthecoventrycouk This all means we can

provide an informative and safe service to our members

Human and modern slavery

We have zero tolerance of slavery and human trafficking in any

of our own operations or in our supply chain Due to the nature

of the Society’s business the chance that slavery or human

trafficking will occur is low however we are not complacent on

these issues More information is in our Modern Slavery and

Human Trafficking statement at wwwthecoventrycouk

Anti-corruption and anti-bribery

Our values include being responsible and we expect all

colleagues and individuals acting on the Society’s behalf to

act with integrity in all dealings relating to our business As

a result we have no tolerance of bribery and corruption

Our anti-bribery policy reflects our internal zero tolerance

approach and legal requirements All colleagues contractors

directors and suppliers are aware of their responsibilities in this

area Annual anti-bribery training together with monitoring

and enforcement tools ensure compliance with our policy is

continuously assessed

Information on how the Society performed across a range of

Environmental Social and Governance activities in2022is

included in our Sustainability Report which will be available on

our website at wwwthecoventrycouk

Climate

More information on our activity to meet our environmental

targets is included in the Our approach to climate change

section of this report

Diversity and inclusion

We understand there are challenges faced by different

communities and we aim to address those challenges and

support diversity inclusion and belonging in every way we

can Our Diversity Steering Committee chaired by the Chief

Customer Officer and regularly attended by our non-executive

directors comprises employees from across the Society who

bring together their knowledge and experience to guide change

to build a more diverse and inclusive organisation

We believe in treating people fairly and recognise that different

individuals bring different skills to our Society We also believe

that having an inclusive culture also helps us to attract

develop engage and retain the best diverse talent ultimately

allowing us to serve our members in the best possible way

Ethical behaviour

Our belief of Putting Members First is deeply embedded

in the organisation and brings with it a commitment to the

highest possible standards of ethical behaviour and conduct

To ensure we uphold these standards we use a number of

resources campaigns and policies relating to topics such as

Code of Conduct Money Laundering Bribery and Corruption

Personal Responsibilities and Fraud Awareness All our people

complete regular mandatory tests in each of these areas

Our Whistleblowing Committee consists of members of the

senior leadership team who are responsible for reviewing

investigating monitoring and reporting any incidences of

whistleblowing The committee report to our Whistleblowers’

Champion Iraj Amiri one of our non-executive directors

who has overall responsibility for overseeing the integrity

independence and effectiveness of the Society’s

whistleblowing policies and procedures

Tax strategy

We conduct all of our business activities in the UK and are fully

committed to meeting all of our UK tax responsibilities We

have also been awarded the Fair Tax Mark More information

is included in our tax strategy which is published at www

thecoventrycouk

Doing the right thing

Part of creating a more sustainable society is continuing

to apply high standards of corporate governance Our

key activities and policies in this area are set out below

Strategic Report

Coventry Building Society  Annual Report & Accounts2022

Our external

environment

In order to assess the top and

emerging risks to the Society we

consider the following key external

environmental factors

Economic environment

The UK economyslowed in2022as a result of inflation

triggered by the invasion of Ukraine on top of the legacy

effects from the Covid-19pandemic on global supply chains

and domestic political uncertainty

Inflation peaked at11.1%in October before falling slightly

to10.5%at the end of the year (2021:4.8%) but was still

significantly above the Bank of England's2%target

Central banks around the world responded to high inflation

by increasing interest rates in order to reduce demand from

consumers and businesses The Bank of England increased its

own rate eight times in2022to3.50%(2021:0.25%)

Forecasts now suggest that this is likely to lead to lower activity

in our core markets

This has yet to impact the labour market with unemployment

reducing to3.7%

(2021:3.9%)

Housing and mortgage market activity is slowing with the

annual rate of house price growth

falling to2.8%in2022

(2021:10.4%) The temporary reduction in stamp duty is

unlikely to have a material impact on activity in our view

The combined effects of rising unemployment and lower house

prices is likely to lead to an increase in arrears from historically

low levels in2023.

Market environment

Savings market

UK household deposits have continued to grow although the

savings ratio has fallen as the cost of living has increased and

with higher consumer spending following the pandemic period

Savings rates have started to rise albeit not at the same pace

as the increase in the Bank of England Base Rate The level

of deposits in retail savings and current accounts remained

high at£1.7trillion (2021:£1.7trillion) an increase of£323

billion compared with pre-pandemic levels The weighted

average market savings

rate increased from0.27%to0.63%,

while household savings balances in the UK grew by4.1%

(2021:7.8%)

Mortgage market

Borrowers in the UK mortgage market experienced rising

interest rates particularly in the second half of the year

following the market disruption in the UK following the mini-

budget

This is likely to lead to significant increases in monthly

payments for those remortgaging in2023and beyond and is

likely to reduce the amount borrowers are able and prepared

to borrow This we believe will lead to a fall in the level of

mortgage market activity and growth Overall the mortgage

market grew by4.1%

in2022(2021:4.6%)

Rental market

The UK rental market remained stable in2022,although

landlords are experiencing lower returns in a higher interest

rate environment and as house price inflation moderates

Changes to interest tax relief on Buy-to-Let property are

also seeing an increasing number of landlords transfer their

properties to limited companies

Tenant demand tends to remain strong as house purchase

activity moderates although landlords may start to experience

increased voids and arrears in some parts of the market

These trends plus additional costs for landlords to improve the

energy performance of rental properties may impact returns

on investment and lead to lower buy to let market growth

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

Regulatory change

Regulatory developments continued to focus on the resilience

of firms to ensure good customer outcomes and on improving

both data protection and security over financial transactions

The implementation of regulations such as the Payment

Services Directive2(including Strong Customer

Authentication) has had a significant impact on customers'

digital experience and the nature of support calls to our service

centres The Society is also focusing on preparing for the

implementation of the FCA's Consumer Duty initiatives which

will start to be effective later in2023.

Prudential regulators are also focusing on the need for financial

resilience beyond a firm’s standard operational activities with

examples being capital resilience through changing MREL

regulation the implementation of Basel3.1capital floors

Regulations on Operational Continuity in Resolution and the

Resolvability Assessment Framework

Technology

Technology is continuing to change the way that customers

access and interact with their financial services provider

Events of recent years have accelerated the use of digital

devices and the online service experience is seen as

increasingly important to customers This acceleration in

digital adoption is expected to be permanent with a continuing

reduction in the use of cash and branches

Data needs to be kept secure and free from cyber attack

Challenger banks continue to focus on digitising traditional

banking processes and adding functionality which to date has

focused more on current accounts However online mortgage

switching platforms are starting to emerge alongside digital

solutions for both savers investors and borrowers

Our external environment Continued

1.Source UK Government National Statistics

2.Source Nationwide house price index

3.Based on the Society’s average month end savings rate compared to the CACI Ltd's Current Account and Savings Database rest of market average rate for savings accounts excluding current

accounts and offset savings for the12months of the year (2021:first11months of the year)

4.Source Bank of England

5.Minimum Requirement for Own Funds and Eligible Liabilities

Climate change

As evidence of increased climate change builds consumers

and regulators are attentive to environmental issues The

UK's commitments to addressing climate related issues were

reaffirmed and extended at the COP26summit in Glasgow in

2021and at COP27in Egypt in2022.Regulatory disclosures

for banks and building societies on the financial risks arising

from climate change further increase focus in this area

Strategic Report

Coventry Building Society  Annual Report & Accounts2022

Top and emerging risks

In common with other financial institutions the nature of Society's business model results in a number of unavoidable or inherent

risks namely principal risks These risks are closely monitored by the Board through the Risk Management Framework and outlined

on page35of the Risk Management Report The top and emerging risks outlined below provide information on the current risks

driven by the external environment which could impact the Society and how we mitigate them

Risk Mitigation

Macroeconomic environment

A challenging global and UK economic environment has had an

impact on inflation and interest rates The Bank of England Base

Rate rose from0.25%to3.5%during2022,with further increases

expected in early2023.This will impact the rates borrowers will

pay on their mortgages and impact affordability and ability to

repay their mortgages

The Society performs regular stress testing considering the impact

of plausible economic downturns and confirms that we expect

to withstand severe stresses The Society's lower risk lending

approach for example using higher affordability stress rates

means that our arrears level remains well below industry levels

The Society is also holding additional expected credit loss

provisions to protect against the risks from heightened inflation

and cost of living that have yet to emerge in modelled data

Market environment

An elevated interest rate environment could place downward

pressure on mortgage activity and mortgage margins and restrict

opportunities for the Society to grow Increased mortgage rates

could lead to a decrease in house prices and further reduce

market activity

The Society's simple lower risk and low cost business model

means that it is well placed to maintain growth flexibility and

resilience through a range of market conditions The Society

undertakes a detailed Strategic Planning process which ensures

the needs of savings and borrowing members are balanced

with maintaining the strength and resilience of the Society and

continuing to support the growth of the UK economy and our key

markets

Changing customer behaviour and expectations

Customer expectations and increased use of digital channels

are changing the way that savings and mortgage products are

designed and delivered There is a risk that the Society's products

do not keep up with the pace of change attract new members or

that the level of investment to keep pace challenges the Society's

lower cost operating model

The Society continues to focus on developing products and

services which keep up with these expectations and we have

increased our investment in digital servicing and distribution

Our plans balance the requirement to deliver short-term

improvements and long-term strategic capabilities During2022,

the Society improved its digital channels and this will continue to

be a priority in2023.

Technology and innovation

There is a risk that the level of investment in technology and

innovation could fall behind others in our core markets reducing

the Society's attractiveness to customers or that the change

activity itself could impact service levels growth or other

performance measures

The Society's scaled agile change model along with additional

investment is expected to improve the resilience flexibility and

efficiency of delivering technology and other change Strong

financial performance has enabled accelerated investment in

cloud strategy and digital platform investment

Operational resilience

A major operational risk event could result in disruption to

services leading to customer harm financial or regulatory

impacts or reputational damage Such events could include the

increasing threat of cyber attacks loss of data or service outages

The Society may not be able to attract and retain people with the

skills and knowledge to sustain its operational resilience

The Society manages risk through its Enterprise Risk Management

Framework (ERMF) and its response to risk events is tested

regularly The Society has operational resilience processes in

place which aim to ensure that the Society's key services are able

to recover in a timely manner in the event of disruption From a

people perspective the Society evolves its proposition in line with

external market changes and colleague feedback with key person

dependencies identified and mitigation options reviewed

Regulatory environment

There is a risk that the scope and complexity of regulatory

changes arising from both the PRA and the FCA could increase

the Society's costs and funding requirements There is also a risk

that regulatory expectations could increase as the Society grows

The Society conducts horizon scanning and engages with trade

bodies and its regulators constructively to ensure the impact of

regulation on its business model is managed closely The Society

is currently undertaking work to enhance its preparedness for

future regulatory expectations

Climate change

The risks of climate change could create material disruption

to the Society's business as a result of transition risk as the UK

economy transitions to lower carbon activities This includes the

potential impact of new regulations in our core markets

The Society continues to develop its understanding of climate

risk and its impact on the business model The continued focus

on understanding and planning for the impact of climate change

is recognised in the Society's Strategic Plan and Sustainability

Report A description of the risks and opportunities to the

Society's business model is included on pages71to75.

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

Chief Financial

Officer's

review

A year of strong financial

performance which enabled the

Society to deliver positive outcomes

for its stakeholders when it has

mattered most

2022has been a tumultuous year to say the least and I’m

so proud that the Society has continued to deliver for its

members colleagues and our communities We have taken the

right actions at the right time to build on the financial strength

of the Society and to ensure we can continue to provide long-

term sustainable value to our stakeholders

In an incredibly challenging economic climate the Society

has passed on value to its members through each of the

eight base rate increases during the year Our competitive

savings rates have been incredibly popular with both existing

and new members and we have significantly improved the

competitiveness of our mortgage standard variable rate

The cost of living crisis is a reality for many of our members and

with mortgage rates increasing to levels not seen for well over

a decade we have looked to mitigate the impact on borrowing

members and continue to focus on providing all the support we

can in line with our mutual values

The Society took the opportunity during2022to invest

more than ever before on improving services and the long-

term resilience of your Society and we have pushed the

bar even higher on our community activities and charitable

contributions by doubling our investment year on year

I'm pleased to report that in2022our financial performance

improvedand we were able to out-perform on our financial

goals Our performance results in a further improvement in the

leverage ratio and we continue to hold a strong capital position

improving the financial resilience of the Society and putting

us in a strong position to support our members through the

uncertain economic times ahead

Strategic Report

 Annual Report & Accounts2022Coventry Building Society

Our profit before tax increased to£371million

(2021:£233million) an increase of£138million

from the previous year This increase is primarily due

to improvements in net interest income and fair value

gains on our economic hedges offset by increased

expenses and provisions for expected credit losses

Overall net interest income increased to£657million

(2021:£476million) and net interest margin to

1.16%(2021:0.90%) The increase was mainly driven

by the rising base rate environment with mortgage

interest receivable rising more quickly than interest

payable on retail deposits

We continued to prioritise paying interest rates to

our savings members above the average seen in the

market In doing so we passed on'member value'of

£230million

(2021:£201million) On average our

savings rates were0.62%above the market average

(2021:0.56%above market average)

The Society has continued to invest significant time

and money on improving and modernising services

for our members We invested£94million (2021:

£96million) in our strategic investment programme

across capital and revenue expenditure This includes

a£10million increase in revenue expenditure as we

look to improve our resilience infrastructure and

digital capability offset by a reduction in capital

spend on our head office estate Our strong income

performance supported this continued investment

and resulted in a significant improvement in our cost

to income ratio to43%(2021:56%)

The Society's mortgage book continues to perform

well with low arrears balances of just0.17%of

mortgages being more than three months in arrears

(2021:0.17%) However we are mindful of the

potential impact of ongoing difficulties being

experienced by our members and are monitoring

this carefully In the second half of the year some

economic indicators have weakened and we have

seen the Bank of England Base Rate reach its highest

level in over a decade So with cost of living pressures

combined with increasing mortgage payments we

have been deliberately cautious in our approach to

provisions for expected credit losses

As a result a charge of£17million (2021:release of

£29million) has been made increasing balance sheet

provisions to£36million

Capital is important to the strength and sustainability

of the Society It underpins future growth as well

as our ability to continue improving products and

services I'm pleased to report a further improvement

in the leverage ratio to5.2%(2021:4.8%) and our

Common Equity Tier1(CET1) ratio remains strong

at27.4%(2021:36.2%)  The reduction in our CET

1ratio was in line with previous guidance in our

2021Annual Report and reflects an increase in risk

weighted assets driven by the change in industry wide

regulation required from1January2022.

1.Based on the Society’s average month end savings rate compared to the CACI

Ltd's Current Account and Savings Database rest of market average rate for

savings accounts excluding current accounts and offset savings for the12

months of the year (2021:first11months of the year)

Our liquidity position remained significantly ahead

of regulatory requirements with a Liquidity Coverage

Ratio (LCR) at195%(2021:187%) Your Society

remains strong and resilient and is well placed to

support your ongoing mortgage and savings needs

We will continue to run the Society prudently

in the long-term interest of members and other

stakeholders

Lee Raybould

Chief Financial Officer

23February2023

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

Income Statement

Overview

In2022,the Society improved its financial performance

after the challenges in2021due to the Covid-19pandemic

and despite the market volatility observed in the year The

following factors impacted the2022financial results

• Net interest income increased by£181million driven by

the rising base rate environment with mortgage interest

receivable rising more quickly than interest payable on

retail deposits The increase was also impacted by the£69

million charge recognised in the prior year due to changes

made to the estimations within our Effective Interest Rate

(EIR) calculation (2022:£17million)

• Gains on derivatives and hedge accounting of£27million

(2021:£7million loss) as a result of market volatility and

changes in customer behaviour

• We have increased our provisions for future expected

credit losses (ECLs) in light of the continued uncertainty

surrounding the economic outlook As a result£17million

of ECL provisions were charged during the year compared

to a release of£29million in2021.

As a result profit before tax for the year increased to£371

million (2021:£233million)

2022

£m

2021

£m

Interest receivable 1,421.1 833.9

Interest payable (763.8) (357.7)

Net interest income 657.3 476.2

Other income (1.6) (1.4)

Gain (loss) on derivative financial

instruments

26.8 (6.6)

Total income 682.5 468.2

Management expenses (294.8) (263.5)

Impairment (charge)release (16.6) 28.7

Charitable donation to Poppy Appeal (0.6) (0.6)

Profit before tax 370.5 232.8

Tax (84.3) (42.0)

Profit after tax 286.2 190.8

Net interest income

Net interest income increased to£657million (2021:£476

million)

The Bank of England Base Rate increased eight times during

the year increasing from0.25%at31December2021to

3.50%at31December2022.

Interest receivable on mortgages increased by£468million

predominantly as a result of the impact of base rate increases

on our mortgage book and growth in balances The Society

consciously improved the competitiveness of the standard

variable rate (SVR) product to protect these customers from

the impact of rising rates In addition we benefitted from a

£119million increase related to interest receivable on higher

liquidity balances and rates

Interest payable on retail savings increased by£286million

following the eight base rate increases during2022.For

each base rate change we have passed through on average

54%to our savings members Throughout2022,the Society

continued to pay above average savings rates returning£230

million (2021:£201million) in member value compared to

market average rates

 whilst continuing to invest in the Society

and maintain its long-term resilience

The remaining£120million movement related to higher

interest payable on our wholesale funding

Net interest income included a charge of£17m (2021:£69

million) relating to a change to the future assumptions on

mortgage redemption behaviour as customers spend less time

on SVR (note3)

Net interest margin

At1.16%,our net interest margin improved significantly from

the0.90%reported in2021(1.03%excluding the impact of

the prior year EIR adjustment) as a result of the movements in

net interest income outlined above relative to our average total

assets

2022

£m

2021

£m

Net interest income 657 476

Average total assets 56,698 53,014

% %

Net interest margin 1.16 0.90

Derivatives and hedge accounting

The Society uses derivative financial instruments (swaps)

solely for risk management purposes to manage interest rate

and currency risk arising from its fixed mortgage and savings

activity and from non-sterling and fixed rate wholesale

funding

The Society applies hedge accounting where possible and its

approach continued to be effective overall throughout the

period The gain of£27million for the year represents hedge

ineffectiveness and fair value movements on derivatives where

hedge accounting was not obtained (2021:£7million loss)

and includes net gains fromineffectiveness arising from higher

volumes of early redemptions following changes in customer

behaviour on both mortgages and savings

Management expenses

Overall management expenses increased by£31million

The increase in costs was primarily driven by an increase

of£10million in spending related to the Society's strategic

investment programme salary and cost inflation across all of

our operations accelerated depreciation as we consolidate our

head office footprint and the impact of higher variable pay in

recognition of the strong performance against our targets We

also finalised the refurbishment of our branches and increased

ourcontribution to community and charitable activities

Chief Financial Officer’s Review Continued

1.Based on the Society’s average month end savings rate compared to the CACI Ltd's Current

Account and Savings Database rest of market average rate for savings accounts excluding

current accounts and offset savings for the12months of the year (2021:first11months

of the year)

Strategic Report

Coventry Building Society  Annual Report & Accounts2022

Ensuring that we spend our members'money wisely and

maintain our cost efficiency advantage is a key part of the

Society's strategy The cost to mean total assets ratio of0.52%

(2021:0.50%) is expected to remain among the lowest in the

UK building society sector The cost to income ratio improved

to43%

(2021:56%)

Further details regarding administrative expenses is included in

note9to the accounts

Expected credit losses

The performance of our mortgage book has remained strong

following the overall economic outlook in the first half of2022

being better than expected in certain key metrics with the

growth in house prices and observed lower unemployment

levels However in the second half of the year the economic

outlook worsened with the highest inflation levels in over40

years and base rate now at the highest level in over a decade

The Society has updated its economic scenarios to account for

a period of heightened inflation and the subsequent impact to

the economy including HPI reductions and in turn Expected

Credit Losses (ECLs)



In addition we have introduced a new post model adjustment

(PMA) to reflect the potential risk associated from the

increase in the cost of living and higher mortgage payments for

borrowers

We have taken a deliberately cautious approach to estimating

ECLs given the structural challenges facing our members from

the cost of living crisis which has resulted in an increase to our

provision for ECLs and a charge of£17million (2021:release

of£29million) being recognised

At the year end total provisions were£36million (2021:

£19million) of which£19million (2021:£9million) related

to PMAs where the risks were not assessed as adequately

captured in the Society's core modelling

The post model adjustments cover the following risk areas

• Risk relating to the impact of the cost of living on our

members where we have identified behavioural

characteristics which may lead to future difficulties (£14

million)

• The potential for losses as a result of cladding remediation

on flats where fire safety standards have not been met

• A more granular assessment of house price information

which provides a more accurate view of indexed loan to

values (LTVs) and risks associated with pockets of

negative equity

• Risks which cannot easily be modelled such as for fraud

within the portfolio

• We have taken the opportunity to remove the Covid-19

payment holiday adjustment following the end of the cure

period for impacted customers

The remaining£16million (2021:£10million) of ECL

provision relates to the modelled losses including the impact

of alternative economic scenarios The alternative scenarios

reflect a range of possible outcomes as the economy recovers

from the pandemic but moves into a further period of

uncertainty related to the cost of living crisis and inflationary

pressures

IFRS9requires loans to be assessed as ‘stage2’ where there

has been a significant increase in credit risk Loans are held

in stage2until such a time when they are considered to have

'cured'by performing for a sustained period of time typically

12months from the stage2trigger event In2022,stage2

accounts increased to9%(2021:7%) principally due to the

cost of living PMA put in place 90%of the book remains in

stage1(2021:93%)

As a result of these changes the ECL provision now equates to

0.07%of the overall mortgage book (2021:0.04%)

More information on ECL is included in note14to the

accounts

Charitable donation to the Poppy Appeal

The Society brought to an end its very successful long-

standing support for the Royal British Legion’s Poppy

Appeal with£0.6million donated during the year (2021:

£0.6million) bringing the total donated over the Society’s

relationship with the Legion to£20million

Taxation

In2022,the corporation tax charge was£84million (2021:

£42million) reflecting an effective tax rate of22.8%(2021:

18.0%) In2021,it was announced that from2023,the

corporation tax rate is set to increase from19%to25%and the

banking surcharge is set to decrease from8%to3%.Both rates

were substantially enacted during2022,and so are reflected

in the deferred tax liabilities at the balance sheet date Further

information is included in note15to the accounts

1.Administrative expenses depreciation and amortisationAverage total assets

2.Administrative expenses depreciation and amortisationTotal income

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

Balance Sheet

Overview

Mortgage balances grew by£1.4billion and liquidity increased

by£2.4billion Retail savings balances grew by£2.4billion

and wholesale funding increased by£1.3billion

Mortgage growth was funded by retail savings

A summarised Balance Sheet is set out below

2022

£m

2021

£m

Assets

Loans and advances to customers 48,014.3 46,620.6

Liquidity 10,009.8 7,622.0

Other 843.0 287.1

Total assets 58,867.1 54,529.7

Liabilities

Retail funding 42,288.7 39,890.2

Wholesale funding 13,207.2 11,907.3

Subordinated liabilities and subscribed

capital

57.0 56.9

Other 366.5 215.7

Total liabilities 55,919.4 52,070.1

Equity

General reserve 2,250.7 2,012.6

Other equity instruments 415.0 415.0

Other 282.0 32.0

Total equity 2,947.7 2,459.6

Total liabilities and equity 58,867.1 54,529.7

Loans and advances to customers

Our lending strategy remains focused on high quality low

loan to value mortgages within the prime residential market

These loans are primarily distributed through third-party

intermediaries giving the Society a regionally diverse mortgage

portfolio in a cost-effective way

In2022,we advanced£8.7billion of mortgages (2021:£9.6

billion) and mortgage balances grew by£1.4billion (2021:

£3.1billion)The year on year growth in mortgages of3.0%

compares with the UK mortgage market growth of4.1%

and

ourmarket share remained at3%(2021:3%)

The Society manages its growth according to economic

conditions market pricing and funding conditions As a result

with mortgage margin pressure within the market in the first

six months of the year this led to the overall book remaining

stable at30June2022.With changing conditions in mortgage

pricing following further base rate increases in the second half

of the year the Society has taken the opportunity to grow its

book by3.0%to over£48billion at31December2022.

This growth was offset by higher levels of redemptions as

customers looked for rate certainty and continued to lock into

longer-term fixed products in response to base rate rises

New lending on owner-occupier homes accounted for67%

of total new lending in2022(2021:65%) at an average LTV

of65.3%(2021:65.7%)The Society continues to support

first time buyers however with current market conditions

impacting this segment of the market the number of loans

advanced in2022reduced to5,400(2021:7,100)

Total mortgage assets at31December2022stood at£48.0

billion (2021:£46.6billion) which comprised£28.5billion

of owner-occupier loans (2021:£27.4billion) and£19.5

billion buy to let loans (2021:£19.2billion) The balance

weighted indexed LTV of the mortgage book at31December

2022remained broadly stable at51.0%

(2021:50.9%) when

compared to prior year

Possessions and forbearance remained low with27cases in

possession at the year end (2021:27) with forbearance levels

having decreased by23.5%year on year in value terms and

12.9%in number of cases With the impact of the cost of living

crisis expected to materialise more fully in2023,the Society

continues to focus on supporting its members Despite the

current economic conditions the Society continues to have

very low arrears with only0.17%of mortgages more than

three months in arrears (2021:0.17%) at31December2022

compared with the latest available industry average of0.71%



Liquidity

Liquid assets increased to£10.0billion (2021:£7.6billion)

as we maintained a prudent liquidity buffer demonstrated by

our Liquidity Coverage Ratio (LCR) remaining strong at195%

(2021:187%) significantly above the minimum regulatory

requirement

Liquid assets are principally held in deposits at the Bank of

England and in UK Government investment securities This

means that asset quality remains very high with93%of the

portfolio rated Aaa–Aa3(2021:98%)98%of liquid assets are

held in UK sovereign or UK financial institutions (2021:99%)

Included in liquid assets are£1.6billion of assets held at fair

value through other comprehensive income (FVOCI) As at

31December2022,the balance on the FVOCI reserve was a

£5million gain net of tax (2021:£5million gain net of tax)

Retail funding

Retail savings increased in the year by£2.4billion to£42.3

billion (2021:£39.9billion) representing growth of6.0%,

compared with market growth of4.1%.The Society’s overall

savings market share is2.4%

(2021:2.4%)

The Society continued to support the cash ISA market

increasing our market share to6.7%

(2021:6.5%)

Our increase in market share reflects a more active savings

market in2022and our competitive product offers

particularly towards the end of the year

Our mortgage book continues to be predominantly funded by

retail savings with88%of mortgage loans funded in this way

(2021:86%)

1.Source Bank of England

2.LT V is calculated using the Nationwide Building Society quarterly regional house price

index (HPI)

3.Source UK Finance

Chief Financial Officer’s Review Continued

Strategic Report

Coventry Building Society  Annual Report & Accounts2022

Wholesale funding

We use wholesale funding to diversify our sources of funding

enabling growth and lowering risk which then benefits savings

members through better savings rates and mortgage customers

through enabling us to offer more competitive long-term rates

Wholesale funding increased by£1.3billion in the year to

£13.2billion (2021:£11.9billion) driven by higher swap

valuations and the associated change in collateral impacting

our short term funding position

There was one wholesale issuance during the year with

a€0.5billion covered bond which was issued in September

2022.There was£5.25billion of Central Bank Term Funding

(TFSME) outstanding as at31December2022(2021:£5.25

billion)

Equity

The Society’s equity is predominantly made up of138years

of retained profits in the general reserve and Additional Tier

1(AT1) capital The Society made post-tax profits of£286

million in the year and total equity increased£0.5billion

to£2.9billion including a£29million distribution to AT1

capital holders and£250million movement in the cash flow

hedge reserve

Pension fund

The pension scheme assets and liabilities are recorded in

the Society’s financial statements and the overall position

was a surplus of£3million at the end of2022(2021:£29

million) These assets and liabilities are impacted by market

movements and the decrease in the year was driven by the

movement in the UK corporate bond market and the updated

valuation of the pension scheme assets The Society continues

to monitor the pension scheme to ensure that there is no

scheme deficit over the medium term

Regulatory capital

We hold capital to protect members against unexpected

future losses As we grow our mortgage book the amount of

capital we need to hold to meet the UK Capital Requirements

Directive (CRD) V increases

The Society’s CRD V capital position7as at31December

2022is summarised below During the year the capital

resources increased to£2,584million primarily through the

increase in Common Equity Tier1(CET1) driven by profit

after tax of£286million

We are not currently bound by regulatory leverage ratios

which measure Tier1capital against total exposures including

off-balance sheet items The PRA confirmed in policy

statement PS21/21that the UK leverage ratio framework

only applies to banks and building societies with either retail

deposits of£50billion or more or non-UK assets equal to or

greater than£10billion neither of these measures currently

applies to the Society The UK leverage ratio increased

slightly to5.2%(2021:4.8%) driven by the increase in capital

resources in the year The Society expects leverage will be its

binding constraint in the future

The increase in risk weighted assets (RWAs) in2022was due

to an update in the IRB modelling approach due to regulatory

changes This increase in RWAs was partially offset by

increases in capital resources The Society's CET1and Total

Capital ratios consequently reduced to27.4%(2021:36.2%)

and32.7%(2021:44.1%) respectively

The Society continues to work towards meeting regulatory

changes for IRB models that were brought in at the beginning

of2022and is in the final stages of development work required

to address the updated requirements

Until the updated models are fully approved and in common

with many other IRB institutions the Society has agreed to

hold additional risk weighted assets (RWAs) that represent its

best view of the change in capital requirements that will result

from the new models once they are implemented This has

contributed to the increase in RWA and hence the lower CET

1ratio in2022.

The final model output may vary from this initial assessment

which may further lower the CET1ratio effectively bringing

forward changes of increasing RWAs envisaged in Basel3.1.

The Society expects that from2025,Basel3.1changes

to capital requirements will be phased in and as transition

develops this will reduce the Society’s reported CET1ratio

Applying the Basel3.1RWA floors to the year end figures

on a full transition basis would result in a CET1ratio of

approximately20%.

The Society’s Total Capital Requirement (TCR) at December

2022was£846million equating to10.7%of RWAs (2021:

£565million10.7%) We exceed this requirement using CET1

capital alone

End-point

31Dec2022

£m

End-point

31Dec2021

£m

Capital resources

Common Equity Tier1(CET1) capital 2,169.0 1,921.8

Total Tier1capital 2,584.0 2,336.8

Total capital 2,584.0 2,336.8

Risk weighted assets 7,911.7 5,303.6

Capital and leverage ratios % %

Common Equity Tier1(CET1) ratio 27.4 36.2

Leverage ratio including central bank

reserves and full AT1capital amount

4.5 4.3

UK leverage ratio

5.2 4.8

1. The UK leverage ratio includes a restriction on the amount of Additional Tier1capital

and excludes central bank reserves from the calculation of leverage exposures

Additional information

Further analysis on loans and advances to customers

treasury credit risk liquidity wholesale funding and capital

management is set out in the Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

Alternative Performance Measures

The Society reports its results using a number of financial measures which are not driven by accounting standards (non-IFRS

measures) These measures are used to understand our performance and are used internally when assessing the Society’s results

More information on each alternative performance measure is set out below

Measure Calculation

Member value

A measure of the additional interest paid to our savings members

as a result of the Society’s interest rates being superior to the

market average

The Society’s average month end savings rate compared to

the CACI savings database for market average rate for savings

accounts excluding current accounts and offset savings

Net interest margin

A measure of profitability which is used throughout the building

society sector

Net interest income as a percentage of average total assets

Net interest income is the difference between interest receivable

on assets and interest payable on liabilities

Cost to mean asset ratio

A measure of cost efficiency through the ratio of the Society's

operating expenses in relation to its balance sheet assets This

ratio is not impacted by changes in interest rates and as such aids

comparability of the Society's efficiency in times of significant

interest rate changes

This measure is widely used across the building society sector

Administrative expenses depreciation and amortisation as a

percentage of average total assets

Cost to income ratio

A measure of costs relative to income more generally used by

banks Unlike cost to mean asset ratio this ratio will be impacted

by significant changes in interest rates or widening margins

Administrative expenses depreciation and amortisation as a

percentage of total income

Chief Financial Officer’s Review Continued

Strategic Report

Coventry Building Society  Annual Report & Accounts2022

Non-financial information

The table below contains information relating to the key non-financial matters which impact the Society We comply with the non-

financial reporting requirements within Sections414CA and414CB of the Companies Act2006.

Non-financial reporting category More information

Business model and risks

A description of our business model and our top and emerging

risks is included in this Strategic Report

See pages13and25

Key performance indicators

Our performance highlights are presented within this Strategic

Report

Our remuneration scorecard and targets are included in the

Directors’ Remuneration Report

Our key alternative performance measures are explained above

See page2

See page118

Our colleagues

Information relating to colleague engagement is included within

this Strategic Report

We are committed to creating a balanced and diverse workforce

More information on diversity and inclusion is included in this

Strategic Report and on our website

We aim to reward our people fairly and we have programmes in

place to improve our gender pay gap More information on this is

in this Strategic Report

Disclosures relating to our CEO pay ratio are included in this

report

The Society has a Code of Conduct which sets out the behaviour

which is expected from all our colleagues We aim to operate

in a fair and honest way and recognise that openness and trust

are essential to creating mutually rewarding relationships and

delivering excellent service to members

See page17

wwwthecoventrycouk

See page17

More information is available at wwwthecoventrycouk

See page121

Human rights

Information on the policies we have in place to address the risk of

modern slavery is in this Strategic Report

See page22

Anti-bribery and corruption

Information on our Anti-bribery and Corruption Policy is included

in this Strategic Report

See page22

Our communities

Information on how we interact with our communities is included

in this Strategic Report

See page18

Our environment

Information on the Society’s environmental commitments is

included in this Strategic Report

Our full Environmental Policy is published on our website

See page21

wwwthecoventrycouk

The Strategic Report has been approved by the Board of Directors and signed on its behalf



Steve Hughes

Chief Executive

23February2023

Coventry Building Society  Annual Report & Accounts2022

Strategic Report

Risk Management

Report

Introduction 35

Risk categories

Credit risk 39

Treasury credit risk 45

Market risk 48

Liquidity and funding risk 50

Conduct risk 55

Operational risk 57

Model risk 59

Strategic risk 60

Capital 61

This section outlines the

risks that the Society is

exposed to and how they

are managed

Coventry Building Society  Annual Report & Accounts2022

Introduction

This Risk Management Report explains the principal risks that the Society is currently exposed to and provides information on how

these risks are managed

The report also includes information on the Society’s capital position - holding capital is a key tool in ensuring the Society protects

members from the impact of any related risk which may materialise

Principal risks

The principal risk categories to which our business model is inherently exposed are set out below These risks are managed through

the Society’s Enterprise Risk Management Framework (ERMF)

Principal risks are those risks that the Society believes could significantly affect the achievement of the Society's purpose

Additionally top and emerging risks those risks that could impact the Society's Strategic Plan or business model are regularly

considered and reviewed Information on the Society’s top and emerging risks is included in the Strategic Report on page25.

Risk categories Mitigation

Retail credit risk

The risk of loss to the Society if borrowers do not meet

their contractual payments in full andor on time

We operate robust underwriting and affordability assessments which

together with appropriate credit policies results in the Society lending

responsibly and remaining low risk

Treasury credit risk

The risk that the Society's wholesale creditors are unable

to meet their financial obligations or that the underlying

value of the wholesale asset suffers due to changes in

creditworthiness of the counterparty

We operate under a treasury risk management framework reviewed

annually by the Board which limits the size and breadth of exposures to

good quality counterparties with a low risk of failure

Market risk

The risk of a reduction in earnings andor value as a result

of financial market movements

We operate within Board approved limits and use interest and foreign

exchange rate swap agreements to mitigate the impact of changes in

interest rates and foreign exchange rate

Liquidity and funding risk

The risk of insufficient funds to meet obligations falling

due or the inability to access funding at reasonable cost

or risk

We hold sufficient liquidity to withstand a severe but plausible stress and

operate within limits set by the Board We maintain a diversified funding

base to avoid any overreliance on any funding source type or term

Capital risk

The risk that the Society has insufficient capital resources

to absorb losses in benign or stressed macroeconomic

conditions fails to meet regulatory or external

expectations or has insufficient financial resources to

recapitalise in the event of resolution

The Society holds sufficient capital to withstand a severe but plausible

stress and mitigate risks identified through the annual ICAAP process

Risk appetite limits are set to ensure that the Society always maintains

compliance with regulatory minima with Early Warning Indicators in

place to identify periods of severe stress as part of the Recovery Planning

process

Conduct risk

The risk that the Society’s activities fail to deliver good

customer outcomes

We place good customer outcomes at the heart of our decision making

In line with Putting Members First this reduces conduct risk This ethos

is embedded in product design services and people and communication

strategies

Operational risk

The risk of loss arising from inadequate or failed internal

processes people and systems or from external events

Operational risk includes legal and regulatory risk

We actively identify assess and manage the operational risks to which

the Society is exposed During2022,we continued to enhance our

operational risk management framework to enable the Society to

manage operational risk effectively We have built-in business continuity

capability and have undertaken work to understand the key services

to ensure operational resilience We closely monitor the regulatory

environment to assess and manage the impact of upcoming regulatory

change

Model risk

The risk of an ineffective or incorrectly interpreted model

leading to losses reputational damage or regulatory

censure

We operate robust model governance protocols including sensitivity

analysis on key assumptions independent model validation and regular

model monitoring We are enhancing our approach to data governance

Strategic risk

The risk that the business model or strategy becomes

inappropriate given changes to macroeconomic

geopolitical regulatory (including climate change) or

other factors (including changing customer behaviour and

expectations in an increasingly digital world)

We have a simple business model which focuses on well-understood

risks and opportunities We have a robust strategic planning process

which includes capital and liquidity stress testing The strategic planning

assumptions are regularly reviewed to ensure there continues to be a

focus on risks which could become threats to the business model over

the medium to long term

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

Controlling and managing risk

The Society operates a simple business model It manages risk through the ERMF which sets out the Board’s approach to managing

and overseeing risk by defining risk strategy risk appetite governance and control and risk management in light of the Society’s

strategy

The ERMF is approved annually by the Board to ensure it operates effectively The Society will continue to enhance the ERMF as

required to ensure it identifies and manages risk within its low risk appetite

Three lines of defence

The Society operates within a ‘three lines of defence’ model recognised as an industry standard for risk management The key

accountabilities of the three lines of defence within the Society are set out below

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report Continued

The business

• Owns and manages the

Society’s risks

• Is responsible for

compliance with

relevant regulation and

legislation

• Identifies manages and

mitigates the risks of

the Society

• Defines and

operatescontrols

• Assesses key risk

indicators and

marketconditions

• Produces management

information and reports

on risk

Risk oversight

• Designs interprets and

develops the Enterprise

Risk Management

Framework and

monitors business as

usual adherence to

theframework

• Designs interprets and

develops other key

frameworks including

Conduct Model and

Operational Risk

frameworks

• Provides oversight and

challenge over the

management of risks

• Develops compliance

policies supports

delivery of regulatory

change and monitors

andreports on

regulatoryissues

• Is responsible for

overseeing effective

compliance withrelevant

regulation andlegislation

Internal audit

• Provides independent

and objective assurance

and advice on all

mattersrelated to

theachievement of

Society objectives

• Conducts independent

testing and verification

ofthe adequacy and

effectiveness of the

Society’s governance

risk management

controls policies

processes and first

linecompliance

• Is responsible for

providing assurance

thatrisk management

processes are

functioning as designed

and that strong evidence

regarding compliance

with relevant regulation

and legislation exists

First line of defence

Second line of defence

Third line of defence

Risk management

The Society’s risk management objectives are to

• Identify risks to the Strategic Plan and to the Society’s

objectives

• Assess risk exposures by impact and likelihood

• Respond to risks by evaluating them against the Society’s

risk appetite formulating associated management

responses and monitoring progress against agreed

management action plans

Risks are identified assessed managed monitored escalated

and reported in accordance with the requirements of the

ERMF Management information captures risk metric

information against risk indicators triggers and limits as

appropriate Where a trigger or limit is breached an escalation

process exists to ensure it is escalated reported and managed

effectively through the appropriate channels

Risk strategy

The Board sets the Society’s risk strategy and risk management

approach The strategy includes establishing a robust risk

culture setting the Board’s risk appetite and ensuring that the

‘three lines of defence’ model operates effectively

Risk culture

Risk culture is reflected in the behaviour and approach of the

Board and all employees to risk awareness risk taking and risk

management A strong risk culture helps the Society to achieve

its strategy within acceptable risk levels

The Society’s risk culture is built on the following four

elements

• Tone from above – the Board and executive management

act and encourage employees to act with openness and

integrity especially in the fair treatment and duty to

members Employees are encouraged to report observed

non-compliance risk incidents and ‘near misses’

• Accountability – employees understand both the core

values of the Society and its approach to risk Where

individuals have specific risk management responsibilities

these are included within role profiles and objectives and

employees understand that they will be held accountable

for their actions and risk taking behaviours All Society

roles are covered by the ‘Strengthening Accountability in

Banking’ regulatory framework which sets standards for

those working within financial services

• Effective communication and challenge - a sound risk

culture should promote an environment of open

communication and effective challenge in which decision-

making processes encourage a broad range of views allow

for testing of current practices stimulate a constructive

critical attitude among colleagues and promote an

environment of open and constructive engagement

throughout the Society The Society has embedded an

enhanced and effective Whistleblowing policy with

supporting procedures

• Incentives – the Society makes sure that its performance

management and reward frameworks are effectively

designed and embedded to promote its desired risk

management behaviours and attitudes

In particular the Society does not pay any sales incentives to

employees

Board risk appetite

The Board articulates the risks it is willing to take in delivering

the Strategic Plan through its risk appetite statements which

create a framework for decision making These appetite

statements are reviewed on an annual basis to ensure they

remain effective

The Board’s strategy towards risk and risk appetite is to achieve

operational conduct and prudential resilience that protects

the long-term interests of our membership and the Society

and also reflects our market role in supporting economic

growth and financial stability

The Executive Risk Committee (ERC) the Board Risk

Committee (BRC) and the Board all review performance and

adherence to Board risk appetite limits

Stress testing and planning

Stress testing for both internal and external shocks is used

to understand the potential impact of risks crystallising

and options to manage them This includes scenario and

contingency planning

Stress testing is a key part of the Society’s capital and liquidity

assessments and allows the Board to be satisfied that the

Society has sufficient capital and liquidity resources even

under a range of severe forward-looking scenarios

More detail on the stress testing carried out by the Society

including the Internal Capital Adequacy Assessment Process

(ICAAP) and Internal Liquidity Adequacy Assessment

Process (ILAAP) is set out in the sections that follow covering

capital and liquidity and funding risk

Governance and control

The Society has a number of committees which oversee and

monitor risk as set out opposite The Board delegates to BRC

oversight of the Society's risk management arrangements as

a whole The Chief Risk Officer (CRO) has an independent

reporting line directly to the Chair of the BRC in addition to

reporting to the Chief Executive

The Internal Audit function provides independent and

objective assurance and the Chief Internal Auditor has an

independent reporting line to the Chair of the Board Audit

Committee (BAC)

Further information on the BRC and BAC is included in the

Governance Report

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

The Board

Chief Executive Officer

Board Risk Committee (BRC)

Chair Non-Executive Director

• Oversees the management of current and potential risk

exposures

• Evaluates the design and completeness of the Society’s

Enterprise Risk Management Framework with reference to

risk strategy culture and principles

• Reviews key risk policies and the principle risk appetite

statements recommending these to the Board for approval

• Oversees the Society’s Risk and Compliance functions

including their independence

Board Audit Committee (BAC)

Chair Non-Executive Director

• Reviews the adequacy of internal control and risk

management processes

• Monitors the integrity of financial statements

• Monitors the integrity of external auditors

• Receives reports from and scrutinises the activities of the

Internal Audit function

Executive Risk Committee (ERC)

Chair Chief Risk Officer

• Oversees and monitors strategic risk

• Ensures that risk is being identified and managed efficiently across the Society

• Exercises executive risk oversight for each of the Society’s principal risks

• Ensures that the Society’s Risk Management Framework remains effective

• Considers any emerging risks which may impact the Society’s Strategic Plan

• Considers reports from the various Risk Committees and Chief Risk Officer However these reports are also submitted directly to BRC

to ensure independent non-executive committee oversight of the Society’s risk exposures

Asset and Liability Committee

(ALCO)

Chair Chief Financial Officer

• Oversees the balance sheet risks

faced by the Society

• Oversees market risk treasury

credit risk and liquidity and funding

risk

• Ensures the robustness of capital

and liquidity stress testing

• Oversees financial model risk

management

• Oversees prudential regulatory risk

and treasury conduct risk

Operational Risk Committee (ORC)

Chair Chief Customer Officer

• Provides primary oversight of all operational risk categories

• Ensures compliance with limits approved by the Board

• Oversees prudential regulatory risk and treasury conduct risk

Retail Credit Committee (RCRC)

Chair Head of Retail Credit Risk

• Monitors the management of retail credit risk across the

Society and the performance of the mortgage book to ensure

compliance with risk limits approved by the Board

Conduct Risk and Compliance

Committee (CRCC)

Chair Head of Conduct Risk

• Oversees and monitors the

Society’s delivery of good customer

outcomes consistent with the

conduct risk appetite statement

approved by the Board

• Oversees the management of

conduct risk and the Society’s

compliance with applicable

conduct regulation

Model Risk Committee (MRC)

Chair Chief Financial Officer

• Oversees the management of

model risks faced by the Coventry

Building Society Group

• Ensures that exposure to the risk

remains within the Board’s stated

risk appetite for model risk

• Responsibility for oversight of the

Society’s IRB rating system

Credit risk

Credit risk is the risk that borrowers or counterparties do not meet their financial obligations to the Society as they fall due

Maximum exposure to credit risk

The Society’s exposure to credit risk mostly relates to loans and advances to customers The maximum exposure to credit risk

increased to£62.6billion in2022(2021:£56.8billion) as a result of growth in the mortgage book and an increase in liquid assets

The maximum exposure to credit risk for on-balance sheet and off-balance sheet financial exposures is set out below allowing for

impairment where appropriate The maximum exposure to credit risk for off-balance sheet financial exposures is considered to be

the contractual nominal amounts

(Audited)

On-balance

sheet carrying

value

2022

£m

Off-balance

sheet expo-

sures

2022

£m

Maximum credit

risk exposure

2022

£m

On-balance sheet

carrying value

2021

£m

Off-balance

sheet exposures

2021

£m

Maximum cred-

it risk exposure

2021

£m

Cash and balances with the Bank of England 7,792.2 — 7,792.2 6,650.2 — 6,650.2

Loans and advances to credit institutions 622.8 — 622.8 295.8 — 295.8

Debt securities 1,594.8 — 1,594.8 676.0 — 676.0

Loans and advances to customers 48,014.3 2,316.0 50,330.3 46,620.6 2,105.8 48,726.4

Derivative financial instruments 2,278.1 — 2,278.1 406.3 — 406.3

Total 60,302.2 2,316.0 62,618.2 54,648.9 2,105.8 56,754.7

1.Off-balance sheet exposures comprise pipeline loan commitments and undrawn loan facilities

Retail credit risk and treasury credit risk are considered separately below

Retail credit risk

Credit risk in the Society’s mortgage book only crystallises in the event that a borrower is unable to repay the mortgage and as a

result the property on which the mortgage is secured has to be repossessed and sold at a price which is insufficient to allow the

borrower to repay the loan

The Society continues to focus on low risk high quality owner-occupier and buy to let mortgages Non-traditional mortgage lending

outside these core segments relates to residual legacy products and comprises a negligable amount of total gross loans

Buy to let lending continues to be provided mainly on an interest only basis reflecting the underlying investment nature of buy to

let properties which can be sold to repay the capital amount Interest only lending was5.3%of the owner-occupier portfolio at31

December2022(2021:4.9%) with an average loan to value of32.4%(2021:34.1%)

More information on the performance of the retail portfolio is included in the following sections

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

Risk Categories

A summary of the Society’s loans and advances to customers by product type is shown below

Loans and advances to customers (Audited)

2022

£m

2022

2021

£m

2021

Residential mortgages owner-occupier 28,529.3 59.5 27,362.5 58.6

Residential mortgages buy to let 19,496.2 40.6 19,237.7 41.3

Legacy lending

13.2 — 15.8 —

Total gross balance 48,038.7 100.1 46,616.0 99.9

Impairment (35.5) (0.1) (18.9) —

EIR fair value and other adjustments

11.1 — 23.5 0.1

Total net balance 48,014.3 100.0 46,620.6 100.0

1.Legacy lending represents residual small portfolios of unsecured personal loans and commercial mortgages The credit risk for these is immaterial and therefore not considered further in this

report

2.The Effective Interest Rate (EIR) asset and fair value and other adjustments have been presented separately from gross balances in order to aid understanding

Geographical concentration

The mortgage portfolio is well diversified and reflects the national coverage of the Society’s distribution channels

The geographical split of mortgages by balance gross of impairment provisions is shown below and has remained broadly stable

Region (Audited)

2022

2021

London 27.3 27.8

South East England 18.5 18.5

Central England 14.2 14.0

Northern England 13.4 13.2

East of England 11.8 11.8

South West England 8.8 8.8

Scotland 3.4 3.4

Wales and Northern Ireland 2.6 2.5

Total 100.0 100.0

Loan to value and income multiples (Unaudited)

The low loan to value (LTV) profile of the mortgage book as shown in the following tables is a reflection of the Society’s low risk

approach to lending The Society updates the estimated value of the properties securing the mortgage portfolio on a quarterly basis

using Nationwide regional house price indices and all tables within this report are prepared using these valuations

The standard maximum income multiple for owner-occupier mortgages is4.49,consistent with4.49for the prior year The Society

lends on multiples of up to5.0for very low LTV cases Any lending at or above4.49times income is closely monitored and by

value4.9%(2021:12.6%) of advances were made at or above this level in2022.The Society reduces maximum income multiples

permitted if the loan term extends significantly into retirement to ensure it remains affordable

The Society is a responsible lender and operates robust affordability checks before advancing any loans For owner-occupier

mortgages ensuring a borrower has sufficient net income both at the time of application and in a future higher interest rate

environment is a key part of this For buy to let loans the Society sets minimum interest coverage ratios which reflect among other

things the tax status of the borrower

The Society’s actual average interest coverage ratio at the end of the year using a stressed5%interest rate was203.4%(2021:

174.9%) significantly above its minimum lending criteria The Society also lends to portfolio landlords within the buy to let segment

and takes a prudent approach to assessing portfolio LTV and income coverage ratios There are also limits on the number of

properties in the portfolio both in total and those which the Society will lend on Each loan in a portfolio is assessed on a standalone

basis and no allowance is made in the affordability assessment for other income of the borrower

The LTV distribution of the mortgage book as at31December2022has remained broadly stable with2021,as a result of

continued growth in HPI offset by a slight increase in the85%to95%and>95%bandings as a result of additional lending in the year

including first time buyers The overall average LTV (balance weighted) marginally increased from50.9%to51.0%during the year

The following tables calculate LTV based on the weighted average loan balances unless stated otherwise

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Risk Categories Continued

Total mortgage book profile by number of accounts (Audited)

2022

2021

Indexed loan to value

<50% 57.2 56.7

50%to65% 26.8 27.7

65%to75% 10.0 11.0

75%to85% 4.0 3.1

85%to95% 1.7 1.5

>95% 0.3 —

Total 100.0 100.0

Average indexed loan to value of stock (simple average) 44.0 44.0

Average indexed loan to value of stock (balance weighted) 51.0 50.9

The average indexed LTV of loan stock in London has decreased to50.5%(2021:51.0%) as a result of movements in house prices

during the year The rest of the portfolio has seen indexed LTV increase marginally to51.1%(2021:50.7%)

The average LTV of gross new lending in2022is shown below which has marginally decreased during the year

Gross lending by balance - new lending profile (Audited)

2022

2021

Owner-occupier purchase 36.9 39.5

Owner-occupier remortgages 28.3 24.5

Owner-occupier further advances 2.3 2.0

Buy to let purchase 8.1 12.2

Buy to let remortgages 23.4 21.0

Buy to let further advance 1.0 0.8

Total 100.0 100.0

Average loan to value (simple average) 61.0 61.7

Average loan to value (balance weighted) 64.4 64.8

Retail credit risk management - mortgages

The Retail Credit Risk Committee (RCRC) and ultimately the Board oversee the Society’s credit risk management supported by a

specialist retail credit risk department reporting to the Chief Commercial Officer

The Board sets prudent credit risk limits within the context of the Society’s overall risk appetite and these are reflected in the

Society’s lending policy and credit controls

All mortgage applications are assessed against the Society’s lending policy criteria to ensure consistent credit decision making and

lending within the Society’s credit risk appetite This assessment uses stressed interest rates to ensure affordability even if interest

rates increase

The lending criteria has remained broadly unchanged in2022.

The Society also ensures that there is no overexposure to any geographical region or counterparty and that its mortgage portfolio as

a whole can withstand a range of macroeconomic and specific stress scenarios

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

The Society's approach to payment difficulties

Cost of living challenges

During the year the Society used an in-house assessment to identify customers who are potentially vulnerable to the cost of living

crisis The Society has proactively written to members identified as potentially vulnerable with around two thirds subsequently

contacted by a customer service call Most of those spoken to are happy just to know what support is available with a limited

number being referred on to explore forbearance options Very fewof those spoken to were already financially challenged and are

being managed using the forbearance tools available Customer reaction has been positive and will help engagement in the event of

future problems We will continue to invest in and expand this activity

The Society takes action to proactively contact mortgage customers who have or will be coming to the end of their initial fixed rate

mortgage product period and who may experience increases in their mortgage rates due to the interest rate environment The

Society has also enhanced communications including sending a separate mailing to all variable rate borrowers with a view to offering

them a fixed rate product to mitigate future interest rate uncertainties

Member mailings are being issued to highlight the support available for financial difficulty and this will link the members to our own

and third-party digital content

In the event that customers do experience financial difficulties contact is made on a missed direct debit (pre-arrears) as well as

following missed payments (arrears) The full range of forbearance support is available related to the circumstances of the borrower

Arrears performance

During2022,the Society's longer-term arrears position remained broadly stable at£70.4million (2021:£72.7million) of accounts

three months or more in arrears The overall credit quality of the book remains high and arrears levels compare favourably to the UK

Finance average As at31December2022,the Society had27properties in possession (2021:27)

2022 2021

(Audited)

Gross balance

£m

Arrears balance

£m

Gross balance

£m

Arrears balance

£m

Greater than three months 66.3 3.1 68.5 2.7

Greater than six months 32.0 2.3 34.8 2.1

Greater than one year 13.6 1.4 15.8 1.3

In possession 4.1 0.2 4.2 0.1

The overall level of arrears remains significantly lower than the UK Finance average as shown below

2022 2021

(Audited - Society only)

Society

UK Finance

Society

UK Finance

Greater than three months 0.17 0.71 0.17 0.83

Greater than six months 0.08 0.45 0.09 0.58

Greater than one year 0.03 0.25 0.04 0.36

In possession 0.01 0.02 0.01 0.01

1. UK Finance data as at31December2022(31December2021)

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Risk Categories Continued

Extent and use of forbearance (Unaudited)

The Society exercises forbearance if it is in the best interests of the borrower Forbearance measures that the Society may offer are

• Concessions where the Society agrees to accept either the normal monthly payment with no contribution towards paying off

the outstanding arrears reduced payments or in exceptional circumstances no repayments for a short period

• Mortgage term extensions to reduce the amount of the monthly payment as part of a longer-term solution

• A change of product which results in more sustainable monthly payments

On very rare occasions arrears may be capitalised or the Society may agree to change repayment mortgages to interest only terms

for a temporary period as a means of exercising forbearance

Where a loan is up to date the Society may agree a short-term payment holiday as a way of allowing borrowers to resolve financial

difficulties in which case this is treated as a forbearance measure rather than as one where the borrower is using a product feature

Forbearance payment holidays are for a maximum of three months and are only given where the borrower can afford the post-

holiday monthly repayments The table below provides details of loans which have had forbearance measures granted

The Society applies the Prudential Regulation Authority (PRA) definition of forbearance (which aligns to the European Banking

Authority) for the purpose of this disclosure where forbearance measures have been granted in the last24months regardless of

whether the incident of forbearance has now been lifted and the loans are back on their original terms

2022 2021

(Unaudited)

No of

accounts

Carrying

value

£m

No of

accounts

Carrying

value

£m

Forbearance Accounts past due

Concessions 144 19.9 129 18.3

Payment holidays 48 6.0 45 4.5

Product transfers 2 0.2 2 0.3

Temporary transfer to interest only 15 4.1 13 2.1

Term extensions — — 1 0.1

Forbearance Accounts not past due

Concessions 158 19.5 189 21.4

Payment holidays 199 22.0 136 15.0

Product transfers 1 0.3 11 2.0

Temporary transfer to interest only 87 16.5 226 52.2

Term extensions 3 0.5 2 0.4

Total Forbearance 657 89.0 754 116.3

Of which Stage2 211 26.1 419 70.6

Of which Stage3 242 35.8 247 32.8

ECL on forborne accounts 0.6 0.3

The number of loans in forbearance has reduced compared to2021.This table includes any customers who may have previously

had Covid-19payment holidays and then moved onto forbearance measures as a result of entering financial difficultyThe average

LTV (balance weighted) of accounts in forbearance as at31December2022remains low at47.2%(2021:49.9%) and mitigates the

risk of loss to the Society in the event that the borrower defaults on the loan at a future date

All accounts subject to forbearance at the reporting period are assessed as either stage2or3under IFRS9and the Society

recognises a lifetime ECL for these as an impairment provision

The table above details all cases which have had forbearance measures granted during the last24months under the PRA definition

of forbearance This therefore includes stage1accounts under IFRS9,as the forbearance measures had been lifted at31

December2022.

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

Identifying impaired loans (Audited)

Under IFRS9,the Society calculates impairment provisions on loans and advances to customers on an expected credit loss (ECL)

basis and not on an incurred loss basis ECL provisions are based on an assessment of probability of default loss given default and

exposure at default in a range of forward-looking scenarios

IFRS9requires the Society to categorise customer loans into one of three stages at the Balance Sheet date Assets that are

‘performing’ are shown in stage1;assets where there has been a significant increase in credit risk (SICR) since initial recognition

or ‘deteriorating’ assets are in stage2;and accounts which are credit impaired or in ‘default’ are in stage3.Under IFRS9,loans are

generally treated as being in ‘default’ if they are three or more months in arrears have been three or more months in arrears in the

last12months or have other specific unlikeliness to pay indicators Equity release loans are treated as being in default once the loan

is12months past the contractual trigger event IFRS9requires a12month ECL provision on all stage1assets and a lifetime ECL

provision on all stage2and3assets

Further disclosure on the ECL provisions and the accounting judgements which have been applied are included in note14to the

accounts

Credit risk outlook

Economic headwinds persist as a result of macroeconomic conditions in particular elevated inflation levels driving the cost of living

crisis together with increasing mortgage rates resulting from the Bank of England response to rising inflation We therefore remain

alert to these factors and will continue to manage policy in accordance with any emerging risks

As at31December2022,we have not yet seen significant increase in arrears levels as a result of the cost of living crisis but remain

vigilant to potential increases in arrears levels in the medium term

The Society has maintained its ongoing focus on low risk lending which is geographically spread across the UK This continues to

offer protection against forecasted house prices falls in2023and increased affordability pressures on borrowers

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Risk Categories Continued

Treasury credit risk

Treasury credit risk is the risk that the Society is unable to recover the principal or interest due from a wholesale debtor or that the

value of a wholesale asset or instrument suffers materially due to changes in the creditworthiness of the counterparty

Management of treasury credit risk

The Society has a low appetite for treasury credit risk and restricts exposures to good quality counterparties with a low risk of failure

Treasury investments in financial institutions are predominantly with highly rated UK banks and systemically important international

institutions in addition to multilateral development banks (MDBs) such as the European Investment Bank The Society also invests

in Covered Bonds and Residential Mortgage Backed Securities (RMBS) The treasury credit framework is reviewed annually by

the BRC and the Board and reflects internal analysis external credit ratings and any other relevant factors There is a maximum

permitted exposure set for each category of investments in addition to country and regional limits

Within the risk framework detailed limit setting is delegated to the Asset and Liability Committee (ALCO) with oversight from the

Risk function supplemented by daily monitoring by the Treasury Credit Committee

Exposures are reviewed continuously to ensure that they remain within the approved limits Developments with treasury

counterparties are closely monitored with detailed internal credit assessments performed annually on key counterparties with limits

reduced or suspended where there are adverse changes including changes in the creditworthiness of counterparties or markets

Treasury credit exposure profile (Audited)

Treasury assets comprise cash and balances with the Bank of England loans and advances to credit institutions and debt securities

The majority of liquidity continues to be held in UK central bank reserves

All of the Society’s treasury exposures remain at investment grade as set out below

Exposure value by Moody's rating

2022(Audited)

Aaa-Aa3

£m

A1-A3

£m

Baa1-Baa3

£m

Unrated

£m

Total

£m

Central banks and sovereigns 8,701.1 — — — 8,701.1

Multilateral development banks (supranational bonds) 159.3 — — — 159.3

Financial institutions 345.7 193.7 — 517.1 1,056.5

Mortgage backed securities 92.9 — — — 92.9

Total 9,299.0 193.7 — 517.1 10,009.8

1. Unrated balances relate to those with the London Clearing House As at31December2021,the£279.5million balance with London Clearing House was classified under Aaa-Aa3.

Exposure value by Moody's rating

2021(Audited)

Aaa-Aa3

£m

A1-A3

£m

Baa1-Baa3

£m

Unrated

£m

Total

£m

Central banks and sovereigns 6,855.1 — — — 6,855.1

Multilateral development banks (supranational bonds) 157.1 — — — 157.1

Financial institutions 434.0 155.4 — — 589.4

Mortgage backed securities 20.4 — — — 20.4

Total 7,466.6 155.4 — — 7,622.0

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

The majority of treasury assets continue to be held within the UK The geographical domicile of the Society’s treasury assets is

shown below

Treasury assets Of which debt securities

2022(Audited)

Sovereign

£m

Supranation-

als

£m

Financial

institutions

£m

Mortgage

backed

securities

£m

Total liquid

assets

£m

Book value

£m

Market

value

movement

£m

Fair value

£m

United Kingdom 8,701.1 — 883.3 92.9 9,677.3 1,492.4 (57.0) 1,435.4

Supranationals — 159.3

— — 159.3 161.0 (1.6) 159.4

France — — 173.2

— 173.2 — — —

Australia — — — — — — — —

Canada — — — — — — — —

Total 8,701.1 159.3 1,056.5 92.9 10,009.8 1,653.4 (58.6) 1,594.8

1.Supranationals relate to amounts held with the European Investment Bank (guaranteed by a number of European sovereigns) the Asian Development Bank (guaranteed by a number of global

sovereigns) and both the European and International Bank for Reconstruction and Development (guaranteed by a number of global sovereigns)

2.Cash collateral held by counterparties under Credit Support Annexes (CSAs) in relation to derivative liabilities

2021(Audited)

Treasury assets Of which debt securities

Sovereign

£m

Supranationals

£m

Financial

institutions

£m

Mortgage

backed

securities

£m

Total liquid

assets

£m

Book value

£m

Market

value move-

ment

£m

Fair value

£m

United Kingdom 6,855.1 — 478.2 20.4 7,353.7 522.5 (3.7) 518.8

Supranationals — 157.1

— — 157.1 156.9 0.3 157.2

France — — 111.2

— 111.2 — — —

Australia — — 0 — — — — —

Canada — — 0 — — — — —

Total 6,855.1 157.1 589.4 20.4 7,622.0 679.4 (3.4) 676.0

1.Supranationals relate to amounts held with the European Investment Bank (guaranteed by a number of European sovereigns) and both the European and International Bank for Reconstruction

and Development (guaranteed by a number of global sovereigns)

2.Cash collateral held by counterparties under Credit Support Annexes (CSAs) in relation to derivative liabilities

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Risk Categories Continued

Counterparty credit risk mitigation

The Society enters into derivative transactions for risk management purposes It undertakes sale and repurchase (repo) transactions

to manage liquidity and raise longer-term funding where highly rated assets such as gilts are sold with an agreement to repurchase

at an agreed price at a later date Counterparty credit risk includes the risk of default by the derivative counterparty and the risk that

cash received in a repo transaction is less than the market value of the asset

The Society manages this risk by undertaking credit assessments of all counterparties and by exchanging collateral to mitigate any

exposure Daily collateralisation of repo transactions is carried out in accordance with the Global Master Repurchase Agreements to

mitigate net exposure arising from changes in market value Similarly all derivatives have Credit Support Annexes (CSAs) in place to

ensure they are collateralised to mitigate net mark-to-market credit exposures

The Society has entered into International Swaps and Derivatives Association (ISDA) master netting agreements for all of its

derivatives (other than swaps undertaken by Coventry Building Society Covered Bonds LLP and Coventry Godiva Covered Bonds

LLP) These allow the Society to settle exposures ‘net’ in the event of a default or other predetermined event

The Society is subject to mandatory central clearing of derivatives through a third-party regulated central clearing counterparty to

reduce systemic and operating risk Under this collateral is exchanged on a daily basis The Society may still enter into swaps that

are not currently cleared by any of the central clearing houses eg cross currency swaps these are all subject to daily exchange of

collateral to better manage counterparty risk

The Society’s Covered Bond programmes (Coventry Building Society Covered Bonds LLP and Coventry Godiva Covered Bonds LLP)

and Economic Master Issuer plc enter into swaps under separate ISDA agreements Each agreement includes a CSA which provides

for collateralisation of the swap exposure

The derivative exposures can only be settled net following a default or other predetermined event and therefore exposures are

presented gross on the Balance Sheet

The Society has a£0.6million derivative net credit exposure (2021:£0.1million) all£0.6of which is with A1rated institutions

(2021:£0.1million)

More information is included in note31to the accounts

Analysis of treasury assets by IFRS9stage and impairment

Under IFRS9,the calculation of impairment on treasury assets is performed on an expected credit loss (ECL) basis

The Society determines whether there has been a significant increase in credit risk for treasury assets using a range of factors

including counterparty credit ratings internal monitoring processes and for mortgage backed securities stress testing Exposures

are monitored by the Treasury Credit Committee

All of the Society’s treasury assets are assessed as stage1'performing'assets at both1January and31December2022.Due to

the underlying quality of the assets they have remained resilient to the market movements caused by the market volatility the war in

Ukraine and the cost of living crisis

ECLs are calculated by applying an externally published Probability of Default (PD) for the applicable credit risk rating to the

treasury exposure value The required provision remained negligible for2022and is immaterial to the financial statements

As at31December2022,no treasury assets were past due (2021:none)

Treasury credit risk outlook

There remains significant uncertainty in the economic outlook moving into2023.However the Society’s consistent low risk

approach to treasury credit risk protects the Society and its members from credit risk arising on its treasury portfolio This is

expected to be maintained in future periods

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

Market risk

Market risk is the risk of a reduction in earnings andor value resulting from adverse movements in financial markets

Market risk only arises in the banking book as the Society does not hold a trading book Interest rate risk in the banking book includes

re-price option and basis risk The Society is also subject to credit spread risk in the banking book and foreign currency risk

The main source of market risk to which the Society is exposed to is re-price risk

Management of market risk

The Board has overall responsibility for determining the Society's appetite to market risks including interest rate risk in the banking

book (IRRBB) The Chief Financial Officer and Treasurer are responsible for managing and monitoring current and emerging market

risks This is overseen by the Market Risk Committee ALCO BRC and ultimately the Board

Market risk is managed by specifying risk tolerances and operating within these limits using derivatives such as interest rate swaps

or matching offsetting assets and liabilities The Society maintains adequate margin capacity through administered rates and invests

its reserves and some of its interest rate insensitive balances in fixed rate assets to reduce income volatility

Re-price risk

The Society is exposed to the risk that interest rates change and its assets and liabilities re-price on different dates resulting in a

negative impact to the future net interest income or the value of the balance sheet The Society manages this risk by limiting the

impacts of different interest rate shocks

The impact on the economic value of assets and liabilities under parallel and non-parallel interest rate shock scenarios is monitored

by the Society The key assumptions used in this modelling are

• A run-off balance sheet which amortises the existing book

• Contractual positions are adjusted for optionality within products

• Downward shocks allow for negative rates

• The effect of external hedging is included

• The Society's reserves and some interest rate insensitive balances are allocated in line with Board approved limits

The Society monitors its exposure against the prescribed shocks of the Basel Committee on Banking Supervision (BCBS) outlier

tests monthly and the Board sets limits for the maximum change in the Society’s economic value of equity beneath the regulatory

limit

In addition to the economic value measures the impact of various interest rate scenarios on net interest income (NII) ie an earning

measure over multiple timeframes is monitored The key assumptions used in this modelling are

• A dynamic balance sheet which includes the run-off of current assets and liabilities as well as retained and new business

• Contractual positions are adjusted for optionality within products

which change with the rate scenario

• Downward shocks allow for negative rates unless a contractual product floor is reached

• No variation in commercial pricing assumptions in response to alternative interest rate scenarios

• Includes the effect of external hedging

The Society uses a structural hedge to manage net interest sensitivity arising from its reserves and some of its interest rate

insensitive balances The structural hedge has a number of Board approved parameters that limit the size duration and

concentration of maturities of the hedge

The table below shows the exposure to re-price risk against a range of value and earnings-based assessments as at31December

2022.The relatively small change in value and net interest income measures provides insight into the modest amount of re-price

risk the Society runs The balance sheet is positioned so that net interest income benefits should interest rates rise ie net interest

income disbenefits from falling interest rates The sensitivity of the economic value to the different interest rate shocks is driven by

pre-hedged customer flow positions and separate assumptions on how they will complete under each shock

1. Behavioural assumptions are described in the Product option risk section

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Risk Categories Continued

Shock applied (Unaudited)

2022

£m

2021

£m

Impact on present value of assets and liabilities at year end from a parallel change in yield curve

+100basis points shift (EV100) (14.8) (1.3)

-100basis points shift (EV100) 15.6 5.2

+200basis points shift (EV200) 14.9 60.0

-200basis points shift (EV200) (17.1) (43.7)

Impact on net interest income for the year from a parallel change in yield curve

+100basis points shift 10.1 8.2

-100basis points shift (11.0) (33.1)

Product option risk

The Society is exposed to the risk that arises when interest rate changes result in a financial incentive for a customer to exercise an

option on a fixed rate product and hedging has to be adjusted at adverse rates The key behavioural assumptions made are

• Rate of prepayment of fixed rate mortgages

• Rate of prepayment of fixed rate savings

• Rate of conversion of fixed rate mortgage pipeline

Prepayment risk is quantified and assessed using a set of bespoke models that based on historical experience attempt to predict

customer behaviour in response to changes in interest rates which are backtested It is mitigated by appropriate redemption or early

withdrawal charges

Pipeline risk is managed through dynamic hedging of the Society’s estimate of likely sales and timing using a conversion model and

applying stressed assumptions Final hedging adjustments are made once the completion onto a product has ceased

Basis risk

The Society is exposed to the risk that interest rates change and floating rate liabilities re-price by different amounts than do its

assets such that it is negatively impacted The Society manages basis risk by offsetting assets and liabilities by their reference

rate and ensuring that earnings sensitivity to market rates diverging from the Bank of England Base Rate remain within limits The

primary short-term interest rate benchmark that the Society is exposed to is Sterling Overnight Index Average (SONIA) The

Society successfully transitioned all of its exposures to suitable risk free rates in the prior year as part of the Interbank Offered Rate

(IBOR) reform and therefore as at1January2022,the Society had no remaining LIBOR-linked exposures

Credit spread risk

Credit spread risk in the banking book is the risk arising from changes in the market value of financial assets due to fluctuations in

their credit spread Beyond cash the Society holds securities for the high quality liquidity buffer which are held at fair value through

other comprehensive income (FVOCI) The Society manages this exposure through a limit which caps the change in the market

value of both fixed and floating rate assets under a shock to credit spreads Due to the low treasury credit risk appetite of the

Society in terms of exposure and credit quality the risk is constrained

Foreign currency risk

The Society raises non-sterling funding to ensure wholesale funds are obtained cost-effectively across a wide pool of potential

providers However this exposes the Society to the risk of a change in the value of foreign currency denominated liabilities Cross

currency swaps are entered into in order to fully hedge the foreign exchange risk Both pre- and post-hedged exposures are managed

within limits

Further information is included in note23to the accounts

Market risk outlook

2022saw the volatility in interest rate markets increase significantly As the year progressed the fallout of events in Ukraine in

February and UK politics in September shook markets and shifted the inflation outlook This in turn saw central banks increasing

interest rates rapidly The economic outlook for2023now looks poor for growth as previous base rate rises feed through on a

lagged basis reducing both consumer and business confidence Significant uncertainty remains around asset prices including

residential property Although supply in the labour market remains tight the pace of Bank of England Base Rate changes can be

expected to slow from here as headline inflation cools through2023.

The Society is satisfied that the controls outlined above will mean that market risk remains within appetite

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

Liquidity and funding risk

Liquidity risk is the risk that the Society has insufficient funds to meet its obligations as they fall due Funding risk is the risk of the

inability to access funding markets or to do so only at excessive cost

Both risks are managed on a Group basis (including all subsidiary entities) with day-to-day responsibility delegated to the Chief

Financial Officer and Treasurer with oversight provided by the Liquidity Management Committee ALCO BRC and the Board

Management of funding risk

The Society ensures that it is not reliant on any single source or funding provider to manage funding risk It maintains a strong and

diversified funding base with access to a range of wholesale funding markets This reflects the Society’s strategy and the traditional

building society model

Retail funding forms the bulk of the funding base and consists of a mix of variable rate products fixed rate bonds and ISAs The

Society has a strong record of attracting and retaining savings balances and continues to organically grow its savings book The

Society raises deposits from a broad customer base which is spread throughout the UK and offers a range of retail savings products

to diversify retail funding New channels are being explored to diversify this further

Over2020and2021,the Society accessed the Bank of England Term Funding Scheme with additional incentives for SMEs

(TFSME) to further reduce funding costs and diversify exposures The Society has drawn a total of£5.25billion from TFSME which

is set to be repaid by the end of2025,with the repayment funded by a mix of new wholesale issuances and retail savings acquisition

No repayments were made in2022and the Scheme was closed to new drawings in the prior year

The Board sets limits to avoid both overreliance on wholesale funding and funding concentration by type counterparty or tenor

These limits comply with the Building Societies Act1986and follow the Prudential Regulation Authority’s (PRA) supervisory

guidance

Management of liquidity risk

The Society ensures it holds sufficient quality and quantity of liquidity to remain a going concern after a severe but plausible stress

In turn this ensures that it meets regulatory requirements set by the PRA The level of stress applied is dynamically assessed based

on an assessment of risks run by the Society and the prevailing economic and market liquidity backdrop

The Society’s business model inherently involves ‘maturity transformation’ as it borrows or takes deposits for shorter terms than

its mortgage lending This mismatch could in certain stressed circumstances give rise to liquidity risk if the Society was unable to

raise new funding or replace existing funding at maturity because of either a liquidity crisis in the capital markets or a loss of member

confidence that causes a ‘run’ on retail funds at that time

The annual Internal Liquidity Adequacy Assessment Process (ILAAP) is completed to ensure that the Society holds sufficient

liquidity to cover this risk The ILAAP is approved by the Board and confirms the Society’s liquidity risk appetite including limits that

determine the mix and amount of liquidity it must hold

The Society’s Recovery Plan outlines a menu of actions that can be undertaken to stop the Society from failing in severe stress

situations covering both capital and liquidity stresses In line with regulatory requirements the Society has put in place actions to

ensure there are no material barriers to resolution

The Society completes regular stress testing including ad hoc scenarios and reverse stress testing to test both the current balance

sheet and the latest projection thereby ensuring that actual and forecast liquidity remain within appetite The forecast and actual

liquidity levels are monitored by the Liquidity Management Committee ALCO and BRC and overseen by the Board

The Society held a significant buffer above its regulatory liquidity requirement throughout2022.

Liquidity resources

The Society’s liquidity resources include funds in cash accounts held in the Bank of England reserve account and other highly

marketable assets and contingent liquidity They are managed based on the prudent estimation of the expected time taken to

convert them into cash in a stress situation These limits ensure that the Society meets its risk appetite which is consistently higher

than regulatory requirements

The Society monitors compliance against Liquidity Coverage Ratio (LCR) requirements on a daily basis and as at31December

2022,the Society’s LCR was195%(2021:187%) significantly above the regulatory minimum

Net Stable Funding Ratio (NSFR) is a measure that compares the stability of the Society's asset and liability base The Society holds

sufficient stable funding to meet the regulatory requirement of100%NSFR

The Society’s liquidity resources at31December2022are set out in the following table Total cash and High Quality Liquid Assets

(HQLA) remains high with the majority of assets held as cash at the Bank of England Total contingent liquidity remained flat

compared to the prior year as the retained£2billion buy to let covered bond issuance was offset by the run-off of the whole loan

pools and the maturity of a£900million retained covered bond

The amounts differ from those in the accounting Balance Sheet as this analysis excludes any encumbered assets such as cash held in

the Society’s covered bonds and RMBS programmes and balances posted with counterparties as collateral under swap agreements

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Risk Categories Continued

(Audited)

2022

£m

2021

£m

Cash and balances with the Bank of England 7,532.3 6,345.9

UK Government securities and other qualifying securities 1,422.1 473.2

Sub-total high quality liquid assets 8,954.4 6,819.1

Other securities – on-balance sheet 6.2 6.5

Contingent liquidity 4,256.0 4,344.0

Total 13,216.6 11,169.6

Liquidity adequacy and stress testing

The ILAAP ensures that the Society holds sufficient liquidity both to meet minimum regulatory requirements such as the LCR and

to comply with the Internal Liquidity Adequacy Assessment (ILAA) Rules including the Overall Liquidity Adequacy Rule

The ILAAP explains the assumptions used in the Society’s liquidity stress tests including the rationale for their selection and

calibration These assumptions are specific to the Society and reflect the main risks The stress tests consider the potential causes

of liquidity risk for the Society in a severe but plausible stress and the management actions that may be taken to ensure that the

Society remains a going concern The Society’s business model means that the main liquidity risks would relate to significant

unexpected withdrawals of retail deposits the impact of any credit risk downgrade and a lack of access to wholesale funding markets

when wholesale funding matures

The ILAAP is reviewed by the PRA Following this the PRA provides Individual Liquidity Guidance which sets out the liquidity that

the PRA requires the Society to hold including any add-ons for liquidity risks that are not adequately captured by the LCR

The Society continued to meet all regulatory liquidity requirements throughout the year

Wholesale funding

During2022,the Society issued a€0.5billion covered bond as well as completing a private long-term bilateral repo trade utilising

retained covered bonds as collateral The Society also drew£250million from the Bank of England's index Long-Term Repo facility

(ILTR) with repayment due in early2023.

Overall the wholesale funding at31December2022has increased by£1.3billion as a result of repo transactions and an increase

in collateral held in relation to swap agreements entered into by the Society

2022 2021

(Audited) Notes to the accounts £m % £m %

Deposits from banks including repo agreements 21 2,255.5 17.1 788.6 6.6

Amounts drawn under TFSME 21 5,287.4 40.0 5,251.6 44.1

Other deposits and amounts owed to other customers 421.1 3.2 614.8 5.2

Debt securities in issue

Medium term notes 22 1,451.9 11.0 1,856.5 15.6

Covered bonds 22 3,099.6 23.5 2,565.0 21.5

Residential Mortgage Backed Securities 22 691.7 5.2 830.8 7.0

Total 13,207.2 100.0 11,907.3 100.0

Wholesale funding outstanding at31December2022remained primarily denominated in sterling as shown below

(Audited)

GBP

£m

EUR

£m

Total

£m

Deposits from banks including repo agreements 2,255.5 — 2,255.5

Amounts drawn under TFSME 5,287.4 — 5,287.4

Other deposits and amounts owed to other customers 410.3 10.8 421.1

Debt securities in issue

Medium term notes 1,451.9 — 1,451.9

Covered bonds 1,104.0 1,995.6 3,099.6

Residential Mortgage Backed Securities 691.7 — 691.7

Total as at31December2022 11,200.8 2,006.4 13,207.2

Total as at31December2021 10,440.8 1,466.5 11,907.3

All of the euro denominated covered bonds have been swapped back into sterling

The expected maturity analysis for wholesale funding is shown below based on the earlier of first call date or contractual maturity

More funding matures in the one to five year window reflecting primarily the maturity due on TFSME funding

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

2022 2021

(Audited) £m % £m %

Less than one year 4,140.5 31.3 1,819.8 15.3

One to two years 2,741.8 20.8 1,797.1 15.1

Two to five years 5,412.8 41.0 7,415.6 62.3

More than five years 912.1 6.9 874.8 7.3

Total 13,207.2 100.0 11,907.3 100.0

Contractual maturity profile of financial assets and liabilities

The table below analyses the carrying value of financial assets and financial liabilities based on the remaining contractual life to the

maturity date In practice the contractual maturity will differ to actual repayments ‘on demand’ customer deposits will be repaid

later than the earliest date on which repayment can be requested and mortgages may be repaid ahead of their contractual maturity

The net liquidity gap marginally increased during the year driven by acquisition of ‘on demand’ retail saving products

At31December2022(Audited)

Repayable

on demand

£m

Up to3

months

£m

3-12

months

£m

1-5years

£m

More than5

years

£m

Total

£m

Assets

Cash and balances with the Bank of England

7,792.2 — — — — 7,792.2

Loans and advances to credit institutions 622.8 — — — — 622.8

Debt securities — 127.9 747.8 514.2 204.9 1,594.8

Loans and advances to customers 44.4 863.2 2,484.3 12,071.2 32,551.2 48,014.3

Hedge accounting adjustment (1.2) (9.9) (128.7) (1,377.0) (78.5) (1,595.3)

Derivative financial instruments 6.8 23.2 202.3 1,843.3 202.5 2,278.1

Investment in equity shares — — — — 5.8 5.8

Total financial assets 8,465.0 1,004.4 3,305.7 13,051.7 32,885.9 58,712.7

Liabilities

Shares 24,344.3 837.1 8,573.0 8,237.5 296.8 42,288.7

Sale and repurchase agreements

— 348.2 — 250.0 — 598.2

Amounts drawn under TFSME

— 37.4 — 5,250.0 — 5,287.4

Deposits from banks - other 1,653.4 3.9 — — — 1,657.3

Other deposits — 5.0 — — — 5.0

Amounts owed to other customers — 332.6 83.5 — — 416.1

Secured debt securities in issue - RMBS and covered bonds — 8.0 813.4 2,305.6 664.2 3,791.2

Senior unsecured debt funding — 403.6 451.5 349.0 247.9 1,452.0

Hedge accounting adjustment (0.7) — (118.6) (280.2) (53.0) (452.5)

Derivative financial instruments 4.1 — 164.4 380.1 77.9 626.5

Subordinated liabilities — 0.4 — 15.0 — 15.4

Subscribed capital — 1.6 — — 40.0 41.6

Total financial liabilities 26,001.1 1,977.8 9,967.2 16,507.0 1,273.8 55,726.9

Net liquidity gap (contractual) (17,536.1) (973.4) (6,661.5) (3,455.3) 31,612.1 2,985.8

1.Includes£169.0million mandatory reserve with the Bank of England

2.Included in Deposits from banks on the Balance Sheet

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Risk Categories Continued

At31December2021(Audited)

Repayable on

demand

£m

Up to3

months

£m

3-12months

£m

1-5years

£m

More than5

years

£m

Total

£m

Assets

Cash and balances with the Bank of England

6,650.2 — — — — 6,650.2

Loans and advances to credit institutions 295.8 — — — — 295.8

Debt securities — 1.1 24.6 409.4 240.9 676.0

Loans and advances to customers 40.3 861.4 2,439.6 11,822.1 31,457.2 46,620.6

Hedge accounting adjustment — 0.5 (16.0) (263.7) (16.2) (295.4)

Derivative financial instruments 0.1 0.2 35.2 309.3 61.5 406.3

Investment in equity shares — — — — 4.9 4.9

Total financial assets 6,986.4 863.2 2,483.4 12,277.1 31,748.3 54,358.4

Liabilities

Shares 25,072.1 805.2 7,395.7 6,351.1 266.1 39,890.2

Sale and repurchase agreements

— 0.4 524.9 — — 525.3

Amounts drawn under TFS

— 1.7 — 5,250.0 — 5,251.7

Deposits from banks - other 261.1 2.1 — — — 263.2

Other deposits — — 5.0 — — 5.0

Amounts owed to other customers — 532.9 76.9 — — 609.8

Secured debt securities in issue - RMBS and covered bonds — 3.2 0.3 2,765.1 627.2 3,395.8

Senior unsecured debt funding — 9.8 401.6 1,197.5 247.6 1,856.5

Hedge accounting adjustment — — (7.8) (82.8) (5.5) (96.1)

Derivative financial instruments 1.9 3.2 21.6 163.1 30.0 219.8

Subordinated liabilities — 0.3 — — 15.0 15.3

Subscribed capital — 1.6 — — 40.0 41.6

Total financial liabilities 25,335.1 1,360.4 8,418.2 15,644.0 1,220.4 51,978.1

Net liquidity gap (contractual) (18,348.7) (497.2) (5,934.8) (3,366.9) 30,527.9 2,380.3

1.Includes£164.8million mandatory reserve with the Bank of England

2.Included in Deposits from banks on the Balance Sheet

Gross contractual cash flows payable under financial liabilities are analysed further below

This analysis differs from the analysis of contractual maturity as it includes interest accrued for the period to maturity on the balance

outstanding at the Balance Sheet date Principal payments are included based on the earlier of first call date accessible date or

contractual maturity The undated Subscribed capital is included in the ‘More than5years’ column but with no accrued interest

after this date The profile remained broadly similar to the prior year

At31December2022(Audited) Up to3

months

£m

3-12

months

£m

1-5years

£m

More than5

years

£m

Total

£m

Liabilities

Shares 25,193.0 8,621.6 8,261.5 296.9 42,373.0

Deposits amounts owed to other customers and debt securities in issue 1,689.1 2,313.6 7,225.9 910.6 12,139.2

Other liabilities and adjustments 38.1 242.3 331.2 28.6 640.2

Subordinated liabilities 0.6 0.6 19.5 — 20.7

Subscribed capital 2.4 2.4 434.3 40.0 479.1

Total liabilities 26,923.2 11,180.5 16,272.4 1,276.1 55,652.2

Undrawn loan facilities 23.1 — — — 23.1

At31December2021(Audited)

Up to3

months

£m

3-12months

£m

1-5years

£m

More than5

years

£m

Total

£m

Liabilities

Shares 25,877.4 7,418.2 6,365.6 266.0 39,927.2

Deposits amounts owed to other customers and debt securities in issue 580.2 1,455.1 9,291.3 899.7 12,226.3

Other liabilities and adjustments 40.5 109.3 160.6 4.1 314.5

Subordinated liabilities 0.6 0.6 4.5 16.1 21.8

Subscribed capital 2.4 2.5 19.4 40.0 64.3

Total liabilities 26,501.1 8,985.7 15,841.4 1,225.9 52,554.1

Undrawn loan facilities 26.2 26.2

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

Asset encumbrance

Some of the Society’s mortgages or treasury assets are used to support collateral requirements for secured funding central

bank operations or third-party repo transactions Mortgages or treasury assets used in this way are referred to as encumbered

Encumbrance provides cheaper and more stable funding however it creates the risk that savings members and other senior

unsecured creditors may be unable to benefit from the liquidation of encumbered assets in the event of insolvency of the Society

and may risk bearing losses from a forced sale of the encumbered assets if the Society defaulted While these risks are very remote

limits on encumbrance are set by the Board and encumbrance levels are managed within these limits

Asset encumbrance at31December2022is set out in the table below

Encumbered Unencumbered

(Unaudited)

Pledged as

collateral

£m

Other

£m

Available as

collateral

£m

Other

£m

Total

£m

Cash and balances with the Bank of England — 231.1 7,561.1 — 7,792.2

Loans and advances to credit institutions 622.8 — — — 622.8

Debt securities 702.0 — 886.5 6.3 1,594.8

Loans and advances to customers 15,882.5 — 4,298.9 27,832.9 48,014.3

Hedge accounting adjustments — — — (1,595.3) (1,595.3)

Derivative financial instruments — — — 2,278.1 2,278.1

Other assets — — — 160.2 160.2

Total as at31December2022 17,207.3 231.1 12,746.5 28,682.2 58,867.1

Total as at31December2021 14,806.2 296.3 12,430.6 26,996.6 54,529.7

1.Assets that have been used to support interest rate swap collateralisation agreements third-party secured funding operations central bank operations or third-party repo transactions and

cannot be used for any other purpose

2.Other encumbered assets are assets that cannot be used for secured funding due to legal or other reasons This includes cash and assets supporting secured funding vehicles

3.These assets are readily available as collateral to secure funding Loans and advances to customers in this category comprise Bank of England approved portfolios and those that although

technically encumbered are held in respect of retained self-issued notes in the Society’s covered bond and securitisation programmes

4.Unencumbered other assets are therefore conservatively defined as not readily available for use as collateral The Loans and advances to customers in this category include£17.4billion at31

December2022(2021:£15.6billion) which would be eligible for use to support future external or self-issuance under the Society’s covered bond and securitisation programmes A proportion of

the remaining balance would also be suitable for such purpose subject to amending the programme structures

External credit ratings

The Society’s long-term and short-term credit ratings were unchanged by Moody’s and Fitch in the year with the outlook remaining

stable Short- and long-term credit ratings as at the date of approval the Annual Report & Accounts are set out below

(Audited) Long-term Short-term Outlook Date of last credit opinion

Moody’s A2 P–1 Stable July2022

Fitch A– F1 Stable November2022

Liquidity and funding risk outlook

The Society remained committed to prudent liquidity levels and funding levels raising funds via retail savings and wholesale

markets with beneficial conditions The Society has£5.25billion of TFSME drawings which are due to be repaid by the end of

2025,primarily through new wholesale issuances and further retail acquisition The Society’s wholesale funding plan also considers

regulation related to meeting the Minimum Requirement for own funds and Eligible Liabilities (MREL) and the impact on the

Society's ratings of senior preferred debt

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Risk Categories Continued

Conduct risk

Conduct risk is the risk that the Society’s behaviour and decision making fail to deliver good customer outcomes The Society is

committed to being a purpose-led mutual making a positive difference and delivering good outcomes for customers

Conduct risk profile

The Society’s mutual ownership its culture and values and its belief of Putting Members First drives its decision making and actively

supports delivery of good customer outcomes As a result the Society continues to meet its conduct risk responsibilities and ensures

the delivery of good outcomes for members This is evidenced through the Society’s low level of customer complaints and the

positive response from the Financial Ombudsman Service on complaints that are referred to it both of which remain consistently

below industry averages In2022,97% of complaints referred to the Financial Ombudsman Service were decided in the Society’s

favour (2021:96%) compared with an industry average of63% (2021:54%)

Management of conduct risk

The Society manages conduct risk through its Conduct Risk Framework which is designed to ensure that conduct risk is identified

measured managed monitored and reported

Day-to-day management of conduct risk is the responsibility of all of the Society’s senior and functional management teams

Oversight is provided by the Conduct Risk and Compliance Committee (CRCC) membership of which includes senior managers

from across the Society CRCC meets formally on a quarterly basis to review conduct performance and to receive and consider

reports on related conduct matters such as reviews of mortgage and savings products and services complaints analysis and terms

and conditions

The Society’s approach to conduct risk is grounded in six key principles

1. Putting Members First from both an individual and a total membership perspective

2. Products and services are based on good customer outcomes now and in the future

3. Complaints are resolved fairly with effective action taken on root causes to improve member experience

4. The systems and partners the Society uses are within its risk appetite and balance the needs of members and the Society

5. The literature and advice provided by the Society are straightforward easy to understand and unbiased

6. Strategy and governance promote and evidence good customer outcomes

Good customer outcomes are only delivered by people and these principles underpin the Society’s internal communications and its

recruitment and reward strategies In particular recruitment processes are designed to make sure that colleagues understand and

share the Society’s values while the reward policy does not incentivise sales and positively rewards customer service

The Society has embodied its strategic approach in four key elements – Purpose Belief Values and Ambition – which are articulated

as a set of shared goals across the Society Employees understand and share the focus on these shared goals and on Putting

Members First and this is a major part of the Society’s high employee engagement score The Society’s corporate induction is

tailored to ensure that all new colleagues are trained on Putting Members First with additional training on day-to-day decision

making provided regularly to all managers In this way the Society ensures that all managers understand the importance of their

team’s role in delivering good customer outcomes The Society actively designs products to be fair and transparent with their

features and terms and conditions explained simply and clearly This has been independently endorsed by Fairer Finance All major

product developments are reviewed and approved by CRCC before launch

Quality assurance activities across operational processes are focused on customer outcomes in addition to process and policy

adherence and specifically to check members have received the right advice and levels of service for their particular needs

The Conduct Risk Framework ensures that potential conduct risks arising from the products services and documentation the

Society provides to its members are identified and that there are adequate control measures in place to manage mitigate and

monitor such risks The Society has an established product approval governance framework which ensures any new or materially

adapted products are assessed for consistency with the needs of the identified target market clarity of terms and conditions

consideration of the implications for customers with characteristics of vulnerability and the mitigation of any risks inherent in the

products

There is a dedicated Conduct Risk Oversight and Compliance function reporting into the Chief Risk Officer which provides second

line oversight of business activity focused on the delivery of positive customer outcomes as well as assessing adherence to the

Society’s compliance and regulatory obligations

Supporting our customers through the rising cost of living

The Society recognises the challenges the rising cost of living is placing on many of our members We continue to encourage

early contact and to support borrowers experiencing temporary or longer-term financial difficulties In addition to member

communications providing guidance and support the Society has online support materials to assist members facing financial

difficulty and avoiding falling victim to increasing levels of financial crime and scams

1.Source Financial Ombudsman – complaints upheld in the Society's favour for the six months to30June2022.

2.Source Financial Ombudsman – complaints upheld in the banking and credit sector for the six months to30June2022.

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

Supporting vulnerable customers

The Society recognises that members in vulnerable circumstances are at greater risk of poor outcomes when dealing with their

finances

The Society has a strong track record in supporting vulnerable customers with vulnerability experts in place across our teams a

Vulnerability Working Group that regularly assesses the needs of customers and a focus on developing services that make dealing

with the Society as easy as possible This focus is supported by the Vulnerability Members Panel which enables members to provide

practical suggestions and feedback to further improve the experience of members who require additional support The Society

is fully committed to applying a ‘human approach’ across all of its channels and this will remain a key focus as digital services are

developed

Through2022,the Society introduced further improvements to its support for vulnerable customers including a new accessibility

tool on the consumer website which provides a range of options for members to select appropriate to their needs updated

support prompts in branches a guide to vulnerability for mortgage brokers and a new ATM card design to assist visually impaired

customers The Society is committed to enhancing its training and development of colleagues and during the year introduced

a new ‘vulnerability hub’ to support the delivery of additional training and support materials The Society has also subscribed to

Communication Access UK an organisation that has developed training and standards to help support people with communication

difficulties We have now delivered its training content to over1,200front-line and head office colleagues

Complaints and redress

While the Society seeks good customer outcomes from time to time things can go wrong

The Society positively encourages members to identify poor outcomes or service that does not meet their expectations and seeks to

resolve complaints as soon as possible In addition while complaint levels are modest analysis of the more common issues raised is

used to improve services and customer outcomes

Examples of this led to the launch in the year of a number of dedicated improvements to our digital channels including a digital

option for fixed rate savings account maturities improvements to the online services authentication methods and a digital rate

switch option for mortgages Further developments are underway including Confirmation of Payee services and a mobile App We

have listened to customers and will continue to enhance our service in response to complaints to improve our customer experience

Whilst overall complaint volumes remain low there was an increase seen in2022.This reflects a busy year generally for the Society

as business activity and customer contact levels driven in part by the rising interest rate environment have led to sustained periods

of high demand across all areas of our business especially in relation to savings products Whilst inbound call wait times have been

longer than we would like as a result with a corresponding increase in complaints these levels still remain very low Understanding

and resolving the causes of complaints remains embedded in our complaints process and continuous improvement initiatives are

progressed to address any issues identified from root cause analysis

Conduct risk outlook

The FCA’s plans for2023continue to be aligned to its objectives of ensuring that markets continue to function well that the most

vulnerable are protected that the impact of firm failure is minimised that scams are tackled and that consumers are treated fairly

The key developments are expected to include the following

During the year the FCA published its final rules and guidance for the implementation of a new Consumer Duty setting higher

expectations of firms in their treatment of retail customers and based on a new Principle that firms should ‘act to deliver good

outcomes for retail customers’ The Principle is underpinned by a set of rules and outcomes Implementation of the new rules is

required by31July2023for new and open products and31July2024for closed products While the Society is well placed to

meet the standards expected by the new regulations given its focus on Putting Members First we are not complacent and have

established a formal programme of activity to review all products and services and the support we provide our members throughout

their relationship with us

With the rising cost of living the FCA maintains a focus on supporting borrowers in financial difficulty Again the Society is well

placed to respond to and support borrowers who face either short- or longer-term affordability challenges

The Society is not complacent about the challenges ahead but its belief in Putting Members First and its focus on delivering

excellent customer service combined with high levels of colleague engagement provides a strong base from which to continue to

support the delivery of good customer outcomes This will assist the Society in maintaining its excellent track record on conduct risk

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Risk Categories Continued

Operational risk

Operational risk is the risk of loss arising from inadequate or failed internal processes people and systems or from external events

Operational risk profile

The Society manages operational risks with the objective of protecting members'interests and keeping the Society safe and

secure Operational risk appetite is driven internally by the Society’s belief of Putting Members First and externally by consumer

expectations and regulatory standards that increasingly focus on resilience and Consumer Duty

Management of operational risk

Operational risk is managed reported and controlled across a number of sub-categories consistent with the Basel risk

classifications industry best practice and the Society’s business model The most significant operational risk sub-categories for the

Society relate to technology (including information security) statutory regulatory and internal financial reporting and people which

are covered below in addition to updates on operational resilience and the regulatory environment

Day-to-day management of operational risk is carried out as an integral part of conducting the Society’s business by the relevant

functional executives The executives are responsible for identifying potential risks and ensuring that adequate controls are in place

to mitigate risks in line with risk appetite using the Society’s Risk and Control Self-Assessment process

The Operational Risk Committee chaired by the Chief Customer Officer provides primary oversight of all operational risk

categories with further oversight provided by the BRC and the Board

Operational resilience

Ensuring the Society's operational resilience which is the ability to prevent adapt respond to recover and learn from operational

disruptions is a top priority for the Society The Society complied with the initial PRA and FCA12-month regulatory requirements

of defining important business services setting impact tolerances mapping operational assets to services and testing resilience

capabilities The Society is now progressing the extended phase of continuously improving and testing controls which ensure

the Society is able to safely provide business services within impact tolerances during severe but plausible disruption scenarios

Operational resilience is governed ultimately by the Society’s Board Risk Committee and on a day-to-day basis by the Resilience

and Continuity Committee The Society has individual owners for each important business service who interact regularly with

operational risk category owners to proactively ensure key operational assets have appropriate resilience configurations Incident

response procedures and capabilities have important business service and impact tolerance concepts designed in and regularly

tested

Regulatory environment

Responding to regulatory change is a key priority for the Society In2022,the focus was on continuing to meet regulatory

expectations in the area of operational resilience and Consumer Duty which are referred to within the relevant sections above

In addition the accuracy of regulatory and financial reporting remains a key area of regulatory focus for the industry The Society

continues to progress improvement work to ensure that requirements in this area continue to be met

Technology

Keeping pace with technology is important to maintain stability security and resilience and in doing so avoid member disruption

and reputational impacts from cyber attacks and IT outages Maintaining systems availability and information security defences in

the face of increasing threats remains of critical importance

During2022,the Society continued to make significant investment in upgrading its IT estate and enhancing its digital capabilities

IT operations and security defences Resilience has been enhanced during the year through the successful migration of the legacy

infrastructure onto new hardware The Society continues to monitor and assess its protection from the increasing threat of cyber

crime implementing incremental improvements thereby continually strengthening its risk management capabilities In addition the

Society has continued to enhance its approach to assessing and managing the threat of cyber attacks

The Society transformed its Change and IT functions during2022into one combined team structured around products to execute

the future change roadmap and maintain operations The effective management of change risk remains a key priority of the Society

and underpins the Society's delivery of the change roadmap Change assurance and oversight are provided utilising a three lines of

defence model

Statutory regulatory and internal financial reporting

As the Society continues to grow and meet the needs of its stakeholders including that of greater regulatory interest it has

recognised areas of improvement where further investment in modern technologies can improve operations and drive efficiencies

for the present and prepare for the future To this aim a Finance Transformation Programme is underway to transform the finance

operating model including the implementation of a new cloud-based general ledger and regulatory reporting solution This

represents a significant investment by the Society in a multi-year programme and is subject to ongoing assurance and oversight

activities across the three lines of defence

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

People risk

The dynamic and competitive nature of the labour market continues to be challenging as a result of changed attitudes to work

following the Covid-19pandemic For the Society this has resulted in higher than expected attrition and recruitment activity Hybrid

working has continued after the pandemic allowing employees in appropriate roles to work from home or in the office whilst

continuing to ensure that the needs of the Society and its members are met Hybrid working creates different challenges including

recruitment employee development and maintaining an appropriate control environment

Summary of risk incidents

Operational risk incidents are tracked and managed in line with the Society’s ERMF and are recorded in its risk management system

The same system records strategic model and conduct risk incidents which result in losses of over£5,000and the following analysis

applies to all of these risk categories

In2022,the total cost of risk incidents was£0.9million (2021:£0.5million)

An analysis of risk incidents by Basel risk category by both value and number of incidents is set out below There were no reportable

risk events within the Basel risk categories for business disruption and system failures damage to physical assets and injury internal

fraud and employment practices and workplace safety

%of total volume %of total losses

Operational risk by Basel category

(Unaudited) 2022 2021 2022 2021

Execution delivery and process management 25 7 71 1

External fraud 65 73 28 92

Clients products and business practices

10 20 1 7

Total 100 100 100 100

Value of losses (£m) 0.9 0.5

1.Losses less than£5,000have been excluded

Payment Protection Insurance (PPI) included

Operational risk outlook

Information technology and security statutory and regulatory reporting and people will continue to be key areas of focus requiring

ongoing assessment monitoring and enhanced risk mitigation activities The Society is committed to continuing to invest in these

areas and continuously improve its controls to ensure that operational risk remains in line with risk appetite

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Risk Categories Continued

Model risk

Model risk is defined as the risk of an adverse outcome such as financial loss or reputational damage as a result of weaknesses or

failures in the development implementation or use of a model

Model risk profile

The Society is exposed to model risk in both its credit risk models and wider financial and behavioural models Models are utilised to

support the business with the application of accounting standards that rely on forward-looking assessments of behaviour including

IFRS9,and regulatory modelling requirements eg for minimum capital assessments

Notwithstanding this the Society’s simple business model limits the extent of the exposure to model risk

Management of model risk

The Society has a Board approved policy on model risk which defines the standards to be applied to mitigate the risk This policy

is supported by the Model Risk Framework (MRF) The MRF defines key governance requirements and processes for the critical

models used throughout the Society The Chief Financial Officer is accountable for managing model risk within the Society with

independent oversight being the responsibility of the Chief Risk Officer

The Model Risk Committee (MRC) chaired by the Chief Financial Officer provides primary oversight of the management of model

risk and has the purpose of ensuring the exposure faced by the Society remains within the appetite prescribed by the Board MRC is

supported by two technical sub-committees the Retail Credit Models Committee and Financial Models Committee

The MRF approved annually by the Board Risk Committee categorises models by their criticality and complexity prescribing

requirements that must be met in order for these models to remain in continued use These include

• Initial and periodic approval by MRC for all critical models supported by first line reviews and independent oversight

• Independent model validation of new and incumbent models with increased validation activity carried out for higher criticality

models

• Governance around model assumptions overlays compliance and data including sensitivity analysis

• Model overview statements which identify conditions when the models may fail

• Requirements on model development and documentation

In addition for regulatory capital models an annual self-assessment against Capital Requirements Regulations and applicable PRA

Supervisory Statements is undertaken in order to attest to their compliance with prevailing regulations

Model risk outlook

The Society anticipates that usage of models within the business will continue to increase As a result it will continue to develop its

controls over and oversight of models and complex calculators and the data that populates them

Progress continues in the development and validation of capital models to fulfil the regulatory requirements which came into force

on1January2022,as set out in the PRA Supervisory Statement SS11/13.

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

Strategic risk

Strategic risks are those that jeopardise the sustainability of the Society's business model or the delivery of its strategic plan This

includes the following risks

• Setting an overly ambitious or cautious plan with inappropriate goals or targets the wrong riskreward balance andor a lack of

capability or investment to deliver

• The undertaking of initiatives that undermine the business model or a failure to innovate or invest to sustain long-term

performance and independence

• A failure to adapt to macroeconomic political industry consumer regulation or other external factors

• Erosion of the Society's financial sustainability including a decline in volumes or margin relative to the Society's cost base

Strategic risk also considers risks that extend beyond the five year strategic planning horizon including the risks associated with

climate change which is categorised as a cross-cutting risk type and a sub-category of strategic risk under the Society’s ERMF

Managing strategic risk

Strategic risks are identified and mitigated as part of the Society’s strategic planning process and through regular horizon scanning

and oversight by the Board supported by the Board Risk and Executive Risk Committees This activity is complemented by regular

financial forecasting as well as a range of stress testing activity to consider the longer-term and tail risks to the Society

These risks are assessed against Board risk appetite ensuring the right balance between the distribution of value to members

investing in the business and maintaining operational and financial resilience Strategic risk is mitigated through a range of activities

which include

Strategic planning and financial forecasting – The Society forecasts and costs over a five year horizon with an updated forecast

reviewed by management regularly taking into consideration changes in the external operating environment and key risks and

sensitivities

Monitoring of performance – Financial and non-financial performance is monitored monthly against forecasts and key indicators

including consideration of emerging risks and mitigating actions

Stress testing and sensitivity analysis – Strategic risk is regularly stress tested as part of internal management reporting as well as

the annual Strategic Plan and Internal Capital and Liquidity Adequacy Assessment processes In2022,the Society also considered

the impacts of climate risks on its portfolio under stress scenarios To effectively manage more extreme events the Society also

maintains a Recovery Plan in line with regulatory guidance which contains a range of indicators that are regularly monitored and a list

of strategic actions that could be taken if required to protect the Society and ensure its business model remains sustainable in the

long term

Strategic risk outlook

Strategic risks are closely linked to the top and emerging risks outlined on page33in the risk overview

During2022,we saw a period of heightened political and economic uncertainty high inflation an increase in the Bank of England

Base Rate and borrowing costs and the potential for a prolonged recession Persistent inflation could lead to higher costs relative to

asset size and income The key planning assumptions are prudent against the latest market outlook for the base rate inflation house

price inflation and unemployment We have included significant sensitivity analysis Quarterly forecasts are produced to ensure we

respond to changing conditions alongside reviews against plan checkpoints

Although the currently modelled climate risks to our mortgage stock are limited the transitional risk as the UK moves towards Net

Zero emissions could be disruptive to our business model This could include increased capital requirements or minimum Energy

Performance Certificate (EPC) requirements for landlords for example Further detail on the work undertaken to enhance our data

capabilities monitoring of the EPC profile of our portfolio and understanding of climate risks can be found in the'our approach to

climate change'section of this Annual Report

Stress testing indicates that the Society has sufficient financial resources to remain resilient against these key developments and

continues to operate within its strategic risk appetite This outlook reinforces the importance of the Society's strategic priorities and

continues to focus on good value straightforward lower risk mortgage and savings products delivered in an efficient way

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Risk Categories Continued

Introduction

Capital risk is the risk that the Society has insufficient capital resources to absorb losses in benign or stressed macroeconomic

conditions fails to meet prudential regulations and expectations It is a principal risk within the Enterprise Risk Management

Framework (ERMF) and risk appetite limits are approved by the Board

Management of capital

The primary governance forum for the management of capital is the Assets & Liabilities Committee (ALCO) with delegated

authority from the Board Risk Committee (BRC) and supported by the Capital Management Committee (CMC) a sub-committee

of ALCO The first line risk owner is the Chief Financial Officer (CFO) with second line oversight owned by the Chief Risk Officer

(CRO)

The Society regularly monitors its capital position against board approved risk appetite limits recovery plan early warning indicators

(R-EWIs) and prescribed regulatory minima This monitoring is conducted against the current position as well as forecast values

with escalation procedures in place should any of these limits trigger

The Society performs an Internal Capital Adequacy Assessment Process (ICAAP) annually in which it considers the keys risks to

which it is exposed and the capital required to mitigate such risks As part of the ICAAP the Society will assess its capital adequacy

over the planning horizon under base case strategic plan assumptions as well as a severe but plausible stress

Pillar2Aanalysis considers the risks to which the Society is exposed and the extent to which additional capital is required to mitigate

these risks

Stress testing is conducted to ensure the Society maintains sufficient capital to withstand a severe but plausible stress by using

scenarios either provided by the regulator or developed internally and identify mitigating management actions which can be taken

Reverse stress testing is conducted to identify extreme events that have the capacity to ‘break’ the Society identifying risks and

control mechanisms which might otherwise be missed

The Society maintains a Recovery Planning process which has mechanisms in place to identify when the Society may be entering a

potential resolution scenario due to extreme stress and may need to invoke the Recovery Plan

Capital adequacy

In assessing capital adequacy the Society reviews each of the material inherent risks within its business model It also reviews the

capital needed to support planned growth in lending and operations

The Society is formally bound by its Total Capital Requirement (TCR) plus buffers which are set by the PRA and FPC The TCR was

updated in2022and equates to10.7%of risk weighted assets (RWAs) or£846million based on year end RWAs (2021:10.7%of

RWAs or£565million) The Society comfortably meets this requirement out of its CET1capital resources

The Society is not currently bound by regulatory leverage ratios but monitors and seeks to maintain capital sufficient to meet the

non-risk based leverage ratio Leverage ratio requirements will become binding at the point the Society exceeds£50billion of retail

deposits The Society also forecasts the impacts of the proposed standardised risk weighted floors that are part of the Basel3.1

reform package

The Society currently has an MREL requirement of18%of RWAs which it comfortably meets with CET1capital resources alone

This increases to2x TCR in January2023,and the Society will also meet this requirement with CET1capital resources alone Once

the Society exceeds£50billion of retail deposits it will be required to hold MREL equivalent to2x binding leverage requirement

subject to any transitional period allowed The Society is cognisant of this transition and actively monitors and plans MREL issuance

in line with the transition to leverage-based requirements

Further information on capital management is included in the Society’s2022Pillar3Disclosures at wwwthecoventrycouk

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

Capital

Risk weighted capital requirements

The Society uses the IRB basis for the majority of its retail mortgage portfolios following approval from the PRA in2008.

Internal IRB models are used to calculate capital requirements for prime owner-occupier and buy to let mortgage exposures which

accounted for around99%of lending exposures throughout2022(2021:99%) The remaining retail credit risk exposures are legacy

closed products with capital requirements calculated via the regulatory prescribed standardised approach

The Society follows the standardised approach for all other lending exposures and for operational risk The standardised approach

uses capital risk weighting percentages set by UK Capital Requirements Directive V (CRD V)

CRD V requires the Society to maintain a CET1ratio of at least4.5%,a Tier1capital ratio of at least6%and a total minimum

capital ratio of8%.Taken together these ratios are known as the Pillar1requirement

The Pillar2capital requirement reflects wider risks within the Society’s ICAAP assessment and any capital add-ons arising from

the supervisory review of those assessments In addition a PRA buffer may be applied depending on the outcome of the severe but

plausible stress tests

The combined Pillar1and2capital requirements must be covered with at least56.25%CET1capital AT1and Tier2capital (up

to a maximum of25%of the requirement) can then be used to fulfil requirements above this

In addition to the PRA buffer which is set individually for firms by the PRA CRD V requires lenders to hold supplementary capital

buffers As at31December2022,these were

• A Capital Conservation Buffer (CCoB) of2.5%.

• A Systemic Risk Buffer (SRB) at0%



• A macro-prudential Countercyclical Buffer (CCyB) at1%(due to increase to2%in July2023)

Leverage ratio

The leverage ratio measures Tier1capital against total exposures including off-balance sheet items The leverage ratio is a non-risk

based measure designed to act as a backstop to the risk based capital ratios Therefore it does not reflect features of the Society's

low risk mortgage lending such as the low loan to value nature of the portfolio

The PRA confirmed in policy statement PS21/21that the UK leverage ratio framework regulatory requirement only applies to

banks and building societies with either retail deposits of£50billion or more or non-UK assets equal to or greater than£10billion

Neither of these currently apply to the Society

The PRA expects that a minimum ratio of3.25%is maintained by all firms including those below the thresholds outlined above

at all times calculated on the basis that the exposure measure excludes any central bank exposure with a maturity less than three

months Of this leverage requirement a maximum of25%may be met using high quality AT1capital PS21/21introduced a

supervisory expectation that all banks and building societies meet this requirement

In addition to the regulatory requirements there are two additional buffers these are the Additional Leverage Ratio Buffer (ALRB)

which is based on systemic buffers and a macro-prudential Countercyclical Leverage Buffer (CCLB) which is based on the

Countercyclical Capital Buffer The levels of the additional leverage buffers are set at35%of the corresponding CET1buffers Only

the CCLB is applicable to the Society as it is not a systemic firm and is not required to hold any systemic buffers

The CCLB is currently0.4%(due to increase in July2023to0.7%,in line with the CCyB increasing the minimum UK leverage

requirement to3.95%from3.65%) The Society’s Strategic Plan ensures that it will continue to meet leverage requirements on an

ongoing basis and that internal risk appetite limits are in place above regulatory minima

1.A buffer of0%applies to lenders with total assets of less than£175billion

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Capital Continued

Minimum Requirement for own funds and Eligible Liabilities (MREL)

Minimum Requirement for own funds and Eligible Liabilities (MREL) requirements have been introduced by regulators to ensure

that taxpayers no longer absorb losses when a bank or building society fails MREL requirements are set to reflect how complex or

important to the wider economy an institution is

The Society has met an MREL requirement of18%of RWAs From1January2023,this will increase to twice the binding capital

requirement (or two times Pillar1plus Pillar2a) currently this equates to21.4%of RWAs The Society will also be required to meet

capital buffers from CET1,which cannot be used for MREL compliance generating a total loss-absorbing requirement of24.9%.

When leverage becomes the binding capital measure this will significantly increase the MREL requirements to twice the binding

leverage exposure measure and the Society will need to issue more MREL eligible debt The Society’s financial plan provides for

these outcomes and the MREL issuance plan is cognisant of the£50billion retail deposit threshold

Regulatory capital analysis

The Society calculates and maintains regulatory capital ratios on both a Group consolidated (including all subsidiary entities) and

Individual consolidated (or solo) basis

The Individual basis includes only those subsidiaries meeting particular criteria contained within CRD V For the Society there are

no significant differences between the Group and Individual bases and the capital disclosures in this report are provided on a Group

consolidated basis only

IFRS9capital transitional arrangements exist but their impact on the Society’s regulatory capital ratios is not material and as a

result the CET1and leverage ratios disclosed in this report do not include the transitional reliefs

Risk weighted capital

The Society’s capital position on a CRD V end-point basis is set out below based on all CRD V requirements that were in force

during2022excluding transitional provisions Further information on CRD V disclosures on a transitional basis is included in the

Society’s2022Pillar3Disclosures at wwwthecoventrycouk

At31December2022,and throughout the year the Society complied in full with the capital requirements that were in force

The CET1ratio decreased to27.4%(2021:36.2%) and the Total capital ratio to32.7%(2021:44.1%)  Total risk weighted assets

increased by49.2%,most of which is related to mortgages on the IRB approach The Society continues to work towards meeting

regulatory changes for IRB models that were brought in at the beginning of2022and is in the final stages of the development work

required to address the updated requirements Until such time as the models are approved and in common with many other IRB

institutions the Society has agreed to hold additional RWAs that represent its best view of the change in capital requirements that

will result from the new models once they are implemented This has resulted in a58%increase over the IRB RWAs calculated using

current models With regard to the RWAs calculated using current models the impact of3.0%growth in the mortgage book and the

effects less favourable credit conditions has generally been offset by the impact of the decrease in LTV discussed in the credit risk

section

The Individual consolidated CET1ratio on an end-point basis at31December2022was0.3%(2021:0.8%) higher than the Group

ratio due to assets held by entities that sit outside of the individual consolidation

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

Capital position

End-point

31Dec2022

£m

End-point

31Dec2021

£m

Common Equity Tier1(CET1) (audited)

General reserve 2,250.7 2,012.6

Fair value through other comprehensive income reserve 4.9 4.5

Cash flow hedge reserve 277.1 27.5

Common Equity Tier1prior to regulatory adjustments (audited) 2,532.7 2,044.6

Common Equity Tier1regulatory adjustments

Prudent additional valuation adjustment

(1.6) (0.7)

Intangible assets

(39.7) (32.9)

Cash flow hedge reserve

(277.1) (27.5)

Pension fund surplus adjustment

(2.4) (19.9)

Excess of expected loss over impairment

(32.5) (31.4)

Foreseeable distributions

(10.4) (10.4)

Common Equity Tier1capital (audited) 2,169.0 1,921.8

Additional Tier1(AT1) capital

Permanent Interest Bearing Shares (PIBS) — —

Additional Tier1– Perpetual Capital Securities 415.0 415.0

Total Additional Tier1capital (audited) 415.0 415.0

Total Tier1capital (audited) 2,584.0 2,336.8

Total Tier2capital — —

Total capital (audited) 2,584.0 2,336.8

Risk weighted assets (unaudited)

IRB approach

Credit risk – retail exposures 6,780.3 4,265.1

Standardised approach

Credit risk – retail exposures 96.6 129.3

Credit risk – liquidity book 100.3 91.4

Credit risk – other 119.7 114.9

Credit valuation adjustment risk 47.8 67.1

Operational risk 767.0 635.8

Total risk weighted assets (unaudited) 7,911.7 5,303.6

Common Equity Tier1ratio (unaudited) 27.4% 36.2%

1.A prudent valuation adjustment is applied in respect of assets and liabilities held at fair value

2.Items do not form part of regulatory capital net of associated deferred tax

3.The expected loss over accounting provisions is deducted gross of tax

4.Foreseeable distributions in respect of AT1securities are deducted net of tax

Risk Management Report

Coventry Building Society  Annual Report & Accounts2022

Capital Continued

Leverage ratio analysis (Unaudited)

The Society’s UK leverage ratio position on an end-point basis is set out below

The UK ratio includes a restriction on the amount of AT1capital that can be included in leverage capital and excludes central bank

reserves from leverage exposures

The UK Leverage ratio has increased to5.2%,4.5%when including central bank reserves and full AT1capital amount (2021:4.8%

and4.3%respectively) as the increase in eligible Tier1capital was ahead of the increase in leverage ratio exposures This reflects

the Society’s strategy to remain low risk while retaining only sufficient profits to support the leverage ratio at required levels

Leverage ratio

End-point

31Dec2022

£m

End-point

31Dec2021

£m

Total Tier1capital 2,584.0 2,336.8

Adjustment for AT1restriction (11.4) (21.1)

Total Tier1capital – used in UK calculation 2,572.6 2,315.7



Leverage ratio exposures

Total Balance Sheet assets 58,867.1 54,529.7

Mortgage pipeline

458.6 415.9

Other committed facilities (undrawn lending)

11.5 13.1

Repurchase agreements

29.9 74.5

Netted derivative adjustments

(2,104.5) (141.5)

Other adjustments

(80.7) (92.4)

Total leverage ratio exposures 57,181.9 54,799.3

Adjustment to exclude central bank reserves (7,513.1) (6,327.6)

Total leverage ratio exposure – used in UK calculation 49,668.8 48,471.7

Leverage ratio including central bank reserves and full AT1capital amount 4.5% 4.3%

UK leverage ratio 5.2% 4.8%

1.Mortgage pipeline is assessed at20%and other commitments at50%.

2.Repurchase agreements represent the extent to which collateral provided on repurchase agreements exceeds the amount borrowed

3.The netted derivative adjustment figure converts the accounting value of derivatives to an exposure measure

4.Other adjustments predominantly relate to asset balances that have already been included in the capital calculation and these are therefore removed from the total Balance Sheet assets figure

Additional capital disclosures are available in the Society’s2022Pillar3Disclosures at wwwthecoventrycouk

Capital outlook

On30November2022,the PRA released CP16/22'Implementation of the Basel3.1standards'– outlining its proposed approach

to the UK implementation of the Basel III finalisation package outlined by the Bank for International Settlements The Society is in

the process of reviewing this consultation to ascertain the exact impact on capital requirements and internal processes The main

impact for the Society is the introduction of an output floor which requires IRB firms to floor aggregate IRB outputs to a minimum

of72.5%of the corresponding RWA calculated under the revised standardised approach This is expected to be punitive for the

Society as the equivalent risk weights under the standardised approach for owner occupied and buy to let mortgages are much

higher than under internal IRB models The proposed implementation deadline set by the PRA is2025,with the output floor being

phased in over several years starting at50%.

As a result the Society expects to see a significant reduction in reported CET1measures and anticipates the need to raise

additional MREL debt

Considerations and assumptions from the Basel3.1standards have been included within the Society’s financial plan which

indicates that it will continue to have a surplus over all capital requirements ensuring we remain financially resilient

Coventry Building Society  Annual Report & Accounts2022

Risk Management Report

Our approach

including climate related financial disclosures

This section outlines how the

Society is responding to climate

change and includes its climate

related financial disclosures

Climate strategy and TCFD 67

Our Climate Action Plan 69

Our climate strategy 70

to climate change

Coventry Building Society  Annual Report & Accounts2022

6666

Climate Strategy and TCFD

This section sets out our understanding of the impact of climate change on the Society and its members It also explains the activity

we completed during2022and have planned for2023and beyond in order to achieve our climate change targets

The Society supports the recommendations provided by the Financial Stability Board’s Task Force on Climate-Related Financial

Disclosures (TCFD) which call on companies to disclose the impacts of climate change on their businesses The information

disclosed within this report is structured to demonstrate our understanding of the risks associated with climate change in a way that

is transparent and in accordance with the TCFD but also outlines how we have incorporated the requirements of the Prudential

Regulation Authority’s (PRA’s) Supervisory Statement3/19(SS3/19) –'Enhancing banks’ and insurers’ approaches to managing

the financial risks from climate change'.

We recognise that this is a complex developing area of reporting as well as being specialist in nature and our understanding ever

evolving Further information is also included in the Society's Sustainability Report which is available at wwwthecoventrycouk

Strategy

This section outlines the

Society’s strategy and

how the organisation is

adapting to the risks and

opportunities of climate

change

Governance

This section describes how the

Society has embedded climate

change within its governance

structure including the role of

the Board

Risk management

This section outlines how the

Society has incorporated climate

risk within its Enterprise Risk

Management Framework and the

risks identified

Metrics and

targets

This section describes the

Society’s short- medium- and

long-term climate targets

and ambition and provides

an update on its emissions

calculations

Coventry Building Society  Annual Report & Accounts2022

Our approach to climate change

The table below outlines the Society's progress on its climate journey with its achievements in2022and future planned activity

Achievements Future activity

Strategy

• Developed the Society’s Climate Action Plan

which was endorsed by our members at the2022

Annual General Meeting

• Enhanced our assessment of the risks and

opportunities of climate change to our business

model

• Identified strategic partners who can help us to

rise to the climate challenge

• Launched our first ever green mortgage product

• Delivered our first Sustainability Report in

accordance with GRI standards

• Developed the Society’s Transition Plan to

support the delivery of our Climate Action Plan

• Develop our Transition Plan to deliver on our Climate

Action Plan

• Defining further data capabilities required to

enhance our understanding and modelling of

climate risks and opportunities

• Continuing to work with suppliers and third

parties to use the EcoVadis platform

• Developing further our green products

• Engaging with our members and borrowers to

support a green transition

Governance

• Climate governance established and embedded

through the Board committee structures

• Appointed an SMF with accountability for the

financial risks of climate change

• Appointed a Non-Executive Director as the

Society’s ESG champion

• Training and upskilling of the Board and senior

management

• Ensuring our Board and senior management

continue to receive training on growing regulatory

expectations

• Continuing to evolve the governance required to

ensure good discussions are held at the right level

and drive positive outcomes

Risk Management

• Embed Climate Risk within our ERMF

• Partnered with third parties to enhance our

understanding of the physical and transitional risk

impacts on our business model

• Incorporated climate risk modelling and analysis

within our ICAAP process

• Continuing to review lending policy to ensure it

remains robust to potential climate risks

• Developing our data capabilities to embed

physical and transitional risk considerations in our

modelling and decision making

Metrics and

targets

• Published calculations for all of the Society’s

emissions (Scopes1,2and3)

• Progressed the development of the Society’s

first Transition Plan which begins the journey

of describing how we intend to decarbonise our

business

• Publish calculations for all of the Society's emissions

(Scopes1,2and3)

• We are looking to set a Science-Based Target by

2024.

• Evolve the developing Transition Plan to inform the

progress we’re making and drive the required action

Definitions

When writing this Climate section of the Annual Report we've tried to do so in a way that is transparent and accessible However

this is a new and emerging area from a reporting perspective and we recognise some of the language in this report requires further

defining The glossary to this Annual Report includes definitions of key terminology used in this section

The Society definitions for emissions can be found below and reflect industry standards

Emissions Description

Scope1 Scope1emissions are direct greenhouse gas (GHG) emissions that occur from our own operations

(eg our company vehicles gas usage and fugitive emissions)

Scope2 Scope2emissions are indirect GHG emissions associated with the purchase of our electricity

Scope3 Scope3emissions are the result of activities from assets not owned or controlled by the Society but

that the Society indirectly impacts in its value chain Scope3emissions include all sources not within

an organisation's Scope1and2boundary and can be separated into two categories

- Scope3upstream Upstream Scope3emissions business travel by means not owned or controlled by the Society waste

disposal employee commuting and purchased goods and services

- Scope3downstream Downstream Scope3emissions the emissions from the properties financed through the Society’s

operations – ie our mortgage customers

Coventry Building Society  Annual Report & Accounts2022

Our approach to climate

Climate Strategy and TCFD Continued

Our Climate Action Plan

In2021,we produced our first ever Climate Action Plan which set out in detail how the Society will respond to the climate

challenge and focused on addressing our direct Scope1and2emissions We are making good progress on our Net Zero journey

and we are already a Carbon Neutral business for our own operations During2022,we have begun to focus on how we reduce our

indirect Scope3emissions There is further work to do in this area but what is clear is that this can only be done with the support

and collaboration of a variety of external stakeholders Our Climate Action Plan sets out the activities designed to support our

ambitions and further detail can be found on wwwthecoventrycouk

Climate Action Plan

Achieved

We are Carbon

Neutral for our





to procure 100%

renewable energy

from wind and

solar

ISO 14064-1



Scope 1, 2 and 3

emissions data and

we align with TCFD

framework



customer

reward scheme





improvements

Publicly disclosed

climate strategy



Work with partners

to deliver change

Achieve Scope

3 upstream

emissions to be Net

Zero by 2030



improve our





away from gas



Member

endorsement and

engagement with



Plan

Set a Science-Based

Target by 2024

Customer

understanding,

support and

engagement

campaigns

Products and



designed to

support greening

of homes



on progress

against our targets

and external

frameworks



obtain third-party

assurance and ISO







borrowing



Developed our



reach Net Zero

Engaged with

our suppliers and

regulators on



Align capital

expenditure to

1.5°c pathway

Have 100% electric



by 2030 or sooner

Progress in2022

2023-2040ambitions

Our products Governance and risk Our operations Our influence on society



fully Net Zero by

2040 across Scope

1, 2 and 3.

Coventry Building Society  Annual Report & Accounts2022

Our approach to climate change

Our Climate Strategy

We recognise that climate change is a critical issue for our stakeholders as

well as for wider society The impact of climate change also poses potential

material risks to our business which need to be effectively managed on

behalf of our members

Our Climate Strategy is consistent with our purpose-led approach to business as a mutual committed to our members Our

Climate Action Plan sets out a range of activities designed to enable us to contribute to a Net Zero world In2022,the Society

continued to take the necessary actions to positively contribute to addressing this generational challenge as well as effectively

managing the risks to our business

Our approach has been based around three important pillars

Pillar1

The need to identify and set out

our overall approach including

setting and agreeing specific

emissions targets which will

guide us over the long term

Pillar2

Ensuring our business is climate

resilient and can effectively

identify and measure climate

risks arising from our business

model

Pillar3

To provide appropriate

products and information to

help our members retrofit their

homes in order to reduce their

environmental impacts

In2022,we continued to develop our first climate Transition Plan setting and agreeing our plans to achieving our targets and

ambition over the short medium and long term including the actions that we will take to deliver our ambition to be Carbon Neutral

for our own operations through to being Net Zero across all emissions by2040.Further information on the Society’s emissions can

be found in the metrics and targets section on pages75to77.

Whilst we are focused on the positive actions we can take to support a just transition the climate challenge for the UK’s housing

stock cannot be solved by the Society on its own Collaboration will be required from stakeholders in government the utilities sector

and house builders if this objective is to be successfully achieved We engaged with industry on this topic in2022and will continue

to contribute to collaborative engagement in2023and beyond The war in Ukraine and its subsequent impact on energy prices and

the cost of living crisis highlights the need to ensure UK housing continues to improve its efficiency

During2022,we continued to enhance our understanding of climate risk exposures which included obtaining quarterly updates on

the physical and transition risks to our business model The risks of climate change contribute to a structural change affecting the

financial sector at large and we have sought to understand these impacts by use of scenario analysis Further detail is provided in the

scenario analysis section and more information on assessing the risks and opportunities from climate change is set out below

Coventry Building Society  Annual Report & Accounts2022

Our approach to climate

Risks and opportunities from climate change

The impact of climate change will prompt substantial

structural adjustments to global and UK economies For

the Society’s business model this presents both risks and

opportunities which are summarised opposite

Looking ahead to2023,we will look to make progress across

the opportunities highlighted as we look to engage with our

borrowers in helping them to understand potential energy

efficiency improvements that could be made on their homes

and to ensure that we have the right products available to

support customers choosing to retrofit their homes

As well as the opportunities presented by climate change

there are also risks to our business model As a cross-cutting

risk category the impacts of climate risk have been assessed

across the principal risk categories outlined within the Society’s

Enterprise Risk Management Framework

Below is a non-exhaustive summary of the risks identified

Risk category Risk description

Retail credit

risk

Transitional • Impacts on valuations of properties due to governmental requirements for minimum

efficiency standards (EPC)

• Borrower affordability declines leading to higher arrears and defaults due to higher

energy costs structural changes in the economy tax changes or for buy to let

specifically other transitional impacts on borrowers'ability to repay

Physical • House are damaged or become inhabitable due to physical impacts such as flooding

• Properties become uninsurable or premiums increase dramatically impacting

affordability and property valuations

Operational

risk

Transitional • Reputational and financial impacts as a result of third-party providers not delivering

climate commitments

• Potential for litigation from future impacts of climate change

• Increased regulatory compliance risk associated with climate change

Physical • Adverse impact on business continuity as a result of damages to Society's premises and

infrastructure or failure of suppliers to provide critical services as a result of physical

risks

Conduct risk Transitional • The risk that borrowers in fuel poor homes are subject to increasing energy bills and

unable to afford retrofit costs and subsequently become'mortgage prisoners'as

lenders judge they do not meet affordability requirements

Market risk Transitional

& physical

• Impacts to markets arising from physical or transitional events This could impact

foreign exchange markets or interest rate movements and in turn impact the Society's

value (or net income from) assets and liabilities

Liquidity &

funding risk

Transitional

& physical

• Inability to access wholesale markets due to lack of ability to operate in green markets

• Retail funding is challenging as members suffer economic challenges of climate change

Strategic risk Transitional • Reputational impacts of the Society not delivering against its climate commitments

• Increased costs associated with transitional risks and emerging regulation and

legislation

Capital risk Physical • Assets depreciate in value due to physical or transitional impacts of climate change

Climate opportunities

Green finance

An emerging market and opportunity for the Society to offer innova-

tive financial products which help borrowers to reduce their carbon

emissions and improve energy efficiency

Form strategic partnerships

An opportunity for the Society to partner with firms who share our

values and can support the Society and its members on the path to a

just transition

Engage and communicate with our borrowers

The opportunity for the Society to engage with our members'needs

to support them on their transition to a Net Zero future

Access to green funding

By supporting a fair transition the Society can utilise opportunities to

obtain green retail or wholesale funding

Coventry Building Society  Annual Report & Accounts2022

Our approach to climate change

Governance

Board oversight of climate risks and opportunities

The Board has ultimate accountability for the management of all risks and opportunities relating to climate change as well as our

broader approach to sustainability In fulfilling these responsibilities the Board delegates some of its responsibilities in this area to

the Board Risk Committee Board Audit Committee Remuneration Committee and the Nominations & Governance Committee as

described below

Committee

More information on the activities of each Committee in

respect of climate related matters during the period is in the

Governance section of this Annual Report

The Board discharges its responsibilities by receiving a number

of detailed updates through the year on climate related

matters and also reviewing a standardised ESG Management

Information Pack on a quarterly basis

The Board’s role on this topic extends beyond reviewing

those formal climate related agenda matters Its involvement

in the Society’s strategy process in2022included assessing

the risks and opportunities arising from climate change and

endorsement of a series of actions designed to respond

to these challenges Its approval of the annual Budget for

the Society also involved assessing and endorsing amounts

designed to address climate change risk

responsibilities

for climate

change

Board Risk

Committee

(i) Review and

oversight of

the activities

undertaken by the

Society to respond

to the financial

risks arising from

climate change

(ii) Review

updates on the

management of

financial risks

arising from

climate change

Board Audit

Committee

Oversight of

external disclosures

relating to

the Society’s

management of

the financial risks

arising from climate

change

Remuneration

Committee

Oversight of the

application of

climate and other

ESG targets to

remuneration

Nominations

& Governance

Committee

Ensuring that

arrangements are

in place to manage

climate risks and

opportunities at

Board level

Responsibility for managing the financial risks from climate

change has been designated to the Society’s Chief Risk

Officer under the Senior Management Function (SMF) This

responsibility has transferred from the General Counsel during

the year and includes ensuring that climate related financial

risks are adequately reflected in risk management frameworks

and that the Society can identify measure monitor and report

on its exposure to these risks

The Board is supported by a nominated Non-Executive

Director Shamira Mohammed who provides support and

challenge to the Society’s activities on climate in the context

of her role as ESG champion Her role extends beyond formal

meetings of the Board where climate topics are considered

to include regular engagement with executives and other

colleagues working on this area and review of climate related

management information

Coventry Building Society  Annual Report & Accounts2022

Our approach to climate

Our Climate Strategy Continued

Management oversight of climate related issues

Executive oversight of climate related matters is the ultimate

responsibility of the Chief Executive with day-to-day

responsibility delegated to the Chief Risk Officer The Chief

Risk Officer is the senior manager with responsibility for

oversight of the financial risks of climate change at the Society

in line with the requirements of the Senior Managers Regime

This responsibility was previously held by the General Counsel

who left the Society in August2022,and was held temporarily

by the Chief Financial Officer until the current Chief Risk

Officer joined the organisation in December2022.

Climate related matters including management information

are considered by the Executive team at the monthly Executive

Committee meeting Material outputs from this forum are

considered by the Board in the manner described above

Climate topics also form part of the discussions undertaken

by the Executive in formulating the Society’ strategy During

2022,the strategic planning process included an analysis of

the opportunities for the Society's business model to support

green lending and support our borrowers in make energy

efficiency improvements

In2022,the Executive team reviewed detailed proposals

concerning the Society’s GHG emissions and broader climate

performance as well as reviewing the Society's plans to

decarbonise and reduce its emissions through its developing

Transition Plan It also reviewed the Climate Action Plan in

detail and approved its submission to the Board

The materials considered by the Executive team are reviewed

and endorsed by the ESG Steering Group which includes

representatives from a broad group of areas from across

the Society The Group has a particular responsibility in

setting and overseeing the Society’s environmental targets

The Chief People Officer is the chair this Group reflecting

their sponsorship of the broader ESG agenda One of the

responsibilities of the Group is the endorsement and oversight

of the Society’s annual ESG Plan which provides a detailed

list of proposed actions on sustainability including climate

matters Specialists at the Society then work to deliver the

activities necessary to achieve these objectives

The Executive Risk Committee (ERC) chaired by the Chief

Risk Officer (CRO) and attended by the Society’s Executive

team oversees the management of climate risk The ERC

receives monthly updates on the climate risk appetite

measures and any key regulatory or external developments

which may impact the Society The ERC reviewed the two deep

dive assessments on climate risk provided to the BRC

Reporting into the ERC is the Climate Risk Forum (CRF) with

membership from areas across the Society with responsibility

for climate related matters The CRF has overseen all aspects

of the regulatory requirements detailed in SS3/19,including

stress testing risk management and embedding within the risk

management framework as well as reviewing data capabilities

The CRF also reviewed other regulatory publications issued

during2022,including the industry-wide feedback on

the implementation of SS3-19,the Society's approach

to supporting customers and improving energy efficiency

of homes the Society's financed emissions as well the

impacts of climate change across the Society's principal risk

categories both directly and indirectly including unintended

consequences Other important risk governance forums such

as the Retail Credit Risk Committee and Assets and Liabilities

Committee have received updates on the impact of climate

risk through2022.

Training

We continue to engage with the organisation as a whole on

broadening awareness of the climate agenda and embedding

this within the organisation This includes engaging with all

new colleagues on our environmental ambitions as part of

the corporate induction programme We have also made use

of tools such as carbon calculators to educate employees on

their own personal carbon footprint and share techniques to

reduce this In2023,we will continue to enhance learning

opportunities across the organisation

Risk management

In line with the Enterprise Risk Management Framework

(ERMF) the Society seeks to understand the climate risks

relevant to its operations and to monitor and mitigate

these risks over time The Society enhanced its climate risk

management capabilities during2022,including the adoption

of a Climate Risk Management Policy which outlines the

Society’s approach to managing the financial impacts of

climate risk The Society identifies monitors manages and

escalates climate related issues in accordance with the ERMF

(more detail is in the Risk Management Report on page

35) The Society also engaged with third parties to enhance

our data capabilities in2022,which included quarterly

assessments of the physical and transitional risks of climate

change with the outputs reviewed by the Climate Risk Forum

and summaries provided to the ERC and BRC

Risk categorisation and risk appetite

The Society has a risk appetite statement which defines

climate risk as

The financial risks to the Society’s business model arising from

i. Physical risk – the physical risks arising from the direct

physical impacts of climate change Physical risks from

climate change arise from a number of factors and relate

to specific weather events (such as heatwaves floods and

storms) and longer-term shifts in the climate (such as

changes in precipitation extreme weather variability sea

level rise and rising mean temperatures)

ii. Transition risk – the risks arising from the transition to a

low carbon economy Transition risks arise from the process

of adjustment towards a Net Zero Carbon economy

The UK Government has set a target of achieving Net

Zero greenhouse gas emissions by2050to respond to

the challenge climate change poses A range of factors

influence this risk including climate related developments

in policy and regulation the emergence of disruptive

technology or business models shifting sentiment and

societal preferences and the potential for'stranded assets'

to be created

This definition reflects the fact that climate risk is a cross-

cutting risk type with potential impacts in a number of risk

categories including credit risk operational risk reputational

risk and market risk These are captured within the Climate

Change Risk Policy which is overseen by the Board Risk

Committee Climate risk is categorised as a sub-category of

strategic risk

The risk appetite also defines the short- (0-5years) medium-

(6-10years) and long-term (10+years) horizons and includes

quantitative metrics which will be monitored and developed

further and included in future disclosures The Board Risk

Committee endorsed the Climate Risk Appetite Statement

Coventry Building Society  Annual Report & Accounts2022

Our approach to climate change

The Risk Appetite Statement incorporates a methodology for

rating the ESG credentials of itstreasury wholesale funding

counterparties which includes minimum environmental

standards with the approach endorsed by the Board Risk

Committee

During2022,the Society continued to enhance its

understanding of the physical and transitional risks which

it is exposed to over a range of time horizons reflecting the

complex and short- medium- and long-term impacts that

climate risk poses to wider society and our business model

The physical and transition risks of climate change contribute

to a structural change affecting the financial sector at large

and we have sought to understand these impacts by use of

scenario analysis

Approach to scenario analysis

The Society used scenario-based approaches to assess

our exposure to physical and transition risks associated

with climate change This included analysis of exposures in

our mortgage book across short- medium- and long-term

horizons with the results of the analysis feeding directly into

the Society's ICAAP

Overall the results of the scenario analysis undertaken to

date have confirmed we have not identified significant climate

related financial risk on our Balance Sheet Scenario analysis

has been used to enhance understanding of both the physical

and transitional risks with further detail provided on page74.

However we recognise that climate risk and scenario analysis is

in its infancy and we will continue to enhance our analysis and

understanding of the risks in2023and beyond

Physical risks

The Society modelled the impacts of a range of Representative

Concentration Pathway (RCP) levels on its portfolio over

short- medium- and long-term horizons spanning from2025

to2080.RCPs provide a recognised methodology for assessing

a range of climate impacts and temperature increases and have

been used in global climate science since2013.The Society's

analysis included undertaking an assessment of the Society's

mortgage book in line with the requirements of the Bank of

England's Climate Biennial Exploratory Scenario (CBES)

published in June2021.It should be noted that the CBES RCP

range is less severe than the scenarios modelled by the Society

This analysis looked at the value at risk loss given default

probability of default and realised losses in the event of a

downturn Our analysis has concluded that the Society does

not have a material exposure to the physical impacts of

climate change even under severe and long-term modelling

However whilst we continue to monitor and enhance our

approach to understanding the transitional risks we believe

that in the medium term this will have implications within

the markets where we operate as the UK progresses towards

a Net Zero2050target The Society is therefore enhancing

its understanding of energy performance certificate (EPC)

ratings and the emissions of the mortgages within our

portfolio and plans to engage with mortgage customers to help

them enhance the energy efficiency of their properties It is

envisaged this will include providing insight and information to

mortgage customers and offering specialist lending products

designed to enable customers to finance environmental

improvements to their property The Society’s EPC data is

disclosed in the next section

Transition risk

In2022,our proxy for assessing transition risk was the EPC

England Wales and Scotland with a separate calculation for

Northern Ireland The below tables demonstrates that the EPC

profile of the Society's mortgage portfolio remains broadly

flat year on year with slight improvements to the exposures to

properties rated A B and C with a corresponding reduction in

exposure to lower rated EPC properties such as F and G

Owner-occupier mortgages

As at31December2022 As at31December2021

Current EPC data

Number Exposure (£m) %of book

Number Exposure (£m) %of book

A 270 62.3 0.2 200 39.2 0.1

B 9,808 1,911.2 6.7 8,834 1,637.2 6.0

C 30,110 5,192.9 18.2 26,943 4,387.5 16.0

D 56,622 9,777.7 34.3 52,870 8,736.7 31.9

E 22,549 4,159.9 14.6 22,118 3,927.0 14.4

F 5,146 1,007.7 3.5 5,207 981.4 3.6

G 1,084 197.7 0.7 1,079 185.9 0.7

No EPC

50,428 6,219.9 21.8 58,238 7,467.6 27.3

Coventry Building Society  Annual Report & Accounts2022

Our approach to climate

Our Climate Strategy Continued

Buy to let mortgages

As at31December2022 As at31December2021

Current EPC data

Number Exposure (£m) %of book

Number Exposure (£m) %of book

A 50 10.2 0.1 45 8.3 0.1

B 5,916 999.4 5.1 5,765 942.4 4.9

C 35,492 5,205.8 26.7 31,640 4,553.1 23.7

D 50,994 7,679.7 39.4 47,113 6,935.6 36.1

E 15,864 2,341.6 12.0 16,150 2,355.5 12.2

F 1,053 150.3 0.8 1,452 202.3 1.1

G 283 37.2 0.2 393 53.6 0.3

No EPC

19,987 3,072.0 15.8 27,037 4,186.9 21.8

1.No EPC means that at the time of searching the EPC register the property in question did not have a valid EPC carried out within the previous ten years

2.%of the book is based on the£value

The EPC also records the cost of improving the property from

the current energy efficiency to the potential energy efficiency

On a portfolio level the Society is focused on the D-G range

If all properties were retrofitted to their potential this figure

would change materially Taking this information together the

Society’s provider modelled a range of scenarios relevant to

transitional risk on the Society's portfolio including the cost

of upgrading all properties to their full potential using Bank of

England average cost of transitioning as well as downgrading

the value of all properties rating F-G to land value as described

under the Bank of England climate scenario This activity is

an inherent risk assessment based on what we now know

however the residual position will be materially impacted

in a positive direction by the Government bringing forward

initiatives such as grants subsidies and even innovation to

bring down the costs of transitioning through the EPC grades

The Climate Risk Forum continues to monitor regulatory and

governmental policy with a view to ensuring the Society is alert

to any strategic implications risks or opportunities and the

need to respond accordingly

The Society has explored the impacts of early government

intervention on setting minimum EPC requirements for

landlords with assumptions made that buy to let properties

are required to have an EPC rating of C or above by2025,

requiring significant upgrades across the industry Our

experience of this exercise is that the business model and

low LTV profile across the portfolio means that the Society

is protected from significant losses but the impacts have the

potential to be far greater than the physical risks modelled

such as flood subsidence or coastal erosion The Society will

continue to enhance its approach to modelling transitional

risks especially as external developments such as minimum

EPC requirements are published

Conclusions on scenario analysis

Scenario analysis on climate change remains in its infancy

for the Society and the financial service sector so therefore

caution is required when reviewing the results The Society

has enhanced its understanding of how climate change will

impact its business model and the steps which will be required

to take advantage of the opportunities and mitigate against the

risks but there is still much more work to enhance this further

In2022,the Society undertook a review of the strategic

opportunities including its role as a green lender as well as

enhancing our risk appetite limits to mitigate against climate

risk impacts As the Society enhances its understanding of

the impacts of climate change it will continue to enhance its

mitigating actions and take advantage of the opportunities

Enhancing scenario analysis and the Society's climate data

capabilities is a key priority for2023.The Society worked with

an external partner in2022,to receive regular updates on

the physical risks to the Society's business model and we will

continue working to address any potential climate data gaps

within our assessments

From a transitional risk perspective there is an even greater

level of complexity and uncertainty Therefore the Society

has entered into a partnership which has enhanced the

understanding of the EPC coverage of the Society's portfolio

enabling regular analysis on transitional risks and enhancing our

Scope3emissions calculations as outlined below

Coventry Building Society  Annual Report & Accounts2022

Our approach to climate change

Metrics and targets

The Society's metrics are driven by our climate change targets which were to be Carbon Neutral for Scope1emissions and to claim

Net Zero merits against Scope2emissions by December2021.Further targets are to be Net Zero for Scope1,2and partial Scope3

emissions by2030,with an ambition to be entirely Net Zero by2040.

We are pleased to confirm that we achieved our Scope1and Scope2emissions targets for2021and we remain carbon neutral In

2022,we have measured all our greenhouse gas emissions for Scope3,hence the increase in total emissions reported this year in

comparison to2021.

We manage our direct energy consumption through strategic measures such as the targeted energy efficiency measures and adaptive

measures in portfolio management therefore we set the framework for continued improvement This strategic orientation is then

implemented throughout the Society leading to tangible changes such as adopting measures like switching to LEDs refurbishing

windows removing gas consumption where possible or optimising building services (such as heating cooling ventilation and lighting)

We only purchase100%renewable energy and we continue to invest in on-site solar energy generation where possible To tackle

our indirect emissions we have partnered with EcoVadis to monitor our suppliers'environment labour human rights ethics and

sustainable procurement activities To ensure successful implementation as well as for monitoring purposes for our2020and2021

emissions data we have been externally certified for the accuracy of our energy reporting (ISO14064-1)

Scope1and2emissions data

Energy consumption 2022 2021 Variance

Scope1:Combustion of fuel and operation

of facilities

Natural gas (kWh) 3,307,633 3,352,305 (1)%

Direct transport (kWh) 359,876 200,486 80%

Gas oil (kWh) — 19,089 (100)%

Green diesel HVO (kWh) — 19,860 (100)%

White Diesel (kWh) 12,410 — —

Refrigerants (kg) 15 112 (87)%

Total Scope1energy (kWh) excl

refrigerants

3,679,919 3,591,740 2%

Scope2:Electricity purchased Total electricity (kWh) 6,449,733 6,694,859 (4)%

Scope3:Indirect transport Indirect transport (incl only employee

owned vehicles (kWh)

246,337 260,205 (5)%

Total Scope1,2and3energy consumption (kWh) excl refrigerants 10,375,989 10,546,804 (2)%

Emissions assessment 2022 2021 Variance

Scope1:Combustion of fuel and operation

of facilities

Natural gas (tCO

e) 604 614 (2)%

Direct transport (tCO

e) 89 64 40%

Gas oil (tCO

e) — 5 (100)%

Green diesel HVO (tCO

e) — — (100)%

White diesel (tCO2e) 3 — —

Refrigerants (tCO

e) 31 235 (87)%

Total Scope1energy (tCO

e) 727 918 (21)%

Scope2:Electricity purchased heat and

steam generated

Location based (LB) (tCO

e) 1,247 1,422 (12)%

Total Scope1and2energy (tCO

e) 1,974 2,340 (16)%

Scope3:Indirect emissions Indirect emissions excluding mortgage

(tCO

19,823 19,642 1%

Mortgages (tCO

e) 670,000 702,726 (5)%

Total Scope1,2(LB) and3(indirect) emissions (tCO

e) 691,797 724,708 (5)%

Intensity metric assessment 2022 2021 Variance

Intensity ratio (total gross Scope1and2) tCO

e net interest income£m 3.00 4.46 (33)%

Intensity ratio (total gross Scope1,2and

partial3)

tCO

e net interest income£m 3.29 5.34 (38)%

During the year a more detailed assessment of the2021emissions data has been completed and this has resulted in more accurate

comparative information now being reported We have also included estimates for the emissions from our mortgage portfolio

Our Climate Strategy Continued

Notes on the above table emissions data

- No mandatory emissions have been excluded from this report

- Emissions factors applied Defra2022.

- Methodology the report is aligned with GHG Protocol and Environmental Reporting Guidelines including streamlined energy and carbon reporting guidance

- Estimations20%of the energy data (kWh) and19%of the emissions data (tCO2e) are based on extrapolated values

- Scope3indirect emissions from mortgages is calculated based on30Septemner position

- A full breakdown of all our Scope1,2and3emissions and the Society's environmental data can be found in our Sustainability Report

Coventry Building Society  Annual Report & Accounts2022

Our approach to climate

Calculation of Scope3emissions

The Society’s approach to calculating Scope3emissions is

aligned to the Partnership for Carbon Accounting Financials

(PCAF) methodology which is the industry standard for

calculating Scope3emissions The Scope3emissions have

been weighted by the LTV of the mortgages on the Society’s

portfolio in order to calculate the proportion of emissions

financed by the Society in accordance with PCAF The

approach used by the Society in forming this calculation

leverages the property information we have from EPCs

sourced from publicly available government databases in

order to model the level of GHG emissions within the Society’s

mortgage portfolio

The Society's second estimate of Scope3emissions achieves

a PCAF weighted average data quality score of3.47,the

same score reported in2021.Across the Society’s mortgage

portfolio77%of the properties had an EPC rating at the

time of the calculation (30September2022) across the

Society’s residential owner-occupier and buy to let mortgaged

properties with the vast majority of other mortgages estimated

using postcode averages Further information on the EPC

profile of the Society’s mortgage portfolio can be found on

pages74and75.The Society considers that3.47is a credible

data quality score for its estimated Scope3emissions and

this was supported by data quality spot checks to minimise

data inconsistencies and anomalies It is expected that the

Society’s data quality score will improve as the Society looks to

enhance its data capabilities and as there is greater focus on

improving the energy efficiency of UK homes and EPC ratings

Calculation outputs

30September

2022

30September

2021

Total properties 303,695 304,400

Absolute finance

emissions (FE)

(MTCO

0.67 0.71

Average FE per property

(tCO

2.2 2.3

FE intensity

(KGCO

em

)

44.3 44.3

%EPC match 77% 77%

PCAF data score 3.47 3.47

Caution in interpreting Scope3emission data

Whilst this data is key in driving change and monitoring

our progress against our climate ambitions we would urge

particular caution about its usefulness and reliability given the

infancy of uniform Scope3disclosures the data gaps that

exist on energy efficiency data on UK properties the lack of

information on utility usage and the reliability of EPC bands

As outlined above the Society will continue to enhance its

understanding and maturity on this topic and will continue

to report in line with PCAF and industry best practice in

order to promote transparency The Society will also look for

opportunities to engage industry on considering how to make

EPC ratings and the PCAF methodology more sophisticated

for example taking into account the carbon intensive

production of new homes versus retrofitting current ones

Looking ahead to2023,we will continue to develop our

capabilities to measure report and mitigate the risks we face

arising from climate change We will continue to develop

tools to assess the impacts of climate change on our business

activities and ensure that we embed this within business

management information In2023,we will continue to work to

build a relationship with our mortgage borrowers and to help

them understand energy efficiency improvements and how we

can support them in making home improvements by ensuring

we have suitable green mortgage products available

The report is consistent with the recommendations of TCFD

and we will continue to enhance our reporting on climate and

sustainability related issues as the area develops and additional

recommendations are released

1.MTCO2e represents metric tonnes of carbon dioxide equivalent

2.KGCO2em2represents the carbon dioxide equivalent emitted per square metre

Coventry Building Society  Annual Report & Accounts2022

Our approach to climate change

Governance

This section outlines how

the Society is managed in the

interests of members and

highlights the role constitution

and governance of the Board

and its Committees

Board of Directors 79

Directors’ Report on Corporate

Governance

Nominations & Governance

Committee Report 99

Board Risk Committee Report 101

Board Audit Committee Report 103

Directors’ Remuneration Report 108

Directors’ Report 124

Coventry Building Society  Annual Report & Accounts2022

Board of

Directors

This section provides information about your Board of Directors as at31December2022.

Changes to the Board

Changes post31December2022and up to the date of signing the Annual Report & Accounts

Vanessa Murden was appointed to the Board as a Non-Executive Director on30January2023.

Board composition

Tenure of Board members

The Board’s calendar and commitments

The Board and its Committees have a regular cycle of meetings as set out below and will hold additional ad hoc meetings as required

Executive and Non-Executive Director split Gender split

Coventry Building Society  Annual Report & Accounts2022

Governance

Ethnic diversity

David Thorburn

Steve Hughes

Appointed

April2022

Committee membership

Chair of the Board and the Nominations & Governance Committee and

member of the Remuneration and Non-Executive Directors'Remuneration

Committees

Experience

Over40years’ experience in the banking industry including four years as

Chief Executive of Clydesdale and Yorkshire Banks Former Non-Executive

Director at Barclays Bank UK PLC where he chaired the Board Risk

Committee Former External Member of the Bank of England’s Prudential

Regulation Committee Former Independent Non-Executive at Ernst &

Young LLP and Chair of its Audit Committee Former Board member of

the British Bankers’ Association and Chair of the Confederation of British

Industry in Scotland Past President of the Chartered Institute of Bankers

in Scotland

External appointments

Independent Non-Executive at EYGS LLP and Chair of the Chartered

Banker Institute2025Foundation

Appointed

April2020

Committee membership

Chair of the Non-Executive Directors'Remuneration Committee

Experience

Steve has broad transformation financial and operational experience in

senior and board level roles within financial services and consumer goods

sectors Before joining the Coventry Steve had been Chief Executive of

Principality Building Society and Finance Director of the Lloyds Banking

Group General Insurance businesses Passionate about leadership he has

a strong belief in the benefit of the mutual model and is positive about

the role a responsible business can have on society as well as supporting

colleagues to be the best they can be

External appointments

Non-Executive Director on the main board of UK Finance and Chair of

the audit and risk committee of UK Finance Member of the BSA council

Advisory board member of the Money and Pension Service and member of

the Payments Advisory Board for the Pennies Foundation

Chair of the Board

Chief Executive and

Executive Director

Governance

Coventry Building Society  Annual Report & Accounts2022

Board of Directors Continued

Iraj Amiri

Catherine Doran

Appointed

June2018

Committee membership

Chair of the Board Audit Committee and member of the Board Risk

Committee

Experience

Partner with Deloitte for over20years leading its national internal audit

group and serving clients in the financial retail and public sectors Global

Head of Internal Audit for Schroders Plc for over10years Carried out

numerous reviews of major financial institutions including banks building

societies and insurance companies Fellow of the Institute of Chartered

Accountants in England and Wales a past Fellow of the Royal Statistical

Society and was a member of the Internal Audit Task Force of the Institute

of Chartered Accountants in England and Wales for a number of years

Member of the Regulatory Decisions Committee at the Financial Conduct

Authority for six years

External appointments

Chair of the Audit and Risk Committee at the Development Bank of

Wales Plc and Non-Executive Director Chair of the Audit Committee and

member of the Risk Committee at Aon UK Limited and Non-Executive

Director of Eurocell plc

Appointed

August2016

Committee membership

Member of the Board Risk Committee Nominations & Governance

Committee and the Remuneration Committee

Experience

Previously Chief Information Officer of Royal Mail plc responsible

for devising and delivering the IT strategy to support the business

transformation agenda Director at Network Rail Limited leading a

company-wide transformation programme Other senior roles include BT

NatWest and Capital One

External appointments

Non-Executive Director of Clearbank Limited

Independent Non-

Executive Director

Independent Non-

Executive Director

Coventry Building Society  Annual Report & Accounts2022

Governance

Peter Frost

Jo Kenrick

Chief Customer Officer

and Executive Director

Appointed

November2012

Committee membership

None

Experience

Over30years’ experience working in the UK retail financial services

sector including serving as Operations Director of UK Retail Operations at

Barclays Bank Non-executive roles at Vaultex and Intelligent Processing

Solutions Chief Customer Officer responsible for managing our day-to-

day operations including our Customer Operations and Branch Network

External appointments

Chair of Governors of Little Heath Primary School Coventry

Deputy Chair of the Board and

Senior Independent Director

Appointed

November2017

Committee membership

Chair of the Remuneration Committee Member of the Nominations &

Governance Committee and Board Audit Committee

Experience

Early career at Mars confectionery Pepsi and Asda followed by executive

roles at Camelot Group plc B&Q plc and Homebase Limited CEO of

Start a Prince of Wales charitable initiative Previous Board member at

Principality Building Society and Safestore Self Storage Ltd

External appointments

Non-Executive Director and Chair of the Remuneration Committee at Dŵr

Cymru Welsh Water Non-Executive Director and Chair of Remuneration

Committee at Sirius Real Estate Chair of PayM and of the Current Account

Switch Service for PayUK

Governance

Board of Directors Continued

Shamira

Brendan

Independent Non-

Executive Director

Mohammed

Appointed

May2019

Committee membership

Member of the Board Audit Committee

Skills and experience

Chartered Accountant with over20years’ experience within the financial

services sector Currently Group Chief Accounting Officer at Athora an

insurance and reinsurance group focused on the pensions and insurance

market Previous executive roles at Aviva plc and Phoenix Group plc

including Finance Director for the Phoenix Life Division and Finance

Acquisition Director

External appointments

Group Chief Accounting Officer Athora

O’Connor

Independent Non-

Executive Director

Appointed

January2021

Committee membership

Member of the Remuneration Committee and Board Risk Committee

Experience

Over35years’ experience at Allied Irish Bank including Head of its Global

Treasury Services Head of Corporate Banking International and Head of

Business Banking Most recently on the AIB Group leadership team as

Head of Financial Solutions Group before becoming CEO of AIB UK plc in

2015.

External appointments

Non-Executive Director at Ford Credit Europe Bank plc

Governance

Lee Raybould

Martin Stewart

Chief Financial Officer

and Executive Director

Appointed

April2021

Committee membership

Member of the Non-Executive Directors'Remuneration Committee

Experience

Qualified as a chartered certified accountant in1997and with over30

years’ experience in the building society sector including24years at

Nationwide Building Society spanning finance product strategy and most

recently as Chief Data Officer and a member of the Executive Committee

External appointments

None

Appointed

September2018

Committee membership

Chair of the Board Risk Committee member of the Board Audit

Committee and Nominations & Governance Committee

Experience

Wide-ranging experience within the financial services sector Director of

Banks Building Societies and Credit Unions at the Bank of England and

Head of UK Banks and Mutuals at the Financial Services Authority (now

Financial Conduct Authority) Ten years in various senior roles at Yorkshire

Building Society

External appointments

Chair of Northern Bank Limited (Danske Bank UK) Advisory Board

Member of OakNorth Bank plc and a visiting professor at the London

Institute of Banking & Finance

Independent Non-

Executive Director

Governance

Coventry Building Society  Annual Report & Accounts2022

Board of Directors Continued

Dear Fellow Member

I am pleased to present to you the Society’s Report on

Corporate Governance which details how the Society’s

governance framework operated in2022.

This is my first such report as Chair of Coventry Building

Society and I am very aware of the particular importance

of good governance in being accountable to members of

the Society This report together with the reports from

the Nominations & Governance Committee the Board

Risk Committee the Board Audit Committee and the

Remuneration Committee show how we met this commitment

in2022.

The turbulence in the external environment and the speed

of change affecting our operations presented additional

challenges to the Society during the year In such circumstance

it is even more important to ensure that the Society’s strategy

and activities remain sustainable and consistent with our

purpose and values as well as member expectations Good

governance is at the heart of this

This meant that in addition to reviewing the Society’s strategy

and strategic priorities the Board has also considered our

response to a rapidly changing economic context and in

particular the impact of the inflation and rising interest

rate environment on colleagues members both savers and

borrowers and other stakeholders

The strategic priorities continue to focus on the Society’s

digital transformation and operational resilience particularly

in relation to IT Previous reports have detailed the progress

that’s been made to date but in2022the Board agreed to

establish a new Board Technology Oversight Committee with

the specific responsibility of providing oversight challenge

and support to this critical area of operations The Board

also recognised the need to enhance its own capability in this

regard and steps were taken to recruit an additional non-

executive director with the change management and technical

experience to complement existing Board members The

Board has gone through an extensive and rigorous recruitment

process to select the person with the right professional

experience and I was delighted to announce the appointment

of Vanessa Murden in January2023.Vanessa has an extensive

track record of delivering digital and IT change in the context

of financial services and will be an excellent addition to the

Board

The introduction of the new Consumer Duty has also been an

important area of focus for the Board I believe this regulatory

development reflects the changing expectation we are seeing

in today’s society which places greater expectations on the

behaviour of organisations and a requirement to do the right

thing on behalf of the customer I believe that Coventry

Building Society does operate in this way and has a track record

to back this up However we are not complacent and the

clear requirements of Consumer Duty will be used to assess

our current services and future plans to ensure we perform in

accordance with this duty as well as member expectations and

our own ambitions

As it became clear through2022that inflation would drive

real hardship for some members and colleagues as well as

those in the communities we serve the Board took action

Actions on savings rates and mortgage lending provided

immediate reassurance to members that the Society was

indeed focused on doing the right thing on their behalf We

agreed an additional allowance of£1,000to all colleagues on

basic rate income tax and£1million of additional funding

for local charities supporting those affected by the crisis The

Board and myself are committed to ensuring that the views of

all stakeholders continue to be considered in our discussions

and decision making

Looking forward to2023,the Board’s primary objectives will

be to

• Continue our focus on the medium to long term plans for

the Society to ensure its business model remains fit for

purpose and able to continue to provide security service

and value to our members

• Ensure continued development of the Society’s

operational resilience and technological transformation

• Deliver on the expectations and opportunities of the new

Consumer Duty

• Continue to sponsor and oversee the Society’s broader

sustainability agenda

2022was remarkable for its economic and political turmoil

In some ways it proved an excellent introduction for me to

the Society the strength of its purpose and its underlying

business model Our ability to deliver to the expectations of

our members depends to a great extent on the transparency

and rigour of our corporate governance and the Board and

myself are committed to ensuring this remains of the highest

standard

David Thorburn

Chair of the Board

23February2023

Coventry Building Society  Annual Report & Accounts2022

Governance

Directors’ Report on

Corporate Governance

Governance framework

Maintaining the highest standards of governance is integral to the successful delivery of the Society's strategy Our governance

framework ensures that the Board is effective in both making decisions and maintaining oversight whilst also adhering to our

well-established purpose and values

The Board

Purpose setting the Society's strategic objectives and monitoring its overall financial performance ensuring effective

governance controls and risk management

Chair David Thorburn

Members Jo Kenrick Martin Stewart Iraj Amiri Catherine Doran Shamira Mohammed Brendan O’Connor Steve

Hughes Lee Raybould Peter Frost

Biographies page Board activities page89 Board composition page79

The Board delegates certain matters to its Committees Matters discussed at Committee meetings are reported

to the Board at each meeting

Remuneration

Committee

Nominations

& Governance

Committee

Purpose

Assists the Board

in maintaining high

standards of corporate

governance and

ensuring these are

consistent with best

practice Oversees the

implementation of the

Society’s diversity and

inclusion objectives

Regularly reviews the

composition of the

Board and leads on the

appointments process

for nominations to

the Board and makes

recommendations to

the Board on succession

planning of Board

directors

Board Risk

Committee

Board Audit

Committee

80

Purpose

Determines the Society’s

remuneration policy and

practices ensuring they

are effective compliant

and reflect the Society’s

purpose and values

The Committee is

also responsible

for determining the

remuneration framework

for the remuneration

of all employees with

particular scrutiny given

to the remuneration of

the Chair of the Board

executive directors and

executive managers

Chair

Jo Kenrick

Members

Brendan O’Connor

Catherine Doran

David Thorburn

Chair

David Thorburn

Members

Catherine Doran

Jo Kenrick

Martin Stewart

Purpose

Provides oversight and

advice to the Board

in relation to current

and potential future

risk exposures of the

Society and future

risk strategy including

determination of risk

appetite and tolerance

and the effectiveness

of the Society’s

framework for managing

risk Additionally the

Committee ensures the

Executive team is held

to account in ensuring

risks are identified

assessed and managed

effectively in accordance

with the requirements

of the Enterprise Risk

Management Framework

Chair

Martin Stewart

Members

Brendan O’Connor

Catherine Doran

Iraj Amiri

Purpose

Assists the Board

in discharging its

responsibilities for

the integrity of the

Society’s financial

statements ensuring

they are fair balanced

and understandable

The Committee is also

responsible for reviewing

significant financial

reporting judgements

and oversees the

effectiveness of the

system of internal control

and the effectiveness

of the Internal Audit

function and external

auditors

Chair

Iraj Amiri

Members

Jo Kenrick

Martin Stewart

Shamira Mohammed

Governance

Coventry Building Society  Annual Report & Accounts2022

Directors’ Report on

CorporateGovernance

Continued

In addition to the principal Board Committees detailed above the Board also established a Non-Executive Directors'Remuneration

Committee to assist it in fulfilling its oversight responsibilities for the remuneration expenses gifts and hospitality of the Society's

non-executive directors This Committee typically meets once a year and its members comprise the Chair Chief Executive Chief

Financial Officer and Chief People Officer

Corporate Governance Statement

This Corporate Governance Statement has been prepared in accordance with the Principles of the UK Corporate Governance Code

dated July2018(the Code) which applied to the2022financial year The Society met the requirements of the Code throughout

2022with the exception of the provisions relating to engagement with institutional shareholders which is not relevant to the

Society given its mutual ownership model The Governance Report explains how the Society has applied the principles of the Code

throughout2022.

The table below shows where in the report you can find more information on how the Society has applied the principles of the Code

within the Annual Report & Accounts

Section Code Principles How the Society has complied

BOARD LEADERSHIP

AND COMPANY

PURPOSE

A The role of the Board in promoting the long-term

sustainable success of the Society and creating value for

members

• Role of the Board

• Strategic Report

B Establishing purpose values and strategy and promoting

the desired culture

• Strategic Report

• Board responsibilities

• Role of the Board

C Performance measures control frameworks and risk

management

• Risk Management Report

• Board Risk Committee Report

• Strategic Report

D Stakeholder engagement • Strategic Report

• Directors'Report on Corporate

Governance

E Employee policies and practices • Strategic Report

• Directors'Report on Corporate

Governance

DIVISION OF

RESPONSIBILITIES

F Leadership of the Board and its effective operation • Directors'Report on Corporate

Governance

G Board composition and division of responsibilities • Board of Directors

• Directors'Report on Corporate

Governance

H Directors'responsibilities and time commitment • Directors'Report on Corporate

Governance

I Board support information resources and access to

advice

• Directors'Report on Corporate

Governance

COMPOSITION

SUCCESSION AND

EVALUATION

J Board appointments and succession plans for Board and

senior management

• Board of Directors

• Nominations & Governance Committee

Report

K Board skills expertise and knowledge • Directors'Report on Corporate

Governance

L Annual Board Evaluation and assessment of directors'

performance

• Directors'Report on Corporate

Governance

AUDIT RISK AND

INTERNAL CONTROL

M Independence and effectiveness of external auditor and

internal audit • Board Audit Committee Report

N Fair balanced and understandable assessment of the

Society's position and prospects • Board Audit Committee Report

O Risk management and internal control framework • Board Audit Committee Report

• Board Risk Committee Report

• Risk Management Report

REMUNERATION P Remuneration and Society strategy purpose and values • Directors'Remuneration Report

Q Executive and senior management remuneration • Directors'Remuneration Report

R Authorisation of remuneration outcomes • Directors'Remuneration Report

Coventry Building Society  Annual Report & Accounts2022

Governance

Role of the Board

The Board has a collective responsibility to secure the long-term sustainable success of the Society for the benefit of its members

and wider stakeholders It must ensure the delivery of the Society's strategy and that its strategic objectives remain aligned to the

Society's purpose and values Having a robust governance framework is integral to achieving this success It enables the Board to

reach decisions in a focused and balanced way ensuring that full consideration is given to the impact on each of the Society's key

stakeholders

The Board derives its powers from the Society's Rules and Memorandum (the Rules) which can be found in the corporate

governance section of the Society's website The Rules are based on the provisions of the Building Societies Act1986and other

applicable law and regulation that the Society must comply with The responsibilities of the Board are set out in a formal schedule of

matters reserved to the Board which is located on the corporate governance section of the Society's website The Board reviews its

schedule of matters reserved at least annually to ensure they reflect good governance practice any relevant regulatory changes and

the requirements of the business The Board last reviewed its schedule of matters reserved in January2023.The Board delegates

certain matters to Board Committees so that they can be considered in more detail by the directors who have the most relevant

skills and experience to do so A summary of the role of each of the Board's Committees can be found on page86of this report and

a more detailed account of activities undertaken by the Board Committees can be found in their respective reports from page99

onwards Each of the Board Audit Board Risk Remuneration and Nominations & Governance Committees has terms of reference

which set out their respective roles and responsibilities These can be found on the corporate governance section of the Society’s

website

The day-to-day running of the business is delegated to the Chief Executive who is supported by an Executive team with the remit of

delivering the Society's strategic objectives

Board responsibilities

The Board seeks to meet its legal and regulatory obligations as well as fulfilling its purpose to oversee the overall management of the

Society The Board has a number of important responsibilities designed to achieve this objective extending across a number of areas

as summarised below A full list of the Board's responsibilities are detailed in a document called the'Matters Reserved to the Board'

which can be found on the corporate governance section of the Society's website

Governance

Coventry Building Society  Annual Report & Accounts2022

Directors’ Report on

CorporateGovernance

Continued

Board activities in2022

Board meetings are an important mechanism through which the Board discharges its responsibilities particularly in relation to the

requirements of the Code and Section172of the Companies Act2006.Some of the Board’s responsibilities are discharged directly

whereas others will be delegated to the Committees of the Board

The Board’s activities are planned on a12month rolling basis to ensure the responsibilities detailed above are discharged

effectively with additional items coming to the Board as appropriate Each Board meeting is structured using a carefully tailored

agenda that is agreed in advance by the Chair in conjunction with the CEO and Society Secretary The contents of the agenda are

made up of a combination of standing items from the Board's12month planner and additional ad hoc items which fall within the

remit of the Board's responsibilities

The Board's activities are structured in a way to ensure that at each meeting the Board has an opportunity to review trading and

financial performance track the Society's progress against its strategic aims assess the Society's risk position review governance

matters and oversee the work of its Committees As relevant the Board will also carry out in-depth reviews on key IT and

Change programmes the Society's sustainability performance new product proposals and other matters of strategic importance

Information on directors’ attendance at the scheduled meetings that took place during the year can be found on page91.

The key activities considered by the Board during the year are summarised below

Coventry Building Society  Annual Report & Accounts2022

Governance

Activities in2022

At each meeting the following standing items are considered by the Board

Chief Executive’s

report

providing an overview of

the external competitive

environment covering

key trends across the

lending and savings

sectors in addition

to information on the

status and progress of

the Society’s strategic

change projects

Management

information

on the Society’s trading and

financial performance since the

last meeting of the Board

reporting on the Society’s

operations including people

and customer service metrics

and key developments across

Society operations

Chief Risk

Officer’s report

on the Society’s

risk position and

assessment of the

Society’s key risks

Board Committee

updates

from the Chairs of the

Board Committees to

the Board on the key

issues and topics raised

at Committee meetings

ensuring the Board is

aware of key discussions

and decisions made by

the Committees

Governance

Coventry Building Society  Annual Report & Accounts2022

Directors’ Report on

CorporateGovernance

Continued

In addition to the standing items listed above the Board considered the key strategic items during2022:

People & Members

• Received the results of the2022employee survey and reviewed feedback from colleagues on the matters that were

important to them Members of the Society’s employee forum My Society were invited to attend the Board

presentation to talk about their views of the survey results

• Received a report on the Society’s customer experience initiatives including feedback from the Member Panel on

their experiences of the Society and suggestions on what could be improved

• Received a detailed update on community activity undertaken including charitable causes that had been supported

through the year

• Carried out a deep-dive review into the Society's approach to talent management and succession planning and

considered opportunities to increase the Board's visibility of high potential talent at the Society

Strategic development

• Approved the Society’s Sustainability Strategy and updated Climate Action Plan which sets out in detail how the

Society will respond to the climate challenge The Plan sets out ambitious targets concerning emissions and set out

changes the Society will make as to how it operates the business and what it can do to help encourage retrofitting of

houses to reduce emissions

• Considered and approved the Society’s five year Strategic Plan assessing the strategic actions identified to achieve

the Society’s strategy

• Reviewed progress on the delivery of each of the Society’s key strategic change projects particularly focusing on the

development of the Society’s digital offering in line with its Strategic Plan to optimise online services to ensuring

they meet customers'expectations

• Received quarterly updates on the progress of the Society's transformational change agenda and key change

programmes

Finance and performance

• Reviewed and approved the Society’s interim and full year financial results

• Approved the Society’s Annual Report & Accounts

• Approved the Society’s costs budget for2023.

• Approved the Society’s Financial Plan for2023-2027.

Risk and regulatory matters

• Approved the Society’s risk appetite and ongoing monitoring of adherence to this

• Approved the Board Risk Appetite Framework

• Approved the Society’s2022Recovery Plan to ensure that adequate provisions and processes are in place to

protect the Society’s business and its members

• The Board received an annual update of the Society’s health and safety performance confirming that the Society

had complied with its health and safety policies and legislation during the past12months including revised

government Covid-19guidelines

Governance

• Approved the appointment of the Chair of the Board and a new non-executive director

• Reviewed the results of the2022Board and Committee Effectiveness survey and agreed actions to enhance the

effectiveness of the Board and its Committees during2022.

• Reviewed and approved the matters reserved to the Board and the terms of reference for each Committee of the

Board

• Approved the Notice of the2022AGM and the associated member documentation

• Approved plans to live stream the2022AGM – adapting engagement with members to meet the immediate priority

of safety during the pandemic

• Approved recommendations to review the Society’s Rules and memorandum and put this to a vote of the members

at the2022AGM

• In line with the requirements of the Senior Managers Regime the Board considered the results of the annual fitness

and propriety assessments of each director prior to recommending them for electionre-election

Operation of the Board

In2022,there were11formal meetings of the Board These included six routine Board meetings where the Board reviewed a

range of matters (as outlined on page90) relating to the Society’s business strategy culture and performance and two meetings

dedicated to a review of financial and operational performance only The Board also held a meeting immediately after the2022

Annual General Meeting to deal with the matter of electing the Chair Deputy Chair and Chairs of the Board Committees Two

additional Board meetings were held in the year one in October to endorse the Society's implementation plans in respect of the

FCA's new Consumer Duty and the other in December where the Board reviewed the annual Periodic Summary Meeting letter

issued by the PRA setting out a summary of the PRA's view on the most material risks facing the Society

In addition to the scheduled Board meetings the Board also held two off-site strategy days in June and October where it considered

the Society's business model and made choices about the future direction of the business

Members of the Society's Executive and senior leadership team are invited to attend meetings as required to present and discuss

matters relating to their business and subject matter areas The Chair also holds a meeting with the non-executive directors without

executive directors present at least once a year Where directors are unable to attend meetings they are encouraged to give the

Chair their views in advance on the matters to be discussed

Board and Board Committee attendance2022

The attendance record for Board members is shown in the table below The table shows the actual number of meetings attended

together with the number of meetings which the directors were eligible to attend

Name Title Board

Board Risk

Committee

Board Audit

Committee

Nominations

& Governance

Committee

Remuneration

Committee

Non-Executive

Directors’

Remuneration

Committee

David Thorburn

Chair of the Board 7/7 3/3 3/3

Jo Kenrick

Deputy Chair and Senior

Independent Director 10/11 8/9 4/4 6/6

Catherine Doran Non-Executive Director 10/11 6/6 4/4 6/6

Iraj Amiri

Non-Executive Director 11/11 6/6 9/9

Martin Stewart

Non-Executive Director

11/11 6/6 9/9 4/4

Shamira Mohammed Non-Executive Director 11/11 9/9

Brendan O'Connor Non-Executive Director 11/11 6/6 6/6

Steve Hughes

Chief Executive 11/11 1/1

Lee Raybould Chief Financial Officer 11/11 1/1

Peter Frost Chief Customer Officer 11/11

Gary Hoffman

Chair of the Board 3/4 1/1 3/3 1/1

1.Appointed as Chair of the Board Chair of the Nominations & Governance Committee and member of the Remuneration Committee from28April2022.

2.Chair of the Remuneration Committee

3.Chair of the Board Audit Committee

4.Chair of the Board Risk Committee

5.Chief Executive Officer and Chair of the Non-Executive Directors'Remuneration Committee

6.Served on the Board until28April2022.

Coventry Building Society  Annual Report & Accounts2022

Governance

Division of responsibilities

The Board is comprised of the Chair six non-executive directors and three executive directors To ensure an effective working

relationship it is important that there is a clear division of roles and responsibilities and that these are well understood and agreed

between the individuals holding them as well as by other members of the Board and executive management

The roles of Chair and Chief Executive are separately held and their responsibilities are well defined set out in writing and regularly

reviewed by the Nominations & Governance Committee on behalf of the Board

Each of these roles has a detailed role profile which identifies the areas of responsibility and accountability to the Board andor Chief

Executive as appropriate and a Statement of Responsibility as required under the Senior Managers Regime

The table below provides a summary of key responsibilities for each of these roles

Role Responsibilities

Chair

David Thorburn

• Manage and provide leadership to the Board and to safeguard and promote the long-term success and

sustainability of the Society in the interests of past and future members

• Establish agendas for Board meetings ensuring they are appropriately focused on strategy performance

culture and risk management matters and proactively manage the annual calendar of business to ensure

the most appropriate use of the Board’s time

• Empower Board members to challenge issues openly and encourage and manage vigorous debate whilst

achieving decisions on issues considered by the Board

• Demonstrate ethical leadership and uphold the highest standards of integrity and probity setting clear

expectations concerning the Society’s culture values and behaviour including emphasising Putting

Members First principles

• Build an effective and diverse Board reflecting an appropriate balance of skills and experience given the

Society’s current and future activities

• Lead the development of and monitor the effective implementation of policies and procedures for the

training and professional development of all of the non-executive directors

• Ensure effective communication with all stakeholder groups and that the Society’s obligations to and

interests of its stakeholders are known and understood by the Board

• While the Chief Executive is accountable to the Board as a whole rather than individually to the Chair

the Chair is responsible for facilitating the Chief Executive’s relationship with the rest of the Board and for

providing support to the Chief Executive

Deputy Chair and

Senior Independent

Director

Jo Kenrick

• Deputise for the Chair particularly in relation to chairing Board and members’ meetings in the absence of

the Chair

• Understand the views of employees of the Society and ensure that these are appropriately raised at Board

meetings

• Work closely with the Chair act as a sounding board and provide support in the delivery of the directors'

objectives

• Serve as a trusted intermediary for the directors when necessary

• Be available to other non-executive directors to address any concerns or issues they feel have not been

adequately dealt with through the usual channels of communication

• Meet at least annually with the other directors to review the Chair’s performance and report the outcome

of such meetings to the Board

• Lead succession planning for the Chair of the Board’s role chairing the Nominations & Governance

Committee when it considers Chair succession

Independent non–

executive directors

Brendan O’Connor

Catherine Doran

Iraj Amiri

Martin Stewart

Shamira Mohammed

• Safeguard and promote the long-term success and sustainability of the Society in the interests of past and

future members

• Constructively challenge and help develop proposals on strategy and oversee the executive directors’

implementation of the agreed strategy

• Challenge established thinking on current strategy or practice for the longer-term benefit of the Society

• Ensure that decisions taken by the Board align to agreed strategies and policies

• Scrutinise the performance of management in meeting agreed goals and objectives and monitor ongoing

performance against such goals

• Satisfy themselves that the integrity of financial information financial controls and systems of risk

management are robust and defensible

• Complement the skills and experience of the executive directors in particular by providing to the Board a

range of knowledge experience and insight

Governance

Coventry Building Society  Annual Report & Accounts2022

Directors’ Report on

CorporateGovernance

Continued

Role Responsibilities

Chief Executive

Officer (CEO)

Steve Hughes

• Responsible for the day-to-day running of the business and accountable to the Board for the Society’s

financial and operational performance

• Responsible for providing leadership and direction to and developing the vision and strategy of the Society

having regard to the duty to promote the success of the Society in the interests of members colleagues

and key stakeholders

• Communicate the vision strategy and performance of the Society to members employees regulators and

other stakeholders

• Build and lead an effective Executive team to manage the Society in the longer-term interests of its

members

• Ensure that effective succession and development plans are in place and implemented for all key executive

roles

• Lead the Executive team to successfully deliver agreed plans objectives and targets

• Responsible for monitoring the effective implementation of policies and procedures for the induction

training and professional development of all persons performing designated senior management functions

on behalf of the Society

Chief Financial

Officer (CFO)

Lee Raybould

• With the Chief Executive and Executive team ensure the development and implementation of the

Society’s corporate plans strategies and policies Approve the Society’s strategic aims and ensure that

the Society is appropriately resourced to meet its objectives with regular reviews of performance against

objectives

• Ensure the Society remains well funded and has sufficient liquidity to meet internal and regulatory limits

• Ensure that plans are in place to meet the financial performance targets agreed with the Chief Executive

and the Board

• Ensure effective financial control management and information are in place to support other business

areas

• Manage the Society’s capital effectively ensuring capital is managed within agreed risk appetites

• Provide leadership of the Society and the Finance function in particular with a framework of prudent and

effective controls which enable risk to be assessed and managed

Chief Customer

Officer (CCO)

Peter Frost

• With the Chief Executive and Executive team ensure the development and implementation of the

Society’s corporate plans strategies and policies Approve the Society’s strategic aims and ensure that

the Society is appropriately resourced to meet its objectives with regular reviews of performance against

objectives

• Lead on the strategic development of the Chief Customer Office encompassing the branch network

Savings and Lending functions shared service and customer experience

• Ensure that plans are in place to meet the performance targets agreed with the Chief Executive and the

Board

• Ensure excellent customer service is achieved throughout all areas of responsibility and ensure a culture of

continuous improvement exists

• Set the Society’s standards and values and ensure that its obligations to members and employees are

understood and met

Independence

In January2022,the Board reviewed the independence of its non-executive directors In line with the Code it considered whether

there were any relationships or circumstances that were likely to affect or could appear to affect a director’s independence

In the opinion of the Board all of the Non-Executive Directors satisfy the requirements for independence and have demonstrated

this in their character and judgement The Chair of the Board David Thorburn is a non-executive director and in accordance with

the Code was independent on appointment

Letters of appointment for the Society’s directors are available from the Society Secretary on request Details of the directors’

external appointments are set out in the Annual Business Statement

Time commitment

Non-executive directors are not required to devote the whole of their time to the Society’s affairs but must devote sufficient time

to properly discharge their duties and regulatory obligations The time that non-executive directors are expected to commit to their

role at the Society is decided on an individual basis upon appointment and will depend on the director's role and responsibilities

In addition to that spent preparing for and attending Board and Board Committee meetings the non-executive directors are

also expected to dedicate sufficient time to understanding the business through meetings with management engagement with

members attending call listening undertaking a programme of branch and department visits engaging with regulatory bodies and

undertaking training Each year the Society’s Nominations & Governance Committee assesses whether each of the directors is able

to commit sufficient time to the Society to discharge their responsibilities effectively taking into account any external commitments

they may also have The assessment undertaken in2022confirmed that all directors were considered to have sufficient time to

properly discharge their duties as directors of the Society

Coventry Building Society  Annual Report & Accounts2022

Governance

Set out below are details of the average time commitment expected of the non-executive directors

Role Expected time commitment

Chair Approximately80–100days per year

Deputy Chair & Senior

Independent Director

As is required to fulfil the role

Non-Executive Director Average time commitment of between30and36days per year

Committee Chair Board Risk Committee Chair

Approximately12days per year in addition to the time spent on normal non-executive director responsibilities

Board Audit Committee Chair

Approximately10–12days per year in addition to the time spent on normal non-executive director responsibilities

Remuneration Committee Chair

Approximately10days per year in addition to the time spent on normal non-executive director responsibilities

Nominations & Governance Committee Chair

Approximately6days per year in addition to the overall time commitment required of the Chair

Conflicts of interest

The Society's directors are subject to a Board Conflicts of Interest Policy which is reviewed regularly by the Nominations &

Governance Committee The policy gives effect to various legal and regulatory requirements on the Society in relation to conflicts

of interest and in broad terms seeks to ensure the directors of the Society do not assume roles which would conflict with their

obligations as a director of the Society Prior to appointment all potential directors are required to disclose any actual or potential

conflicts of interest that may prevent them from taking on an appointment with the Society In addition all directors must

seek approval from the Board before committing to any additional external appointment Where such approval is sought the

director must confirm the existence of any potential or actual conflicts and that the role will not exceed the maximum number of

directorships permitted (in accordance with the Capital Requirements Directive V) The director must provide assurance that the

appointment will not adversely impact their ability to continue to fulfil their role as a director

The Society's policy and processes for managing conflicts of interest seek to ensure that any actual or potential conflicts of interest

are prevented and any associated risks to the organisation of an actual or potential conflict situation materialising are mitigated In

the event of an actual or potential conflict of interest arising the matter would be dealt with in accordance with the process under

the policy and impacted parties would be notified where required

In accordance with their duties as directors each director is also obliged to notify the Board of any actual or potential interest that

they have in a matter to be transacted at a meeting If any potential conflict does arise the Board Conflicts of Interest Policy permits

the Board to authorise a conflict subject to any conditions or limitations as it may deem appropriate The Board maintains a register

of conflicts of interest which is reviewed at the start of every Board meeting and actual or potential conflicts of interest are managed

by the Chair or Deputy Chair as required with advice from the Society Secretary

Training and development

To enable the Board to be effective and discharge its duties the Code specifies that each of the directors must be equipped

with the necessary resources to update their knowledge and capabilities This should be in a manner that is appropriate to the

particular director and which has the objective of enhancing that director’s effectiveness in the Board or Committees In addition

to the requirements of the Code the Society's approach to compliance with the Senior Managers Regime requires directors to

undergo a'fit and proper'assessment The Society’s Fit and Proper Policy sets out the various criteria that the Society will consider

to determine if an individual is'fit and proper',one element of which includes an assessment of competence Accordingly it is

crucial that the right training topics are determined for members of the Board and Committees to enable the Society to meet these

requirements New directors receive formal induction training on joining the Board This induction process is tailored to the needs

of each director given their existing knowledge and experience and any Committees on which they will serve Induction includes

extensive engagement with directors and executives updates on important commercial regulatory and risk matters and a particular

focus on the culture of the Society

Following appointment all directors continue their professional development and maintain their knowledge of the Society’s

operations through branch and department visits and formal training overseen by the Nominations & Governance Committee in

line with the Board Training Policy During2022,Board members received training on the following topics

• The FCA's new Consumer Duty

• Cyber risk and ransomware awareness

• Bank of England Resolution and Resolvability Framework

• Change delivery and agile operating models

Governance

Coventry Building Society  Annual Report & Accounts2022

Directors’ Report on

CorporateGovernance

Continued

Training needs for the Board's committees are also assessed on an annual basis In2022,hedge accounting training was delivered

to the Chair and Board Audit Committee members and an update on the BEIS consultation on Audit and Corporate Governance

Reforms was delivered to the Nominations and Governance Committee and Board Audit Committee members In addition to

dedicated training sessions directors also have access to an online resource library with additional materials including the Society's

Board Governance Manual various directors'policy documents and guidance on regulatory and legislative developments which is

updated throughout the year

Directors'skills and experience

An effective Board must comprise individuals with the right mix of knowledge skills and experience Ensuring this objective is

achieved is one of the responsibilities of the Chair supported by the Nominations & Governance Committee

Each year the Nominations and Governance Committee agree a set of key skills and capabilities that provide a collective view of the

Board’s knowledge experience and composition These attributes are compiled by reference to the Society’s Strategic Plan and in

particular its Purpose Values and Principles and seek to define what skills attributes and experience are needed to make the Society

a success over the long term A full list of the skills and capabilities are set out below-

• ESG & Sustainability

• Consumer Trends

• Organisational Knowledge

• Retail Balance Sheet Management

• Transitional Change

• Risk Management

• Regulatory Knowledge

• Board Expertise

• Financial Acumen

• Mortgage Expertise

• Financial Services Expertise

• CEO Experience

In2022,the Society Secretary under the supervision of the Chair and on the basis of discussion with each director prepared an

assessment of the Board’s collective position in relation to each of these capabilities The results of this exercise confirmed that the

Society’s Board collectively had the right balance of skills and experience and indicated which capabilities should be prioritised in

future appointments to the Society’s Board

Composition succession and evaluation

The Board delegates responsibility to the Nominations & Governance Committee to oversee

• Matters relating to the composition of the Board

• The development of a diverse pipeline for succession to the Board and executive positions

• The results of the formal annual evaluation performance of the Board its Committees the Chair and individual directors

For more information on the work of the Nominations & Governance Committee in respect of these matters please see pages99to

100of this report

In compliance with the Code each director is required to submit themselves for election or re-election by members annually at

the Society's Annual General Meeting Before doing so each director is subject to a formal evaluation in which the director must

satisfy certain requirements regarding their fitness and propriety to undertake the role of a Board director These requirements are

determined by the rules of the Senior Managers Regime the Financial Conduct Authority and the Prudential Regulation Authority

and include amongst other things

• Qualifications obtained

• Training undertaken

• Competence and capability

• Honesty integrity and reputation

The competence of each non-executive director who served on the Board in2022was reviewed as part of the routine appraisal

process undertaken by the Chair in respect of the non-executive directors and CEO the Deputy Chair in respect of the Chair of the

Board and the CEO in respect of the executive directors The assessment of fitness and propriety also took into account directors'

independence (as outlined above) and compliance with the Board Training Policy An independent third-party screening provider is

also used to carry out certain checks to confirm the honesty and integrity of each director

Individual biographies of the directors are included in the Board of Directors section on page79.These biographies detail the

backgrounds and relevant skills of the directors Further details on the roles and responsibilities of each of the Board directors can

be found onpage92.Details of those seeking election and re-election at the Society's2023Annual General Meeting can also be

found in the Notice of the2023Annual General Meeting

Coventry Building Society  Annual Report & Accounts2022

Governance

The Society’s Rules require that the Board comprises between six and12directors There are currently ten directors the Chair of

the Board six independent non-executive directors (including the Senior Independent Director) and three executive directors The

composition of our Board is consistent with the Code requirements which specify that at least half of the directors excluding the

Chair of the Board should be non-executive

Changes to the Board during2022were as follows

Name Role Change

David Thorburn Chair Appointed April2022

Gary Hoffman Chair Retired April2022

Board evaluation

Each year the Board and each of its Committees undergo a process to assess the effectiveness of their performance during the year

This is a key mechanism for ensuring that the Board and its Committees continue to operate effectively and for setting objectives

and development areas for the forthcoming year The Code prescribes that this evaluation should be undertaken by an independent

external party at least every three years Last year the Board appointed consultant and board evaluator Ian White to facilitate

the Board and Board Committee external effectiveness evaluationThis assessment concluded that the Board and its Committees

operated effectively in line with best practice The review highlighted a number of positive characteristics of the Board all of

which were seen as contributing factors towards its effective operation throughout the year It was concluded that the Board was

comprised of a talented team of individuals with a good range of skills and experience covering many of the areas the Society needs

for its current operation and future direction The observation identified how the Board worked in a collegiate and inclusive manner

with an appropriate balance of challenge and support and that overall it was assessed to be an effective decision making body and

one which prioritised well and took the interests of its key stakeholders into account in its decision making

Findings

Whilst the evaluation concluded that the Board was operating very effectively there was scope for small areas of further

improvement The table below outlines how these recommendations have been progressed in2022:

Recommendation Action plan

Board succession and diversity

• Future board succession plans should focus on areas where

the Board has identified that it is lacking the expertise

required for the current or future operation of the Society

eg digitalIT change transformation experience

• The composition of the Board was considered to be

effective However continued focus should be applied to

enhancing the diversity of the Board membership

This matter had been identified by the Nominations and

Governance Committee through its discussions on Board

succession and during its annual assessment of board members'

skills and expertise It was recognised that there was a gap in the

Board’s skills and expertise with regards to DigitalITChange

As a result the decision was taken to appoint a new non-

executive director to the Board with specific skills in Digital

ITChange to enhance the Board’s oversight of its technology

strategy This process was successfully concluded with the

appointment of Vanessa Murden in January2023.Vanessa has

an extensive track record of delivering digital and IT change

in the context of financial services and will be an excellent

addition to the Board

Board succession planning will continue to be monitored by the

Nominations and Governance Committee annually

Diversity remains a key priority for the Board and is reviewed

in depth by the Nominations and Governance Committee

annually as a part of its review of Diversity and Inclusion at the

Society The Board remains committed to achieving50%female

membership on its Board by the end of2024,but recognises

this is a challenging target The Board will continue to ensure

that appointments and succession plans promote diversity in its

widest sense

Board dynamics

To enhance Board dynamics further opportunities should be

created for Board members to engage outside of formal meeting

settings

More opportunities have been created in the Board's calendar

for members to engage with one another outside of formal

meeting settings

Governance

Coventry Building Society  Annual Report & Accounts2022

Directors’ Report on

CorporateGovernance

Continued

2022Board Evaluation

In2022the Board and Board Committee evaluation was conducted internally The performance review was conducted by a

self-assessment questionnaire completed by all Board directors and members of the Society’s Leadership Team who are regular

attendees at Board and Board committee meetings The questionnaire covered general areas of effectiveness including Board

composition and succession planning Board dynamics and operations strategic oversight and risk management A similar process

was followed for each of the respective Board Committees A report of the findings and feedback from the review of the Board was

presented and discussed at the Board meeting in January2023.Feedback regarding the effectiveness of each Board committee was

discussed at each relevant committee meeting

Overall the findings of the2022Board effectiveness assessment concluded that the Board and its Committees operated effectively

in2022.

Directors'performance

The Chair of the Board appraised the performance of the non-executive directors and the Chief Executive The Chair of the Board’s

performance review was led by the Deputy Chair and Senior Independent Director and took into account the views of the rest of

the Board members and certain members of the Executive team The executive directors'performance was appraised by the Chief

Executive The conclusions of the appraisal process were reviewed by the Board and it was concluded that all directors were fulfilling

their duties and responsibilities effectively

The Board and its culture

The Board is also responsible for providing leadership to the Society on culture values and ethics which are central to supporting

the organisation’s purpose and the delivery of its strategic ambitions The Board receive regular updates through its reviews of the

Society’s People Strategy the results of Great Place to Work Survey and other specific employee surveys which help provide the

Board with a good understanding of the Society’s current culture By reviewing qualitative and quantitative information from a range

of sources the Board is able to track progress and ensure that the culture reflects the shared set of values beliefs and behaviours

which are central to the Society’s values

The Board and stakeholders

As a purpose-led building society our Board understands the importance of engaging with the Society’s stakeholders to understand

how its decisions impact this wider group

The Board takes into consideration the interests of these stakeholders as part of its discussion and decision making processes

ensuring that they continue to act in the best interest of members colleagues and the wider stakeholder group

Our Deputy Chair Jo Kenrick attends'My Society',the elected forum of employee representatives and uses this as an opportunity

to understand the views of employees on key matters as well as updating forum members on issues that the Board is considering

My Society members are also invited to attend and contribute directly in certain Board sessions These meetings alongside insight

shared from our wider listening approach inform conversations and provide qualitative insights to inform decisions made by the

Board

In2022,the Board agreed to pilot an initiative to enhance engagement between Society colleagues and the Board’s Committees

Throughout the year members of My Society have attended meetings of the Board Committees and have had the opportunity to

assist the Committees on specific projects including oversight of the2023Internal Audit Plan and commissioning a Society wide

survey to evaluate how well Risk Management was embedded within the organisation This has proven to be a valuable exercise for

both colleagues and Board members Employee engagement activities will continue in2023to ensure that the Board has direct

mechanisms for engaging throughout the year to understand what employees really value

In addition to the engagement through the My Society forum there is a facilitated programme of branch and department visits

where non-executive directors meet colleagues across the organisation The Board also receives detailed update on the results of

the Society's employee opinion survey which provides granular insight into the views of the Society's employees

The Society's2022strategy process also included engagement with My Society which gave the Board a perspective from colleagues

as it formulated and agreed the2022Strategic Plan The views of colleagues also helped to inform the Society's ESG Strategy and

Climate Action Planwhich the Board approved in2021.On pages17to18of the Strategic Report you will find more information

on the Society’s stakeholders and how they influence the decisions that the Board makes This section also forms part of our

disclosure under Section172(1) of the Companies Act2006.Although as a building society we are not required to follow the

Companies Act2006,we seek to apply its requirements where appropriate

Coventry Building Society  Annual Report & Accounts2022

Governance

Whistleblowing

The Society has in place arrangements to ensure that those who work for us speak up about concerns so that colleagues can raise

concerns in confidence and anonymously and that these can be investigated and properly dealt with

The Society is committed to ensuring that no one will be at risk of detrimental treatment from the Society or its employees as a

result of raising a concern Iraj Amiri Non-Executive Director has been appointed by the Board as the Whistleblowing Champion

The Whistleblowing Champion has overall responsibility for ensuring and overseeing the integrity independence and effectiveness

of the Society’s whistleblowing policies and procedures including arrangements for protecting whistleblowers against detrimental

treatment The Whistleblowing Champion ensures that a report is presented to the Society’s Board annually regarding the

effectiveness of whistleblowing systems and controls The Society provides training on whistleblowing annually and has a specific

reporting channel for its colleagues to report concerns via an independent third party

The Society remains committed to continually evaluating its approach to whistleblowing and its effectiveness The Board Audit

Committee plays an active role in overseeing the Society’s procedures and policies for whistleblowing and reviews a report on the

effectiveness of the Society’s whistleblowing procedures on an annual basis The Society also has a designated Enterprise Leader

with responsibility for this area who meets regularly with the Whistleblowing Champion and the members of the Board Audit

Committee without other management present to discuss the Society’s whistleblowing arrangements In2022,the Society

investigated14matters that were reported through the whistleblowing procedures Of these14disclosures one has been upheld

This is a decrease of6.7%since the previous reporting period No sanctions have been issued Seven of the cases remained under

investigation at the end of the year

Governance

Coventry Building Society  Annual Report & Accounts2022

Directors’ Report on

CorporateGovernance

Continued

Dear Member

As Chair of the Nominations & Governance Committee (the

Committee) I am pleased to present a report to you which

outlines the matters that we as a Committee have focused on

in2022.

Operation of the Committee

The Committee is chaired by the Chair of the Board and the

members are independent non-executive directors Details of

the skills and experience of the Committee members can be

found in their biographies on pages80to84.The Committee

meets at least four times a year and otherwise as required The

number of meetings held in the year can be found in the table

on page91.The attendance record of Committee members

is set out on page91.In addition to the members regular

attendees of the Committee include the CEO Chief People

Officer General Counsel and Society Secretary

Following each meeting the Chair of the Committee provides

updates to the Board summarising activities undertaken and

key decisions taken

Governance

One of the principal responsibilities of the Committee is to

ensure that the Society maintains a high standard of corporate

governance that is consistent with best practice and the

requirements of the UK Corporate Governance Code (the

Code) This is a key factor to the overall success of the Society

and ensures that the decisions made are in the best interests

of our members and are consistent with our values and culture

For more information on how the Society has complied with

the requirements under the Code see page87.

Board composition and succession planning

One of the Committee’s main roles is to review and make

recommendations on matters relating to the structure size

composition and ways of working of the Board

This includes Board succession planning and overseeing the

appointment of non-executive and executive directors to the

Board and Board Committees The Committee reviews the

succession plans for the Board and Executive team annually

focusing on enhancing the composition of the Board taking

into account the skills knowledge experience and diversity of

the existing members of the Board and the capabilities needed

Through discussions on Board Succession and during its

annual assessment of board members'skills and expertise

the Committee recognised that there was a gap on the Board

in respect of digitalIT change transformation experience As

such the Committee oversaw and recommended to the Board

the appointments of Vanessa Murden as independent non-

executive director The Society appointed a specialist search

firm Carbon to facilitate the external search process Carbon

has no connection with the Society or individual directors of

the Society The Committee supported by the search firm

prepared a candidate specification based on objective criteria

setting out the knowledge skills experience and attributes

required From the candidate specification a longlist of

potential candidates was drawn up from which a shortlist was

compiled Following a review of the shortlisted candidates

two preferred candidates emerged for the role They met with

the Chair and other members of the Board Feedback on the

candidates was obtained through professional references and

these together with the feedback from the Board members

were considered alongside the relative characters skills and

experience of the candidates Following due and careful

consideration of each of the candidates and the current needs

of the Board the Committee selected Vanessa Murden for the

role

Vanessa has an extensive track record of delivering technology

change in the context of financial services and the Committee

agreed that she would be an invaluable addition to the

Board considering the direction of the Society’s strategy and

transformational change agenda

Time commitment

For all Board vacancies the Committee must assess whether

the proposed candidate has sufficient time to discharge their

duties as a director of the Society having regard to their other

commitments This assessment is carried out at least annually

for all existing Board members and also upon any current

Board member seeking additional external appointments

The Committee considers that the directors currently comply

with Article91of the Capital Requirements Directive and

the Code since all directors are able to commit sufficient

time to perform their duties at the Society and none of the

directors has more than the maximum number of directorships

when taking into account the provisions relating to group

directorships and non-commercial organisations

Committee membership

The Code requires the majority of members of the

Nominations & Governance Committee to be independent

non-executive directors The Committee complies with this

requirement and comprises solely independent non-executive

directors The Committee meets a minimum of four times a

year and members of the Executive team are invited to attend

meetings as appropriate

Current membership Member since

David Thorburn

2022

Jo Kenrick 2018

Catherine Doran 2021

Martin Stewart 2020

1. Became a member and Chair of the Committee on28April2022.

Diversity

Diversity and inclusion are intrinsic to the Society’s values and

purpose A key strategic priority for the Society is to create an

inspiring place to work which better reflects the diversity of its

city and communities The Society’s approach to gender and

diversity will continue to be a key factor in achieving this As

part of its remit the Committee oversees the implementation

of the Society’s diversity and inclusion strategy and objectives

and carried out a detailed review of this area during the year

One key area of focus for the Committee is the gender balance

Nominations & governance

committee report

Coventry Building Society  Annual Report & Accounts2022

Governance

of the Board and Executive team and their direct reports The

Committee has engaged with the Executive team to ensure

accountability for progress on the Society’s diversity and

inclusion agenda

The Society has set a target to achieve50%female

membership on its Board by the end of2024.We recognise

that this is a challenging target and due to changes to the

Board’s composition in recent years the Board is behind this

target with30%female membership at the reporting date

While good progress has been made to address gender balance

across the Society generally and particularly in respect of

improving the number of females in senior manager roles and

above at the Society which has increased from34.7%to37.3%

in the last year more work is required to achieve a greater

balance of gender diversity on the Board

Progress in this area remains a priority for the Committee

and the Board The Committee will continue to ensure that

appointments and succession plans are based on merit and

objective criteria and within this context promote diversity

of gender social and ethnic background cognitive and

personal strengths alongside professional experience Board

appointments will continue to ensure diverse shortlists as

standard

Effectiveness

The Committee is responsible for overseeing the effectiveness

assessment of the Board The Code states that this review

should be externally facilitated every three years In2021,

the external review was conducted by an external consultant

and board evaluator Ian White The Committee oversaw the

work conducted by Ian White which looked at the overall

effectiveness of the Board and its committees and provided

an objective assessment of the strengths capabilities

effectiveness and dynamics of the Board In2022,the

Committee spent considerable time overseeing progress of

the improvement actions arising out of the external review in

respect of the Board and other Board Committees Further

details can be found on pages96to97.

The Committee also oversaw the approach for the2022

internal Board and Board Committee effectiveness evaluation

The performance review was conducted by a self-assessment

questionnaire the questions for which were overseen by the

Committee in conjunction with the respective Board and

Board Committee Chairs The questionnaire covered general

areas of effectiveness including BoardCommittee composition

and succession planning dynamics and operations strategic

oversight and risk management

The Committee considered the results of its effectiveness

assessment in December2022and determined that a report

could be made to the Board that it operated effectively in

discharging its responsibilities during2022.

Overall the findings of the2022Board effectiveness

assessment concluded that the Board and its committees

operated effectively in2022.

Any recommendations arising from the2022review will be

overseen by the Committee throughout2023.

Other key activities in2022

In addition to the points already covered the Committee

• Reviewed the Board succession plan with particular

reference to executive succession and securing a pipeline

of non-executive directors

• Reviewed the appropriateness of the membership of the

Board’s Committees and reviewed the Society’s

management responsibilities map before submission to

the Board for approval

• Oversaw the application of the various policies designed

to ensure the Society’s Board is effective

• Reviewed the matters reserved for the Board to ensure

matters were considered or delegated appropriately

• Reviewed directors’ proposed external appointments to

ensure they did not represent a conflict of interest or

exceed the number of permitted directorships or prevent

directors devoting sufficient time to the Society

• Reviewed the roles of the Chair of the Board and Chief

Executive

• Received updates on corporate governance developments

• Considered conflicts of interest and reviewed the

effectiveness of the Society’s Conflicts of Interest Policy

• Reviewed governance related policies including those

relating to the Senior Managers Regime (SMR)

• Oversaw the application of the Fit and Proper Policy and

other SMR related policies to ensure compliance with this

area of regulation

• Reviewed proposals to enhance the governance

arrangements at the Society to ensure they reflect

emerging best practice and comply with the regulatory

requirements on matters relating to sustainability and

climate change

• Reviewed and approved the Society's Political Lobbying

Policy confirming that the Society is a politically neutral

organisation and does not participate in political

discussions

Annual electionre-election

The Board has considered the provisions of the Code relating

to re-election of directors and considers that it is in the best

interests of members to submit the entire Board for annual

re-election This meant that for the April2022Annual

General Meeting all of the current directors voluntarily

submitted themselves for re-election with the exception of

Gary Hoffman who indicated his intention to retire as Chair

of the Society All current directors at the reporting date will

submit themselves for re-election at the2023Annual General

Meeting with the exception of Catherine Doran and Peter

Frost who have announced their intention to retire

David Thorburn

Chair of the Nominations & Governance Committee

23February2023

Governance

Coventry Building Society  Annual Report & Accounts2022

100

Nominations & governance

committeereport

Continued

Dear Member

I am pleased to present the Board Risk Committee (the

Committee) report for the year ended31December2022.

During the year the Committee continued to focus on the

current and emerging risks to the Society's business model

including those relating to the macroeconomic commercial

and regulatory landscape The Committee together with

management has continued to proactively manage monitor

and mitigate the key risks facing the Society ensuring it

remains robust and resilient The Enterprise Risk Management

Framework (ERMF) remains suitably embedded within the

Society's operations and decision making with a strong culture

of risk awareness The Committee has continued to provide

challenge and influence regarding the Society's strategic goals

and initiatives and to ensure fair outcomes for our members

The Committee has performed oversight across all of the

Society's principal risk categories during the year with

performance against risk appetite reviewed on an ongoing

basis Despite the challenging external environment the

Society's risk profile has remained broadly stable versus the

prior year

During2022,the Committee reviewed the adequacy of the

Society's future and forward-looking capital and liquidity

position via the ICAAP and ILAAP which subjected the

Society's Strategic Plan to severe but plausible stress scenarios

The Committee also reviewed the Society's refreshed

Recovery Plan It was determined that the Society continues

to have sufficient capital and liquidity resources to support the

Strategic Plan

The impact of climate change and new regulatory standards

on climate risk were reviewed along with the proposed Society

response to the climate risks identified on its loans and

advances to customers and operations

The Committee has continued to challenge management

on the planning and delivery of key transformational

change projects and has been kept abreast of the Society's

engagement with regulators future regulatory change

including Consumer Duty and emerging capital regulation and

relevant policy decisions

In order to ensure the Society risk tolerance remains

appropriate during2022,the Committee reviewed the

risk appetite statements and policies for all principal risk

categories Model risk was introduced as a principal risk

category to recognise the prominence it already had at the

Society

During the2023financial year the Committee will again

review the Society's risk appetite statements board limits

and policies for principal risk categories In addition the

Committee will continue to review the Society's future and

forward-looking capital and liquidity adequacy via the annual

ICAAP and ILAAP along with focusing on overseeing new

regulatory expectations (including Consumer Duty) and

monitoring the financial and operational resilience of the

Society

Towards the end of2022,the Society welcomed a new Chief

Risk Officer to the organisation who shares the Society’s

values and I look forward to working with him as we continue

to prioritise a strong risk culture at the Coventry

Martin Stewart

Chair of the Board Risk Committee

23February2023

Board Risk Committee Report

Coventry Building Society  Annual Report & Accounts2022

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101

Committee role and responsibility

The Committee is a sub-committee of the Board and the most

senior risk committee within the Society It has delegated

authority from the Board and assists the Board in fulfilling

its oversight responsibilities for risk management across the

Society

Its responsibilities include the following

• Providing oversight and advice to the Board in relation to

current and potential future risk exposures of the Society

and risk strategy including determination of risk appetite

and the effectiveness of the Society’s framework for

managing risk

• Promoting a risk culture that Puts Members First within

the Society and overseeing implementation and

maintenance of the Society’s Enterprise Risk Management

Framework (ERMF)

• Reviewing key risk policies and frameworks including key

risk appetite statements

• Ensuring the Executive team is held to account to identify

assess and manage risks in accordance with the

requirements of the ERMF

• Monitoring risks on behalf of the Board

Committee meetings

During2022,the Committee met on six separate occasions

The Committee continues to operate in a flexible manner

with a mixture of meetings held remotely and in person

throughout the year to ensure that the Committee could

appropriately oversee the Society's risk profile Details on

meeting attendance can be viewed in the Directors’ Report on

Corporate Governance

Committee membership

The current members of the Committee are

Current membership Member since

Martin Stewart 2018

Iraj Amiri 2018

Catherine Doran 2017

Brendan O'Connor 2021

Key Matters Considered by the Committee

At each meeting the Committee considered a consolidated

risk report prepared by the Society's Risk function These

reports highlighted key and emerging risks for consideration by

the Committee In addition during2022,among other things

the Committee

• Reviewed the strategic and emerging risks relating to the

Society's2023–2027Strategic Plan

• Reviewed the Society's risk appetite framework including

risk limits and risk indicators for each of the principal risk

categories

• Reviewed risk policies for principal risk categories

• Agreed a risk oversight plan and monitored second line

risk oversight and progress in delivering a programme of

thematic reviews

• Reviewed the Society's ICAAP ILAAP Recovery Plan and

Resolution Pack

• Reviewed the Model Risk Framework

• Reviewed the Funds Transfer Pricing Framework

• Reviewed the Committee's terms of reference

• Undertook a review regarding the financial risks arising

from climate change

• Reviewed the Operational Resilience Framework

• Reviewed the Regulatory Reporting Framework

• Reviewed an update on progress in delivering the

Consumer Duty

• Received updates relating to IT and security risks

• Undertook reviews of people change and remuneration

risk

• Reviewed the Operational Continuity in Resolution

(OCIR) Framework and received updates on outsourcing

and third-party risk management

• Discussed the implications of the risks arising from the

invasion of Ukraine

• Reviewed an assessment by the Internal Audit function of

the independence and performance of the Risk function

• Received updates on regulatory change

• Oversaw progress on Internal Ratings Based (IRB) model

remediation

A private session was also held between Committee members

the Society’s CRO and the CRO’s direct reports to provide

an opportunity for discussion about risk matters without

management presence

Please refer to the Strategic Report for the principal risks

facing the Society as well as a summary of the inherent risks in

the Society’s business model The Risk Management Report

contains information relating to how risk is managed across the

Society

Committee effectiveness

As required by the Code an annual review of the Committee's

effectiveness was undertaken during the year The Committee

determined that a report could be made to the Board that

the Committee was operated effectively in discharging its

responsibilities during2022.

Looking forward

During2023,the Committee will continue to provide

oversight of risk management across the Society including

the risks emerging from the cost of living crisis and a volatile

macroeconomic environment In addition the increased focus

on climate change risk will continue to be another important

priority for the year ahead

Board Risk Committee Report Continued

Governance

Coventry Building Society  Annual Report & Accounts2022

102

Dear Member

As Chair of the Board Audit Committee I am pleased to

present our report for2022,which sets out the work carried

out by the Committee throughout the year My role continues

to be to direct the Committee’s oversight responsibilities

relating to accounting financial reporting and internal control

matters through what has been another challenging year

While less of the Committee’s activities were affected by the

Covid-19pandemic this year key impacts on the Society’s

accounting and financial reporting matters including but not

limited to mortgage provisions continued to demand specific

consideration by the Committee

The Committee continued to monitor the integrity of the

Society’s external reporting and reviewed the significant

financial reporting judgements and estimates which

underpin the financial statements More information on

these judgements is included in this report The Committee

also presided over the ongoing adoption of climate change

standards and disclosures aligned to the Task Force on

Climate-related Financial Disclosures (TCFD) and the Global

Reporting Initiative (GRI) standards as presented within the

Society's Sustainability Report

As a result of the work performed the Committee has been

able to provide assurance to the Board that the Annual

Report & Accounts taken as a whole are fair balanced and

understandable and provide the information necessary for

members and other stakeholders to assess the Society’s

position and performance business model and strategy

The effectiveness of the Society’s internal controls and

risk management systems also continued to be a core

consideration of the Committee during the year The

Committee reviewed the activities findings and performance

of the Internal Audit function during the year including the

effectiveness of the function its departmental financial budget

and the remuneration of the Chief Internal Auditor

The Committee also provided oversight of the Society’s

procedures and policies for maintaining probity during the

year including whistleblowing assessed their overall efficacy

and reviewed an annual report on the effectiveness of

whistleblowing procedures prior to submission to the Board

We monitored the external auditors'independence and

objectivity and assessed the effectiveness of the external audit

process in addition to recommending the appointment and

approving the remuneration and terms of engagement of the

external auditors

More information on each of the above items is included in the

report

Iraj Amiri

Chair of the Board Audit Committee

23February2023

Board Audit

Committee Report

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Governance

103

Role and membership of the Committee

The role of the Committee is to review and assess the integrity

of the Society’s financial reporting and statements in addition

to monitoring the effectiveness of internal controls and risk

management systems and overseeing the work of the Internal

Audit function and external auditors

The Committee’s members are independent non-executive

directors who are able to draw on their experience to review

and challenge the work of management in these areas

The Committee advises the Board on matters which are

set out in its terms of reference which are included on our

website at wwwthecoventrycouk The Committee reviews its

terms of reference and its roles and responsibilities annually

against the Financial Reporting Council’s (FRC) Guidance

on Audit Committees This review was completed during

2022and no material changes were made to the Committee’s

responsibilities

The Board is satisfied that all Committee members have recent

and relevant financial services sector experience and that both

Iraj Amiri and Shamira Mohammed are professionally qualified

accountants

Current membership Member since

Iraj Amiri 2018

Jo Kenrick 2017

Shamira Mohammed 2019

Martin Stewart 2018

More information on the Society’s committee structure is

included in the Corporate Governance Report

Committee attendance

The Committee met nine times during2022.All Committee

meetings are routinely attended by the Chief Executive Chief

Financial Officer Chief Internal Auditor and the external

auditor With the departure of the Chief Risk Officer in March

2022,the meeting has been attended by the Interim Director

of Financial and Enterprise Risk and the Interim Director

of Operational and Conduct Risk with the Society's new

Chief Risk Officer attending his first Committee meeting

in December2022.Similarly the General Counsel left the

Society in July2022and the Committee meetings were

attended by the Interim General Counsel from this date until

the end of2022.Other senior managers are invited to attend

meetings as required

The Committee meets both the Chief Internal Auditor and

the external auditor without management present at least

once during the year to enable issues to be raised privately if

necessary The Committee Chair also meets privately with the

Chief Internal Auditor and the external auditor on a regular

basis

The effectiveness of the Committee

The Committee carried out a review of its effectiveness during

2022,including an assessment of its work against its terms

of reference published guidance and recommended good

practice The review considered the views of members and

attendees provided anonymously and focused on how the

Committee had considered key financial reporting judgements

and controls the work of the Society’s internal and external

auditors and the skills and competencies of the Committee

The assessment of effectiveness is provided to the Board to

enable it to make an overall assessment of the effectiveness

of corporate governance arrangements in2022and make

a report on this matter in the Society's Annual Report &

Accounts

The review concluded that the Committee operated effectively

throughout the year in line with corporate governance code

requirements and recommended good practice with the Board

approving the Committee's revised terms of reference

Key areas of focus during2022

Significant matters that were considered by the Committee

during the year working closely with the Board Risk

Committee the Society’s Risk function and Internal Audit are

set out in the following sections

Preparation of financial statements and key

areas of judgement

When assessing both the interim and full year2022financial

statements the Committee carefully considered areas subject

to management judgement which included the following

Calculation of expected credit loss provisions under IFRS9

The Committee continued to review the Society’s IFRS9

accounting policies during2022to ensure that they remain

appropriate

The Committee reviewed the basis of calculating ECLs

including the method for identifying a significant increase in

credit risk and the application of post model adjustments to

the overall ECL provision and the potential impact of climate

change on the Society's mortgage portfolio

The calculation of ECLs for loans and advances to customers

has continued to require a significant degree of management

judgement due to the unprecedented impact of the

uncertainty regarding the UK's economic volatility and

inflationary pressures The Committee’s role is to make sure

that appropriate judgements are applied The ECL provision

has increased to£35.5million (2021:£18.9million) including

post model adjustments of£19.4million (2021:£9.3million)

Board Audit Committee Report Continued

Governance

Coventry Building Society  Annual Report & Accounts2022

104

The Committee challenged management on the calculation

methodology and is satisfied with the rationale and method

for determining the required post model adjustments and for

recognising or releasing post model adjustments as required

The Committee also reviewed the alternative economic

scenarios that have been used in the provision calculation and

the weightings which have been assigned to them along with

sensitivity of the provision to different weightings and other

key assumptions The Committee considered the range of

sensitivities which have increased compared to the prior year

given the worsening economic outlook

The financial statements disclosures were reviewed to ensure

that sufficient information on the judgements which have been

applied is included in the Society’s financial statements The

Committee was satisfied with the adequacy of the provisions

and the appropriateness of the disclosures which have been

made

Revenue recognition and EIR methodology

The Society recognises income on its mortgage loans using

the Effective Interest Rate (EIR) method This applies a

rate of return that reflects a constant income yield over the

expected life of the mortgage loan based on expectations of

future loan redemption and interest rates The EIR calculation

is most sensitive to assumptions on loan redemption and the

difference between fixed rates and Standard Variable Rates in

the future

The Committee considered the key assumptions of EIR

methodology and expectations of future changes The

Committee concluded that the accounting treatment was

appropriate

Derivatives and hedge accounting

The Committee reviewed the Society’s approach to hedge

accounting in the context of the market volatility seen in

the year Derivatives are used by the Society solely for risk

management purposes to manage either interest rate risk or

foreign exchange risk and the Society uses hedge accounting

to reduce income statement volatility arising from fair value

accounted derivatives The Committee reviewed the Finance

team’s control activities and reports from the external auditor

on the methodology process and key assumptions applied

to the Society’s hedge accounting activity The Committee

is satisfied that the amounts recognised in the financial

statements are appropriately stated

Defined benefit pension scheme surplus

The Committee also considered the calculation of the Society’s

defined benefit pension surplus including the valuation of

the Scheme’s assets and the assumptions which are used to

calculate the Scheme’s liabilities The surplus reduced to£3.3

million (2021:£29.3million) as a result of market movements

during the year and the Committee is satisfied that it is

appropriately stated

Going concern and long-term viability

The Committee evaluated whether adopting the going concern

basis of accounting was appropriate and separately considered

the Society’s long-term viability taking account of the principal

risks facing the Society including those that could threaten

the Society’s business model future performance solvency

and liquidity The range of macroeconomic scenarios on the

Society’s business continued to be reviewed including revisions

to stress testing and forecasts as a result of updated forward-

looking assumptions

In particular the Committee considered the periods over

which the Society’s prospects and long-term viability should be

assessed along with the basis of these assessments

It was concluded that a three year statement on long-term

viability remained appropriate taking into account the planning

and stress testing carried out by the Society combined with

increased and inherent uncertainty in the outer years of the

Strategic Plan resulting from economic and market conditions

and predictions The Committee concluded that the going

concern and long-term viability assessment were appropriate

and statements on these matters are included in the Directors’

Report

Fair balanced and understandable

The Committee considered whether the Annual Report

& Accounts taken as a whole were fair balanced and

understandable The Committee satisfied itself that there was

a robust process of review and challenge at different levels

within the Society to ensure balance and consistency and that

this is reflected in the Annual Report & Accounts Its review

included

• Providing guidance on drafting

• Making sure all messages are communicated as simply as

possible and that the Strategic Report is comprehensive

• Ensuring factual content and statements have been

verified

• Central coordination and thorough review including review

by a non-specialist

• Comprehensive review by senior executives including the

Committees’ Chairs prior to wider Committee

consideration

The Committee also considered other information regarding

the Society’s performance presented to the Board during

the year After consideration of all relevant information

the Committee concluded that it could report to the Board

that the Annual Report & Accounts were fair balanced and

understandable

New disclosures

Regular updates and training on financial reporting

developments and disclosures were provided to the

Committee during the year This included the latest updates to

the Taskforce on Disclosures about Expected Credit Losses

Coventry Building Society  Annual Report & Accounts2022

Governance

105

The Society's internal control and risk

management arrangements

The Committee reviewed the effectiveness of internal control

and risk management arrangements through regular reporting

from Internal Audit the Risk function and the external auditor

In addition the Committee reviewed the assurance statements

received from the Chief Internal Auditor on internal control

and from the Chief Risk Officer on risk management

During2022,Internal Audit continued to assess internal

control and risk management systems associated with the

functions and activities undertaken by the Society that reflect

the challenging economic circumstances that the Society is

experiencing and new ways of working for Society colleagues

Attention was given to the Society's preparedness for cost of

living shocks to its operational processes and the impact on

internal controls of remote working for many colleagues The

Committee received the results of formal assessments related

to the key change initiatives as well as functional control

improvement plans related to areas including information

security management and data governance and management

The Committee received regular reports during2022on

whistleblowing and concluded that the arrangements were

operating effectively and there were no material matters of

concern

Further information on the Society’s approach to internal

control and risk management is included in the Risk

Management Report

The activities of Internal Audit

The role and responsibilities of Internal Audit are set

out in the Internal Audit Charter that was reviewed and

revalidated by the Committee during the year A copy of

this Charter is available on the Society’s website (www

coventrybuildingsocietycoukInternalAudit)

In addition to approving the annual Internal Audit Plan and

budget the Committee reviewed and approved amendments

to the plan and resources throughout the year

The Committee received regular reports from the Chief

Internal Auditor setting out the results of assurance activity

related to Society operations and strategic change initiatives

progress in delivery of the annual Internal Audit Plan and the

adequacy of resources

Internal Audit’s assessments also considered the Society's

progress with delivering multiple complex change initiatives

directed at replacing or updating critical information

technology infrastructure including work to upgrade the

Oracle database management environment and progress

the digitisation of mortgage and savings channels Change

assurance work also included the continued assessment of the

Finance Transformation Programme which commenced during

2021,and is focused on implementing a new General Ledger

system in2023and introducing more modern practices across

the operations of the Finance function

Significant findings and thematic issues identified were

considered by the Committee together with management’s

response and completion of remedial action commitments

made in respect of previously issued audit reports

During the year the Committee oversaw a review of the

effectiveness of the Internal Audit function led by the Chief

Internal Auditor The review considered the quality of work

the appropriateness of skills and resources within the team and

compliance with the Chartered Institute of Internal Auditors’

'Guidance on Effective Internal Audit in the Financial Services

Sector'.The Committee was satisfied that the Internal Audit

function remained effective

The 'Guidance on Effective Internal Audit in the Financial

Services Sector'published by the Chartered Institute of

Internal Auditors (second edition published in September

2017) requires the Committee to obtain an independent

and objective external assessment of the effectiveness of the

Internal Audit function at least every five years The Chair of

the Committee is required to oversee the process and approve

the appointment of the independent assessor

The effectiveness of the Society’s Internal Audit function

was last subject to independent external assessment in early

2019.The Committee will therefore look to establish the next

external review to conclude in the second half of2023.

External auditor

As well as discussing external audit findings the Committee is

responsible for overseeing the relationship with the external

auditor and the quality of the audit process During the year

this included the following

Audit plan

Prior to the annual audit commencing the Committee

considered PwC’s audit plan including materiality levels areas

of audit focus terms of engagement and fees payable for the

audit As part of the review of the2022Interim Financial

Report and audit of the annual financial statements the

Committee received a report setting out the work performed

in areas of significant risk and management judgement

and conclusions for each area a summary of adjustments

and differences and internal control recommendations In

recommending approval of the interim and annual financial

statements the Committee considered the matters set out in

these reports

Board Audit Committee Report Continued

Governance

Coventry Building Society  Annual Report & Accounts2022

106

Audit quality

The Committee oversees external audit quality Committee

meetings consider factors which impact external audit quality

and conclusions on external audit effectiveness are formalised

and assessed by the Committee each March as part of the year

end reporting process The factors considered included

• The technical skills and industry experience of the audit

engagement partner and wider audit team

• The appropriateness of the proposed Audit Plan the

identification of significant risk areas and the effective

performance of the audit in line with the agreed plan

• The quality of communication between the external

auditor and the Committee and the effectiveness of

interaction between management and the external

auditor

• The quality of reports to the Committee on accounting

matters governance and internal control

• The reputation and standing of the external auditor

• The independence and objectivity of the external auditor

The Committee also considers any Financial Reporting Council

Audit Quality Inspection and Supervision Reports on PwC

The Committee concluded that the external audit process

was effective in March2022,and it was satisfied that there

were no matters of concern with respect to the external

auditor’s independence or objectivity The results of the next

assessment will be considered by the Committee in March

2023,at the conclusion of the year end reporting process with

any areas for improvement shared with the lead audit partner

for consideration

The appointment of the external audit firm to

undertake non-audit services

The Committee regularly reviews and monitors the Society’s

relationship with the external auditor to ensure that auditor

independence and objectivity are maintained at all times

The Committee has developed a policy and framework which

defines the approach to non-audit engagements and reflect

the guidance in the FRC’s Revised Ethical Standard from2020.

At no time does the external auditor audit its own work make

management decisions for the Society create a conflict of

interest or find itself in the role of advocate for the Society

The Committee keeps non-audit engagements under review

and receives regular reports from the external audit partner

confirming that adequate safeguards for independence remain

in place

During2022,the Society engaged the external audit firm

to provide certain non-audit services including assurance

engagements in relation to the Society’s debt issuances

All engagements complied with the Society’s policy

The Committee received regular updates on the nature and

cost of the engagements seeking to ensure that they were

appropriate Details of the fees paid to the external auditor

for audit and non-audit services are set out in note9to the

accounts

Coventry Building Society  Annual Report & Accounts2022

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107

Report of the Remuneration

Committee to members

Dear Member

As Chair of the Remuneration Committee (the Committee) I

am pleased to present this report which outlines for members

how the Society’s purpose values and ‘Members First’ belief

shape remuneration strategy and decision making

The report covers both the Remuneration Policy and the

application of this policy throughout the year

Covid-19dominated the external landscape in2020and

2021,driving a focus for the Society on protecting jobs and

supporting physical and mental health2022saw a marked

shift in the external landscape Competition for talent is fierce

with hybrid working opening up the employment market like

never before At the same time the cost of living crisis is

presenting very real challenges for colleagues The Committee

has spent time understanding the external talent landscape

and benchmarking our offering for Executives and the wider

employee base Our aim is to ensure we can attract future

talent and retain the colleagues who deliver a brilliant service

to you our members We have also paid particular attention

to financial wellbeing taking action to support colleagues

This has included a pay review approach with increased

investment for lower earners a cost of living allowance paid

over six months to81%of colleagues (also targeted to lower

earners) and enhancements to important benefits such as

our maternity provision We have also extended our existing

financial education programme covering topics from pensions

to savings budgeting and individual financial wellbeing checks

You will have read in the Chief Executive's review within

the Strategic Report section about the strong and balanced

business performance in2022.The Society has outperformed

in six of the ten measures in the balanced scorecard which is

used to underpin both the all-employee Success Share scheme

and the Executive Variable Pay Plan (ExVPP) The scorecard

enables the full range of business performance to be assessed

against stretching targets We reflect our mutual culture and

values by giving equal weight to all elements of the scorecard -

so measures for customer ESG and colleague outcomes have

the same significance as financial and risk measures The2022

performance reflects our commitment to both borrowers and

savers We report growth in lending exceptional service to

mortgage brokers and customers alike saving rates which are

above the market average for our customers as a whole and

the completion of our branch redesign programme The branch

redesign is just one of many examples of continued investment

in the future relevance and resilience of the Society made

possible by our strong financial performance

The Committee takes action to reflect the views of

stakeholders in our decision making I sit on our employee

forum'My Society'and find this extremely useful to

understand the views of colleagues We have been trialling

inviting members of My Society to attend the Remuneration

Committee for relevant agenda items

As a mutual organisation we believe it is also right to

understand and be guided by the views of our members The

Annual Remuneration Report is submitted to a vote by you

the members each year at the Annual General Meeting

In addition the Remuneration Policy is submitted to an

advisory vote by members every three years In line with this

commitment we will ask for your vote on the Policy again

this year While not required by regulation these voting

arrangements are advisory and the directors’ remuneration is

not conditional upon them However the Committee believes

it is important to understand members’ views and intends to

take account of your feedback in its decision making

There is one change to the Remuneration Policy to highlight

here The Committee have reviewed arrangements for

the deferral and retention of executive variable pay The

Remuneration Code requires that50%of variable pay is

made in shares or in the case of a non-listed business like the

Society an equivalent share-like instrument (SLI) The SLI

mechanism was driven by profit but from2023it is replaced

by leverage ratio (excluding AT1) Leverage ratio has been

selected as it drives the right financial discipline to preserve

enough capital to support the growth of the Society and would

provide a downside in an adverse event The change also

provides for an upside if leverage is exceeded Further details

can be found in the Remuneration policy which follows this

report There are no other changes to the remuneration policy

The Committee considered the policy in detail with reference

to both internal factors and the external landscape and remain

confident that the structure and application of the policy

remain consistent with our values regulatory expectations and

remuneration objectives

Whilst there are many changes and challenges impacting

colleagues communities and our members I am confident

that the Committee's work will continue to reflect and respond

positively to these

Jo Kenrick

Chair of the Remuneration Committee

23February2023

Directors’

Remuneration Report

Governance

Coventry Building Society  Annual Report & Accounts2022

108

The Remuneration Committee

Committee membership and attendees

The Committee consists exclusively of independent non-

executive directors and the Chair of the Board

The members of the Committee are

Current membership Member since

Jo Kenrick

2017

Gary Hoffman (until28.04.22) 2018

David Thorburn (from28.04.22) 2022

Catherine Doran 2016

Brendan O’Connor 2021

1. Chair of the Committee since April2018.

The Committee seeks input from the Chief People Officer the

Head of Reward and People Services and the Chief Executive

who are invited to attend meetings The Chief Risk Officer

and the Company Secretary are invitees where appropriate

The Committee also benefits from specialist advice from its

independent remuneration advisor (Deloitte LLP)

We have been trialling asking representatives from My Society

to attend meetings to give employees a greater voice on the

Committee They do not have voting rights and cannot be

present when the Committee is discussing remuneration

subjects that could directly impact their remuneration (ie pay

recommendations for individuals or groups of employees or

matters relating to variable pay)

Governance and the role of the Remuneration Committee

The Committee has overall responsibility for remuneration

matters delegated to it by the Board The Committee’s role is

to consider the Remuneration Policy and its application to all

employees with particular scrutiny given to the remuneration

of executive directors and executive managers The Policy is

considered at least annually or more frequently in the event of

any significant change and is subject to an advisory vote every

three years

The Committee continually assesses the adequacy and

effectiveness of the Policy

All decisions about remuneration reflect the Society’s purpose

values and'Putting Members First'belief Decisions align with

the approach taken for all employees and take account of the

long-term sustainable success of the Society

The Society complies with the relevant requirements of the

UK Corporate Governance Code in relation to determining

executive director remuneration policy These include ensuring

clarity and transparency of policy and arrangements and

simplifying remuneration structures which were considered

as part of the Remuneration Policy update The Committee

has also considered and mitigated any risks to ensure that the

Society does not incentivise the wrong type of behaviour

The Committee’s work has involved ensuring predictability in

the remuneration structure considering proportionate variable

pay awards for colleagues and executive directors that reward

good performance and are not excessive and aligning policy

and practice to the Society’s purpose values and belief

The Committee considers that the Remuneration Policy

has operated as intended in terms of the performance of the

Society and the quantum of awards

The Committee ensures that statutory and regulatory

requirements are met and that there continues to be a clear

link between corporate and individual performance and

remuneration decisions

Activities during2022

During2022,the Committee

• Considered the outturn of the2021balanced scorecard

to determine the2021Success Share scheme payment

and the2021Executive Variable Pay Plan (ExVPP)

payment

• Approved the performance measures for the2022

remuneration scorecard

• Approved deferred and retained payments from in-flight

executive variable pay plans ensuring these are in line

with the Society’s Remuneration Policy

• Considered updates to the Society’s Remuneration Policy

• Assessed external benchmarking data as an input to

ensure remuneration remains competitive and

appropriate

• Approved the Society’s salary review approach

• Received a report from the Risk function that gave

assurance that the Society’s remuneration framework had

not encouraged excessive risk taking

• Considered the Risk function's annual review of any

grounds to recover or withhold variable pay awards

• Oversaw an assessment of employees whose

responsibilities could impact the Society’s risk profile

• Approved the Society’s Prudential Regulation Authority

(PRA) Remuneration Policy Statement and Material Risk

Taker (MRT) disclosures

• Approved the Directors’ Remuneration Report

The Committee also undertook the following activities in

2022:

• Considered and approved an amendment to the Society's

approach to the retention of executive variable pay

through a share-like instrument

• Considered the Society’s gender pay ratios and CEO pay

ratio and in response committed to future diversity and

inclusion actions

• Considered and approved proposals for cost of living

payments

• Approved remuneration packages for new executive

managers and arrangements for exiting executive

managers

• Considered the Society's benefit offering to ensure it

offered sufficient flexibility and choice and remained fit

for purpose

• Received updates from the Committee's advisors and

from the Society's secretarial function

• Engaged with the workforce through My Society the

Society’s employee forum to explain the work of the

Committee and to take feedback from representatives

Coventry Building Society  Annual Report & Accounts2022

Governance

109

Remuneration Policy

The Society’s Remuneration Policy (as approved by our members at the2020Annual General Meeting) is determined by the

Remuneration Committee and confirms the principles that underpin its approach to remuneration This section of the report

provides information about the Policy Review that has been undertaken the principles that underpin the Policy and the key

elements of the Policy For reference the Policy approved by members at the2020Annual General Meeting can be found at www

coventrybuildingsocietycouk and applies to all employees

Approach to the Remuneration Policy review

It has been three years since the Committee last asked the Society's members to vote on the Remuneration Policy and in line

with the normal three year cycle  we are asking our members to approve the new Policy at the2023Annual General Meeting

A lot has happened in that time There have been significant changes in the regulatory landscape with the introduction of the

Capital Requirements Directive V (CRD V) and in particular the impact on executive variable pay which is outlined in the Annual

Remuneration Reportand closer regulatory scrutiny as the Society has grown to become a proportionality Level1firm for

remuneration purposes by exceeding£50billion of assets

The Committee have recently been reviewing the arrangements for the deferral and retention of executive variable pay and have

approved a change to the Remuneration Policy here The Remuneration Code requires that50%of variable pay is made in shares or

in the case of a non-listed business like the Society an equivalent share-like instrument (SLI) For several years now the Society’s

SLI has not provided for any uplift in award however the award can be reduced if capital strengths and profit levels are not in line

with plans An instrument with downsides only does not truly reflect a share-like instrument Additionally profit as a mechanism is

not consistent with our purpose values and membership As a result from2023onwards leverage ratio (excluding AT1) has been

selected as the most appropriate capital measure to provide the mechanism for the SLI as it drives the right financial discipline to

preserve enough capital to support the growth of the Society and would provide a downside in an adverse event There are no other

changes proposed to the Remuneration Policy

The Committee asked its advisors Deloitte LLP to contribute to the review of the Remuneration Policy to ensure that the Society

aligns with current best practice and regulatory requirements and anticipates future regulatory changes The Policy will apply for

three years following the advisory vote at the2023Annual General Meeting

The Remuneration Policy is designed to reward all employees for their skills knowledge responsibilities and performance When

making any decisions about pay and benefits the Society must strike a balance between the needs of employees the needs of

members to ensure cost efficiency and the requirements of its regulators The Society’s ultimate objective is to offer a remuneration

package (pay benefits and non-financial rewards) that is competitive when compared with similar financial services organisations

and that is also fair and appropriate for the size and type of organisation we are The principles of the Remuneration Policy apply to

all employees including executives across the whole Society All fixed and variable remuneration (with the exception of benefits in

kind such as cars where applicable) are paid through the payroll

In determining the remuneration approach the Society works with its employee forum My Society and the trade union UNITE to

ensure that employees’ views are understood and represented

The Society follows the PRA’s Code on Remuneration Practices and Disclosure Requirements and in addition aligns the Policy with

the PRA’s best practice guidelines and the UK Corporate Governance Code where applicable

The Remuneration Policy is consistent with the Society’s risk appetite and is designed to support the overall financial stability of the

Society and its strategic priorities by promoting sound and effective risk management and not encouraging excessive risk taking

The Remuneration Policy is based on two further principles

• It must reflect our purpose values and belief and the expectations of our members

• It must support the Society to recruit motivate engage and retain great people

Directors’ Remuneration Report Continued

Governance

Coventry Building Society  Annual Report & Accounts2022

110

The main elements of executive remuneration

The main elements of remuneration in place for the executive leadership of the Society executive directors who sit on the Board and

executive managers are set out below with an explanation of how each element links to our overall business strategy

Base salary

Purpose and link to strategy Salaries of executive directors are set with reference to market rates of pay to enable the Society to

recruit retain and motivate high calibre leaders

Operation Executive director salaries are normally reviewed annually with any increases usually taking effect

from1April taking into account a number of factors including but not exclusively

• The scope and size of role

• The skills experience and responsibility of the role holder

• The position of the role holder’s salary against wider market rates of pay and their individual

performance

• Equal pay principles the Society’s financial performance and the economic environment

• Increases awarded to the Society’s employees

Where an executive director is to be promoted or where their role is to be expanded the Society

will review the salary and decide whether an adjustment is appropriate

Risk mitigation Executive director salaries are benchmarked against comparable financial services organisations to

ensure they are not excessive

No executive director is involved in setting their own remuneration or exercising discretion over

judgements that could influence their own remuneration

Maximum potential Any increases will generally be no higher than the average increases applied to the Society’s

employees (in percentage terms) Increases may be made either above or below that level in

exceptional circumstances taking into account the factors outlined above

Performance metrics Individual performance is considered when setting salaries

Consistency with other

employees

The Society uses the same approach when setting salaries for all its employees and executive

directors

Benefits (excluding pension)

Purpose and link to strategy The Society provides a competitive benefits package to all its employees to support their physical

mental and financial wellbeing

Operation Each executive director receives benefits that are in line with the external market These may

include a company car or cash alternative private medical insurance health screening permanent

health insurance and life insurance

Risk mitigation Not applicable

Maximum potential Not applicable

Performance metrics Not applicable

Consistency with other

employees

All employees receive permanent health insurance and life insurance and many also receive

private medical insurance Executive directors do not receive any benefits that are unavailable to

other senior managers within the Society

Pension

Purpose and link to strategy The Society provides post-retirement financial security for all its employees at a cost that is

sustainable for the Society over the long term and in line with market practice

Operation Executive directors are eligible to participate in the defined contribution pension plan If their

contributions exceed the annual or lifetime allowance they may be permitted to take a cash

alternative in place of contributions

Risk mitigation No executive director is involved in exercising discretion over judgements that could influence their

level of pension contribution

Maximum potential Executive directors receive a pension contribution or cash alternative This is10%of base salary in

line with the maximum potential for all employees (or15%for members of the now closed defined

benefit pension scheme)

Performance metrics Not applicable

Consistency with other

employees

All employees are eligible to join the Society’s defined contribution pension scheme receiving

contributions of up to10%(or15%for members of the now closed defined benefit pension

scheme)

Coventry Building Society  Annual Report & Accounts2022

Governance

111

Annual Success Share bonus

Purpose and link to strategy Success Share is a key part of the Society’s remuneration package It is a discretionary variable pay

scheme that enables all eligible employees to share in the Society’s success in delivering against its

strategy It helps the Society to be competitive in attracting and retaining high calibre employees

and ensures their alignment with strategic priorities

Operation The Scheme applies to all eligible employees (including executive directors) with the same Society

performance measures used to assess payments for everyone The Scheme is reviewed each year

to ensure that it is aligned to the Society’s business plans and any changes in regulation

Risk mitigation The Society does not incentivise any employees based on individual or team sales targets

The Committee has absolute discretion to reduce any variable pay award if it decides that

acceptable standards or performance levels have not been met The Committee can also adjust

withhold or recover any vested awards using ‘malus’ and ‘clawback’ arrangements for executive

directors and executive managers

Maximum potential The maximum award for all employees (including executive directors) is20%of base salary for

exceptional performance and10%of base salary for on target performance

Performance metrics The Society measures annual performance against a number of stretching financial and non-

financial targets detailed in the balanced scorecard which is aligned to its strategic priorities (see

below)

Consistency with other

employees

All employees of the Society are in scope for the Success Share scheme

Executive Variable Pay Plan (ExVPP)

Purpose and link to strategy The ExVPP helps to recruit and retain high calibre executive directors and rewards performance

over the longer term in delivering the Society’s strategy

Operation Awards to executive directors are made in cash (as opposed to shares) and are subject to deferral

and retention The Remuneration Code requires that50%of variable pay is made in shares or

in the case of a non-listed business like the Society an equivalent share-like instrument The

Society’s share-like instrument is based on leverage ratio (excluding AT1) and provides for both

uplift and reduction of awards The plan is reviewed each year to ensure alignment to the strategic

priorities and changes in regulation

Risk mitigation Risk mitigation is as outlined above for the annual Success Share bonus In addition the plan

ensures that executive director’ remuneration packages are strongly linked to the Society’s long-

term performance and members’ interests

Maximum potential If the Society performs in line with its plans the ExVPP scheme provides for an award of up to30%

of salary for executive directors (up to15%for executive managers)

The maximum award (up to60%of base salary at the date of grant for executive directors and up

to30%for executive managers) can only be achieved by exceeding stretching upper targets for all

measures

Performance metrics The Society measures annual performance of the ExVPP against a mix of collective performance

targets in the balanced scorecard that account for70%of the total award and up to three

individual objectives that typically account for30%of the total award These goals are agreed with

the Remuneration Committee at the outset of the scheme year

Consistency with other

employees

The plan is only available to executive directors and executive managers

Differences between the executive directors'and wider employees'remuneration policies

Performance related variable pay makes up a higher proportion of remuneration for the executive directors and executive managers

than for employees generally reflecting the role of these individuals in leading the business to achieve the Society’s strategic

objectives

Choice of performance measures for variable pay

A balanced scorecard is used to assess the performance of the Society The performance measures in the scorecard reflect the

Society’s strategic priorities and stretching performance targets are set each year for the Annual Success Share bonus and ExVPP

schemes In setting performance targets the Committee takes into account a number of different reference points which may

include the Society’s business plans and strategy and the market environment

The Committee retains the discretion to adjust or set different performance measures or targets if the measures are no longer

appropriate such as in the case of a significant change in prevailing market conditions and amendment is required so that the

measures achieve their original purpose The Committee does not expect to make such changes intra-year

Directors’ Remuneration Report Continued

Governance

Coventry Building Society  Annual Report & Accounts2022

112

Malus and clawback

Malus clawback deferral and retention arrangements are in place for executive directors and executive managers The Committee

ensures that an objective assessment of business risk and long-term sustainability is included with any assessment of variable pay

awards and it may decide to exercise its discretion and adjust Success Share or ExVPP payments Further details about malus and

clawback arrangements are set out below

Malus Clawback

What is it? The Committee can decide to reduce or cancel any

variable pay award before the payment has been made

The Committee may decide that an individual must

repay part or all of a variable pay award after the

payment has been made

Which awards

does it apply to?

Malus applies to any payments under the annual

Success Share bonus and ExVPP schemes as well as

any future variable pay schemes

Clawback applies to payments under the annual

Success Share bonus and ExVPP variable pay schemes

for up to seven years even if an individual leaves the

Society’s employment

When would this

be used?

Can be applied in circumstances including but not

limited to

• Reasonable evidence of misbehaviour or material

error by the executive director

• The Society suffering a material downturn in its

financial performance

• The Society suffering a material failure of risk

management

Can be applied in circumstances including but not

limited to

• Reasonable evidence of misbehaviour or material

error by the executive director

• The Society or function suffering a material failure of

risk management

• A material misstatement of the Society’s financial

results such that the payment made under the

variable pay arrangement was greater than it would

have been

Approach to recruitment remuneration

Ongoing remuneration

When agreeing the remuneration package for a new executive director the Committee considers

• Whether the overall package is sufficient to recruit a high calibre executive with the right level of experience capability and

potential required for the role noting external benchmarks

• The remuneration packages of other executive directors in the Society and maximum variable pay limits

The Committee retains discretion to include other elements of remuneration which are not included in the provisions of the

Remuneration Policy set out above should business needs require However this discretion is subject to the following principles and

limitations and the commercial rationale for taking such action will be disclosed in the following Annual Report on Remuneration

The maximum level of variable remuneration which may be granted to a new executive director on appointment (excluding any

award to take account of remuneration relinquished when leaving the former employer) will be80%of salary in line with the Policy

table set out above (reflecting the Success Share bonus and ExVPP)

Other elements may be included in the following circumstances

• An interim appointment being made to fill an executive director role on a short-term basis

• If exceptional circumstances require that the Chair of the Board or a non-executive director takes an executive function on a

short-term basis

• If a director is required to relocate in order to take up the position it is the Society's policy to allow reasonable relocation

travel and subsistence payments Any such payments will be at the discretion of the Committee

Buy-out awards

When hiring an external candidate the Committee may decide to compensate them for any variable pay awards from their previous

employer that they will forfeit as a result of joining the Society known as ‘buy-out’ In determining any buy-out the Remuneration

Committee will conduct rigorous due diligence and consider all relevant factors including the likelihood of the awards vesting

the form in which they were awarded and the time over which they would have vested Any buy-out will be made in line with the

Remuneration Policy wherever possible The Society will always comply with the regulatory requirements in effect at the time of

making any awards of this nature

Internal appointments

For an internal executive director appointment any variable pay element awarded in respect of the prior role will be paid according

to its terms

Coventry Building Society  Annual Report & Accounts2022

Governance

113

Approach to payment for loss of office

If an individual ceases to be an executive director the Society will take a different approach to paying them for the loss of office

depending on the circumstance of their leaving

In all circumstances termination payments will include any base salary or other contractual benefits due for the notice period

although these may be reduced if the executive director finds alternative employment during the notice period

If an individual ceases to be an executive director due to retirement redundancy death ill-health injurydisability or certain

reasons as determined by the Remuneration Committee they are considered to be a ‘good leaver’ Under good leaver circumstances

the scheme rules state that any annual Success Share bonus or ExVPP award will be paid on a pro rata basis depending on the time

served during the performance period Any deferred and retained awards will be subject to any necessary performance or malus

adjustments and paid at the same time as awards for executive directors remaining in employment Clawback rules will continue to

apply

If an individual ceases to be an executive director under any circumstance not covered by the good leaver provisions no annual

Success Share bonus or ExVPP payments will be made and any unvested awards will be forfeited

The Remuneration Committee reserves the right to make any other payments in connection with an executive director’s cessation of

office or employment where the payments are made in good faith in discharge of an existing legal obligation (or by way of damages

for breach of such an obligation) or by way of settlement of any claim arising in connection with the cessation of a director’s office

or employment Any such payments may include but are not limited to paying any fees for outplacement assistance andor the

director’s legal andor professional advice fees in connection with their cessation of office or employment

Other considerations when setting executive director remuneration

When approving executive director pay the Committee will take decisions aligned to the Society’s Remuneration Policy The

Committee’s decisions take into account wider market benchmarking across financial services and remuneration paid to other

employees across the Society

Application of the Remuneration Policy

The following table shows the maximum variable pay for executive directors as a percentage of base salary

2022performance scenarios

As a percentage of base salary

Success Share

ExVPP

Total variable

pay

Minimum 0 0 0

On target 10 30 40

Maximum 20 60 80

Directors’ Remuneration Report Continued

Governance

Coventry Building Society  Annual Report & Accounts2022

114

The graph below illustrates what executive directors could earn based on the Remuneration Policy in three potential performance

scenarios – minimum on target and maximum variable payments The Society has never paid at maximum

In applying these performance scenarios the following assumptions apply fixed remuneration is the current base salary pension as

a percentage of base salary and benefits paid over the course of the calendar year Benefits figures are the same as those disclosed

in the single figure table below Also see the impact of deferral on variable pay on page118which shows how awards made in2022

pay out between2022and2031.

Service contracts

Executive directors’ terms and conditions of employment are detailed in their individual service contracts which are available at the

Principal Office An executive director’s contract can be terminated by the director or by the Society giving six or12months’ notice

(dependent on role)

The dates that current executive directors were appointed are shown in the table below

Executive director Date of appointment as a director of the Society

Chief Executive – Steve Hughes 20.04.2020

Chief Customer Officer – Peter Frost 01.11.2012

Chief Financial Officer – Lee Raybould 06.04.2021

All of the Society’s executive directors must voluntarily stand for re-election by its members each year Peter Frost has decided not

to seek re-election in2023after announcing his retirement

Coventry Building Society  Annual Report & Accounts2022

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115

Non-executive directors

The Committee oversees remuneration for all employees including executive directors and executive managers and the Chair of

the Board Non-executive director matters are dealt with separately as outlined below

Details of the Non-Executive Directors’ Remuneration (NEDR) Committee

The members of the NEDR Committee are

Current membership Member since

Steve Hughes

2020

Lee Raybould 2021

Gary Hoffman (until28.04.22) 2018

David Thorburn (from28.04.22) 2022

1.Chair of the Committee

The NEDR Committee is responsible for reviewing and recommending to the Board for approval the remuneration of the non-

executive directors other than for the Chair of the Board The Committee met once during the year

Approach for non-executive directors’ fees

The approach for non-executive directors is in line with the objectives of the Remuneration Policy for the whole Society which is to

offer fees that are competitive when compared with similar financial services organisations and as such allow the Society to recruit

retain and motivate high calibre non-executive directors to the Society

The NEDR Committee recommends the remuneration of the non-executive directors other than the Chair of the Board to the

Board for approval Recommendations for the remuneration of the Chair of the Board are made by the Remuneration Committee

and approved by the full Board without the participation of the Chair No director takes part in the discussion of their own

remuneration

Non-executive director fees

Base salary

Purpose and link to strategy Non-executive director fees are set at a level that reflects market conditions and is sufficient to

attract individuals with appropriate knowledge and experience

Operation Fees are usually reviewed annually and amended to reflect market positioning and any change in

responsibilities Non-executive directors may be eligible to receive reimbursement of expenses for

travel and accommodation costs and tax thereof

Risk mitigation Benchmarking non-executive director salaries against comparable financial services organisations

ensures they are not excessive Fees paid to non-executive directors are recommended by

the NEDR Committee and approved by the Board as a whole Non-executive directors do not

participate in the Annual Success Share bonus and ExVPP

Maximum potential Fees are based on the level of fees paid to non-executive directors serving on boards of similar-

sized UK companies and the time commitment and contribution expected for the role

Non-executive directors receive a basic fee and an additional fee for further duties (for example

Chair of a Committee or Senior Independent Director responsibilities)

Performance metrics Not applicable

Non-executive directors'letters of appointment

Non-executive directors are appointed for an initial term of three years which can be terminated by the director or at the discretion

of the Board with a notice period Non-executive directors must voluntarily stand for re-election each year

Conclusion

This concludes the Remuneration Policy section of the Committee’s annual report the only change being the SLI mechanism for

retained variable pay the following pages outline how the current Policy was implemented in the annual Remuneration Report

Directors’ Remuneration Report Continued

Governance

Coventry Building Society  Annual Report & Accounts2022

116

Annual Remuneration Report

This report sets out remuneration awarded to executive and non-executive directors for2022.All remuneration decisions are taken

in accordance with the Remuneration Policy approved by an advisory vote at the Annual General Meeting in2020.

The total pay package that was earned by each executive director for2022and2021is shown below

Total remuneration earned by executive director

(Audited)

Fixed remuneration Variable remuneration

Total

remuneration

£000

Base

salary

£000

Taxable

benefit

£000

Pension

allowance

£000

Total

fixed

£000

Success

£000

ExVPP

£000

Total

variable

£000

2022

Steve Hughes 530 10 53 593 97 277 374 967

Lee Raybould 402 9 40 451 73 208 281 732

Peter Frost 308 23 46 377 56 145 201 578

Total 1,240 42 139 1,421 226 630 856 2,277

(Audited)

Fixed remuneration Variable remuneration

Total

remuneration

£000

Base

salary

£000

Taxable

benefit

£000

Pension

allowance

£000

Total

fixed

£000

Success

£000

ExVPP

£000

Total

variable

£000

2021

Steve Hughes 500 13 50 563 75 225 300 863

Lee Raybould

289 6 29 324 43 118 161 485

Peter Frost 301 23 45 369 45 122 167 536

Total 1,090 42 124 1,256 163 465 628 1,884

1.Base salary is the actual salary earned in the year and will differ from the current salary effective from1April

2.Pension allowance includes both contributions to the Group’s defined contribution pension scheme and cash payments in lieu of contributions

3.The remuneration shown for Lee Raybould is from his joining date of6April2021.

Further information on individual remuneration elements executive directors

Base salary2022

The annual review of salaries in April2022saw a pool of6.0%which was targeted at those in our entry level grades and those who

are low in their salary range Executive directors received increases in line with the approach for all employees as set out below

Executive director

Effective1April

2022

Effective1April

2021

increase

Steve Hughes 540,000 500,000 8.0%

Lee Raybould 405,500 390,000 4.0%

Peter Frost 310,000 300,655 3.1%





Benefits and pension2022

Executive directors received benefits including a fully expensed Society car or a cash alternative personal membership of a private

medical insurance scheme permanent health insurance and life assurance

Executive directors were eligible to participate in the Society’s defined contribution pension scheme which is offered to all

employees

The Chief Executive and Chief Financial Officer received cash alternatives in lieu of pension contributions equivalent to10%of base

salary as they have exceeded the lifetime allowance This is in line with the approach for all employees who are eligible to join the

Society’s defined contribution pension scheme receiving contributions of up to10%.The Chief Customer Officer received cash

alternatives equivalent to15%as a legacy arrangement which is in line with the approach for members of the now closed defined

benefit pension scheme

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117

Variable pay2022

The balanced scorecard reflects the measures used by the executive team and the Board to assess the Society’s performance This

ensures alignment of remuneration with the Society’s objectives All measures are deemed to be equally weighted

Further information on the Society’s performance can be found in the Strategic Report Performance against the balanced scorecard

measures is summarised below

Performance measure Performance target range Performance result

Performance relative

to target range

People and purpose led

Employee engagement

73-77% 77% On target

Savings premium >0.4% 0.62% Above target

Environmental Social and Governance

measures

Qualitative assessment Qualitative assessment

On target

Best at mortgages and savings

Mortgage balance growth rate 1.5%-2.5% 3.0% Above target

Savings balance growth rate 1.5%-2.5% 6.0% Above target

Experience NPS - Average

+72-76 +75 On target

Brilliant product manufacturer

Technology project initiative and key

capability delivery

Qualitative assessment Qualitative assessment On target

Financial plan execution

Costincome ratio 51%–53% 43% Above target

Profit before tax (£m) £247m–£277m £371m Above target

Mortgage balances in arrears (%)

<0.15% 0.10% Above target

Individual objectives

3Main Individual Objectives Chair of BoardCEO assessment Chair of BoardCEO assessment

1.The2022engagement survey was provided by Great Place to Work (GPTW) and measures the Trust index The GPTW employee engagement score reflects the assessment as a large sized

company

2.More detail can be found in the Sustainability Report within the Strategic Report section

3.Net Promoter Score (NPS) is a measure of customer advocacy that ranges between -100and+100,which represents how likely a customer is to recommend our products and services

4.Technology project initiative and key capability delivery is assessed against delivery and financial measures by the Board Change Forum

5.Percentage of mortgage balances where arrears are more than2.5%of the balance

Despite the extremely challenging market conditions in2022,the Society performed exceptionally well against its balanced

scorecard targets The Society outperformed against six of the ten performance targets which determine variable pay performed in

line with four measures and did not perform below target against any measures

A scoring matrix provides guidance to the Remuneration Committee as to potential outturn based on performance against the

balanced scorecard The number of objectives that were deemed to be above or below target determine the range of award that

could be considered

For recipients of the ExVPP the performance metrics are split70:30between collective performance as determined by the outturn

of the balanced score card and individual performance as determined by the achievement of up to three strategically aligned

individual goals The balanced scorecard ensures alignment between remuneration and the long term sustainable goals of the

Society The individual goals are used to increase personal accountability for the delivery of key strategic targets and are agreed

with the Remuneration Committee Performance against these goals together with conduct and behaviours are considered by the

Committee when assessing individual performance

Directors’ Remuneration Report Continued

Governance

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118

Steve Hughes individual goals

Ensure plan delivery across the strategic scorecard Led strong delivery across the full range of strategic

measures both financial and non-financial Clear

increase in engagement with colleague feedback

pointing to progress for inclusion Net promoter

score strong despite significant change in customer

behaviour as a result of changing economic backdrop

Above target

performance

Drive strong and improving colleague engagement and

increase inclusion

Brilliant customer service remains a strategic

differentiator

Lee Raybould individual goals

Realise the ambitions defined for the finance

transformation programme

Finance transformation programme is making strong

progress and is on track for first phase of delivery in

2023.New strategic opportunities agreed with the

Board to ensure that the business model remains

resilient Interim data strategy outlined and senior

leadership in place to drive this

Above target

performance

With CCO shape future participation strategy

Progress the Society's data ambitions

Peter Frost individual goals

Deliver brilliant service through an integrated contact

centre and branch approach

Branch and savings contact centres integrated giving

flexibility to meet customer demand Strong net

promoter score sustained and Customer Officer

colleague engagement increased Society-wide

progress made in inclusion with more to do to achieve

published diversity ambitions Board agree proposals

and next steps for participation strategy

On target

performance

Ensure CBS is a place to belong for everyone

With CFO shape future participation strategy

Given the performance outlined above the Committee considered the vesting outcomes reflected in the underlying business

performance and risk appetite of the Society with an appropriate level of variable awards and determined

• An annual Success Share bonus for all eligible employees including executive directors equivalent to18%of base salary from

a potential maximum of20%.

• An ExVPP award to executive directors ranging from46.8%to51.3%of base salary from a potential maximum of60%and to

executive managers ranging from23.4%or25.65%of base salary from a potential maximum of30%.Awards made reflect

whether performance was assessed as on target or above target

For executive directors and executive managers these awards will be deferred as described below

The impact of deferral

Variable remuneration is subject to regulatory deferral arrangements as described below All executive directors are deemed to be

Higher Paid Material Risk Takers under the CRD V regulations as a result their total variable pay (annual Success Share bonus and

ExVPP) is paid over nine years following the performance period with60%of this being paid in the last six years of the ‘extended

deferral period’ The percentage which is paid in each year is set out in the table below For each annual payment half is made in

cash with the other half retained in an equivalent share-like instrument for a further12months All payments are subject to malus

and clawback reductions

Impact of deferral in relation to the2022and2021performance periods

In2022,all executive directors were above the regulatory deferral threshold and therefore their variable remuneration will be paid in

instalments as set out below The table shows the percentage (where applicable) of variable remuneration which will be paid in each

year

Variable pay received 2022

2023

2024 2025 2026 2027 2028 2029 2030 2031

2022performance period % —

20 — 6 12 12 12 12 6

2021performance period %

20 20

— 6 12 12 12 12 6 —

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Governance

119

Payments to former Directors

The Committee may determine that retirees or redundancies should be treated as good leavers and any in-flight deferred variable

pay will be released at the normal time in line with the Remuneration Policy The following payments relating to deferred variable

pay were made to former directors in2022:£72,690to M Parsons former Chief Executive£45,338to M Faull former Chief

Financial Officer and£24,786to A Deeks former Product Marketing & Strategy Director All of these payments were subject to

performance and risk review by the Remuneration Committee in line with the Remuneration Policy

Remuneration elements in2023

Base salary2023

Base salaries for executive directors will be reviewed in April2023,in line with the approach outlined in the Remuneration Policy

Benefits including pension2023

No changes to the Society’s approach to benefits are anticipated

Variable pay2023

The2022annual Success Share bonus scheme and ExVPP will be reviewed in line with the Society’s strategic priorities and any

changes to regulation Details of the performance metrics for both variable pay plans will be provided in the2023Directors’

Remuneration Report

Relative importance of spend on pay

The following table sets out the changes in profit after tax in2022and2021,and compares these with the overall spend on

remuneration over the two years As a mutual organisation the Society only seeks to retain sufficient profit to maintain capital ratios

and allow for investment in the business returning any surplus above this to members through superior pricing A better measure of

the Society’s activity is the level of growth in mortgage and savings balances and so the percentage change in total assets has been

included to give an appropriate indication of this

2022

£m

2021

£m

Change

Total assets 58,867.1



8.0

Employee remuneration costs 155.6



25.1

Profit after tax 286.2



50.0

The higher employee remuneration costs reflects the increase in salaries following the annual salary and variable pay reviews and

an increase to additional full time equivalent headcount to support the growth of the business and investment in our technology

infrastructure and resilience

Directors’ Remuneration Report Continued

The impact of deferral is illustrated by reference to the CEO's variable pay in the diagram below

Governance

Coventry Building Society  Annual Report & Accounts2022

120

Change in remuneration of Chief Executive

• The historical levels of the Chief Executive’s variable pay awards as a percentage of the maximum payable are shown below

2022

2021

2020 2019 2018 2017 2016 2015 2014 2013

% % % % % % % % % %

Annual Success Share bonus as a percentage

of maximum 90 75 40 50 55 60 70 60 60 70

LTIP as a percentage of maximum na na na na na 63 63 — 100 100

ExVPP as a percentage of maximum 85.5 75 40 45 50 60 65 na na na

CEO pay ratio

The Companies (Miscellaneous Reporting) Regulations2018require UK quoted companies with more than250UK employees

to publish their CEO pay ratio figures and supporting information in their annual reports The regulations require that the pay ratio

figures are calculated using the single total figure of remuneration methodology used above which includes total salary variable pay

pension benefits and taxable benefits

The Society has elected to publish its CEO pay ratios using the Government’s preferred methodology (Option A) which is based on

actual full time equivalent pay and benefit values for all employees for the financial year It is calculated by identifying the median

total remuneration as well as the total remuneration at the25th percentile and75th percentile points For31December2022,

these were as set out in the table below In calculating these figures leavers were excluded but all other employees who started

partway through the year or who were on extended leave for some or all of the year have been included on the basis of a full year’s

salary

Remuneration element

25th

percentile

Median

75th

percentile

Total pay and benefits 28,866 38,954 57,412

Salary 25,122 34,484 49,107

On the basis of these numbers the ratio of CEO pay to employee pay at the median and25th and75th percentiles is as follows

Year Method

25th

percentile

Median

75th

percentile

2022 Option A 32:1 25:1 16:1

2021 Option A 32:1 24:1 16:1

2020 Option A 36:1 27:1 19:1

2019 Option A 35:1 27:1 19:1

2018 Option A 36:1 27:1 19:1

The median pay ratio remains stable over the last year with a slight increase due to the Society's exceptional scorecard and the

Society believes it is consistent with the principles of its Remuneration Policy

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121

Directors’ Remuneration Report Continued

Details of the non-executive directors'remuneration

Audited information

Base fees

Committee

Chair and

other fees

Expense

payments

Total fees

and

expense

payments Base fees

Committee

Chair and

other fees

Expense

payments

Total fees

and expense

payments

2022 2022 2022 2022 2021 2021 2021 2021

Note £000 £000 £000 £000 £000 £000 £000 £000

Non-executive directors

David Thorburn 1 129 — 5 134 — — — —

Gary Hoffman 2 59 — — 59 181 — — 181

Peter Ayliffe 3 - — — - 16 2 — 18

Iraj Amiri 4 54 15 4 73 53 14 2 69

Catherine Doran 5 54 — 2 56 53 — 1 54

Jo Kenrick 6 54 25 1 80 53 22 1 76

Shamira Mohammed 7 54 — 1 55 53 — 1 54

Brendan O'Connor 8 54 — 1 55 50 — 1 51

Martin Stewart 9 54 15 3 72 53 14 1 68

Total 512 55 17 584 512 52 7 571

1.Chair of the Board from28.04.22.

2.Chair of the Board to28.04.22.

3.Non-executive director until22.04.21.

4.Non-executive director from28.06.18and Chair of the Board Audit Committee from18.09.18.

5.Non-executive director from01.08.16.

6.Deputy Chair of the Board from22.04.21,Senior Independent Director from24.04.19and Chair of the Remuneration Committee from26.04.18.

7.Non-executive director from01.05.19.

8.Non-executive director from18.01.21.

9.Non-executive director from01.09.18and Chair of the Board Risk Committee from25.09.18.

Fees for non-executive directors changed in April2022in line with the approach for executives as shown in table below Non-

executive director fees are made up of a base fee plus a Committee Chair fee as appropriate The Chair of the Board does not

receive additional fees for roles carried out other than that of Chair

Non-executive director fees

2022

£000

2021

£000

Chair of the Board 192 181

Base fee 54 53

Deputy Chair of the Board

7 7

Senior Independent Director (if different from Deputy Chair of the Board)

7 7

Chair of the Remuneration Committee 13 12

Chair of the Board Audit Committee 15 14

Chair of the Board Risk Committee 15 14

1.If both the Deputy Chair and Senior Independent Director roles are held by the same person the fees are combined at£13,000.

Governance

Coventry Building Society  Annual Report & Accounts2022

122

Expense and other payments

Non-executive directors are reimbursed reasonable travel and accommodation expenses in relation to attending meetings but do

not participate in any Society pension benefits or bonus arrangements

Remuneration committee advisor

Deloitte LLP (Deloitte) was appointed by the Committee in2012and is retained to provide independent advice to the Committee

as required Deloitte is a founding member of the Remuneration Consultants Group and as such voluntarily operates under the

code of conduct in relation to executive remuneration consulting in the UK The Committee is satisfied that the advice received is

objective and independent and remuneration services provided by Deloitte are reviewed annually to ensure this continues to be the

case The Society also engages Deloitte to provide other assurance services consultancy and specialist advice to other departments

Consideration of members'views

The Society welcomes feedback on executive and non-executive directors’ remuneration Member approval of the Directors’

Remuneration Report is voted on at each Annual General Meeting and every three years the Committee asks members for a non-

binding vote on the Remuneration Policy

Statement of member vote at Annual General Meeting

At the2022Annual General Meeting an ordinary resolution (advisory vote) was proposed to members to approve the Annual

Remuneration Report for the year ended31December2021for which the following votes were received

Number

of votes

%

votes cast

Annual Remuneration Report

Votes cast for 81,275 91.2

Votes cast against 7,804 8.8

Total votes cast 89,079 100.0

Votes withheld 2,051

At the2020Annual General Meeting an ordinary resolution (advisory vote) was proposed to members to approve the current

Remuneration Policy for which the following votes were received

Number

of votes

%

votes cast

Remuneration Policy

Votes cast for 81,478 91.0

Votes cast against 8,042 9.0

Total votes cast 89,520 100.0

Votes withheld 2,018

Coventry Building Society  Annual Report & Accounts2022

Governance

123

The directors have pleasure in presenting their Annual Report

& Accounts for2022.

Business objectives future developments and

key performance indicators

The Society’s objectives and future plans are set out in the

Strategic Report together with the Society’s key performance

indicators The Strategic Report is incorporated by reference

within this Directors’ Report

Profit and capital

Profit before tax for the year ended31December2022

was£371million (2021:£233million) The profit after tax

transferred to the general reserve was£286million (2021:

£191million)

Total Group reserves and equity at31December2022were

£2,948million (2021:£2,460million) Further details on

the movements on reserves and equity are given in the Group

Statement of Changes in Members’ Interests and Equity

Gross capital at31December2022was£3,005million

(2021:£2,517million) including£15million (2021:£15

million) of subordinated debt£42million (2021:£42million)

of subscribed capital and£415million (2021:£415million) of

Perpetual Capital Securities

The ratio of gross capital as a percentage of savings and

borrowings at31December2022was5.46%(2021:4.87%)

and the free capital ratio was5.27%(2021:4.65%)

The Annual Business Statement gives an explanation of these

ratios

Mortgage arrears

At31December2022,there were119mortgage accounts

more than12months in arrears (including those in

possession) (2021:139) The balance on these accounts

totalled£17.7million (2021:£20.0million) and the value of

these arrears was£1.6million (2021:£1.4million) or0.003%

(2021:0.003%) of total mortgage balances

Mortgage arrears disclosures are based on the UK Finance

definition which calculates months in arrears by dividing the

arrears balance outstanding by the latest contractual payment



The Society made donations of£1.8million (2021:£0.7

million) to charitable organisations during the year This

included an amount of£0.6million (2021:£0.6million)

to The Royal British Legion’s Poppy Appeal and£70,000

(2021:£70,000) to the Coventry Building Society Charitable

Foundation

No contributions were made for political purposes However

employees are permitted time off to carry out civic duties and

political activity which can amount to an effective political

donation The Society supports a small number of employees

in this way

Employees are also supported in volunteering and fundraising

in the local community More information in relation to this is

included in the Strategic Report

Creditor payment policy

The Society’s policy is to agree the terms of payment at the

start of trading with suppliers and to pay in accordance with its

contractual and other legal obligations The Society’s creditor

days were13days as at31December2022(2021:11days)

Country-by-country reporting

The nature of the Society’s activities is set out in the Strategic

Report and for each of the Society’s subsidiaries in note

16to the accounts All of the activities of the Society and

its subsidiaries are conducted in the United Kingdom and

therefore100%of the total income profit before tax and tax

shown in the Income Statement as well as employee figures

disclosed in note10to the accounts are related to the United

Kingdom The Society and its subsidiaries have not received

any public subsidies

Risk management

As a result of its normal business activities the Group is

exposed to a variety of risks including credit market liquidity

and funding conduct operational model and strategic risk

The Group seeks to manage all the risks that arise from its

activities and has established a number of Committees and

policies to do so Details of these are set out in the Strategic

Report Risk Management Report and the Directors’ Report on

Corporate Governance

Colleagues

Information on colleague engagement development equality

diversity and inclusion is included the Strategic Report and is

incorporated by reference into this Directors’ Report

The Society complies with the UK Equality Act2010and

has processes in place to help train develop and promote

employees with disabilities If someone has a disability the

Society makes appropriate adjustments during the recruitment

process

Similarly if someone becomes disabled during their

employment the Society provides support relevant

to individual's needs This may include retraining and

redeployment within the workforce Partnerships are also

in place with specialist organisations in order to make our

workplace more accessible to people with a disability

Board of directors

The names of the directors of the Society who served during

the year and up to the date of signing the financial statements

are set out on pages80to84.No director has any beneficial

interest in equity shares or debentures of any connected

undertaking of the Society as at31December2022.

The Board has agreed that in accordance with the UK

Corporate Governance Code all the directors will stand for

election or re-election on an annual basis

Directors’ Report

Governance

Coventry Building Society  Annual Report & Accounts2022

124

Directors'responsibilities in respect of the

preparation of the Annual Report & Accounts

The following statement which should be read in conjunction

with the Statement of the auditors’ responsibilities on page

138,is made by the directors to explain their responsibilities

in relation to the preparation of the Annual Accounts the

Directors’ Remuneration Report the Annual Business

Statement and this Directors’ Report

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 in accordance with UK

adopted International Accounting Standards and applicable

law and have elected to prepare the Society Accounts on the

same basis

The Group and Society Annual Accounts are required by law

and by accounting standards to present fairly the financial

position and the performance of the Group and the Society

The Act provides that references to Annual Accounts giving

a true and fair view are references to their achieving a fair

presentation The Act also requires the Annual Accounts to

provide details of directors’ emoluments in accordance with

Part VIII of the Act and regulations made thereunder

In preparing each of the Group and Society Annual Accounts

the directors are required to

• Select suitable accounting policies and apply them

consistently

• Present information including accounting policies in a

manner that provides relevant reliable comparable and

understandable information

• State whether applicable accounting standards have been

followed

• Prepare the financial statements on a going concern basis

unless it is inappropriate to presume that the Group and

Society will continue in business

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

Directors'responsibilities in respect of

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

• Establishes and maintains systems for control of its

business records inspection and reports

The directors have responsibility for safeguarding the assets of

the Group and for taking reasonable steps for the prevention

and detection of fraud and other irregularities

The directors who held office at the date of approval of this

Directors’ Report confirm that so far as each of them is aware

there is no relevant audit information of which the Group’s

auditor is unaware and each director has taken all the steps

that they ought to have taken as directors to make themselves

aware of any relevant information and to establish that the

Group’s auditor is aware of that information

Directors'statement pursuant to the Disclosure

and Transparency Rules

As required by the Disclosure and Transparency Rules of the

Financial Conduct Authority the directors have included a

management report containing a fair review of the business

and a description of the principal risks and uncertainties facing

the Group This information is contained principally in the

Strategic Report and the Risk Management Report

The directors confirm that to the best of each of their

knowledge and belief

• The financial statements prepared in accordance with UK

adopted International Accounting Standards present

fairly the assets liabilities financial position and profit of

the Group and Society

• The management report contained in the Strategic Report

includes a fair review of the development and

performance of the business and the position of the Group

and Society and the Risk Management Report includes a

description of the principal risks and uncertainties that

they face

Directors'statement of compliance with the UK

Corporate Governance Code

As required by the UK Corporate Governance Code the

directors confirm their opinion that the2022Annual

Report & Accounts taken as a whole are fair balanced and

understandable and provide the information necessary for

members to assess the performance strategy and business

model of the Society

Directors'responsibilities in respect of going

concern and long-term viability

The UK Corporate Governance Code (the Code) requires that

the directors state whether they consider it appropriate to

adopt the going concern basis of accounting and identify any

material uncertainties to the Society’s ability to continue as

a going concern for a period for at least12months from the

reporting date

In addition the Code requires that the directors explain how

the prospects of the Society have been assessed and whether

there is a reasonable expectation that the Society will continue

in operation and meet its liabilities as they fall due over the

period of assessment Details of this long-term viability

assessment are set out below

Going concern

In preparing the financial statements the directors are

required to satisfy themselves that it is appropriate to adopt

the going concern basis of accounting in accordance with

guidance from the Financial Reporting Council and IAS1

Presentation of Financial Statements

The Society’s business activities together with the factors

likely to affect its future development performance position

liquidity and capital structure are set out in the Strategic

Report The Risk Management Report includes further

information on the Society’s objectives policies and processes

for managing its exposure to credit market liquidity and

funding conduct operational model and strategic risks along

with details of its financial instruments and hedging activities

In addition top and emerging risks are disclosed in the

Strategic Report

Coventry Building Society  Annual Report & Accounts2022

Governance

125

The Group’s forecasts and projections include the expected

impact of these risks Together with stress testing and scenario

analysis this shows that the Society will be able to operate

at adequate levels of both liquidity and capital for at least

the next12months while meeting all relevant regulatory

requirements

After making enquiries the directors are therefore satisfied

that the Society has adequate resources to continue in

business for at least the next12months with no material

uncertainties and therefore it is appropriate to adopt the

going concern basis of accounting in preparing these financial

statements

Long-term viability

In accordance with the UK Corporate Governance Code

the directors are required to explain how taking account of

the Society’s current position and principal risks they have

assessed the prospects of the Society and to confirm that

they believe the Society will be able to continue in operation

and meet its liabilities as they fall due over a specified period

determined by the directors

Assessment of prospects

The directors have assessed the Society’s prospects over a five

year period to December2027.This period was chosen as it

aligns with the Society’s Strategic Plan period

In making this assessment the directors used a wide range

of sources including the Strategic Plan stress testing

the Society’s business model principal risks and the

Risk Management Framework described within the Risk

Management Report to assess the Society’s future prospects

The directors considered the Society’s strategy and the key

threats to its delivery The directors also considered broader

risks to the prospects of the Society including the adequacy

of risk management arrangements the performance of the

Society against the Board’s risk appetite and the risk outlook

for the Society

The directors consider this to be a suitable process to enable

them to form a reasonable expectation of the Society’s

prospects over a five year period

Assessment of long-term viability

The directors have assessed the viability of the Society over

the three year period to December2025.The directors

consider a three year period appropriate as it is within the

period covered by the Strategic Plan and the stress testing

activities undertaken by the Society In addition using a period

of three years eliminates the inherent uncertainties in the

assumptions underpinning the outer years of the Society’s

Strategic Plan

In making the assessment the directors considered the

financial projections of the Society including profitability

capital and funding positions and the wide range of stress

testing of those projections to ensure the viability of the

Society even in times of severe stress The directors considered

the impact of the macroeconomic environment including

the impact of inflationary pressures the impact to the labour

market the credit environment the interest rate outlook and

the potential impact on wholesale funding markets

The most significant stress scenario which was considered

included an increase in unemployment to12%during the first

year of the stress and house price falls of33%over a two year

period

The review considered emerging regulation where there is

sufficient clarity over future standards to inform the analysis

This review includes assessments of the Society’s capital

position and reflects current understanding of capital buffer

and leverage requirements likely to be imposed on the

Society The review also considered the longer-term impacts

of climate change and new regulatory standards on climate

risk along with the proposed Society response to the climate

risks identified on its loans and advances to customers and

operations

Based upon the assessment set out above the directors

have a reasonable expectation that the Society will continue

in operation and meet its liabilities as they fall due over the

period to December2025.

Directors

The directors who served during the year are set out in the

Directors’ Report on Corporate Governance

The auditor

A resolution to reappoint PricewaterhouseCoopers LLP auditor

of the Society will be proposed at the2023Annual General

Meeting

Approved by the Board of directors and signed on its behalf by

David Thorburn

Chair of the Board

23February2023

Directors’ Report Continued

Governance

Coventry Building Society  Annual Report & Accounts2022

126

Financial

Statements

Independent Auditors’ Report 128

Accounts 138

Notes to the accounts 142

In this section you will find

our primary statements and

related notes

Coventry Building Society  Annual Report & Accounts2022

Financial Statements

127

Report on the audit of the financial statements

Opinion

In our opinion Coventry Building Society’s Group financial statements and Society financial statements (the “financial statements”)

• give a true and fair view of the state of the Group’s and of the Society’s affairs as at31December2022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 financial statements included within the Annual Report and Accounts (the “Annual Report”) which comprise

the Group and Society balance sheets as at31December2022;the Group and Society income statements and statements of

comprehensive income the Group and Society statements of cash flows and the Group and Society statements of changes in

members’ interests and equity for the year then ended and the notes to the financial statements which include a description of the

significant accounting policies

Our opinion is consistent with our reporting to the Audit Committee

Basis for opinion

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 financial statements

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 financial

statements 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

To the best of our knowledge and belief we declare that non-audit services prohibited by the FRC’s Ethical Standard were not

provided to the Group

Other than those disclosed in note9to the financial statements we have provided no non-audit services to the Group in the period

from1January2022to31December2022.

Our audit approach

Overview

Independent Auditors’ Report

to the Members of Coventry

Building Society

• Overall Group materiality£18.5million (2021:£11.7million) based on5%of Profit

loss before tax from continuing operations

• Overall Society materiality£13.1million (2021:£7.1million) based on5%of Profitloss

before tax from continuing operations

• We performed audit procedures over all material account balances and financial

information of the Society Godiva Mortgages Limited and ITL Mortgages Limited due to

their size and significance to the Group and

• We performed audit procedures over balances in other subsidiary companies where they

are material to the Group

• The application of key judgements and estimates in relation to applying expected credit

loss provisioning on loans and advances to customers (Group and Society)

• The application of hedge accounting in accordance with accounting standards (Group

and Society)

• Privileged access to Information technology (‘IT’) systems (Group and Society) and

• The appropriateness of assumptions used to measure the defined benefit pension

obligations (Group and Society)

Financial Statements

Coventry Building Society  Annual Report & Accounts2022

128

The scope of our audit

As part of designing our audit we determined materiality and assessed the risks of material misstatement in the financial

statements 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 financial statements 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 and industry we identified that the principal risks of non-compliance with laws and

regulations related to the Financial Conduct Authority’s ('FCA') regulations the Prudential Regulation Authority’s ('PRA')

regulations and UK tax legislation and we considered the extent to which non-compliance might have a material effect on the

financial statements We also considered those laws and regulations that have a direct impact on the financial statements such

as the Building Societies Act1986.We evaluated management’s incentives and opportunities for fraudulent manipulation of the

financial statements (including the risk of override of controls) and determined that the principal risks were related to the posting of

inappropriate manual journal entries that could be used to manipulate financial performance and the potential for management bias

in accounting estimates Audit procedures performed included

• Discussions with management and those charged with governance including consideration of known or suspected instances of

non-compliance with laws and regulations and fraud

• Review of internal audit and compliance monitoring findings throughout the year

• Reading key correspondence with the Financial Conduct Authority and Prudential Regulation Authority

• Incorporation of an element of unpredictability in our testing through altering the nature timing andor extent of work

performed

• Challenging assumptions and judgements made by management in their significant accounting estimates and

• Identifying and testing journal entries in particular any journal entries posted by senior management posted with descriptions

indicating a higher level of risk posted to unusual account combinations based on our understanding of usual business

operations and material late adjustments

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 financial statements

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

Key audit matters

Key audit matters are those matters that in the auditors’ professional judgement were of most significance in the audit of the

financial statements 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 financial statements 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 appropriateness of estimates used in the accounting for the effective interest rate of loans and advances to customers

which was a key audit matter last year is no longer included because of the directors changing their estimates of future customer

repayment behaviour during2021which gave rise to a write off of the residual effective interest rate accounting adjustment in

respect of reversionary interest during2022.Furthermore our key audit matter relating to assumptions used in the measurement of

the defined benefit pension scheme surplus has been amended to remove reference to the valuation of complex scheme assets This

is because hard to value assets are a reduced proportion of the total scheme assets at the2022year end and so are proportionately

a less significant part of our audit procedures Otherwise the key audit matters below are consistent with last year

Coventry Building Society  Annual Report & Accounts2022

Financial Statements

129

Key audit matter How our audit addressed the key audit matter

The application of key judgements and assumptions in relation to applying expected credit loss provisioning on loans and

advances to customers (Group and Society)

The Group held£35.5million of expected credit loss (‘ECL’)

provisions against residential mortgages in accordance with

IFRS9(2021:£18.9million) against total loans and advances

to customers of£48,049.8million (2021:£46,639.5million)

The determination of ECL provisions is inherently judgemental

and involves setting assumptions using forward looking

information reflecting the Group’s view of potential future

economic events This can give rise to increased estimation

uncertainty

There is significant uncertainty in calculating expected credit

losses due to the potential impacts on customer behaviour due

to the rising inflationary and interest rate environment in the

UK

In response to this uncertainty the Group introduced a new

material post-model adjustment of£14.2million to capture

the risk of increased defaults due to pressures on customer

affordability associated with a rising cost of living This

adjustment increases the default risk on those customers that

require their fixed term mortgage to be refinanced in the next

two years

We focussed our work on the areas of the methodology that we

identified as most judgemental These were

• The appropriateness of the assumptions used to identify

customers for inclusion in the cost of living post model

adjustment and the derivation of increased probabilities of

default for this cohort of loans

• The appropriateness of the ‘staging’ thresholds selected by

management to determine whether a significant increase

in credit risk had arisen on customer loans and hence

whether a12month or a lifetime loss provision is recorded

and

• The application of forward-looking economic assumptions

used in the models and the weightings assigned to those

scenarios particularly in respect of assumptions relating to

future house prices and unemployment levels since these

have the largest impact on the provision

The Group’s disclosures are given in Note14.Management’s

associated accounting policies are detailed in Note1.

Management’s judgements in the application of accounting

policy and critical estimates are disclosed in Note2and

the considerations of the effect of the future economic

environment are given in Note14.The Audit Committees’

consideration of the matter is set out in the Board Audit

Committee Report

We understood and critically assessed the methodology applied

in the impairment models using modelling specialists in the

more judgemental areas including the results of empirical testing

on key model components primarily the probability of default

and loss given default models to confirm that the implemented

methodology was compliant with accounting standards

We tested management’s model monitoring controls and

independently re-performed a number of the monitoring tests

We validated management’s ‘staging’ thresholds by re-performing

back testing procedures performed by management We

examined subsequent account performance to confirm that the

criteria selected by management were reasonable and that the

models are sufficiently predictive of defaults

We assessed the reasonableness and likelihood of the forward

looking economic assumptions and weightings assigned to

the scenarios using a benchmarking tool developed by our

economic experts The severity and magnitude of the scenarios

specifically the house price inflation forecasts were compared to

external forecasts and data from historical economic downturns

Sensitivities of the ECL provision to the chosen scenarios was

considered We found that the assumptions adopted and assigned

weightings to the scenarios were reasonable

We considered the appropriateness of the post model adjustment

for cost of living pressures by critically assessing the methodology

using modelling specialists and testing critical data inputs used

in the calculation to supporting evidence on a sample basis We

considered historical default behaviour and how this may change

going forwards by examining the output of stresses performed

by the Group’s credit risk function We challenged management

on the complete capture of loans in the adjustment and the

consistency of the adjustment with the disclosed stage allocation

of the customer loans Overall we found the adjustment made to

be reasonable

We reviewed the ECL disclosures made by management to ensure

compliance with accounting standards and agreed the disclosures

to supporting evidence without material exceptions

From the evidence we obtained we found that the judgements

and assumptions applied in relation to forward looking economics

and the appropriateness of staging and post model adjustments

as they relate to the ECL provision to be reasonable

Independent Auditors’ Report

to the Members of Coventry

Building Society

Continued

Financial Statements

Coventry Building Society  Annual Report & Accounts2022

130

Key audit matter How our audit addressed the key audit matter

The application of hedge accounting in accordance with accounting standards (Group and Society)

The Group has designated several hedge accounting

relationships linked to the Group’s mitigation of interest rate

and foreign exchange risks The Group is exposed to interest

rate risk as a result of the mismatch between fixed and floating

rate cash flows The Group is exposed to foreign exchange

risks due to some of its debt securities being issued in a foreign

currency

The risk of future movements in market rates affecting

profitability of the Group is mitigated through the use of

derivative financial instruments in the form of interest rate

and cross currency swap contracts These are designated in

hedge accounting relationships so that both the derivatives

and the underlying hedged items are recorded at fair value as

long as the Group can demonstrate that the hedge accounting

arrangements are effective in accordance with accounting

standards As a result of the rising interest rate environment in

the UK the size of hedge accounting adjustments on the year

end balance sheet has grown substantially since the prior year

end

At31December2022the fair value of all hedged items

in designated hedging relationships was£1,142.8million

less than their carrying value (2021:£199.3million less)

Management of interest rate risk using derivatives in the year

also gave rise to a£26.8million gain (2021:£6.6million

charge) being recognised in the income statement

We focussed our work on the following types of micro hedges

which are subject to manual calculation which give rise to a

heightened risk of material operational error

• Hedges of the Group’s debt securities in issue which are

designated as cash flow hedges of interest rate risk and

foreign currency risk for non sterling denominated debt

issuances

• Hedges of mortgage and savings pipeline interest rate risk

which are designated as cash flow hedges against Deposits

from Banks and Cash and balances with the Bank of

England respectively

• Hedges of interest risk on fixed rate treasury and wholesale

funding which are designated as fair value hedges

The Group’s disclosures are given in Note23.Management’s

associated accounting policies are detailed in Note1.

Management’s significant assumptions and estimates are set

out in Note2.The Audit Committees’ consideration of the

matter is set out in the Board Audit Committee Report

We understood the nature of the hedge accounting relationships

designated by management in the context of the risk management

strategy

We obtained and reviewed the relevant hedge accounting

documentation to evaluate and assess whether each hedge was

compliant with the requirements of accounting standards This

included testing a sample of newly designated hedges in the year

We independently re-performed a sample of hedge effectiveness

tests performed by management for each type of hedge

relationship We re-performed both a sample of prospective and

retrospective effectiveness tests

We also re-performed the valuation of a sample of derivatives

and underlying hedged items and tested a sample of manual

calculations for mathematical accuracy and performed logic and

calculation tests to ensure manual hedging calculations are valid

We assessed the completeness and accuracy of the data flowing

into the hedging models and performed tests to ensure that data

was being interpreted and categorised appropriately

We tested the completeness and accuracy of the income

statement ineffectiveness recorded by the Group during the year

We tested the reconciliation of the hedging models and the

amounts recorded in the general ledger to ensure that the

balances recorded in the financial statements are accurate

We tested the disclosures in respect of hedge accounting and

confirmed that they were compliant with accounting standards

From the evidence we obtained we found that the hedge

accounting methodology was compliant with accounting

standards and the underlying hedging calculations were accurate

and valid

Coventry Building Society  Annual Report & Accounts2022

Financial Statements

131

Key audit matter How our audit addressed the key audit matter

Privileged access to Information technology ('IT') systems (Group and Society)

The Group is highly dependent on technology due to the

significant number of transactions that are processed daily

Controls over privileged access rights are important as they

ensure that changes to applications and data are authorised

and made in an appropriate manner Ensuring that staff only

have appropriate access and that the access is monitored is

key to mitigate the potential for misuse or error as a result of

the change to an application of underlying data

Improvements are required to privileged access controls An

implementation plan to improve these controls is in place

however remediation remains in progress As such we did not

rely on IT general controls over systems relevant to financial

reporting but instead performed additional substantive

testing to mitigate risks of material misstatement in the Group

financial statements by fraud or error

In response to the weaknesses identified we performed an

assessment of the risks of fraud and error in the financial

statements

Additional substantive testing was performed on those areas

where we identified a higher risk of fraud or error in relation to

privileged access including the following

• An increased volume of substantive testing on loans and

advances to customers and customer deposits ('shares')

• Increased extent of sample testing of administrative expenses

and

• Additional payroll testing to mitigate the risk of inappropriate

amendments to standing data

In performing the procedures noted above no inappropriate

changes to system data or functionality were identified

The appropriateness of assumptions used to measure the defined benefit pension obligations (Group and Society)

The Group and Society operates defined benefit pension

schemes for retirement benefits for current and former

members of staff The present value of the schemes was in a

surplus of£3.3million at31December2022(2021:£29.3

million) which is made up of assets carried at fair value of

£160.7million (2021:£264.4million) and obligations of

£157.4million (2021:£235.1million)

The present value of the scheme obligation is materially

sensitive to a number of actuarial assumptions including the

discount rate inflation and mortality rates Changes in these

assumptions can have significant impacts on the valuation

Management performs a review of the valuation methodology

and assumptions each year using their third party actuaries

The assumptions are updated to reflect changing market

practice and management’s future outlook

During the current year the value of the scheme obligations

has reduced substantially This is largely due to increases in

the discount rate used which has been updated to reflect

increased corporate bond yields

The Group’s disclosures are given in note19.Management’s

associated accounting policies are disclosed in Note1.The

Audit Committees’ consideration of the matter is set out in the

Board Audit Committee Report

We independently assessed using our actuarial experts the

discount rate inflation rate and mortality rates and compared

them to external market rates at31December2022for schemes

of a similar duration and to management’s estimates derived by

their experts

We recalculated the value of the defined benefit obligation using

the scheme’s membership data

We considered the independence objectivity and competence

of the third party actuaries engaged by management to perform

their valuation

Where valuation methodologies had changed during the year to

reflect increased inflation experience we challenged management

on the reasonableness of the methodologies adopted

Based on the evidence we obtained we found the assumptions

and methodologies used in the valuation of the defined benefit

pension obligations to be within a reasonable range

We also read and assessed the disclosures made in the financial

statements including the disclosures of the actuarial assumptions

used and found them to be appropriate

Independent Auditors’ Report

to the Members of Coventry

Building Society

Continued

Financial Statements

Coventry Building Society  Annual Report & Accounts2022

132

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 financial

statements 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

All of the Group’s activities are administered in the United Kingdom The principal activity of the Group is the provision of savings

products and mortgage finance to members products and mortgage finance to members. The Group’s mortgage book is predominantly secured on UK residential owner-

occupied and Buy-to-let lending

The Group is formed of the Society Godiva Mortgages Limited and several other subsidiary companies which are small in the

context of the Group’s overall operations The Group also consolidates several structured entities which administer the Group’s

funding programmes by virtue of the Group’s control over them

Based on Group materiality we performed audit procedures over all material account balances and financial information of the

Society and its subsidiaries Our audit procedures on the Society and its subsidiaries provided us with sufficient audit evidence as

a basis for our audit opinion on the Group financial statements as a whole We perform all of the work to support the Group and

Society audit opinion and do not involve any other component audit teams

The impact of climate risk on our audit

As part of our audit we made enquiries of management to understand the process management adopted to assess the extent of

the potential impact of climate risk on the Group and Society’s financial statements and support the disclosures made in relation to

climate change in the Annual Report & Accounts

In addition to enquiries with management we also

• Read the materials considered by the Group’s Climate Risk Forum during the year to consider the impact on our audit risk

assessment

• Considered the exposure of the Group and Society’s mortgage portfolio to physical and transition risks by examining the

output of assessments performed by management during the year and

• Considered the consistency of the disclosures in relation to climate change within the Annual Report & Accounts with the

financial statements and our knowledge obtained from our audit

Our procedures did not identify any material impact in the context of our audit of the financial statements as a whole or our key

audit matters for the year ended31December2022.

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 financial statements as a whole

Based on our professional judgement we determined materiality for the financial statements as a whole as follows

Group financial statements Society financial statements

Overall materiality £18.5million (2021:£11.7million) £13.1million (2021:£7.1million)

How we determined it

5%of Profitloss before tax from continuing

operations

5%of Profitloss before tax from continuing

operations

Rationale for benchmark applied

Profit before tax is one of the principal

considerations when assessing the Group's

and Society's performance and is a

generally accepted auditing benchmark

Profit before tax is one of the principal

considerations when assessing the Group's

and Society's performance and is a

generally accepted auditing benchmark

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£6.2million to£13.1million Certain components were audited to a local

statutory audit materiality that was also less than our overall Group materiality

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£13.9million for the Group

financial statements and£9.8million 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£930,000

(Group audit) (2021:£580,000) and£650,000(Society audit) (2021:£350,000) as well as misstatements below those amounts

that in our view warranted reporting for qualitative reasons

Coventry Building Society  Annual Report & Accounts2022

Financial Statements

133

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

• A risk assessment to identify critical factors that could impact the going concern basis of preparation including the current and

forecast financial performance regulatory metrics and the sector in which the Group operates As part of our risk assessment

we reviewed and considered the Group’s strategic plan ICAAP and ILAAP regulatory correspondence and management

reports provided to key governance forums

• Evaluation of the reasonableness of the Group’s strategic and operating plan including testing key assumptions and

performance of sensitivity analysis using our understanding of the Group and its financial and operating performance obtained

during the course of our audit We also considered management’s ability to accurately forecast financial performance by

comparing past business plans to actual results and

• Testing the appropriateness of the disclosures made in the Annual Report and Accounts

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 financial statements are authorised for issue

In auditing the financial statements we have concluded that the directors’ use of the going concern basis of accounting in the

preparation of the financial statements 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

In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code we have nothing material to

add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it

appropriate to adopt the going concern basis of accounting

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 financial statements and our auditors’

report thereon The directors are responsible for the other information which includes reporting based on the Task Force on

Climate-related Financial Disclosures (TCFD) recommendations Our opinion on the financial statements 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 financial statements our responsibility is to read the other information and in doing so consider

whether the other information is materially inconsistent with the financial statements 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 financial statements 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

Independent Auditors’ Report

to the Members of Coventry

Building Society

Continued

Financial Statements

Coventry Building Society  Annual Report & Accounts2022

134

Building Societies Act1986– Opinion on 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December2022is consistent with the accounting records

and the financial statements 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

Corporate Governance Statement

ISAs (UK) require us to review the directors’ statements in relation to going concern longer-term viability and that part of the

corporate governance statement relating to the Society’s compliance with the provisions of the UK Corporate Governance Code

which the Listing Rules of the Financial Conduct Authority specify for review by auditors of premium listed companies Our

additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting

on other information section of this report

Based on the work undertaken as part of our audit we have concluded that each of the following elements of the corporate

governance statement is materially consistent with the financial statements and our knowledge obtained during the audit and we

have nothing material to add or draw attention to in relation to

• The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks

• The disclosures in the Annual Report that describe those principal risks what procedures are in place to identify emerging risks

and an explanation of how these are being managed or mitigated

• The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern

basis of accounting in preparing them and their identification of any material uncertainties to the Group’s and Society’s ability

to continue to do so over a period of at least twelve months from the date of approval of the financial statements

• The directors’ explanation as to their assessment of the Group’s and Society’s prospects the period this assessment covers

and why the period is appropriate and

• The directors’ statement as to whether they have a reasonable expectation that the Society will be able to continue in

operation and meet its liabilities as they fall due over the period of its assessment including any related disclosures drawing

attention to any necessary qualifications or assumptions

Our review of the directors’ statement regarding the longer-term viability of the Group was substantially less in scope than an

audit and only consisted of making inquiries and considering the directors’ process supporting their statement checking that

the statement is in alignment with the relevant provisions of the UK Corporate Governance Code and considering whether the

statement is consistent with the financial statements and our knowledge and understanding of the Group and Society and their

environment obtained in the course of the audit

In addition based on the work undertaken as part of our audit we have concluded that each of the following elements of the

corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit

• The directors’ statement that they consider the Annual Report taken as a whole is fair balanced and understandable and

provides the information necessary for the members to assess the Group’s and Society’s position performance business

model and strategy

• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems

and

• The section of the Annual Report describing the work of the Audit Committee

We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the Society’s

compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing

Rules for review by the auditors

Coventry Building Society  Annual Report & Accounts2022

Financial Statements

135

Responsibilities for the financial statements and the audit

Responsibilities of the directors for the financial statements

As explained more fully in the statement of Directors’ Responsibilities in respect of the preparation of the Annual Report &

Accounts the directors are responsible for the preparation of the financial 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 financial statements that are free from material misstatement whether due to

fraud or error

In preparing the financial statements 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 financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements 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 financial

statements

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 financial statements 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

Independent Auditors’ Report

to the Members of Coventry

Building Society

Continued

Financial Statements

Coventry Building Society  Annual Report & Accounts2022

136

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 financial statements 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 directors on28April2022to audit the financial

statements for the year ended31December2022and subsequent financial periods The period of total uninterrupted engagement

is four years covering the years ended31December2019to31December2022.

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

Other voluntary reporting

Directors'remuneration

The Society voluntarily prepares a Directors’ Remuneration Report in accordance with the provisions of the Companies Act2006.

The directors requested that we audit the part of the Directors’ Remuneration Report specified by the Companies Act2006to be

audited as if the Society were a quoted company

In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the

Companies Act2006.

Carl Sizer (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

Birmingham

23February2023

Coventry Building Society  Annual Report & Accounts2022

Financial Statements

137

Income Statements

For the year ended31December2022

Notes

Group

2022

£m

Group

2021

£m

Society

2022

£m

Society

2021

£m

Interest receivable and similar income calculated using the

Effective Interest Rate method 3 1,421.1 833.9 1,249.6 703.5

Interest payable and similar charges 4 (763.8) (357.7) (750.8) (360.5)

Net interest income 657.3 476.2 498.8 343.0

Fees and commissions receivable 5 7.2 7.4 4.7 5.2

Fees and commissions payable 6 (10.7) (10.3) (8.1) (7.4)

Other operating income 7 1.9 1.5 1.9 1.5

Net gains(losses) from derivative financial instruments 8 26.8 (6.6) 26.5 (6.1)

Total income 682.5 468.2 523.8 336.2

Administrative expenses 9 (266.1) (233.2) (219.3) (185.8)

Amortisation of intangible assets 17 (11.8) (12.5) (11.8) (12.5)

Depreciation on property plant and equipment 18 (16.9) (17.8) (16.9) (17.8)

Impairment (charge) release on loans and advances to customers 14 (16.6) 28.7 (13.6) 21.3

Charitable donation to Poppy Appeal (0.6) (0.6) (0.6) (0.6)

Profit before tax 370.5 232.8 261.6 140.8

Taxation 15 (84.3) (42.0) (62.3) (25.8)

Profit for the financial year 286.2 190.8 199.3 115.0

Profit for the financial year arises from continuing operations and is attributable to the members of the Society

Statements of Comprehensive Income

For the year ended31December2022

Notes

Group

2022

£m

Group

2021

£m

Society

2022

£m

Society

2021

£m

Profit for the financial year 286.2 190.8 199.3 115.0

Other comprehensive income(expense)

Items that will not be transferred to the income statement

Remeasurement of defined benefit pension scheme 19 (27.6) 21.3 (27.6) 21.3

Taxation 15 8.0 (6.1) 8.0 (6.1)

Items that may be transferred to the income statement

Fair value through other comprehensive income investments

Fair value movements taken to reserves (55.2) (15.5) (55.2) (15.5)

Amount transferred to the income statement 55.4 18.8 55.4 18.8

Taxation 15 0.2 (1.1) 0.2 (1.1)

Cash flow hedges

Fair value movements taken to reserves 467.5 (34.4) 394.3 64.8

Amount transferred to the income statement (121.9) 135.6 (29.7) 10.0

Taxation 15 (96.0) (27.4) (101.3) (20.1)

Other comprehensive income for the year net of tax 230.4 91.2 244.1 72.1

Total comprehensive income for the year net of tax 516.6 282.0 443.4 187.1

The notes on pages142to192form part of these accounts

Financial Statements

Coventry Building Society  Annual Report & Accounts2022

138

Balance Sheets

As at31December2022

Notes

Group

2022

£m

Group

2021

£m

Society

2022

£m

Society

2021

£m

Assets

Cash and balances with the Bank of England 7,792.2 6,650.2 7,724.9 6,514.2

Loans and advances to financial institutions 622.8 295.8 622.8 295.8

Debt securities 12 1,594.8 676.0 1,520.8 676.0

Loans and advances to customers 13 48,014.3 46,620.6 29,634.9 28,550.4

Hedge accounting adjustment (1,595.3) (295.4) (1,595.3) (295.4)

Derivative financial instruments 23 2,278.1 406.3 2,254.7 406.3

Investment in equity shares 5.8 4.9 5.8 4.9

Current tax assets 15 20.8 5.6 20.4 5.7

Investment in Group undertakings 16 — — 17,879.7 17,552.7

Intangible assets 17 43.3 35.7 43.3 35.7

Property plant and equipment 18 63.2 76.1 63.2 76.1

Prepayments and accrued income 23.8 24.6 23.6 24.4

Pension benefit surplus 19 3.3 29.3 3.3 29.3

Total assets 58,867.1 54,529.7 58,202.1 53,876.1

Liabilities

Shares 42,288.7 39,890.2 42,288.7 39,890.2

Deposits from banks 7,542.9 6,040.2 7,532.0 6,040.2

Other deposits 5.0 5.0 5.0 5.0

Amounts owed to other customers 416.1 609.8 530.1 706.6

Debt securities in issue 22 5,243.2 5,252.3 4,549.5 4,418.6

Hedge accounting adjustment (452.5) (96.1) (452.5) (96.1)

Derivative financial instruments 23 626.5 219.8 617.5 163.5

Deferred tax liabilities 20 111.7 13.4 113.2 10.9

Accruals and deferred income 49.9 43.5 45.1 38.8

Other liabilities 29 30.5 34.7 677.8 817.7

Provisions for liabilities and charges 24 0.4 0.4 0.4 0.4

Subordinated liabilities 25 15.4 15.3 15.4 15.3

Subscribed capital 26 41.6 41.6 41.6 41.6

Total liabilities 55,919.4 52,070.1 55,963.8 52,052.7

Members'interests and equity

General reserve 2,250.7 2,012.6 1,534.3 1,383.1

Other equity instruments 27 415.0 415.0 415.0 415.0

Fair value through other comprehensive income reserve 4.9 4.5 4.9 4.5

Cash flow hedge reserve 277.1 27.5 284.1 20.8

Total members'interests and equity 2,947.7 2,459.6 2,238.3 1,823.4

Total members'interests liabilities and equity 58,867.1 54,529.7 58,202.1 53,876.1

The notes on pages142to192form part of these accounts

Approved by the Board of directors on23February2023and signed on its behalf by

David Thorburn

Chair of the Board

Steve Hughes

Chief Executive

Lee Raybould

Chief Financial Officer

Coventry Building Society  Annual Report & Accounts2022

Financial Statements

139

Statements of Changes in Members'

Interests and Equity

For the year ended31December2022

Group

General reserve

£m

Other equity

instruments

£m

Fair value through

other comprehen-

sive income reserve

£m

Cash flow hedge

reserve

£m

Total

£m

As at1January2022 2,012.6 415.0 4.5 27.5 2,459.6

Profit for the financial year 286.2 — — — 286.2

Net remeasurement of defined benefit pension scheme (19.6) — — — (19.6)

Net movement in fair value through other comprehensive

income reserve — — 0.4 — 0.4

Net movement in cash flow hedge reserve — — — 249.6 249.6

Total comprehensive income 266.6 — 0.4 249.6 516.6

Distribution to Additional Tier1capital holders (28.5) — — — (28.5)

As at31December2022 2,250.7 415.0 4.9 277.1 2,947.7

As at1January2021 1,835.1 415.0 2.3 (46.3) 2,206.1

Profit for the financial year 190.8 — — — 190.8

Net remeasurement of defined benefit pension scheme 15.2 — — — 15.2

Net movement in fair value through other comprehensive

income reserve — — 2.2 — 2.2

Net movement in cash flow hedge reserve — — — 73.8 73.8

Total comprehensive income 206.0 — 2.2 73.8 282.0

Distribution to Additional Tier1capital holders (28.5) — — — (28.5)

As at31December2021 2,012.6 415.0 4.5 27.5 2,459.6

Society

General reserve

£m

Other equity

instruments

£m

Fair value through

other comprehen-

sive income reserve

£m

Cash flow hedge

reserve

£m

Total

£m

As at1January2022 1,383.1 415.0 4.5 20.8 1,823.4

Profit for the financial year 199.3 — — — 199.3

Net remeasurement of defined benefit pension scheme (19.6) — — — (19.6)

Net movement in fair value through other comprehensive

income reserve — — 0.4 — 0.4

Net movement in cash flow hedge reserve — — — 263.3 263.3

Total comprehensive income 179.7 — 0.4 263.3 443.4

Distribution to Additional Tier1capital holders (28.5) — — — (28.5)

As at31December2022 1,534.3 415.0 4.9 284.1 2,238.3

As at1January2021 1,281.4 415.0 2.3 (33.9) 1,664.8

Profit for the financial year 115.0 — — — 115.0

Net remeasurement of defined benefit pension scheme 15.2 — — — 15.2

Net movement in fair value through other comprehensive

income reserve — — 2.2 — 2.2

Net movement in cash flow hedge reserve — — — 54.7 54.7

Total comprehensive income 130.2 — 2.2 54.7 187.1

Distribution to Additional Tier1capital holders (28.5) — — — (28.5)

As at31December2021 1,383.1 415.0 4.5 20.8 1,823.4

The notes on pages142to192form part of these accounts

Financial Statements

Coventry Building Society  Annual Report & Accounts2022

140

Statements of Cash Flows

For the year ended31December2022

Notes

Group

2022

£m

Group

2021

£m

Society

2022

£m

Society

2021

£m

Cash flows from operating activities

Profit before tax 370.5 232.8 261.6 140.8

Adjustments for

Expected credit loss provisions and other provisions 14,24 16.6 (28.7) 13.6 (21.3)

Depreciation and amortisation 28.7 30.3 28.7 30.3

Interest on subordinated liabilities and subscribed capital 6.0 6.5 6.0 6.5

Changes to fair value adjustment of hedged risk (120.6) 50.7 (30.9) (79.9)

Other non-cash movements 243.6 (101.9) 238.3 (499.8)

Non-cash items included in profit before tax 174.3 (43.1) 255.7 (564.2)

Loans and advances to credit institutions (332.8) 260.8 (331.2) 323.0

Loans and advances to customers (1,413.6) (2,633.6) (1,098.1) (1,615.0)

Prepayments accrued income and other assets 0.9 (5.2) 0.9 (5.2)

Changes in operating assets (1,745.5) (2,378.0) (1,428.4) (1,297.2)

Shares 2,304.2 1,761.9 2,304.2 1,761.9

Deposits and other borrowings 1,266.7 904.1 1,273.1 987.7

Debt securities in issue (2.8) — (2.5) —

Accruals and deferred income and other liabilities 3.6 4.9 3.5 (12.3)

Changes in operating liabilities 3,571.7 2,670.9 3,578.3 2,737.3

Interest paid on subordinated liabilities and subscribed capital (5.9) (6.5) (5.9) (6.5)

Interest paid on lease liabilities (0.4) (0.5) (0.4) (0.5)

Taxation (89.0) (67.9) (67.8) (19.0)

Net cash flows from operating activities 2,275.7 407.7 2,593.1 990.7

Cash flows from investing activities

Purchase of investment securities (1,727.0) (167.5) (1,526.1) (167.5)

Sale and maturity of investment securities and equities 753.0 470.0 626.0 470.0

Proceeds from sale of properties 1.7 1.9 1.7 1.9

Purchase of mortgage assets (net of fees) — (476.9) — —

Purchase of property plant and equipment and intangible assets (26.7) (37.2) (26.7) (37.2)

Net cash flows from investing activities (999.0) (209.7) (925.1) 267.2

Cash flows from financing activities

Loans to connected undertakings — — (462.7) (959.7)

Distributions paid to Additional Tier1capital holders (28.5) (28.5) (28.5) (28.5)

Repurchase and repayment of debt securities in issue (540.0) (545.6) (400.0) (423.9)

Issue of debt securities 434.3 1,278.7 434.4 1,278.7

Principal elements of lease payments (4.7) (4.9) (4.7) (4.9)

Repurchase of subordinated liabilities and subscribed capital — (10.3) — (10.3)

Net cash flows from financing activities (138.9) 689.4 (461.5) (148.6)

Net increase in cash 1,137.8 887.4 1,206.5 1,109.3

Cash and cash equivalents at start of year 6,485.4 5,598.0 6,349.4 5,240.1

Cash and cash equivalents at end of year 7,623.2 6,485.4 7,555.9 6,349.4

Cash and cash equivalents

Cash and balances with central banks

 7,623.2 6,485.4 7,555.9 6,349.4

1. This excludes the mandatory reserve with the Bank of England of£169.0million (2021:£164.8million)

The notes on pages142to192form part of these accounts

Coventry Building Society  Annual Report & Accounts2022

Financial Statements

141

1.Acc1. Accounting policies

Basis of preparation

These accounts have been prepared in accordance with UK adopted International Accounting Standards the Disclosurcounting Standards, the Disclosure and

Transparency Rules of the Financial Conduct Authority (FCA) and with those parts of the Building Societies (Accounts and Related

Provisions) Regulations1998that are applicable to the Societyegulations 1998 that are applicable to the Society .

The accounts comprise the standalone financial statements of the Society and the consolidated financial statements of the Group.

They have been prepared on a historical cost basis as modified be been prepared on a historical cost basis, as modified by the revaluation of financial instruments which are measured at

fair value As stated in the Dirfair value. As stated in the Directors’ Report the directors cectors’ Report, the directors consider that it is appropriate to continue to adopt the going concern

basis in preparing the accountsbasis in preparing the accounts.

A summary of the Group's accounting policies is set out within this note These accounting policies havounting policies is set out within this note. These accounting policies have been applied consistently

throughout the current and prior year F. Further information on judgements in the application of accounting policies and significant

accounting estimates is set out within note2.accounting estimates is set out within note 2.

These accounts are presented in pounds sterling and except where otherwise stated all figuresented in pounds sterling and, except where otherwise stated, all figures in the financial statements have

been rounded to the nearest hundred thousand pounds (£0.1million)ed thousand pounds (£0.1 million).

Basis of consolidation

The assets liabilities and results of the Society and its cThe assets, liabilities and results of the Society and its consolidated subsidiaries and structured entities are included in the financial

statements of the Group.

The Group consolidates an entity from the date on which it (a) has poThe Group consolidates an entity from the date on which it: (a) has power over the entity (ber the entity; (b) is exposed to or has the right to) is exposed to, or has the right to,

variable returns from its involvement with the entity and (ement with the entity; and (c) has the ability to affect those returns through the exercise of its powerswers.

Upon consolidation intrUpon consolidation, intra-group transactions balances and unrealised gains and losses are eliminatedansactions, balances and unrealised gains and losses are eliminated.

The Group reassesses whether it controls an entity if facts and circumstances indicate that there are changes in one or more of these

three elements The Group deconsolidates entities frthree elements. The Group deconsolidates entities from the date that control ceasesom the date that control ceases.

A structured entity is an entity in which voting or similar rights are not the dominant factor in deciding controle not the dominant factor in deciding control.

Structured entities are consolidated when the substance of the relationship indicates control In making this judgement the Groupontrol. In making this judgement, the Group

considers factors such as the purpose and design of the entity size and exposure to variability of returns and the natur, size and exposure to variability of returns and the nature of the

relationship including power ov, including power over the structured entity.

The Society's investment in shares in its subsidiaries is recognised on the Balance Sheet at cost less any provision for impairments any provision for impairment.

Changes in accounting standards

There are no amendments to standards effective from1Jds effective from 1 January2022that apply to or havanuary 2022 that apply to or have a material impact on the Group’s

financial statementsfinancial statements.

The IASB has issued a number of amendments to standards with effect from1January2023;howect from 1 January 2023; however these are not expected to, these are not expected to

have a significant impact on the Group’s financial statementss financial statements.

Derecognition of financial assets and liabilities

The Group derecognises financial assets where the right to receive cash flows has expired or where cash flows has expired, or where the assets are transferred with

substantially all the risks and rewards of ownership Where the transfer does not r. Where the transfer does not result in the transfer of cash flows but the Gresult in the transfer of cash flows, but the Group

assumes an obligation to pay the cash flows to the transferee the financial assets ars to the transferee, the financial assets are also derecognisede also derecognised.

The Group derecognises financial liabilities when the obligation is discharged cancelled or has expiredgnises financial liabilities when the obligation is discharged, cancelled or has expired.

Financial assets and liabilities are derecognised and a new instrument recognised where a renegotiated or new agreement is

established on substantially different terms an example of this westablished on substantially different terms; an example of this would be a product port to a new property on a mortgage loanould be a product port to a new property on a mortgage loan.

Securitisation and covered bond transactions

The Group has securitised certain mortgage loans by transferring the loans to structured entities controlled by the Group Thesey the Group. These

securitisations enable the issuance of debt to investors who take security in the underlying assets as collaterestors, who take security in the underlying assets as collateralal.

The structured entities are fully consolidated into the Group accounts where it is determined that the Society has control over the

entity.

Notes to the accounts

Financial Statements

Coventry Building Society  Annual Report & Accounts2022

142

Transfers of mortgage loans to the structured entities are not treated as sales and the loans are not derecognised but remain on

the transferor's own Balance Sheet as it retains substantially all the risks and rewards of the mortgage loans In the acards of the mortgage loans. In the accounts of the

transferor the proceeds receiv, the proceeds received from the transfer of mortgage loans to structured entities are accounted for as a deemed loan from

the structured entity and are disclosed within Other liabilities on the Balance Sheetthe structured entity and are disclosed within Other liabilities on the Balance Sheet.

For covered bonds the Society itself and not the structured entity issues the cered bonds, the Society itself and not the structured entity issues the covered bonds and then lends the proceeds to the

structured entity on back to back terms The structured entity then uses these prstructured entity on back to back terms. The structured entity then uses these proceeds as consideration for the loans transferred

from the Society In the accounts of the Society. In the accounts of the Society neither the loan to the structured entity nor the consideration f, neither the loan to the structured entity nor the consideration for the transfer of

mortgage loans is recognised separately as an additional asset and liability.

The Group has also issued debt to be used as collateral for central government schemes or for use in sale and repurchase

agreements (repos) and similar transactions Some or all of the debt issuances maansactions. Some or all of the debt issuances may be retained by the Society.

Investments in such self-issued debt and the equivalent deemed loan together with the related incestments in such self-issued debt and the equivalent deemed loan, together with the related income expenditure and cash flows ome, expenditure and cash flows,

are not recognised in the Society's financial statementsgnised in the Society's financial statements.

To manage interest rate risk the Society enters into derivativo manage interest rate risk, the Society enters into derivative transactions with its structured entities re transactions with its structured entities, receiving a rate of interest

based on the securitised mortgages and paying a rate inherent in the debt issuances In accent in the debt issuances. In accordance with IFRS9,these internal ordance with IFRS 9, these internal

derivatives are treated as part of the deemed loan and not separately measured at fair value because the relevant mortgage loans

are not derecognised All other derivatives rgnised. All other derivatives relating to securitisations and covered bonds are explained in the derivatives and hedge

accounting policy below.

Sale and repurchase agreements (repos)

Securities sold subject to a commitment to repurchase them are retained on the Balance Sheet when substantially all the risks

and rewards of ownership remain within the Group The counterparty liability is included separoup. The counterparty liability is included separately on the Balance Sheet asately on the Balance Sheet, as

appropriate The differencappropriate. The difference between the sale and repurchase price is accrued over the life of the agreements using the Effective

Interest Rate (EIR) methodInterest Rate (EIR) method.

Interest receivable and interest payable

For instruments measured at amortised cost the EIR method is used to measuror instruments measured at amortised cost, the EIR method is 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 EIR is the rate that discounts the estimatedant period. The EIR is the rate that discounts the estimated

future cash payments or receipts over the expected life of the financial instrument or when appropriate a shorter period to the, when appropriate, a shorter period, to the

net carrying amount of the financial asset Internet carrying amount of the financial asset. Interest income on fair value through other comprehensive income (FVOCI) debt is also

included on an EIR basisincluded on an EIR basis.

In calculating the EIR the Group estimates cash flowIn calculating the EIR, the Group estimates cash flows considering all contractual terms of the financial instrument Fs considering all contractual terms of the financial instrument. For assets which

are in default and assessed as stage3under IFRS9,interest is calculated by applying the EIR to the expected recsessed as stage 3 under IFRS 9, interest is calculated by applying the EIR to the expected recoverable amountable amount.

The EIR calculation includes all fees received and paid and costs borne and all other premiums above or below market ratesates.

Fees and commissions

Fees and commissions receivable and payable that are not spread across expected asset lives under the EIR method are taken to

income on an accruals basis as the related obligations are satisfiede satisfied.

Leases

The majority of the Group’s leases relate to property including branches head offics leases relate to property including branches, head office buildings and data centres The Group also hase buildings and data centres. The Group also has

other leases which relate to cars and office equipmentother leases which relate to cars and office equipment.

Where the Group enters into a lease or contract which meets the criteria for lease classification under IFRS16,the Groupact which meets the criteria for lease classification under IFRS 16, the Group

recognises an asset representing its right to use the leased item and a corresponding liability on the Balance Sheete Sheet.

The lease liability is measured at the present value of the lease payments including any incentives additional lease components andentives, additional lease components and

lease extension or termination options where they are reasonably certain to be exercisedeasonably certain to be exercised.

These payments are discounted using the Group's incremental borrowing rate since no interest rates are specified in the Group's

leasesleases.

The right-of-use asset is measured at cost including the lease liability any initial direct costs and committed restoration costs, any initial direct costs and committed restoration costs.

The right-of-use asset is depreciated over the shorter of its useful life or the lease term on a straight line basis through the Income

Statement and the interest charStatement, and the interest charge on the lease liability is recognised within Interest payable Iest payable. In the Cash Flow Statement then the Cash Flow Statement, the

interest paid on lease liabilities is included in Interest paid on lease liabilities and the principal element of the lease payments isest paid on lease liabilities, and the principal element of the lease payments is

included in Principal elements of lease paymentsyments.

Expenses relating to leases which are for less than12months of low value or rs than 12 months, of low value or relate to intangibles such as software are recognised in

the Income Statement as chargedged.

On an ongoing basis the Group reviews the right-of-use asset and lease liability for any modifications that would require

remeasurement and makes an assessment for impairment as required .

Coventry Building Society  Annual Report & Accounts2022 | Annual Report & Accounts 2022

Financial Statements

143

Notes to the accounts Continued

1.Acc1. Accounting policies continued

Notes to the accounts Continued

Taxation including deferred tax

Corporation tax on the profits for the year comprises current and deferred taxationent and deferred taxation.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authoritiesuthorities,

based on tax rates and laws that are enacted or substantively enacted by the Balance Sheet datee Sheet date.

Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts

in the financial statements Deferred tax assets arin the financial statements. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be

available against which they can be utilisedy can be utilised.

Deferred tax assets and liabilities are measured on a non-discounted basis at the tax rates that are expected to apply when the

related asset is realised or liability is settled Defrelated asset is realised or liability is settled. Deferred tax assets and liabilities are offset when there is both a legally enforceable right

and an intention to settle on a net basisand an intention to settle on a net basis.

Corporation tax is charged or credited directly to the Statement of Comprehensive Income if it relates to items that are credited or

charged to the Statement of Comprehensive Income Otherwise corporation tax is recncome. Otherwise corporation tax is recognised in the Income Statement .

Segmental reporting

The Group operates solely within the retail financial services sector within the United Kingdom As such no segmental analyetail financial services sector within the United Kingdom. As such, no segmental analysis is

requiredrequired.

Financial assets

Financial assets comprise cash and balances with the Bank of England loans and advances to financial institutions debt securitiesomprise cash and balances with the Bank of England, loans and advances to financial institutions, debt securities  ,

loans and advances to customers derivativloans and advances to customers, derivative financial instruments and investment in equity shareses.

At initial recognition the Group measures financial assets at their fognition, the Group measures financial assets at their fair value Subsequentlyair value. Subsequently financial assets are classified in one of, financial assets are classified in one of

the following measurement categoriesthe following measurement categories:

• Amortised cost.

• Fair value through other comprehensive income (FVOCI)VOCI).

• Fair value through profit and loss (FVTPL).

Financial assets are classified based on an assessment of the Group’s business model for managing the assets and their contractual

cash flow characteristicscash flow characteristics.

Amortised cost

Financial assets held to collect contractual cash flows and where contractual terms comprise solely payment of principal and interest

are classified as amortised cost This category oare classified as amortised cost. This category of financial asset includes cash and balances with the Bank of England loans andf financial asset includes cash and balances with the Bank of England, loans and

advances to financial institutions loans and advancadvances to financial institutions, loans and advances to customers and a small portfolio of debt securitieses to customers, and a small portfolio of debt securities.

Financial assets within this category are recognised on either the receipt of cash or deposit of funds into one of the Group’s bank

accounts or when the funds are advanced to borrowers After initial recoers. After initial recognition the assets are measured at amortised cost using thegnition, the assets are measured at amortised cost using the

EIR method less provision fEIR method, less provision for expected credit lossesor expected credit losses.

Assets acquired through a business combination or portfolio acquisition are recognised at fair value at the acquisition date Thealue at the acquisition date. The

fair value at acquisition becomes the opening amortised cost for acquired assets Fomes the opening amortised cost for acquired assets. Fair value adjustments are made to reflect both

credit risk and interest yield associated with the acquired loan assets Any discount betwquired loan assets. Any discount between the amount due and the fair value is

subsequently recognised in interest receivable and similar income using the EIR methodest receivable and similar income using the EIR method.

Significant accounting judgements – classification and measurement of equity release loans

The Group has a£178.3million (2021:£187.6million) portfolio of equity rThe Group has a £178.3 million (2021: £187.6 million) portfolio of equity release mortgages where the borrower is guaranteed

that the amount recoverable at the end of the mortgage will not exceed the value of the property The Society has not offered. The Society has not offered

new mortgages on this basis since September2009.The avnew mortgages on this basis since September 2009. The average loan to value of the portfolio is39%(2021:39%) The Groupf the portfolio is 39% (2021: 39%). The Group

has assessed the cash flow characteristics at recognition of each loan within the portfolio to confirm that the IFRS9criteria foronfirm that the IFRS 9 criteria for

amortised cost classification are met The Gramortised cost classification are met. The Group has concluded that this is the case as the low loan to value of the portfolio means

that the insurance element of the guarantee is a de minimis feature of the product for substantially all of the loansoduct for substantially all of the loans.

Financial Statements

Coventry Building Society  Annual Report & Accounts2022 | Annual Report & Accounts 2022

144

Fair value through other comprehensive income (FVOCI)

Financial assets held with the intent of collecting contractual cash flows or selling where contractual terms comprise solely pas or selling, where contractual terms comprise solely payment

of principal and interest arof principal and interest, are classified and measured at FVOCI This category of financial asset includes most of the Gr. This category of financial asset includes most of the Group’s debt

securities which are held to manage liquidity.

Assets are measured at fair value based on quoted market prices or prices obtained from market intermediaries where available Invailable. In

cases where quoted market prices are not available disce not available, discounted cash flow valuations are usedounted cash flow valuations are used.

Interest on FVOCI assets is recognised in Interest receivable and similar income in the Income Statement using the EIR methodable and similar income in the Income Statement, using the EIR method.

Unrealised gains and losses arising from changes in fair value are recognised directly in Other comprehensive income except forome, except for

impairment losses and foreign exchange gains and losses which are recochange gains and losses, which are recognised in the Income Statement Gains and losses arisinggnised in the Income Statement. Gains and losses arising

on the sale of FVOCI assets including anon the sale of FVOCI assets, including any cumulative gains or losses previously recognised in Other comprehensive income aree income, are

recognised in the Income Statementncome Statement.

Fair value through profit and loss (FVTPL)

FVTPL is the default category for financial assets which do not meet the criteria for amortised cost or FVOCI assets Assets whichsets which do not meet the criteria for amortised cost or FVOCI assets. Assets which

are classified as FVTPL include derivative financial instruments and investments in equity shareses.

These assets are carried at fair value and are initially recognised at the trade dategnised at the trade date.

Interest income and changes in the fair value of derivatives other than the effective portion of those in cash flow hedge accounting

relationships are recognised in the Income Statement The impact of hedging on the measurement of financial astatement. The impact of hedging on the measurement of financial assets and liabilities is

detailed in the derivatives and hedge accounting policy.

Dividends and changes in the fair value of equity instruments are recognised in the Income Statementgnised in the Income Statement.

Impairment of financial assets

The Group assesses on a forwThe Group assesses, on a forward-looking basis the expected credit loss (ECL) asard-looking basis, the expected credit loss (ECL) associated with its financial assets carried at

amortised cost and FVOCI and its mortgage pipeline commitments Famortised cost and FVOCI and its mortgage pipeline commitments. Financial assets held at FVTPL are not subject to impairment

under IFRS9.under IFRS 9.

IFRS9requires the Society to categorise its financial asIFRS 9 requires the Society to categorise its financial assets into one of three stages at the reporting datesets into one of three stages at the reporting date.

Assets that are performing are shown in stage1;assets where there has been a significant incre shown in stage 1; assets where there has been a significant increase in credit risk since initial

recognition are in stage2;and assets which are credit impaire in stage 2; and assets which are credit impaired or in default are in stage3.The Society is red or in default are in stage 3. The Society is required to recognise a12equired to recognise a 12

month ECL allowance on all stage1assets and a lifmonth ECL allowance on all stage 1 assets and a lifetime ECL allowance on all stage2and3assetsetime ECL allowance on all stage 2 and 3 assets.

The Society does not have any purchased or originated credit-impaired financial assetsed financial assets.

The Society’s treasury assets have all been assessed as performing (IFRS9stage1) throughout the period and thereforsessed as performing (IFRS 9 stage 1) throughout the period and therefore the

resulting ECL is immaterial to the financial statementsresulting ECL is immaterial to the financial statements.

Loans and advances to customers

Significant accounting judgements – identifying significant increase in credit risk

The Group considers a loan to have experienced a significant increase in credit risk when one or more of the following qualitativewing qualitative,

quantitative or backstop criteria have been metve been met.

Qualitative criteria

The qualitative measures used to allocate a loan to stage2arThe qualitative measures used to allocate a loan to stage 2 are aligned to the Group’s underwriting and forbearance practices Ins underwriting and forbearance practices. In

some cases the qualitative measures will be evident befsome cases, the qualitative measures will be evident before the borrower’s credit score is impacted and they are therefore lead

indicators of a deteriorating credit riskedit risk. The most significant criterion relates to the impact of the cost of living affordability stress

and all accounts identified as having such a stress are moved to stage2.ed to stage 2. In the prior year accounts subject to a Covid-19pa, accounts subject to a Covid-19 payment

holiday were moved to stage2where a Covid-19paed to stage 2 where a Covid-19 payment holiday was extended beyond three months or where a mortgageond three months, or where a mortgage

payment holiday of any length had been taken and there were other indicators of distress such as a deterioration in internal credit

risk grades or worsening bureau dataeau data.

Other criteria include county court judgements bankruptcyOther criteria include county court judgements, bankruptcy cancelled direct debits or poor external credit burea, cancelled direct debits or poor external credit bureau data which

exceeds the Society’s underwriting policy at the reporting date even if the loan is currently performing Qualitativs underwriting policy at the reporting date, even if the loan is currently performing. Qualitative criteria are

monitored and reviewed periodically for appropriatenessed periodically for appropriateness.

Quantitative criteria

The Group uses internal credit risk gradings that reflect its assessment of the probability of default (PD) of individual borrowers

and counterparties Given the Society’and counterparties. Given the Society’s very low risk loan book a three grs very low risk loan book, a three grade decrease in internal risk grade rating may still result in

a very low PD and the application of the current decline limit ensures that loans below this threshold are regarded as still being of

sufficiently high quality that they are allocated to stage1.The loan will be assessed as stage2whersufficiently high quality that they are allocated to stage 1. The loan will be assessed as stage 2 where there has been a three internal

risk grade decrease and the remaining lifetime PD has doubled since origination and is greater than2%.emaining lifetime PD has doubled since origination and is greater than 2%.

In order to respond to the risk of inflation the Group has applied uplifted PDs to those customers identified as haespond to the risk of inflation, the Group has applied uplifted PDs to those customers identified as having experienced a

deterioration in credit quality as determined by a range of measur, as determined by a range of measures including credit bureau data on sces, including credit bureau data on scores and indebtedness sinceores and indebtedness, since

December2021,to calculate a cost of living post model adjustment The levDecember 2021, to calculate a cost of living post model adjustment. The level of uplifted PD applied varies depending on whether

the customer has a fixed term end date in the next two years or not Customers with a Lears or not. Customers with a LTV below60%are excluded from the cohortTV below 60% are excluded from the cohort

as the risk of loss is deemed low and therefore not suffer, and therefore not suffered a significant increase in credit risk All customers identified within theed a significant increase in credit risk. All customers identified within the

cost of living PMA are moved to stage2.ved to stage 2.

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Financial Statements

145

Notes to the accounts Continued

1.Acc1. Accounting policies continued

Backstop criteria

In addition a loan is considered to haIn addition, a loan is considered to have experienced a significant increase in credit risk if its total arrears are equal to one current

monthly repayment Lmonthly repayment. Loans subject to this backstop measure will continue to be classified as stage2for a period ooans subject to this backstop measure will continue to be classified as stage 2 for a period of12months (curf 12 months (cure

period) from the date that the arrears fall below one current monthly repaymentepayment.

A six month cure period is applied to accounts which have shown increased risk indicators as a result of the cost of living

affordability assessmentaffordability assessment. For all other accounts a12month cure period has been applied A cure period is not applied to the otheror all other accounts, a 12 month cure period has been applied. A cure period is not applied to the other

qualitative and quantitative criteria as the borrower’s credit score will be adversely affected for some time after the trigger event and

to add a further cure period beyond this would overstate the impact on the credit risk of the accountount.

Default

The Society considers a loan to be in default when the loan is three months or more in arrears ie curree months or more in arrears i.e. current arrears balances are equal

to three or more current monthly repayments Alternativent monthly repayments. Alternatively a loan is considered to be in default if any of the f, a loan is considered to be in default if any of the following unlikeliness

to pay indicators are presentesent:

• A payment concession has been agreed with the borrower whereby a sum less than the contractual monthly payment is made

for a limited period of timeme.

• Litigation proceedings against the borrower have begunbegun.

• The customer is bankrupt and the account is in arrearsarrears.

• The loan is interest only and has gone three months past the scheduled term date or1, or 12m2 months past the contractual trigger

event for equity release loans.

• The property has been taken into possession by the Groupp.

• A specific provision has been raised indicating a potential issue that may give rise to a loss (ege.g . title or boundary issues).

These definitions align to the Society's internal definition of arrears for risk management and collection purposesollection purposes.

A loan is considered to no longer be in default (ie to havult (i.e. to have been cured) when a consecutive period of12months has passed since been cured) when a consecutive period of 12 months has passed since it

met any of the above qualitative and quantitative criteria (cure period)cure period).

Inputs assumptions and estimation techniquesInputs, assumptions and estimation techniques

The measurement of expected credit loss reflectsedit loss reflects:

• An unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes.

• The time value of money.

• Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events,

current conditions and forecasts of future economic conditionsconditions.

Expected credit losses (ECLs) being forwExpected credit losses (ECLs), being forward-looking are discounted back to the rard-looking, are discounted back to the reporting date and are calculated by multiplying

the probability of default (PD) exposure at default (PD), exposure at default (EAD) and loss given default (LGD) where) where:

• The PD represents the likelihood of a borrower defaulting over either the next12mt 12 months or over the remaining lifetime of the

mortgage (being the contractual lifetime)).

• EAD is the amount the Society expects to be owed at the time of default t. The Society does not have any significant revolving

commitments where guaranteed further amounts can be drawn down by the borrower.

• LGD represents the Society’s expectation of the extent of loss on a default and takes account of available collateral likel, likely sales

cost and potential discount needed to secure a salesale.

The Societys IFRS9ECL calculation differs from that used fThe Societys IFRS 9 ECL calculation differs from that used for regulatory expected loss calculation as followss:

• The IFRS9PD is bS 9 PD is based on a point in time calculation adjusted to take into account estimates of future economic conditionss.

The regulatory PD is a hybrid between point in time and through the cycle long-run PD and is averaged throughout a full

economic cyclee.

• The IFRS9ES 9 EAD has been modelled based on expected payments over the term up to the point of default . The regulatory EAD

cannot be lower than the current balance.

• The IFRS9LGD inS 9 LGD includes the impact of future economic conditions such as changes in value of collateral and does not include

any floors Os. Only costs associated with obtainingse/selling the collateral are included and the discounting of the expected cash

flows is performed using the Effective Interest Rate of the loan n. The regulatory LGD is based on downturn conditions and

includes all collection costs is su, is subject to regulatory floors and is discounted using a stressed measure of the cost of capitalal.

• IFRS9alsS 9 also requires the use of multiple economic scenarios to calculate a probability weighted forward-looking ECL Mor. More

information on the forward-looking information incorporated in the ECL calculations is included in note,14.

Financial Statements

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Governance of Expected Credit Losses

Governance over ECLs is carried out by the Society's ECL Management Committee which meets on a regular basis at least quarteCommittee which meets on a regular basis, at least quarte rly.

The Committee is made up of members from the Finance Tinance, Treasury and Credit Risk functions in addition to members from the

second and third lines of defence The Committee is responsible for the review oence. The Committee is responsible for the review of key assumptions and judgements within the EC L

calculations such as the staging criteria or need for post model adjustments The Committee does this by review ocalculations such as the staging criteria or need for post model adjustments. The Committee does this by review of key manageme nt

information and assessing existing and future risks to the portfolio in addition to reviewing model monitoring Assumptions andolio in addition to reviewing model monitoring. Assumptions and

judgements are approved by the ECL management committee with oversight performed by the Board Audit Committeed Audit Committee.

Governance over the IFRS9ECL models is carried out by the Model Risk Committee and includes ase over the IFRS 9 ECL models is carried out by the Model Risk Committee and includes assessments of model

performance and model validation at regular intervals and on an ad hoc basis where significant model enhancements are carried o utut

See the Risk Management Report for more information on model riske information on model risk.

Significant accounting assumptions and estimates – post model adjustments

The Group applies post model adjustments (PMAs) to reflect ECLs relating to items which cannot be adequately captured by

existing modelsexisting models.

An example of these PMAs is the cost of living PMA where there is no historical data rAn example of these PMAs is the cost of living PMA, where there is no historical data regarding such an affordability cost stressdability cost stress.

As a result management judgement and estimation are rAs a result, management judgement and estimation are required in order to reflect the underlying risk This risk can be required in order to reflect the underlying risk. This risk can be reflected in

adjustments to the estimation of probability of default for loans or adjustments to loss given default on loans subject to additional

cladding and other fire safety riskscladding and other fire safety risks.

The assumptions used in calculating ECLs are regularly reviewed and model outputs and components of ECL estimates are assess ed

by management via back testing This is used across all aspects oby management via back testing. This is used across all aspects of the model including the assessment of the predicted PD or LGD

of an account against the actual outturn of an account against the actual outturn. An example of this would be estimated PD applied to the identified higher risk segments of

the book via the cost of living PMA recognisedognised.

The application of PMAs is considered by the Society’s ECL Management Committee PMAs are rs ECL Management Committee. PMAs are reviewed and assessed for

reasonableness considering the future expectation of performance in the context of historical performance and other indicatorsf historical performance and other indicators,

as well as deriving the basis for cure rules to be applied Oversight of judgements surre rules to be applied. Oversight of judgements surrounding PMAs is provided by the Board Audi t

CommitteeCommittee.

ECLs for loans and advances to customers reduce the carrying amount of these assets in the Balance Sheet and the movement

in ECLs is included in Impairment losses in the Income Statement Fome Statement. For mortgage pipeline exposures and undrawn mortgage loan

facilities the profacilities, the provision is included in the ECL provision in the Balance Sheetvision is included in the ECL provision in the Balance Sheet.

Further information on PMA in place at the year end can be found in note14.ear end can be found in note 14.

Calculation of expected credit loss under IFRS9– trCalculation of expected credit loss under IFRS 9 – treasury credit risk and investment in Group undertakings

Treasury assets comprise cash and balances with the Bank of England loans and advancreasury assets comprise cash and balances with the Bank of England, loans and advances to financial institutions and debtes to financial institutions ,and debt

securitiessecurities.

Credit losses on treasury assets are rare for the Group Ior the Group. In accordance with IFRS9,impairment for trn accordance with IFRS 9, impairment for treasury credit exposures is

calculated taking the exposure value and applying an externally published PD for the credit rating applicable to the exposureedit rating applicable to the exposure.

Exposures are monitored to review whether any change in the counterparty credit profile reflects a significant increase in credit ris kk

ECLs for treasury assets held at amortised cost reduce the carrying amount of these assets in the balance sheet and the movemen t

in ECLs is included in impairment losses in the Income Statement ECLs for debt securities measured at FVOCI do not rtatement. ECLs for debt securities measured at FVOCI do not reduce

the carrying amount of these assets which remain at fair value in the Balance Sheet Instead an amount equal to the alloair value in the Balance Sheet. Instead, an amount equal to the allowance

that would arise if the assets were measured at amortised cost is recognised in Other comprehensive income as an accumulated

impairment amount with a corresponding charge to Impairment losses in the Income Statement The accumulated loss recognisedtatement. The accumulated loss recognised in

Other comprehensive income is then recycled to the Income Statement upon derecognition of the assetsognition of the assets.

The Society’s investment in Group undertakings comprises shares and intercompany loans which are valued at cost less any

provision for impairment These inprovision for impairment. These investments are reviewed annually for evidence of potential impairment or significant increase in

credit risk with any impairment recognised in the Income Statement Nognised in the Income Statement. No impairment on Investment in Group undertakings has be en

identifiedidentified.

Write-off policy

The Group writes off financial assets when it has exhausted all practical recovery efforts and has concluded that there is no

reasonable expectation of recovery.

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Financial Statements

147

Notes to the accounts Continued

1.Acc1. Accounting policies continued

Derivative financial instruments

The Group holds derivative financial instruments only to manage the risks associated with its non-variable rate assets and liabilities

and its foreign currency transactions and not for speculative or transactions, and not for speculative or trading purposesading purposes.

All external derivative financial instruments are carried at fair value Derive carried at fair value. Derivatives are principally valued by discounting cash flows

using yield curves that are based on observable market data In measuring fable market data. In measuring fair value separate adjustments are made fair value, separate adjustments are made for credit risk to

the extent not already included in the valuationthe extent not already included in the valuation.

Hedge accounting

The Group applies the requirements of IAS39for hedge accounting Wherements of IAS 39 for hedge accounting. Where the documentation eligibility and testing criteria fore the documentation, eligibility and testing criteria for

hedge accounting set out in IAS39are met the Grhedge accounting set out in IAS 39 are met, the Group applies hedge accounting and designates the hedging derivative as either

hedging fair value or cash flow risks The Grhedging fair value or cash flow risks. The Group undertakes this on both an individual and a portfolio hedge accounting basisoup undertakes this on both an individual and a portfolio hedge accounting basis.

Fair value hedges

Changes in the fair value of derivatives that are designated in fair value hedge relationships are recorded in the Income Statement

under Net gainslosses from derivunder Net gains/losses from derivatives and hedge accounting in the period in which the movement occurs together with the change

in fair value of the hedged asset or liability that is attributable to the hedged risk (interest rate risk) This also applies if the hedged). This also applies if the hedged

item is classified as an FVOCI financial assetitem is classified as an FVOCI financial asset.

Cash flow hedges

Gains and losses on derivative financial instruments hedging the variability in cash flows of a designated asset or liability are

recognised directly through the Statement of Comprehensive Income in the cash flow hedge reserve The rome in the cash flow hedge reserve. The relevant portion of the

gain or loss on the hedging instrument is recognised in the Income Statement immediately to the extent that the hedge is deemed

ineffective under IAS39.Any amounts defineffective under IAS 39. Any amounts deferred to the cash flow hedge reserve are subsequently recycled to the Income Statement

when the underlying asset or liability being hedged impacts the Income Statement for example when foreign exchange motatement, for example, when foreign exchange movements

occur.

Intangible assets

Intangible assets are stated at cost less accumulated amortisation and any accumulated impairment Maintenance costs asost less accumulated amortisation and any accumulated impairment. Maintenance costs associated

with the operation of these intangibles are charged to the Income Statement as incurred Amortisation is charged to the Inctatement as incurred. Amortisation is charged to the Income

Statement on a straight line basis over the useful life of the asset commencing from the date the asset is ready for useor use.

The useful life of computer software is reviewed by management at each financial year end and is currently between three and eight

years for assets which are currently in usee currently in use.

Software development costs both internal and external and purchased soe development costs, both internal and external, and purchased software that is not an integral part of a related hardware

purchase are recognised as an intangible asset if it is probable that (a) the asset is cecognised as an intangible asset if it is probable that: (a) the asset is controlled by the Group (bontrolled by the Group; (b) it is separately

identifiable and (identifiable; and (c) it will generate future economic benefits Fc) it will generate future economic benefits. For each significant project undertaken by the Group an assessment, an assessment

of capitalisation criteria including future economic benefit is performed by the relevant business area and reviewed in accordance

with agreed governance processesernance processes.

Intangible assets including assets in the course oIntangible assets, including assets in the course of construction are reviewf construction, are reviewed for impairment at each reporting date or whenever

events or changes in circumstances indicate that the carrying amount may exceed the recoverable amount Where impairment iserable amount. Where impairment is

identified the asset is written down immediately to the estimated recoidentified, the asset is written down immediately to the estimated recoverable amount and the impairment amount is charged to the

Income StatementIncome Statement.

Property plant and equipment, plant and equipment

Property plant and equipment are stated at cost less accumulated depr, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairmenteciation and any accumulated impairment.

The carrying values of property plant and equipment are reviewed at each reporting date for impairment or whenev, plant and equipment are reviewed at each reporting date for impairment or whenever events or

changes in circumstances indicate that the carrying value may not be recoverable Wherverable. Where this is the case the asset is written downe this is the case, the asset is written down

immediately to the estimated recoverable amounterable amount.

Gains and losses on disposals are determined by comparing the net disposal proceeds with the carrying value of the asset and are

included within the Income Statementincluded within the Income Statement.

Depreciation commences when the asset is ready for use and is provided on a straight line basis over the anticipated useful life of

the asset which is currently as followss:

Freehold and long leasehold buildings Over a period of50yOver a period of 50 years

Leasehold adaptations Shorter of remaining term of the lease and useful life

Equipment fixtures and fittingsEquipment, fixtures and fittings Three to eight years

Financial Statements

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Employee benefits

Pensions

The Group operates both a defined benefit and defined contribution pension scheme for employeesor employees.

Contributions to the defined contribution pension scheme are recognised as an expense in the Income Statement as incurred on aned, on an

accruals basisaccruals basis.

The Group's net obligation under the defined benefit pension scheme is assessed annually by an independent qualified actuary The. The

net obligation is calculated as the difference between the fair value of the Scheme's assets and the amount of future entitlements

earned by Scheme members from service in prior periods discounted back to prearned by Scheme members from service in prior periods, discounted back to present values using a rate based on an index of long-

dated AA rated corporate bonds This calculation allodated AA rated corporate bonds. This calculation allows the net obligation of the Scheme to be expressed as either a surplus or a

deficit which is recognised as either an asset or a liability rdeficit, which is recognised as either an asset or a liability respectively in the Group's accounts at the Balance Sheet datecounts at the Balance Sheet date.

Gains or losses arising from the remeasurement of the defined benefit pension scheme are recognised in full in the year they ocecognised in full, in the year they occur,

in the Statement of Comprehensive Incomeehensive Income.

Other long-term employee benefits

The cost of bonuses payable12months or more after the end of the financial yyable 12 months or more after the end of the financial years in which they are earned is recognised in the

year in which the employees render the related servicee.

Short-term employee benefits

The cost of short-term employee benefits including wages and salaries social security costs bonuses paee benefits, including wages and salaries, social security costs, bonuses payable within12monthsyable within 12 months

and healthcare is recoand healthcare, is recognised in the year of servicegnised in the year of service.

Financial liabilities

Financial liabilities include shares bank and other deposits amounts owed to other customers debt securities in issue derives, bank and other deposits, amounts owed to other customers, debt securities in issue, derivative

financial instruments subordinated liabilities and subscribed capital The Group classifies its financial liabilities into the ffinancial instruments, subordinated liabilities and subscribed capital. The Group classifies its financial liabilities into the following

categoriescategories:

Amortised cost

Financial liabilities other than derivFinancial liabilities, other than derivatives are measuratives, are measured on an amortised cost basis reflecting their face value adjusted for any

unamortised premiums discounts and transaction cunamortised premiums, discounts and transaction costs directly attributable to the acquisition or issueosts directly attributable to the acquisition or issue.

Amortisation is recognised in Interest payable and similar charges at the Effective Interest Rate of the liability.

Fair value through profit and loss

All derivatives are carried at fair valuee carried at fair value.

Changes in the fair value of derivatives other than those in cash flow hedge accounting relationships are recognised in the Income

Statement The impact of hedging on the measurStatement. The impact of hedging on the measurement of financial assets and liabilities is detailed in the derivatives and hedge

accounting policy abovee.

For changes in the fair value of derivatives in cash flow hedge accounting relationships see the accounting policy for cash flow hedge accounting relationships, see the accounting policy for cash flow

hedgeshedges.

Provisions and contingent liabilities

A provision is recognised when there is a present obligation as a result of a past event it is presult of a past event, it is probable that the obligation will be settled

and the amount can be estimated reliably.

Contingent liabilities are potential obligations from past events which will only be confirmed by future events Contingent liabilitiesents. Contingent liabilities

are not recognised within the Balance Sheetgnised within the Balance Sheet.

Equity instruments

Financial instruments are classified as equity instruments where the contractual arrangements with the holder do not result in the

Group having a present obligation to deliver cash another financial asset or a vesent obligation to deliver cash, another financial asset or a variable number of equity instruments Where theariable number of equity instruments. Where the

Group does have a present obligation the instrument is classified as a financial liabilitye a present obligation, the instrument is classified as a financial liability.

The proceeds of the issuance of equity instruments are included in equity net of the costs directly attributable to the issuancef the costs directly attributable to the issuance.

Distributions to holders of equity instruments are recognised when they become irrevocable and are deducted from the general

reserve.

Foreign currency translation

The consolidated financial statements are presented in pounds sterling which is the functional currThe consolidated financial statements are presented in pounds sterling, which is the functional currency of the Group.

Foreign currency transactions are translated into sterling using the exchange rates prevailing at the dates of the transactionsf the transactions.

Monetary items denominated in foreign currencies are re-translated at the rate prevailing at the Balance Sheet date Fate prevailing at the Balance Sheet date. Foreign

exchange gains and losses resulting from re-translation and settlement are recognised on a net basis in the Income Statement within

Interest payable and similar chargesyable and similar charges.

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Financial Statements

149

Notes to the accounts Continued

1.Acc1. Accounting policies continued

Cash and cash equivalents

Cash and cash equivalents in the Statement of Cash Flows comprise balances with less than three months’ maturity from the date of

acquisition including cash and non-restricted balances with centracquisition, including cash and non-restricted balances with central banks and loans and advances to credit institutionsal banks, and loans and advances to credit institutions.

IFRS disclosure

For ease of reference certain audited IFRS disclosurerence, certain audited IFRS disclosures related to credit market and liquidity and funding risks ares related to credit, market and liquidity and funding risks are included within

the Risk Management Reportthe Risk Management Report.

A maturity analysis for all assets and liabilities is presented in the Liquidity and Funding section of the Risk Management Reportunding section of the Risk Management Report.

Audited information is also included within the Directors’ Remuneration Report These disclosures where marked as'aeport. These disclosures, where marked as 'audited',areudited', are

covered by the Independent Auditors'Rered by the Independent Auditors' Reporteport.

2.Judgement in applying ac2. Judgement in applying accounting policies and significant accounting

estimates

In the process of applying accounting policies the Group maks of applying accounting policies, the Group makes various judgements estimates and assumptions which haes various judgements, estimates and assumptions which have had

a significant effect on the amounts recognised in the financial statements The Gra significant effect on the amounts recognised in the financial statements. The Group has also made assumptions and estimates

that could affect the reported amount of assets and liabilities both in the accounts and in the following financial years The mostears. The most

significant judgements and assumptions and estimates are disclosed in the following notessignificant judgements and assumptions and estimates are disclosed in the following notes:

Significant accounting policy judgements Notes

Classification and measurement of equity release loans 1

Determining a significant increase in credit risk (SICR) under IFRS9Determining a significant increase in credit risk (SICR) under IFRS 9 1

Significant accounting assumptions and estimates

Effective Interest Rate (EIR) on loans and advances to customers – revenue recognition 3

Expected credit loss provision on loans and advances to customers – application of post model adjustments 14

Expected credit loss provision on loans and advances to customers – forward-looking information incorporated in the ECL

models 14

Valuation of the defined benefit pension scheme liabilities 19

3.Inter3. Interest receivable and similar income

Group

20222022

£m

Group

20212021

£m

Society

20222022

£m

Society

20212021

£m

On financial assets measured at amortised costOn financial assets measured at amortised cost:

On loans and advances to customers 1,032.3 946.2 570.7 521.8

Connected undertakings — — 292.3 293.8

Interest on other liquid assets

114.8 6.9 113.6 6.9

Interest and other income on debt securities 0.1 0.1 0.1 0.1

Interest and other income on debt securities measured at FVOCI 16.3 5.3 15.3 5.6

Net income (Net income/ (expense) on financial instruments in a qualifying hedge relationship 257.6 (124.6) 257.6 (124.7)

Total interest receivable and similar income calculated using the EIR method 1,421.1 833.9 1,249.6 703.5

1.I1. Interest on other liquid assets at Group and Society includes£s £106.4m4 million (2021:£1: £6.7m7 million) in respect of interest on reserve balances with the Bank of EnglandEngland.

Financial Statements

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150

Significant assumptions and estimates – Effective Interest Rate (EIR)

The Group recognises interest on loans and advances to customers using the Effective Interest Rate (EIR) method This methodest Rate (EIR) method. This method

applies a constant rate of interest that averages out the effect of fixed and variable rates of interest and fees across the expected life

of the loan The EIR method uses significant accounting estimates in rof the loan. The EIR method uses significant accounting estimates in relation to the expected life of the mortgages This determineselation to the expected life of the mortgages. This determines

the period over which customers pay the Standard Variable Rate (SVR) of interest Any variation in the expected life oariable Rate (SVR) of interest. Any variation in the expected life of a loan will

change the carrying value in the Balance Sheet and the timing of the recognition of interest incomeest income.

Following a change in estimated future cash flows in the prior year mortgages are now expected to fully redeem in line with the end, mortgages are now expected to fully redeem in line with the end

of fixed product terms As such a significant estimate is now being made that no recognition ooduct terms. As such, a significant estimate is now being made that no recognition of SVR interest income is required on

mortgages still within a fixed term Due to this a charge omortgages still within a fixed term. Due to this, a charge of£17.3million (2021:£69.0million) has been recognised in the If £17.3 million (2021: £69.0 million) has been recognised in the Income

Statement in the year to write down the asset to£nil at31December2022(2021:£17.3million)wn the asset to £nil at 31 December 2022 (2021: £17.3 million).

Fees on mortgages are recognised over the fixed product term but as they have an immaterial impact on the financial statementse an immaterial impact on the financial statements,

the treatment of fees under EIR is not deemed to be a significant estimatethe treatment of fees under EIR is not deemed to be a significant estimate.

4.Inter4. Interest payable and similar charges

Group

20222022

£m

Group

20212021

£m

Society

20222022

£m

Society

20212021

£m

Bank and customer

Subordinated liabilities 1.1 1.6 1.1 1.6

Other

111.2 9.6 114.0 9.6

Debt securities in issue 86.7 67.4 73.8 63.5

Other borrowed funds

On shares held by individuals 461.9 302.3 461.9 302.3

On subscribed capital 4.9 4.9 4.9 4.9

On loans from connected undertakings — — 16.3 19.4

Net expense(income) from hedging instrumentsNet expense/(income) from hedging instruments 98.1 (28.5) 78.9 (41.3)

Foreign currency gains (0.5) (0.1) (0.5) —

Other interest payable 0.4 0.5 0.4 0.5

Total 763.8 357.7 750.8 360.5

1.Other Bank and customer interest payable at Gr1. Other Bank and customer interest payable at Group and Society includes£77.0million (2021:£5.5million) relating to interest on balances draoup and Society includes £77.0 million (2021: £5.5 million) relating to interest on balances drawn under the Term Funding Scheme£19.2millionerm Funding Scheme, £19.2 million

(2021:£nil) of interest on collateral in respect of sw(2021: £nil) of interest on collateral in respect of swap agreements and£9.8million (2021:£3.5million) interest on balances relating to sale and repurap agreements, and £9.8 million (2021: £3.5 million) interest on balances relating to sale and repurchase agreementschase agreements.

5.F5. Fees and commissions receivable

Group

2022 2022

£m

Group

2021 2021

£m

Society

2022 2022

£m

Society

2021 2021

£m

Mortgage related administration fees 6.7 5.8 4.2 3.6

General insurance commissions 0.5 0.6 0.5 0.6

Other fees and commissions — 1.0 — 1.0

Total 7.2 7.4 4.7 5.2

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Financial Statements

151

Notes to the accounts Continued

6.F6. Fees and commissions payable

Group

20222022

£m

Group

20212021

£m

Society

20222022

£m

Society

20212021

£m

Banking fees 2.6 2.4 2.6 2.4

Mortgage related fees 5.2 5.1 2.6 2.2

Other fees and commissions 2.9 2.8 2.9 2.8

Total 10.7 10.3 8.1 7.4

7.Other operating inc7. Other operating income

Operating income of£1.9million (2021:£1.5million) includes£1.4million (2021:£1.5million) relating to profit on sale of £1.9 million (2021: £1.5 million) includes £1.4 million (2021: £1.5 million) relating to profit on sale of

property fixed assets and£0.5millionand £0.5 million (2021:£nil) relating to gains on the Society's inv (2021: £nil) relating to gains on the Society's investments in equity shares which areestments in equity shares, which are

measured at fair value through profit and loss The Society's investments in equity shares as at31Decs. The Society's investments in equity shares as at 31 December2022relate to Visaember 2022 relate to Visa

IncInc.

8.Net gains(losses) from derivativ8. Net gains/(losses) from derivative financial instruments

Group

2022

£m

Group

2021

£m

Society

2022

£m

Society

2021

£m

Derivatives designated as fair value hedges

Gains on derivatives designated as fair value hedges 973.7 501.5 973.7 501.5

Movement in fair value of hedged items attributable to hedged risk (999.0) (497.9) (999.0) (497.9)

Ineffectiveness on fair value hedges (25.3) 3.6 (25.3) 3.6

Derivatives designated as cash flow hedges

Foreign exchange 0.3 (0.1) — —

Foreign exchange and interest rate — (0.4) — —

Interest rate 30.0 (9.7) 30.0 (9.7)

Ineffectiveness on cash flow hedges 30.3 (10.2) 30.0 (9.7)

Gains on other derivatives 21.8 — 21.8 —

Total 26.8 (6.6) 26.5 (6.1)

1.Represents ineffectiv1. Represents ineffectiveness on cash flow hedge relationships which will mature over a period of six years (2021:seven)er a period of six years (2021: seven).

Further information on the Society’s risk management strategy and how it hedges interest and foreign exchange risk is included in

note23.note 23.

Gains and losses on other derivatives where hedge accounting relief has not been obtained are£21.8million over the ye £21.8 million over the year (2021:ear (2021:

£nil)£nil).

The gains and losses represents both the impact of early termination of derivative instruments and timing differences which are instruments and timing differences, which are

expected to reverse over the remaining life of the derivatives although further volatility may also be experiencedes, although further volatility may also be experienced.

Foreign exchange losses of£89.3million (2021:£96.1million gain) havses of £89.3 million (2021: £96.1 million gain) have been recognised in the Income Statement relating to the

principal amount of financial instruments held at amortised cost This is offprincipal amount of financial instruments held at amortised cost. This is offset by foreign exchange gains of£92.1million (2021:f £92.1 million (2021:

£96.0million loss) on derivativ£96.0 million loss) on derivative financial instruments held at fair valuee financial instruments held at fair value.

Financial Statements

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152

9.Administr9. Administrative expenses

Group

20222022

£m

Group

20212021

£m

Society

20222022

£m

Society

20212021

£m

Employee costs

Wages and salaries 132.9 104.2 132.9 104.2

Social security costs 13.1 11.4 13.1 11.4

Pension costs

Defined benefit pension scheme (note19)Defined benefit pension scheme (note 19) (1.3) 1.9 (1.3) 1.9

Defined contribution pension scheme 10.9 6.9 10.9 6.9

155.6 124.4 155.6 124.4

Other expenses

Project costs 18.3 37.8 18.3 37.8

Information systems 28.9 23.1 28.9 23.1

Training recruitment and other employraining, recruitment and other employee costs 15.7 7.3 15.7 7.3

Premises and facilities 10.7 9.6 10.7 9.6

Legal profLegal, professional and consultancy 7.2 6.2 7.0 6.0

Marketing and communications 6.7 4.6 6.7 4.6

Loss on disposal of property plant and equipment and intangibles, plant and equipment and intangibles 6.4 4.2 6.4 4.2

Other operating expenses 16.6 16.0 15.9 15.4

Intercompany management charge — — (45.9) (46.6)

Total 266.1 233.2 219.3 185.8

The intercompany management charge reflects a contribution to operational costs by Godiva Mortgages Limited and ITL Mortgages

Limited to the Society in respect of management and servicing of their mortgage portfoliosf their mortgage portfolios.

The remuneration of the external auditors PricewaterhouseCoopers LLPf the external auditors, PricewaterhouseCoopers LLP (excluding V, (excluding VAT) is set out below), is set out below:

Group

2022

£m

Group

2021

£m

Society

2022

£m

Society

2021

£m

Audit of the Group and Society annual accounts 0.8 0.8 0.8 0.8

Audit of Group subsidiaries 0.2 0.1 — —

Audit related assurance services 0.1 0.1 0.1 0.1

Other non-audit services 0.2 0.1 0.2 0.1

Total 1.3 1.1 1.1 1.0

10.Employ10. Employee numbers

Group and Society

2022

Full time

2022

Part time

2022

Total

2021

Full time

2021

Part time

2021

Total

The average number of persons employed during the year (including

executive directors) wasectors) was:

Head office and administrative centres 1,814 435 2,249 1,788 429 2,217

Branches 287 288 575 295 307 602

Total 2,101 723 2,824 2,083 736 2,819

The average number of employees on a full time equivalent basis was2,552(2021:2,498) and all oees on a full time equivalent basis was 2,552 (2021: 2,498) and all of these are employed within the

United KingdomUnited Kingdom.

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Financial Statements

153

Notes to the accounts Continued

11.Classification and measur11. Classification and measurement of financial instruments

The following table summarises the classification of carrying amounts of the Group’s financial assets and liabilities at the reporting

date A separate Society table is not presented as therdate. A separate Society table is not presented as there are no differences in classification to that of the Group.

31December202231 December 2022

Group

Amortised cost

£m

Fair value

through other

comprehensive

income

£m

Fair value through

profit and loss

£m

Total

£m

Financial assets

Cash and balances with the Bank of England 7,792.2 — — 7,792.2

Loans and advances to financial institutions 622.8 — — 622.8

Debt securities 6.2 1,588.6 — 1,594.8

Loans and advances to customers 48,014.3 — — 48,014.3

Hedge accounting adjustment (1,595.3) — — (1,595.3)

Derivative financial instruments — — 2,278.1 2,278.1

Investment in equity shares — — 5.8 5.8

Total financial assets 54,840.2 1,588.6 2,283.9 58,712.7

Other non-financial assets 154.4 — — 154.4

Total assets 54,994.6 1,588.6 2,283.9 58,867.1

Financial liabilities

Shares 42,288.7 — — 42,288.7

Deposits from banks 7,542.9 — — 7,542.9

Other deposits 5.0 — — 5.0

Amounts owed to other customers 416.1 — — 416.1

Debt securities in issue 5,243.2 — — 5,243.2

Hedge accounting adjustment (452.5) — — (452.5)

Derivative financial instruments — — 626.5 626.5

Subordinated liabilities 15.4 — — 15.4

Subscribed capital 41.6 — — 41.6

Total financial liabilities 55,100.4 — 626.5 55,726.9

Other non-financial liabilities 192.5 — — 192.5

Total liabilities 55,292.9 — 626.5 55,919.4

Financial Statements

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154

31December202131 December 2021

Group

Amortised cost

£m

Fair value through

other compre-

hensive income

£m

Fair value through

profit and loss

£m

Total

£m

Financial assets

Cash and balances with the Bank of England 6,650.2 — — 6,650.2

Loans and advances to financial institutions 295.8 — — 295.8

Debt securities 6.6 669.4 — 676.0

Loans and advances to customers 46,620.6 — — 46,620.6

Hedge accounting adjustment (295.4) — — (295.4)

Derivative financial instruments — — 406.3 406.3

Investment in equity shares — — 4.9 4.9

Total financial assets 53,277.8 669.4 411.2 54,358.4

Other non-financial assets 171.3 — — 171.3

Total assets 53,449.1 669.4 411.2 54,529.7

Financial liabilities

Shares 39,890.2 — — 39,890.2

Deposits from banks 6,040.2 — — 6,040.2

Other deposits 5.0 — — 5.0

Amounts owed to other customers 609.8 — — 609.8

Debt securities in issue 5,252.3 — — 5,252.3

Hedge accounting adjustment (96.1) — — (96.1)

Derivative financial instruments — — 219.8 219.8

Subordinated liabilities 15.3 — — 15.3

Subscribed capital 41.6 — — 41.6

Total financial liabilities 51,758.3 — 219.8 51,978.1

Other non-financial liabilities 92.0 — — 92.0

Total liabilities 51,850.3 — 219.8 52,070.1

Coventry Building Society  Annual Report & Accounts2022 | Annual Report & Accounts 2022

Financial Statements

155

Notes to the accounts Continued

12.Debt securities12. Debt securities

Group

20222022

£m

Group

20212021

£m

Society

20222022

£m

Society

20212021

£m

Fair value through other comprehensive incomeomprehensive income:

UK Government investment securities 1,020.1 363.3 946.1 363.3

Other listed transferable debt securities 568.5 306.2 568.5 306.2

Amortised cost

Other listed transferable debt securities 6.2 6.5 6.2 6.5

Total 1,594.8 676.0 1,520.8 676.0

Movements during the year are analysed below:

At1JanuaryAt 1 January 676.0 995.1 676.0 995.1

Additions 1,726.9 167.5 1,526.0 167.5

Maturities and disposals (752.9) (470.0) (626.0) (470.0)

Changes in fair value (55.2) (16.6) (55.2) (16.6)

At31DecemberAt 31 December 1,594.8 676.0 1,520.8 676.0

A maturity analysis of the Group debt securities is included in the Liquidity and Funding section of the Risk Management Reportunding section of the Risk Management Report.

At the31December2022,£93.8million oAt the 31 December 2022, £93.8 million of debt securities had been sold under sale and repurchase agreements (2021:£nil)f debt securities had been sold under sale and repurchase agreements (2021: £nil).

13.Loans and advanc13. Loans and advances to customers

Notes

Group

20222022

£m

Group

20212021

£m

Society

20222022

£m

Society

20212021

£m

Residential mortgages owner-occupierResidential mortgages: owner-occupier 28,529.3 27,362.5 28,150.1 26,941.1

Residential mortgages buy to letResidential mortgages: buy to let 19,496.2 19,237.7 1,467.6 1,567.2

Legacy lending

13.2 15.8 8.0 9.8

Total Gross loans and advances to customers (contractual amounts) 48,038.7 46,616.0 29,625.7 28,518.1

Impairment 14 (35.5) (18.9) (20.0) (6.4)

Total Net loans and advances to customers (contractual amounts) 48,003.2 46,597.1 29,605.7 28,511.7

EIR fair value and other adjustmentsEIR, fair value and other adjustments 11.1 23.5 29.2 38.7

Total 48,014.3 46,620.6 29,634.9 28,550.4

1.1. Legacy lending represents residual small portfolios of unsecured personal loans and commercial mortgages . The credit risk for these is immaterial and therefore not considered further in this

reportt.

Maturity analysis

The remaining contractual maturity of loans and advances to customers at the Balance Sheet date is as followsws:

Notes

Group

20222022

£m

Group

20212021

£m

Society

20222022

£m

Society

20212021

£m

Repayable in less than one year 3,394.3 3,342.6 1,925.5 1,903.2

Repayable in more than one year 44,655.5 43,296.9 27,729.4 26,653.6

48,049.8 46,639.5 29,654.9 28,556.8

Impairment provision 14 (35.5) (18.9) (20.0) (6.4)

Total 48,014.3 46,620.6 29,634.9 28,550.4

Actual redemption levels experienced by the Group or Society may differ from the contractual analysissis.

Financial Statements

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156

Pledged assets – loans and advances to customers

Certain loans and advances to customers have been pledged to the Group's asset backed funding programmes or utilised as whole

mortgage loan pools with the Bank of England to enable the Group to obtain secured fundinged funding.

Loans and advances to customers pledged to support secured funding and the notes in issue are as followsed funding and the notes in issue are as follows:

Notes in issue

2022

Group

Mortgages

pledged

£m

Held by third

parties

£m

Held by the

Group

pledged

£m

Held by

the Group

unpledged

£m

Total

£m

Loans and advances to customers

Covered bond programme – Coventry Building Society Covered Bonds LLP 6,613.5 3,107.1 1,350.0 — 4,457.1

Covered bond programme – Coventry Godiva Covered Bonds LLP 5,401.1 — 4,000.0 — 4,000.0

Securitisation programme – Economic Master Issuer plc 2,065.9 693.2 367.0 870.0 1,930.2

Whole mortgage loan pools

6,208.0 — 2,847.4 3,360.5 6,207.9

Total 20,288.5 3,800.3 8,564.4 4,230.5 16,595.2

Notes in issue

2021

Group

Mortgages

pledged

£m

Held by third

parties

£m

Held by the

Group

pledged

£m

Held by

the Group

unpledged

£m

Total

£m

Loans and advances to customers

Covered bond programme – Coventry Building Society Covered Bonds LLP 7,586.7 2,572.9 1,900.0 350.0 4,822.9

Covered bond programme – Coventry Godiva Covered Bonds LLP 2,737.0 — — 2,000.0 2,000.0

Securitisation programme – Economic Master Issuer plc 2,179.0 833.0 367.0 — 1,200.0

Whole mortgage loan pools

7,581.6 — 6,083.1 1,498.6 7,581.7

Total 20,084.3 3,405.9 8,350.1 3,848.6 15,604.6

1.1. Notes in issue exclude Class Z securitisation notes (which represent either the first loss tranche in the structure or a required liquidity reserve) and the Economic Master Issuer plc Sellers Notes

(2022:£2: £870.3m3 millionillion, 2021:£: £793.5m5 million) . All of these notes are held by the Group unpledgedunpledged.

2.2. The whole mortgage loan pools are pre-positioned at the Bank of England . Pools are pledged to the Bank of England when drawings are made directly against the eligible collateral fo, for example,

under TFSME s, subject to a ‘haircut’ as defined by the Bank of England . The amounts under notes in issue are the outstanding balances of mortgages.

Mortgages pledged are not derecognised from the Group or Society Balance Sheets as the Group has retained substantially all the

risks and rewards of ownership No gain or loss has been reco. No gain or loss has been recognised on pledging the mortgages to the programmesgnised on pledging the mortgages to the programmes.

Notes in issue and held by third parties are included within debt securities in issue (note22)d parties are included within debt securities in issue (note 22).

Notes in issue held by the GrNotes in issue, held by the Group and pledged include debt securities issued under the covoup and pledged, include debt securities issued under the covered bond programmes and retained by

the Society and whole mortgage loan pools all pledged as collateralthe Society and whole mortgage loan pools, all pledged as collateral.

Notes in issue held by the GrNotes in issue, held by the Group and unpledged are other debt securities issued by the prooup and unpledged, are other debt securities issued by the programmes to the Society and mortgage, and mortgage

loan pools that have been pre-positioned at the Bank of England but not utilised These are held to pre been pre-positioned at the Bank of England but not utilised. These are held to provide collateral for potential

future use in sale and repurchase agreements or central bank operationsations.

Notes in issue and held by the GrNotes in issue, and held by the Group are not roup, are not recognised on the Group or Society Balance Sheets thus precognised on the Group or Society Balance Sheets, thus preventing inappropriate

‘grossing up’ of the Group and Society Balance Sheetsf the Group and Society Balance Sheets.

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Financial Statements

157

Notes to the accounts Continued

13.Loans and advanc13. Loans and advances to customers continued

Covered bond programmes

The Society operates two covered bond programmes which it uses to provide security for issues of retained and externally issued

covered bonds Securities issued under the progrered bonds. Securities issued under the programmes are secured through certain mortgage loans of Coventry Building Society or

of Godiva Mortgages Limited the Originators The loans arof Godiva Mortgages Limited, the Originators. The loans are retained on the Originator’s Balance Sheet as they retain substantially

all the risks and rewards relating to the loands relating to the loan.

At the reporting date the Society has oAt the reporting date, the Society has overcollateralised these programmes as set out in the table above to secure the ratings of

the covered bonds and to provide operational flexibility The Society maintains the overcollaterisation by adding loans to the loan. The Society maintains the overcollaterisation by adding loans to the loan

portfolios throughout the period Fportfolios throughout the period. From time to time the obligation of the Society to provide collaterrom time to time, the obligation of the Society to provide collateral may increase due to the

formal requirements of the covered bond programmes and the value of the collateral would depend upon conditions at that timeould depend upon conditions at that time.

The Society may also voluntarily contribute collateral to support the covered bond ratings no such contributionswere made duringatings; no such contributions were made during

2022or2021.The Society undertakes various r2022 or 2021. The Society undertakes various roles in these programmes including acting as cash manager and servicer as woles in these programmes, including acting as cash manager and servicer as well as

acting as the bank account provider for Coventry Godiva Covered Bonds LLP (Godiva LLP)ed Bonds LLP (Godiva LLP).

Coventry Building Society Covered Bonds LLP

Coventry Building Society Covered Bonds LLP (CBS LLP) was established in April2008and proCBS LLP) was established in April 2008 and provides security for issued notes

secured against certain loans of Coventry Building Society As at31December2022,the Society had£2,450million (2021:. As at 31 December 2022, the Society had £2,450 million (2021:

£3,350million) and€2,250million (2021:€1,750million) of cov£3,350 million) and €2,250 million (2021: €1,750 million) of covered bonds in issue oered bonds in issue, of which£1,350million (2021:£2,250f which £1,350 million (2021: £2,250

million) were retained by the Group.

During the period the Society voluntarily rDuring the period, the Society voluntarily repurchased£86.9million (2021:£87.1million) of mortgages from CBS LLP to maintainepurchased £86.9 million (2021: £87.1 million) of mortgages from CBS LLP to maintain

the quality of the pool and minimise the overcollateralisation requirementequirement.

Coventry Godiva Covered Bonds LLP

Coventry Godiva Covered Bonds LLP was incorporated in August2020and provides security for issued notes securugust 2020 and provides security for issued notes secured against

certain mortgage loans of Godiva Mortgages Limited As at31Deccertain mortgage loans of Godiva Mortgages Limited. As at 31 December2022,the Society had£4.0billion (2021:£2.0billion) ofember 2022, the Society had £4.0 billion (2021: £2.0 billion) of

covered bonds in issue of which all were retained by the Groupoup.

During the period the Society voluntarily rDuring the period, the Society voluntarily repurchased£40.7million (2021:£18.2million) of mortgages from Godivepurchased £40.7 million (2021: £18.2 million) of mortgages from Godiva LLP to

maintain the quality of the pool and minimise the overcollateralisation requirementequirement.

Securitisation

During the period the Society operated one securitisation vDuring the period, the Society operated one securitisation vehicle which it uses to obtain collateral and source funding through the

internal and external issuances of listed debt securities secured through certain mortgage loans of Coventry Building Society the, the

Originator The loans are retained on the Originator. The loans are retained on the Originator’s Balance Sheet as it retains substantially all the risks and rewards relating to

the loans The Society undertakes various rthe loans. The Society undertakes various roles in these transactions including acting as cash manager and servicer as well as actingoles in these transactions, including acting as cash manager and servicer as well as acting

as the bank account provider for Economic Master Issuer plc Mercia Nssuer plc. Mercia No.1plc (o.1 plc (Mercia) and Offa No.1plc (Off.1 plc (Offa) are securitisation

vehicles which were operated by the Society until all notes were redeemed in June2021;both Mercia and Offa are in the prune 2021; both Mercia and Offa are in the process of

liquidation and are in the control of liquidatorsf liquidators.

Economic Master Issuer PLC

Economic Master Issuer plc (EMI) was incorporated in November2019and has subsequently issued£1.2billion of listed debtember 2019 and has subsequently issued £1.2 billion of listed debt

securities secured against certain mortgage loans of Coventry Building Society At31December2022,a total of£367.0million. At 31 December 2022, a total of £367.0 million

(2021:£367.0million) of notes wer(2021: £367.0 million) of notes were retained by the Group and£693.2million (2021:£833.0million) are retained by the Group and £693.2 million (2021: £833.0 million) are held by parties external

to the Group The Society retains a beneficial interest in the pool through its holding o. The Society retains a beneficial interest in the pool through its holding of the Sellers Note in the structure and its

obligations in respect of this securitisation vehicle are limited to transferring cash flows from the underlying assets and maintaining

its required minimum sellers share in accordance with the rules of programmef programme.

The fair values of assets that have been pledged and their associated liabilities where recourse is limited to the underlying asset are

presented in the table below:

Fair value assets

pledged

2022

£m

Fair value

liabilities

2022

£m

Fair value net

position

2022

£m

Fair value assets

pledged

2021

£m

Fair value

liabilities

2021

£m

Fair value net

position

2021

£m

Securitisation programme – Economic Master

Issuer plc 1,803.6 688.7 1,114.9 2,110.3 834.7 1,275.6

Financial Statements

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158

14.Impairment on loans and adv14. Impairment on loans and advances to customers

Under IFRS9,impairment prUnder IFRS 9, impairment provisions or expected credit losses (ECLs) are required to be calculated on assets held at amortised cost

and fair value through other comprehensive income Fome. For the Society this includes loans and advances to customers and mortgage, this includes loans and advances to customers and mortgage

pipeline commitments Expected credit loss prpipeline commitments. Expected credit loss provisions have been deducted from the appropriate asset values on the balance sheetalues on the balance sheet.

Further information on the credit quality of these loans is included in the Risk Management Reportf these loans is included in the Risk Management Report.

Group

2022

£m

Group

2021

£m

Society

2022

£m

Society

2021

£m

Income Statement

Charge(release) for the yCharge/(release) for the year 16.9 (28.4) 13.8 (21.1)

Recoveries of amounts previously written off (0.3) (0.3) (0.2) (0.2)

Total charge(release) to the Income Statementotal charge/(release) to the Income Statement 16.6 (28.7) 13.6 (21.3)

The table below shows gross loans and advances to customers ECL pros loans and advances to customers, ECL provision and resulting coverage ratio split by IFRS9stageerage ratio split by IFRS 9 stage

at31December2022and at31December2021for both the Group and Societyat 31 December 2022 and at 31 December 2021 for both the Group and Society For loans in stages2and3,further analysis o. For loans in stages 2 and 3, further analysis of

accounts which are past due and not past due is also shownaccounts which are past due and not past due is also shown.

Group

Stage1'PerfStage 1 'Performing'

Stage2‘Deteriorating’Stage 2 ‘Deteriorating’ Stage3‘Default’Stage 3 ‘Default’

As at31December2022As at 31 December 2022 £m

Not past due

£m

Past due

£m

Not past due

£m

Past due

£m

Total

£m

Gross balances

Residential mortgages owner-occupierResidential mortgages: owner-occupier

25,591.5 2,731.7 65.1 58.2 82.8 28,529.3

Residential mortgages buy to letResidential mortgages: buy to let

17,768.4 1,623.3 44.0 25.5 35.0 19,496.2

Legacy lending

10.4 2.1 0.2 0.4 0.1 13.2

Total

43,370.3 4,357.1 109.3 84.1 117.9 48,038.7

ECL

Residential mortgages owner-occupierResidential mortgages: owner-occupier

3.7 17.1 0.3 2.5 1.0 24.6

Residential mortgages buy to letResidential mortgages: buy to let

1.2 5.6 0.1 1.9 1.3 10.1

Legacy lending

0.1 0.4 — 0.2 0.1 0.8

Total

5.0 23.1 0.4 4.6 2.4 35.5

ECL coverage as a%of total balanceerage as a % of total balance

Residential mortgages owner-occupierResidential mortgages: owner-occupier 0.01% 0.63% 0.46% 4.30% 1.21% 0.08%

Residential mortgages buy to letResidential mortgages: buy to let 0.01% 0.34% 0.23% 7.45% 3.71% 0.05%

Legacy lending

0.96% 19.05% — 50.00% 100.00% 6.06%

Total coverage 0.01% 0.53% 0.37% 5.47% 2.04% 0.07%

1.These are legacy books with no new originations since2010.Pipeline ECL of£0.6million has been included in residential mortgages1. These are legacy books with no new originations since 2010. Pipeline ECL of £0.6 million has been included in residential mortgages.

Coventry Building Society  Annual Report & Accounts2022 | Annual Report & Accounts 2022

Financial Statements

159

Notes to the accounts Continued

14.Impairment on loans and adv14. Impairment on loans and advances to customers continued

Society

Stage1'PerfStage 1 'Performing'

Stage2‘Deteriorating’Stage 2 ‘Deteriorating’ Stage3‘Default’Stage 3 ‘Default’

As at31December2022As at 31 December 2022 £m

Not past due

£m

Past due

£m

Not past due

£m

Past due

£m

Total

£m

Gross balances

Residential mortgages owner-occupierResidential mortgages: owner-occupier 25,313.6 2,671.5 58.4 38.4 68.2 28,150.1

Residential mortgages buy to letResidential mortgages: buy to let 1,358.0 95.9 5.0 3.9 4.8 1,467.6

Legacy lending

6.7 1.0 0.1 0.1 0.1 8.0

Total 26,678.3 2,768.4 63.5 42.4 73.1 29,625.7

ECL

Residential mortgages owner-occupierResidential mortgages: owner-occupier 3.5 12.7 0.2 1.7 0.7 18.8

Residential mortgages buy to letResidential mortgages: buy to let 0.1 0.4 — 0.2 0.2 0.9

Legacy lending

0.1 0.2 — — — 0.3

Total 3.7 13.3 0.2 1.9 0.9 20.0

ECL coverage as a%of total balanceerage as a % of total balance

Residential mortgages owner-occupierResidential mortgages: owner-occupier 0.01% 0.48% 0.34% 4.43% 1.03% 0.07%

Residential mortgages buy to letResidential mortgages: buy to let 0.01% 0.42% — 5.13% 4.17% 0.06%

Legacy lending

1.49% 20.00% — — — 3.75%

Total coverage 0.01% 0.48% 0.31% 4.48% 1.23% 0.07%

1.1. These are legacy books with no new originations since20e 2010.10. Pipeline ECL of£0 of £0.5m5 million has been included in residential mortgagesmortgages.

Group

Stage1'PerfStage 1 'Performing'

Stage 2 ‘Deteriorating’

Stage 3 ‘Default’

As at31December2021As at 31 December 2021

£m

Not past due

£m

Past due

£m

Not past due

£m

Past due

£m

Total

£m

Gross balances

Residential mortgages owner-occupierResidential mortgages: owner-occupier

25,137.0 2,040.5 54.8 57.4 72.8 27,362.5

Residential mortgages buy to letResidential mortgages: buy to let

18,051.9 1,090.5 37.1 21.6 36.6 19,237.7

Legacy lending

11.9 3.1 0.2 0.5 0.1 15.8

Total

43,200.8 3,134.1 92.1 79.5 109.5 46,616.0

ECL

Residential mortgages owner-occupierResidential mortgages: owner-occupier

1.2 5.1 — 2.2 0.7 9.2

Residential mortgages buy to letResidential mortgages: buy to let

2.3 3.1 0.1 1.7 1.3 8.5

Legacy lending

0.2 0.6 0.1 0.2 0.1 1.2

Total

3.7 8.8 0.2 4.1 2.1 18.9

ECL coverage as a%of total balanceerage as a % of total balance

Residential mortgages owner-occupierResidential mortgages: owner-occupier — 0.25% — 3.83% 0.96% 0.03%

Residential mortgages buy to letResidential mortgages: buy to let 0.01% 0.28% 0.27% 7.87% 3.55% 0.04%

Legacy lending

0.84% 19.35% 50.00% 40.00% 100.00% 6.96%

Total coverage 0.01% 0.28% 0.22% 5.16% 1.92% 0.04%

1.1. Relates to legacy books with no new originations since,2010.2010.

Financial Statements

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160

Society

Stage1'PerfStage 1 'Performing'

Stage2‘Deteriorating’Stage 2 ‘Deteriorating’ Stage3‘Default’Stage 3 ‘Default’

As at31December2021As at 31 December 2021

£m

Not past due

£m

Past due

£m

Not past due

£m

Past due

£m

Total

£m

Gross balances

Residential mortgages owner-occupierResidential mortgages: owner-occupier

24,849.3 1,948.0 49.6 39.1 55.1 26,941.1

Residential mortgages buy to letResidential mortgages: buy to let

1,437.9 113.9 3.9 6.2 5.3 1,567.2

Legacy lending

7.8 1.6 0.1 0.1 0.2 9.8

Total

26,295.0 2,063.5 53.6 45.4 60.6 28,518.1

ECL

Residential mortgages owner-occupierResidential mortgages: owner-occupier

1.2 1.4 — 1.7 0.4 4.7

Residential mortgages buy to letResidential mortgages: buy to let

0.1 0.4 — 0.3 0.2 1.0

Legacy lending

0.1 0.4 — 0.1 0.1 0.7

Total

1.4 2.2 — 2.1 0.7 6.4

ECL coverage as a%of total balanceerage as a % of total balance

Residential mortgages owner-occupierResidential mortgages: owner-occupier

— 0.07% — 4.35% 0.73% 0.02%

Residential mortgages buy to letResidential mortgages: buy to let

0.01% 0.35% — 4.84% 3.77% 0.06%

Legacy lending

1.28% 25.00% — 100.00% 50.00% 7.14%

Total coverage

0.01% 0.11% — 4.63% 1.16% 0.02%

1.Relates to legacy books with no new originations since2010.1. Relates to legacy books with no new originations since 2010.

At31December2022,90.3%oAt 31 December 2022, 90.3% of the Society’s loans and advances to customers were within the stage1‘performing’ categoryere within the stage 1 ‘performing’ category

(2021:92.7%)(2021: 92.7%). This proportion fell during2022as a result o This proportion fell during 2022 as a result of the worsening macroeconomic environment and additional risk arising

from the cost of living crisisfrom the cost of living crisis.

At the reporting date9.3%oAt the reporting date, 9.3% of loans are in stage2and0.4%in stage3(2021:6.9%in stage2and0.4%in stage3) Cure periods arf loans are in stage 2 and 0.4% in stage 3 (2021: 6.9% in stage 2 and 0.4% in stage 3). Cure periods are

applied to accounts in stages2and3which havapplied to accounts in stages 2 and 3 which have hit certain quantitative triggers such as arrears These cure periods delay trears. These cure periods delay transition

of loans to a lower credit risk classification (ie frer credit risk classification (i.e. from stage3to stage2or from stage2to stage1) by requiring a period oom stage 3 to stage 2 or from stage 2 to stage 1) by requiring a period of sustained

performance before a loan is reassessed As a result loans can be reassessed. As a result, loans can be recorded in stage2or stage3despite otherwise performing at theecorded in stage 2 or stage 3 despite otherwise performing at the

reporting datereporting date.

Stage2balances wStage 2 balances were£4,466.4million (2021:£3,226.2million) and of these£109.3million or2.4%(2021:£92.1million2.9%ere £4,466.4 million (2021: £3,226.2 million) and of these £109.3 million or 2.4% (2021: £92.1 million, 2.9% )

are in arrears by30daare in arrears by 30 days or more Ays or more. At31December2022,68.1%or£3,041.1million of the loans in stage2art 31 December 2022, 68.1% or £3,041.1 million of the loans in stage 2 are present as a result of

the SICR criteria established to reflect the cost of living affordability risk arising in the year and are the driver of the increased level of

loans in stage2.All of these accounts wloans in stage 2. All of these accounts were paid up to date as at31December2022and remain in stage2as a rere paid up to date as at 31 December 2022 and remain in stage 2 as a result of indicators

of increased riskof increased risk.

Of the£202.0million (2021:£189.0million) of loans which are classified as stage3at the rOf the £202.0 million (2021: £189.0 million) of loans which are classified as stage 3 at the reporting date58.4%or£117.9millioneporting date, 58.4% or £117.9 million

were greater than three months in arrears (2021:57.9%,£109.5million) and41.6%(£84.1million) weater than three months in arrears (2021: 57.9%, £109.5 million), and 41.6% (£84.1 million) were paid up to date (2021:ere paid up to date (2021:

42.1%,£79.5million) This position deteriorated marginally in the y42.1%, £79.5 million). This position deteriorated marginally in the year as a result of the moratorium on repossessions Whilstatorium on repossessions. Whilst

the moratorium ceased in the prior year it led to delay, it led to delays in loans which have defaulted not moving through to possession At31session. At 31

December2022,the number of properties which wDecember 2022, the number of properties which were in possession remained low a total oemained low; a total of£4.1million of stage3loans werf £4.1 million of stage 3 loans were in

possession (2021:£4.2million) reprpossession (2021: £4.2 million), representing27individual properties (2021:27properties)esenting 27 individual properties (2021: 27 properties).

Coventry Building Society  Annual Report & Accounts2022 | Annual Report & Accounts 2022

Financial Statements

161

Notes to the accounts Continued

14.Impairment on loans and adv14. Impairment on loans and advances to customers continued

ECL coverage ratios

This coverage ratio (ECL provision  gross loans and advancvision / gross loans and advances to customers) is7basis points (2021:4basis points)es to customers) is 7 basis points (2021: 4 basis points).

31Dec202231 Dec 2022 31Dec202131 Dec 2021

Total ECL provision £m 35.5 18.9

Total gross loans and advances to customers before ECL and EIR £m 48,038.7 46,616.0

ECL coverage ratio % 0.07 0.04

The increase in ECL in the period resulted in the coverage rising to50.7times (2021:18.9times) the grverage rising to 50.7 times (2021: 18.9 times) the gross impairment losses

before recoveries in the last12months as shownbelooveries in the last 12 months as shown below.

Year ended

31Dec202231 Dec 2022

Year ended

31Dec202131 Dec 2021

Impairment losses before recoveries £m 0.7 1.0

Total ECL provision £m 35.5 18.9

ECL coverage Years 50.7 18.9

Significant accounting estimates – application of post model adjustments

The table below presents the judgemental adjustments that have been recognised within the ECL provision outside of core modelled

ECLsECLs.

Group

2022

£m

Group

2021

£m

Society

2022

£m

Society

2021

£m

ECL before judgemental adjustments

16.1 9.6 6.5 2.7

Judgemental adjustments

Impact of cost of living risk 14.2 — 10.6 —

Impact of Covid-19riskImpact of Covid-19 risk — 2.1 — 0.9

Impact of cladding risk 2.5 3.7 1.8 1.2

Other judgemental adjustments 2.7 3.5 1.1 1.6

19.4 9.3 13.5 3.7

Total reported ECL 35.5 18.9 20.0 6.4

The£19.4million (2021:£9.3million) ECL provision rThe £19.4 million (2021: £9.3 million) ECL provision recognised relating to post model adjustments (PMAs) have been included

where the Society’s models do not fully capture the associated risks of future credit losss.

More information on the PMAs recognised at31December2022is set out belowognised at 31 December 2022 is set out below.

Cost of living post model adjustment

The Group recognised a provision of£14.2million during the ygnised a provision of £14.2 million during the year (2021:£nil) to reflect the elevated affordability prear (2021: £nil) to reflect the elevated affordability pressures

and payment shock risk arising as a result of the ongoing cost of living crisis This was rf the ongoing cost of living crisis. This was recognised as a PMA as the models do not

satisfactorily capture all of the risks from the elevated inflationary environmentonment.

The PMA attributes default probabilities to a cohort of customers identified as having experienced deterioration in credit quality

since December2021.The level osince December 2021. The level of increased default risk applied varies depending on whether the customer has a fixed rate

mortgage term end date in the next two years or not with a higher default probability being assigned to those customer acears or not, with a higher default probability being assigned to those customer accounts

who have an upcoming refinancing Customers with a Le an upcoming refinancing. Customers with a LTV below60%are excluded from the cohort as the risk oTV below 60% are excluded from the cohort as the risk of loss on these

accounts is deemed low In applying these criteria this captures6.4%of total loans and advanc. In applying these criteria, this captures 6.4% of total loans and advances to customers Had the60%Les to customers. Had the 60% LTV

floor been excluded the PMA would hafloor been excluded, the PMA would have increased by£2.3million If an increased by £2.3 million. If an increased level of default risk had not been applied to

those customers with a fixed term refinancing due in the next two years the PMA wo years, the PMA would be£7.0million lowerould be £7.0 million lower.

Financial Statements

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162

Covid-19post model adjustmentCovid-19 post model adjustment

During the year the PMA in relation to the Covid-19pandemic was r, the PMA in relation to the Covid-19 pandemic was released in full (2021:£2.1million) The need for a PMAeleased in full (2021: £2.1 million). The need for a PMA

that reflects the affordability stress that arose due to the Covid-19situation that is one oess that arose due to the Covid-19 situation, that is one of loss or insufficiency of income due to

pandemic restrictions and impact on businesses is no longer presentpandemic restrictions and impact on businesses, is no longer present.

Cladding and other fire safety risk post model adjustment

The Group continues to recognise a provision for potential credit losses of£2.5million (2021:£3.7million) associated with flatsedit losses of £2.5 million (2021: £3.7 million) associated with flats

with unsuitable cladding and other fire safety risks which require remediation The Society has applied assumptions to its affectede remediation. The Society has applied assumptions to its affected

mortgage book which include an assessment of the likelihood of remediation being required impacts to property values red, impacts to property values, remediation

costs and customer behaviour in order to calculate the provision The proder to calculate the provision. The provision reduced in the year as updated property assessments

have been received and applied to the calculatione been received and applied to the calculation.

Other post model adjustments

At31December2022,the Society held other PMAs in aggrAt 31 December 2022, the Society held other PMAs in aggregate totalling£2.7million (2021:£3.5million)egate totalling £2.7 million (2021: £3.5 million).

This includes additional adjustments for negative equity accounts which are identified through using automated valuation models

(AVM) and fraud These additional PMAs hav) and fraud. These additional PMAs have been included in ECLs on a consistent basis with the prior year.

A reconciliation of movements in gross exposures and ECL provision split by IFRS9stage from1January2022to31Decembery IFRS 9 stage from 1 January 2022 to 31 December

2022is set out below for the Group and Society2022 is set out below for the Group and Society.

Stage1Stage 1 Stage2Stage 2 Stage3Stage 3 Total

Group

Gross

balance

£m

Provision12Provision 12

month ECL

£m

Gross

balance

£m

Provision

lifetime ECL

£m

Gross

balance

£m

Provision

lifetime ECL

£m

Gross

balance

£m

Provision

£m

At1January2022At 1 January 2022 43,200.8 3.7 3,226.2 9.0 189.0 6.2 46,616.0 18.9

Movements with Income

Statement impact

Transfers from Stage1to Stage2tage 1 to Stage 2

(3,803.4) (0.4) 3,803.4 2.0 — — — 1.6

Transfers from Stage1to Stage3tage 1 to Stage 3

(38.7) — — — 38.7 0.7 — 0.7

Transfers from Stage2to Stage3tage 2 to Stage 3

— — (76.1) (0.5) 76.1 0.5 — —

Transfers from Stage3to Stage2tage 3 to Stage 2

— — 28.3 0.2 (28.3) (0.2) — —

Transfers from Stage3to Stage1tage 3 to Stage 1

12.3 — — — (12.3) (0.1) — (0.1)

Transfers from Stage2to Stage1tage 2 to Stage 1

1,993.9 0.1 (1,993.9) (0.5) — — — (0.4)

Net movement arising from

transfer of stages (1,835.9) (0.3) 1,761.7 1.2 74.2 0.9 — 1.8

New loans originated

8,877.5 3.4 21.1 — 0.1 — 8,898.7 3.4

Remeasurement of ECL due to

changes in risk parameters — 1.5 — 1.2 — 1.4 — 4.1

Increase(Increase/(decrease) in post model

adjustments — (1.6) — 12.5 — (0.8) — 10.1

Loans derecognised in the period

(4,986.0) (1.7) (420.2) (0.4) (50.9) (0.4) (5,457.1) (2.5)

Other items impacting Income

Statement reversal — — — — — (0.1) — (0.1)

Net write offs directly to Income

Statement — — — — (0.2) — (0.2)

Income Statement charge for the

period 1.3 14.5 0.8 16.6

Repayment and charges

(1,886.1) — (122.4) — (9.7) — (2,018.2) —

Net write offs and other ECL

movements — — — — (0.7) — (0.7) —

At31December2022At 31 December 2022 43,370.3 5.0 4,466.4 23.5 202.0 7.0 48,038.7 35.5

1.1. New mortgages originated in stages2res 2 relate to further advances on accounts which are performing at the date of origination but are in thehe 12m2 month cure period for IFRS9S 9,staging .

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Financial S tatements

163

Notes to the accounts Continued

14.Impairment on loans and adv14. Impairment on loans and advances to customers continued

Stage1Stage 1 Stage2tage 2 Stage3Stage 3 Total

Society

Gross

balance

£m

Provision12Provision 12

month ECL

£m

Gross

balance

£m

Provision

lifetime

ECL

£m

Gross

balance

£m

Provision

lifetime

ECL

£m

Gross

balance

£m

Provision

£m

At1January2022At 1 January 2022 26,295.0 1.4 2,117.1 2.2 106.0 2.8 28,518.1 6.4

Movements with Income

Statement impact

Transfers from Stage1to Stage2tage 1 to Stage 2 (2,437.8) (0.2) 2,437.8 1.3 — — — 1.1

Transfers from Stage1to Stage3tage 1 to Stage 3 (17.7) — — — 17.7 0.3 — 0.3

Transfers from Stage2to Stage3tage 2 to Stage 3 — — (45.8) (0.3) 45.8 0.3 — —

Transfers from Stage3to Stage2tage 3 to Stage 2 — — 16.0 0.1 (16.0) (0.1) — —

Transfers from Stage3to Stage1tage 3 to Stage 1 7.5 — — — (7.5) — — —

Transfers from Stage2to Stage1tage 2 to Stage 1 1,339.7 0.1 (1,339.7) (0.2) — — — (0.1)

Net movement arising from transfer

of stages (1,108.3) (0.1) 1,068.3 0.9 40.0 0.5 — 1.3

New loans originated

6,131.5 2.8 16.3 — 0.1 — 6,147.9 2.8

Remeasurement of ECL due to changes

in risk parameters — 1.5 — 0.2 — 0.4 — 2.1

Increase(Increase/(decrease) in post model

adjustments — (0.5) — 10.3 — (0.5) — 9.3

Loans derecognised in the period

(3,015.2) (1.4) (261.3) (0.1) (23.0) (0.1) (3,299.5) (1.6)

Other items impacting Income

Statement reversal — — — — — (0.1) — (0.1)

Net write offs directly to Income

Statement — — — — — (0.2) — (0.2)

Income Statement charge for the

period 2.3 11.3 — 13.6

Repayment and charges

(1,624.7) — (108.5) — (7.3) — (1,740.5) —

Net write offs and other ECL

movements — — — — (0.3) — (0.3) —

At31December2022At 31 December 2022 26,678.3 3.7 2,831.9 13.5 115.5 2.8 29,625.7 20.0

1.1. New mortgages originated in stages2ans 2 and3red 3 relate to further advances on accounts which are performing at the date of origination but are in then the 12m2 month cure period for IFRS9S 9,stagingging.

Financial Statements

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164

A reconciliation of movements in gross exposures and impairment provision split by IFRS9stage from1January2021to31y IFRS 9 stage from 1 January 2021 to 31

December2021is set out in the following table for the GrDecember 2021 is set out in the following table for the Group and Society.

Stage1Stage 1 Stage2Stage 2 Stage3Stage 3 Total

Group

Gross

balance

£m

Provision12Provision 12

month ECL

£m

Gross

balance

£m

Provision

lifetime ECL

£m

Gross

balance

£m

Provision

lifetime ECL

£m

Gross

balance

£m

Provision

£m

At1January2021At 1 January 2021 39,703.4 8.6 3,549.1 28.4 206.6 11.1 43,459.1 48.1

Movements with Income

Statement impact

Transfers from Stage1to Stage2tage 1 to Stage 2

(1,160.0) (0.1) 1,160.0 3.5 — — — 3.4

Transfers from Stage1to Stage3tage 1 to Stage 3

(27.4) — — — 27.4 0.5 — 0.5

Transfers from Stage2to Stage3tage 2 to Stage 3

— — (65.9) (0.3) 65.9 0.3 — —

Transfers from Stage3to Stage2tage 3 to Stage 2

— — 40.0 0.7 (40.0) (0.7) — —

Transfers from Stage3to Stage1tage 3 to Stage 1

14.1 — — — (14.1) (0.1) — (0.1)

Transfers from Stage2to Stage1tage 2 to Stage 1

948.4 0.1 (948.4) (0.6) — — — (0.5)

Net movement arising from

transfer of stages (224.9) — 185.7 3.3 39.2 — — 3.3

New loans originated

10,452.3 0.8 51.2 — 1.3 — 10,504.8 0.8

Remeasurement of ECL due to

changes in risk parameters — — — (0.9) — (1.7) — (2.6)

Decrease in post model adjustments

— (5.3) — (21.4) — (1.6) — (28.3)

Remeasurement of ECL due to model

refinements — 0.2 — — — — — 0.2

Loans derecognised in the period

(4,894.6) (0.6) (431.2) (0.4) (48.0) (1.0) (5,373.8) (2.0)

Other items impacting Income

Statement reversal — — — — — (0.1) — (0.1)

Net write offs directly to Income

Statement — 0.1 — — — (0.1) — —

Income Statement release for the

period (4.8) (19.4) (4.5) (28.7)

Repayment and charges

(1,835.3) — (128.6) — (9.2) — (1,973.1) —

Net write offs and other ECL

movements (0.1) (0.1) — — (0.9) (0.4) (1.0) (0.5)

At31December2021At 31 December 2021 43,200.8 3.7 3,226.2 9.0 189.0 6.2 46,616.0 18.9

1.1. New mortgages originated in stages2aes 2 and3rnd 3 relate to further advances on accounts which are performing at the date of origination but are in thehe 12m2 month cure period for IFRS9S 9,staginging.

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Financial Statements

165

Notes to the accounts Continued

Stage1Stage 1 Stage2Stage 2 Stage3Stage 3 Total

Society

Gross

balance

£m

Provision

12month 12 month

ECL

£m

Gross

balance

£m

Provision

lifetime ECL

£m

Gross

balance

£m

Provision

lifetime ECL

£m

Gross

balance

£m

Provision

£m

At1January2021At 1 January 2021

24,317.9 5.1 2,429.5 17.9 118.2 4.6 26,865.6 27.6

Movements with Income

Statement impact

Transfers from Stage1to Stage2tage 1 to Stage 2

(704.3) — 704.3 0.1 — — — 0.1

Transfers from Stage1to Stage3tage 1 to Stage 3

(10.1) — — — 10.1 0.1 — 0.1

Transfers from Stage2to Stage3tage 2 to Stage 3

— — (43.0) (0.1) 43.0 0.1 — —

Transfers from Stage3to Stage2tage 3 to Stage 2

— — 27.1 0.3 (27.1) (0.3) — —

Transfers from Stage3to Stage1tage 3 to Stage 1

7.1 — — — (7.1) (0.1) — (0.1)

Transfers from Stage2to Stage1tage 2 to Stage 1

617.1 — (617.1) (0.3) — — — (0.3)

Net movement arising from transfer

of stages (90.2) — 71.3 — 18.9 (0.2) — (0.2)

New loans originated

6,826.1 0.3 14.4 — 0.1 — 6,840.6 0.3

Remeasurement of ECL due to

changes in risk parameters — (0.2) — (0.6) — (1.0) — (1.8)

Decrease in post model adjustments

— (3.7) — (15.0) — — — (18.7)

Remeasurement of ECL due to

model refinements — 0.1 — — — — — 0.1

Loans derecognised in the period

(3,157.3) (0.2) (286.3) (0.1) (24.6) (0.5) (3,468.2) (0.8)

Other items impacting Income

Statement reversal — — — — — (0.1) — (0.1)

Net write offs directly to Income

Statement — — — — — (0.1) — (0.1)

Income Statement charge for the

period (3.7) (15.7) (1.9) (21.3)

Repayment and charges

(1,601.5) — (111.8) — (6.3) — (1,719.6) —

Net write offs and other ECL

movements — — — — (0.3) 0.1 (0.3) 0.1

At31December2021At 31 December 2021 26,295.0 1.4 2,117.1 2.2 106.0 2.8 28,518.1 6.4

1.1. New mortgages originated in stages2as 2 and3rend 3 relate to further advances on accounts which are performing at the date of origination but are in thee 12m2 month cure period for IFRS9RS 9,staging.

14.Impairment on loans and adv14. Impairment on loans and advances to customers continued

Financial Statements

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166

Significant accounting assumptions and estimates – forward-looking information incorporated in the

ECL models

Formulation of economic scenarios and governance

The economic scenarios used by the Society reflect management’s best estimate of the future economic conditions under a range

of scenarios including a wof scenarios, including a weighting reflecting the loss distribution on the occurrence of each scenario At31December2022,the. At 31 December 2022, the

Group has used alternative economic scenarios to assess ECLs for its core owner-occupier and buy to let portfolios which repre owner-occupier and buy to let portfolios, which represent

over99%oover 99% of total loans and advances to customersf total loans and advances to customers.

The assumptions in each of the four (2021:four) scThe assumptions in each of the four (2021: four) scenarios evolve reflecting latest expectations with the base scenario representing

the most likely outcome complemented by upside and dothe most likely outcome, complemented by upside and downside scenarios based on potential economic developments Thesewnside scenarios based on potential economic developments. These

alternative scenarios are built using management judgement and are calibrated to statistical views of economic cycles ranging from

periods of five to ten years from the beginning of an overall expansion phase to the end of the contraction phase and the beginning

of the next initial recovery phase Avery phase. Available data from the last50years has been analysed to draom the last 50 years has been analysed to draw out the normal range through to

extreme outcomes that could be expected to be observed Outside of these extreme outced. Outside of these extreme outcomes the severe downside scomes, the severe downside scenario is

based on a deliberately extreme case used for stress testing the severity oess testing, the severity of which has not been experienced in the last50yearsf which has not been experienced in the last 50 years.

Beyond the five year forecast horizon which aligns to the Strategic Plan period long-term aecast horizon which aligns to the Strategic Plan period, long-term averages for each economic assumption

variable are used The sevvariable are used. The severe downside scenario transitions to the long-term average level over a period of ten years rer a period of ten years, reflecting

the negativity of the scenario The other three scenarios tr. The other three scenarios transition over a five year period These long-term ave year period. These long-term averages hold true

throughout various financial and economic crises and arthroughout various financial and economic crises, and are therefore used until the end of the35year forf the 35 year forecastecast.

Scenarios and accompanying weightings are determined following analysis of economic news forsis of economic news, forecasts peer benchmarkingecasts, peer benchmarking

and since the emergence oand, since the emergence of the Covid-19pandemic scientific developments and rf the Covid-19 pandemic, scientific developments and results By their nature a significant degresults. By their nature, a significant degree of

estimation is involved in determining the scenario weightingsed in determining the scenario weightings.

These scenarios and weightings are developed within the Society's Treasury function and are reviewed and approved quarterly by

the Society’s Asset and Liability Committee with further approval at reporting periods by the Board Audit Committeey the Board Audit Committee.

Current year scenarios and weightings

During the period the weightings for each scDuring the period, the weightings for each scenario were reviewed and updated from those applied at2021yeviewed and updated from those applied at 2021 year end most notablyear end, most notably

a lower weighting assigned to the upside scenario reflecting the reduced likelihood of economic recovery and a higher weighting

assigned to the downside scenario as expectations of a recessionary and higher base rate environment have become more likely.

The weightings used at the year end reflect the Society’s view of the range of potential future economic conditions at the Balance

Sheet date An explanation of each scenario and its relativSheet date. An explanation of each scenario and its relative weighting in calculating ECL is set out below:

Scenario Weighting

Base

55%

This is the central scenario used to support the business planning of the Society Broadening inflationary pr. Broadening inflationary pressure in services and

tight labour markets are requiring central banks to maintain pressure on interest rates This is expected to negatively impact grest rates. This is expected to negatively impact growth

in2023,with recession risk particularly high bringing about an increase in unemploin 2023, with recession risk particularly high, bringing about an increase in unemployment and reduces house prices further as, as

affordability constraints biteaffordability constraints bite.

Downside

25%

A deteriorating cost of living crisis driven by higher and prolonged inflation Central banks need to incren by higher and prolonged inflation. Central banks need to increase interest rates further

than currently expected this slows the economy and significantly incrthan currently expected, this slows the economy and significantly increases the level of unemployment and reduces house pricesyment and reduces house prices.

The stubborn level of inflation isn’t expected to return to the Bank of England’s2%tareturn to the Bank of England’s 2% target within the first five yearsget within the first five years.

Severe downside

10%

Based on the Internal Capital Adequacy Assessment Process (ICAAP) Annual Cyclical Scenario (ACS) This scenario embodies aCS). This scenario embodies a

significant rise in inflation across advanced economies accompanied by a sharp tightening in global financial conditions as ongoingonomies accompanied by a sharp tightening in global financial conditions, as ongoing

energy supply issues combine with cost shocks in other markets This tightening is more severe than the Global Fets. This tightening is more severe than the Global Financial Crisis and

the base rate in the UK rises rapidly against a peak inflation of17%,cathe base rate in the UK rises rapidly against a peak inflation of 17%, causing GDP to shrink As unemployment rises considerablyusing GDP to shrink. As unemployment rises considerably,

house prices fall by31%at the lowhouse prices fall by 31% at the lowest point before a moderate rest point, before a moderate recovery beginsecovery begins.

Upside

10%

Inflation dissipates more rapidly than currently expected constraining centrapidly than currently expected, constraining central bank intervention and enabling a soft landingal bank intervention and enabling a soft landing.

Unemployment continues to be low and stable and house prices continue to grow at a moderontinues to be low and stable, and house prices continue to grow at a moderate rateate rate.

Coventry Building Society  Annual Report & Accounts2022 | Annual Report & Accounts 2022

Financial Statements

167

Notes to the accounts Continued

Macroeconomic assumptions

The Society's ECL calculation incorporates four key economic assumptions unemployment rey economic assumptions: unemployment rate house price index (HPI) GDPate, house price index (HPI), GDP

and the Bank of England Base Rate While all feed into the economic fand the Bank of England Base Rate. While all feed into the economic forecasts and impact the final ECL provision the models arorecasts and impact the final ECL provision, the models are

particularly sensitive to changes in the following assumptions in each scenariosumptions in each scenario:

• Unemployment rate gie, given its impact on borrowers’ ability to meet their loan repaymentsrepayments.

• HPI gHPI, given the significant impact it has on mortgage collateral valuationsvaluations.

In the current year inflation impacts are no, inflation impacts are now reflected within all four scenarios as the effect has become embedded within econo mic

forecastsforecasts.

The following graphs and table show these two key economic assumptions used in the scenarios over a five year forecast periodecast period:

14.Impairment on loans and adv14. Impairment on loans and advances to customers continued

Financial Statements

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168

31December202231 December 2022 31December202131 December 2021

Weighting Unemployment%Unemployment %

HPI

% Weighting Unemployment%Unemployment %

HPI

Base

2023

55%

4.7 (6.0)

55%

4.5 (1.0)

2024 5.2 (3.0) 4.4 3.0

Downside

2023

25%

6.5 (7.5)

20%

8.0 (10.0)

2024 7.3 (9.5) 7.5 (5.0)

Severe Downside

2023

10%

7.6 (10.4)

10%

11.9 (25.9)

2024 8.3 (15.2) 10.0 (1.3)

Upside

2023

10%

3.9 2.5

15%

4.3 2.5

2024 3.9 4.0 4.0 4.0

Key economic assumptions as at31Decey economic assumptions as at 31 December2022ember 2022

While the Society’s ECL calculation is particularly sensitive to unemployment and HPI movements GDP and the Bank of Englandements, GDP and the Bank of England

Base Rate remain key drivers of the provision calculation and the forward economic outlook The rates applied to all key measurd economic outlook. The rates applied to all key measures

are shown below for the five year forecast periodecast period:

ScenarioScenario/

weighting

2023

2024

2025

2026

2027

Peak to trough

Range

Average to

31Dec202731 Dec 2027

Unemployment 4.7 5.2 5.1 4.8 4.6 1.3 3.9-5.23.9 - 5.2 4.8

Base HPI (6.0) (3.0) 0.0 2.0 2.5 8.3 (8.8) - (0.5) (1.0)

55% GDP (0.7) 1.0 1.5 1.5 1.7 5.8 (0.7) -5.0(0.7) - 5.0 1.0

Base rate 4.00 4.00 3.50 3.50 3.50 0.50 3.50-4.003.50 - 4.00 3.7

Unemployment 6.5 7.3 6.8 6.3 5.8 3.2 4.0-7.34.0 - 7.3 6.3

Downside HPI (7.5) (9.5) (4.5) 0.0 3.0 19.4 (20.1) - (0.6) (3.8)

25% GDP (2.5) 0.0 1.3 1.3 1.4 4.0 (2.5) -1.5(2.5) - 1.5 0.3

Base rate 5.00 5.00 4.50 4.25 4.00 1.50 3.50-5.003.50 - 5.00 4.40

Severe

downside

10%

Unemployment 7.6 8.3 7.7 7.1 6.5 4.5 4.0-8.54.0 - 8.5 7.2

HPI (10.4) (15.2) (8.3) 7.2 6.6 30.9 (31.0) -0.1(31.0) - 0.1 (4.5)

GDP (5.0) 1.2 1.2 1.2 1.2 4.9 (5.0) - (0.1) (0.1)

Base rate 6.00 5.75 5.00 4.25 3.25 2.75 3.25-6.003.25 - 6.00 4.90

Unemployment 3.9 3.9 3.9 3.9 3.9 0.1 3.81-3.93.81 - 3.9 3.9

Upside HPI 2.5 4.0 4.0 4.0 4.0 19.7 0.2-19.90.2 - 19.9 3.7

10% GDP 4.0 3.0 2.8 3.2 3.2 16.9 0.3-17.30.3 - 17.3 3.2

Base rate 3.50 3.50 3.00 3.00 3.00 0.50 3.50-3.503.50 - 3.50 3.20

1.H1. HPI change and GDP change average toe to 31D31 December2r 2027a027 are shown as the annual compound growth ratesrates.

A significant degree of estimation relates to the relative weightings of the scenarios incorporeightings of the scenarios, incorporating different views of the house

Price index and the unemployment rate as indicated above Iate as indicated above. In order to demonstrate this sensitivity the impact of applying100%of, the impact of applying 100% of

a particular scenario on the reported IFRS9ECL proa particular scenario on the reported IFRS 9 ECL provision is shown below For example if the pr. For example, if the provision was wholly calculated on

the base scenario it wthe base scenario, it would decrease by£8.1million or22.8%(2021:£4.6million24.3%) comparould decrease by £8.1 million, or 22.8% (2021: £4.6 million, 24.3%) compared with the reported provisionvision.

If a100%wIf a 100% weighting was attributed to the severe downside scenario ECLs would increase by£26.0million or73.2%(2021:£29.4, ECLs would increase by £26.0 million or 73.2% (2021: £29.4

million155.6%)million 155.6%).

31December202231 December 2022 31December202131 December 2021

Scenario

IFRS9IFRS 9

provision

£m

(Decrease)(Decrease)/

increase

IFRS9IFRS 9

provision

£m

(Decrease)(Decrease)/

increase

IFRS9weighted avIFRS 9 weighted average 35.5 — 18.9 —

Base scenario 27.4 (22.8) 14.3 (24.3)

Downside scenario 43.6 22.8 27.5 45.5

Severe downside scenario 61.5 73.2 48.3 155.6

Upside scenario 13.3 (62.5) 12.2 (35.4)

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Financial Statements

169

Notes to the accounts Continued

31 December 2022

Scenarios

Weighted Base Downside Severe Downside Upside

Stage1Gross balances (£m)Stage 1 Gross balances (£m) 43,370.3 43,756.6 43,316.5 43,240.4 45,151.8

Stage1ECL (£m)Stage 1 ECL (£m) 5.0 3.3 5.7 10.7 1.3

Stage1ECL covStage 1 ECL coverage (%) 0.01% 0.01% 0.01% 0.02% —%

Stage2Gross balances (£m)Stage 2 Gross balances (£m) 4,466.4 4,080.1 4,520.2 4,596.3 2,684.9

Stage2ECL (£m)Stage 2 ECL (£m) 23.5 17.5 30.3 42.0 6.5

Stage2ECL covStage 2 ECL coverage (%) 0.53% 0.43% 0.67% 0.91% 0.24%

Stage3Gross balances (£m)Stage 3 Gross balances (£m) 202.0 202.0 202.0 202.0 202.0

Stage3ECL (£m)Stage 3 ECL (£m) 7.0 6.6 7.6 8.8 5.5

Stage3ECL covStage 3 ECL coverage (%) 3.47% 3.27% 3.76% 4.36% 2.72%

Total Gross balances (£m) 48,038.7 48,038.7 48,038.7 48,038.7 48,038.7

Total ECL (£m) 35.5 27.4 43.6 61.5 13.3

Total ECL coverage (%) 0.07% 0.06% 0.09% 0.13% 0.03%

31 December 2021

Scenarios

Weighted Base Downside Severe Downside Upside

Stage1Gross balances (£m)Stage 1 Gross balances (£m) 43,200.8 43,249.0 43,129.9 43,103.2 43,227.6

Stage1ECL (£m)Stage 1 ECL (£m) 3.7 1.6 5.7 19.5 1.0

Stage1ECL covStage 1 ECL coverage (%) 0.01% — 0.01% 0.05% —

Stage2Gross balances (£m)Stage 2 Gross balances (£m) 3,226.2 3,178.0 3,297.1 3,323.8 3,199.4

Stage2ECL (£m)Stage 2 ECL (£m) 9.0 6.8 14.7 21.7 5.6

Stage2ECL covStage 2 ECL coverage (%) 0.28% 0.21% 0.45% 0.65% 0.18%

Stage3Gross balances (£m)Stage 3 Gross balances (£m) 189.0 189.0 189.0 189.0 189.0

Stage3ECL (£m)Stage 3 ECL (£m) 6.2 5.9 7.1 7.1 5.6

Stage3ECL covStage 3 ECL coverage (%) 3.28% 3.12% 3.76% 3.76% 2.96%

Total Gross balances (£m) 46,616.0 46,616.0 46,616.0 46,616.0 46,616.0

Total ECL (£m) 18.9 14.3 27.5 48.3 12.2

Total ECL coverage (%) 0.04% 0.03% 0.06% 0.10% 0.03%

The ECL calculated above for100%of each scenario multiplied by the scenario pror 100% of each scenario multiplied by the scenario probability will not reconcile to the overall provisionerall provision.

This is due to the staging of loans within each scenario varying but being allocated to a single stage in the oThis is due to the staging of loans within each scenario varying, but being allocated to a single stage in the overall provision

calculation and having a weighted average12month or lifetime PD applied taking into account the economic scenarios Theage 12 month or lifetime PD applied taking into account the economic scenarios. The

probability weighted ECL is then calculated based on this staging allocation The estimated ECL prprobability weighted ECL is then calculated based on this staging allocation. The estimated ECL provision is determined using an

uplift to account for non-linearity in modelling of unemployment rates beyond8.5%.ond 8.5%.

Sensitivity assessment

As at31December2022,a decrease to the annual HPI assumption by10%cAs at 31 December 2022, a decrease to the annual HPI assumption by 10% combined with an increase in the unemployment rate

assumption of10%throughout the fassumption of 10% throughout the forecast period would have the impact of increasing the core modelled ECL provision by£24.9vision by £24.9

million to£60.4millionmillion to £60.4 million.

14.Impairment on loans and adv14. Impairment on loans and advances to customers continued

Financial Statements

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170

Other credit risk information

The table below provides more analysis on the reason for presence within stage2under the Society's SICR criteria Where a loanesence within stage 2 under the Society's SICR criteria. Where a loan

meets more than one of these criteria at the Balance Sheet date it has been included in only one catemeets more than one of these criteria at the Balance Sheet date, it has been included in only one category being the first which, being the first which

applied and led to its movement into stage2:applied and led to its movement into stage 2:

2022 2021

(Audited)

Stage2Stage 2

balance

£m

Provision

lifetime ECL

£m

Total

£m

Stage2Stage 2

balance

£m

Provision

lifetime ECL

£m

Total

£m

Quantitative criteria 505.7 (1.8) 503.9 484.0 (1.0) 483.0

Backstop criteria (arrears of one monthly payment) 167.6 (0.2) 167.4 145.5 (0.1) 145.4

Forbearance applied 15.5 — 15.5 59.5 (0.1) 59.4

Other qualitative criteria 3,777.6 (21.5) 3,756.1 2,537.2 (7.8) 2,529.4

Total 4,466.4 (23.5) 4,442.9

3,226.2 (9.0) 3,217.2

As at31December2022,the largest component oAs at 31 December 2022, the largest component of Other qualitative criteria above is that of accounts in stage2due to the SICRe is that of accounts in stage 2 due to the SICR

criteria established as a result of the cost of living affordability risk totalling£3,041million (2021:Covid19pandemic risk£1,885f living affordability risk totalling £3,041 million (2021: Covid 19 pandemic risk, £1,885

million) Other balances relate to accounts which hamillion). Other balances relate to accounts which have missed direct debit payments or county court judgements See note1to theect debit payments or county court judgements. See note 1 to the

accounts for more information on the SICR criteria applied for stage2allocationormation on the SICR criteria applied for stage 2 allocation  .

The Society updates its security values using the Nationwide Building Society quarterly regional HPI Pegional HPI. Part of the risk assessment of

the portfolio also includes an initial individual revaluation of security using automated valuation model (AVM) values and fM) values, and following

model build and testing it is expected that the Society will use Amodel build and testing, it is expected that the Society will use AVM values more widely in futuree.

The LTV distribution of the mortgage book by IFRS9stage reducTV distribution of the mortgage book by IFRS 9 stage reduced slightly during2022,with91%of the mortgage book havinged slightly during 2022, with 91% of the mortgage book having

an LTV of75%or lowTV of 75% or lower (2021:93%) The increase in the higher Ler (2021: 93%). The increase in the higher LTV bandings was driven by increased lending in this area in the

yearincluding, including first time buyers How first time buyers. However the overall a, the overall average LTV (balance weighted) of the book increased marginally from50.9%ginally from 50.9%

to51.0%during the yearto 51.0% during the year This is shown by IFRS9stage below. This is shown by IFRS 9 stage below:

As at31December2022As at 31 December 2022

Indexed loan to value (Audited)

Stage1Stage 1

Performing

£m

Stage2Stage 2

Deteriorating

£m

Stage3Stage 3

Default

£m

Impairment

£m

Total

£m

<50% 21,086.7 639.6 108.4 (1.7) 21,833.0

50%to65%50% to 65% 13,991.3 1,607.8 63.3 (7.9) 15,654.5

65%to75%65% to 75% 4,873.0 1,513.6 21.4 (9.7) 6,398.3

75%to85%75% to 85% 2,198.7 573.6 4.7 (8.3) 2,768.7

85%to90%85% to 90% 603.2 117.3 1.0 (2.7) 718.8

90%to95%90% to 95% 468.1 12.0 0.8 (1.0) 479.9

95%to100%95% to 100% 137.8 0.8 — (0.2) 138.4

>100%> 100% 1.1 0.4 2.1 (1.2) 2.4

Unsecured loans 10.4 1.3 0.3 (0.6) 11.4

Mortgage pipeline — — — (0.6) (0.6)

Other

— — — (1.6) (1.6)

Total 43,370.3 4,466.4 202.0 (35.5) 48,003.2

1.O1. Other includes expected credit losses which are not directly attributable to underlying accounts and therefore are not allocated across loan to value bandingsgs.

As at31December2021As at 31 December 2021

Indexed loan to value (Audited)

Stage1Stage 1

Performing

£m

Stage2Stage 2

Deteriorating

£m

Stage3Stage 3

Default

£m

Impairment

£m

Total

£m

<50% 19,621.1 1,344.1 95.1 (1.5) 21,058.8

50%to65%50% to 65% 14,271.5 1,174.6 60.9 (5.3) 15,501.7

65%to75%65% to 75% 6,250.1 580.3 23.8 (4.7) 6,849.5

75%to85%75% to 85% 2,080.0 112.1 5.7 (2.2) 2,195.6

85%to90%85% to 90% 670.4 8.2 0.5 (0.4) 678.7

90%to95%90% to 95% 275.6 3.8 0.1 (0.3) 279.2

95%to100%95% to 100% 19.7 0.3 0.1 — 20.1

>100%> 100% 0.5 0.5 2.5 (1.3) 2.2

Unsecured loans 11.9 2.3 0.3 (0.9) 13.6

Mortgage pipeline — — — (0.1) (0.1)

Other

— — — (2.2) (2.2)

Total 43,200.8 3,226.2 189.0 (18.9) 46,597.1

1.1. Other includes expected credit losses which are not directly attributable to underlying accounts and therefore are not allocated across loan to value bandingsngs.

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Financial Statements

171

Notes to the accounts Continued

The credit quality of the mortgage book remains high and performance continues to be strongemains high, and performance continues to be strong.

The probability of default (PD) tables below have been updated in the year to incorporate the distribution of the Group's credit

exposure by internal risk grade and their respective average PD of the Society’s loans over their life (eg PD of less than or equal toe.g. PD of less than or equal to

0.25indicates a0.25%chance of defa0.25 indicates a 0.25% chance of default over the life of the loan) These internal risk grades are used in the assesf the loan). These internal risk grades are used in the assessment of SICR as

well as within the calculation of regulatory expected losses and capital under the IRB approach Fegulatory expected losses and capital under the IRB approach. Further information on SICR criteria

and the differences between the IFRS9ECL calculation and regulatory expected losses can be found in note1to the aceen the IFRS 9 ECL calculation and regulatory expected losses can be found in note 1 to the accounts.

Default includes cases which are three or more months in arrears or have been three or more months in arrears at some point in the

last12months in addition to cases which havlast 12 months in addition to cases which have a specified unlikeliness to pay indicator.

Loan balances are reflected in the respective PD bands of the account as modelled through the Society’s standard IFRS9s standard IFRS 9

impairment models Impairments reflected in all PD bands in the yimpairment models. Impairments reflected in all PD bands in the year have increased whilst any post model adjustments (PMAs)e increased, whilst any post model adjustments (PMAs)

applied as a result of the Covid-19pandemic have novid-19 pandemic have now been removed further adjustments have been made to red, further adjustments have been made to represent the

affordability stress which is brought by the cost of living crisis Mors which is brought by the cost of living crisis. More information on PMAs is outlined on pages162to163.e information on PMAs is outlined on pages 162 to 163.

As at31December2022As at 31 December 2022

Risk grades (Audited)

Average lifetime

Probability of

default (%)

Stage1Stage 1

Performing

£m

Stage2Stage 2

Deteriorating

£m

Stage3Stage 3

Default

£m

Impairment

£m

Total

£m

Performing

A-C 0.23% 38,840.2 2,467.2 — (10.6) 41,296.8

D-F 2.28% 4,316.2 1,620.8 — (9.7) 5,927.3

G-J 21.90% 46.6 343.9 — (2.0) 388.5

Non-performing

K 43.72% — 16.8 — (0.2) 16.6

Default and possession 100.00% — — 197.5 (5.3) 192.2

Other

Not applicable 167.3 17.7 4.5 (7.1) 182.4

Mortgage pipeline Not applicable — — — (0.6) (0.6)

Total 43,370.3 4,466.4 202.0 (35.5) 48,003.2

1.O1. Other includes equity release mortgages and other loans where credit risk is assessed using alternative calculation methods and their respective ECLs or where ECLs are not directly attributable

to underlying accounts and therefore are not allocated across risk grades or to default.

As at31December2021As at 31 December 2021

Risk grades (Audited)

Average lifetime

Probability of

default (%)

Stage1Stage 1

Performing

£m

Stage2Stage 2

Deteriorating

£m

Stage3Stage 3

Default

£m

Impairment

£m

Total

£m

Performing

A-C 0.18% 38,807.7 1,783.3 — (3.0) 40,588.0

D-F 1.97% 4,169.3 1,099.8 — (3.0) 5,266.1

G-J 19.78% 43.3 309.7 — (1.2) 351.8

Non-performing

K 39.83% — 13.7 — (0.1) 13.6

Default and possession 100.00% — — 186.7 (4.4) 182.3

Other

Not applicable 180.5 19.7 2.3 (7.1) 195.4

Mortgage pipeline Not applicable — — — (0.1) (0.1)

Total 43,200.8 3,226.2 189.0 (18.9) 46,597.1

1.1. Other includes equity release mortgages and other loans where credit risk is assessed using alternative calculation methods and their respective ECLs or where ECLs are not directly attributable to

underlying accounts and therefore are not allocated across risk grades or to defaultdefault.

14.Impairment on loans and adv14. Impairment on loans and advances to customers continued

Financial Statements

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172

15.T15. Taxation

Group

2022

£m

Group

2021

£m

Society

2022

£m

Society

2021

£m

Current tax

UK corporation tax 71.4 45.9 50.8 28.5

UK corporation tax – adjustment in respect of prior years 2.7 (2.4) 2.5 (2.2)

Total current tax 74.1 43.5 53.3 26.3

Deferred tax

Current year 9.3 (3.0) 8.1 (2.0)

Adjustment in respect of prior years 0.9 1.5 0.9 1.5

Total deferred tax 10.2 (1.5) 9.0 (0.5)

Total 84.3 42.0 62.3 25.8

A reconciliation between the actual tax expense and tax that would be due if the UK standard corporation tax rate of19.0%(2021:ation tax rate of 19.0% (2021:

19.0%) was applied to the profit before tax without adjustment is as followsfit before tax without adjustment is as follows:

Group

2022

£m

Group

2021

£m

Society

2022

£m

Society

2021

£m

Profit before tax 370.5 232.8 261.6 140.8

Expected tax at UK standard rate of corporation tax of19.0%(2021:19.0%)orporation tax of 19.0% (2021: 19.0%) 70.4 44.2 49.7 26.8

Recurring items

Surcharge on banking profits

13.5 7.0 13.5 7.0

Tax credit on Additional Tier1capital distributionax credit on Additional Tier 1 capital distribution

(5.4) (5.4) (5.4) (5.4)

Expenses not deductible for tax purposes

(7.1) 0.1 (7.0) 0.1

Non-recurring items

Adjustments in respect of prior years (current tax)

2.7 (2.4) 2.5 (2.2)

Other (current tax) — — — —

Total current tax

74.1 43.5 53.3 26.3

Movements in deferred taxes 9.5 (3.3) 8.3 (2.4)

Adjustments in respect of prior years (deferred tax)

0.9 1.5 0.9 1.5

Deferred tax arising from rate change (0.2) 0.3 (0.2) 0.4

Total 84.3 42.0 62.3 25.8

1.Fr1. Fromom 1Ja January2y 2016,ba, banking companies and building societies have been required to pay a surcharge of8ge of 8%o% on their taxable profits in addition to the main rate of corporation tax sub, subject to an

annual allowance of£f £25m25 million illion. Only the profits of the Society are subject to the surchargesurcharge.

2.2. The Society's AT1caT 1 capital instrument is categorised as a Hybrid Capital Instrument (HCI) and is taxable under the HCI regime . Under the HCI regime the d, the distributions made to holders of the

Society’s AT13.’s AT1 3. instruments are deductible for tax purposesurposes.

3.3. Some business expenses a, although entirely appropriate for inclusion the Society’s accounts ar, are not allowed as a deduction against taxable income when calculating the Society’s tax liability ty.

Examples of these expenses are client entertaining and capital expenditure (which is subject to capital allowances instead)instead).

4.4. These adjustments largely relate to the differences between the calculated tax charge in the prior year's Balance Sheet and the final tax charge calculated upon completion of the prior year's

corporation tax returnreturn.

The effective tax rate for the year is22.8%(2021:18.0%) for the Grate for the year is 22.8% (2021: 18.0%) for the Group and23.8%(2021:18.3%) for the Societyoup and 23.8% (2021: 18.3%) for the Society The effective . The effective

tax rates for2022are abotax rates for 2022 are above the UK standard corporation tax rate due to the£13.5million (2021:£7.0million) surcharorporation tax rate due to the £13.5 million (2021: £7.0 million) surcharge on

banking profits obanking profits, offset by the£5.4million (2021:£5.4million) tax credit in relation to distributions to holders offset by the £5.4 million (2021: £5.4 million) tax credit in relation to distributions to holders of the Group’s AT1T 1

instrument and higher timing differences on treatment of cash flow hedge movements which are not deductible for tax purposesements, which are not deductible for tax purposes.

The March2021Budget announced an increase in the UK cThe March 2021 Budget announced an increase in the UK corporation tax rate from19%to25%(orporation tax rate from 19% to 25% (effective1April2023) which effective 1 April 2023), which

was substantively enacted on24Mawas substantively enacted on 24 May2021.The deferred tax liabilities at31December2022has been calculated based on these y 2021. The deferred tax liabilities at 31 December 2022 has been calculated based on these

rates reflecting the expected timing orates, reflecting the expected timing of reversal of the related timing differencesf the related timing differences.

In October2021,the GovIn October 2021, the Government also announced that the Bank Corporation Tax Surcharge will be reduced from8%to3%,and ax Surcharge will be reduced from 8% to 3%, and

that it will be chargeable on banking profits in excess of£100million (prfits in excess of £100 million (previously£25million) This was substantively enacted on2eviously £25 million). This was substantively enacted on 2

February2022and the changes will be effective frebruary 2022 and the changes will be effective from1April2023for current tax aligning with the already enacted rise in the main om 1 April 2023 for current tax, aligning with the already enacted rise in the main

rate of Corporation Tax so that the combined rate of tax on banking proax, so that the combined rate of tax on banking profits in excess of£100million will be28%.The deffits in excess of £100 million will be 28%. The deferred tax

liabilities at31December2022havliabilities at 31 December 2022 have been calculated on these rates reflecting the expected timing oe been calculated on these rates, reflecting the expected timing of reversal of the related timing

differences (31December2021:8%)differences (31 December 2021: 8%).

The Society publishes its tax strategy on the website at wwwtheco.thecoventrycouk.co.uk.

Coventry Building Society  Annual Report & Accounts2022 | Annual Report & Accounts 2022

Financial Statements

173

Notes to the accounts Continued

Tax on items reported through the Statements of Comprehensive Income is as followsncome is as follows:

Statements of Comprehensive Income

Group

2022

£m

Group

2021

£m

Society

2022

£m

Society

2021

£m

Tax (credit) charge on rax (credit)/ charge on remeasurement of defined benefit pension scheme (7.5) 5.7 (7.5) 5.7

Tax charge on fair value through other comprehensive income movements — 0.9 — 0.9

Tax charge on cash flow hedges 93.2 27.3 98.4 20.2

Effect of change in corporation tax rate 2.1 0.7 2.2 0.5

Total 87.8 34.6 93.1 27.3

 16.In16. Investment in Group undertakings

Society

£m

Loans

£m

Total

£m

At1January2022At 1 January 2022 8.0 17,544.7 17,552.7

Additions — 327.0 327.0

At31December2022At 31 December 2022 8.0 17,871.7 17,879.7

The Society has the following consolidated subsidiary undertakings all of which operThe Society has the following consolidated subsidiary undertakings, all of which operate in the United Kingdom and are wholly

owned by Coventry Building Societyentry Building Society:

Subsidiary undertakings Principal activity

Godiva Mortgages Limited Mortgage lending

ITL Mortgages Limited Mortgage lending

Coventry Financial Services Limited Non-trading

Coventry Property Services Limited Non-trading

Godiva Financial Services Limited Non-trading

Godiva Housing Developments Limited Non-trading

Godiva Savings Limited Non-trading

Godiva Securities and Investments Limited Non-trading

A structured entity is an entity in which voting or similar rights are not the dominant factor in deciding control Se not the dominant factor in deciding control. Structured entities

are consolidated when the substance of the relationship indicates control in accordance with the accounting policy set out in note1.ordance with the accounting policy set out in note 1.

The following structured entities are consolidatede consolidated:

Consolidated structured entities Principal activity

Coventry Building Society Covered Bonds LLP Mortgage acquisition and guarantor of covered bonds

Coventry Godiva Covered Bonds LLP Mortgage acquisition and guarantor of covered bonds

Economic Master Issuer plc Funding vehicle

The nature and risks associated with the Society's investments in these entities (including obligations of financial support) are

disclosed in note13.disclosed in note 13.

Consolidated entities Registered office

Godiva Mortgages Limited Coventry House Harry Wouse, Harry Weston Road Binleyeston Road, Binley Coventry CV32T, Coventry CV3 2TQ

ITL Mortgages Limited Coventry House Harry Wentry House, Harry Weston Road Binleyeston Road, Binley Coventry, Coventry CV32TQ, CV3 2TQ

Coventry Building Society Covered Bonds LLP Oak Tree Court Harry Wree Court, Harry Weston Road Binleyeston Road, Binley Coventry CV32UN , Coventry CV3 2UN

Coventry Godiva Covered Bonds LLP Oakfield House Harry Wakfield House, Harry Weston Road Coveston Road, Coventry CV32TQentry CV3 2TQ

Economic Master Issuer plc 10th Floor5Churchill Place London E145HU10th Floor 5 Churchill Place, London E14 5HU

All of the other companies are registered at Oakfield House PO Box600,Binley Business Pouse, PO Box 600, Binley Business Park Covark, Coventry CV39YRentry CV3 9YR .

15.T15. Taxation continued

Financial Statements

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174

17.Intangible assets17. Intangible assets

Group and Society

Externally acquired

2022

£m

Internally developed

2022

£m

Total

2022

£m

Externally acquired

2021

£m

Internally developed

2021

£m

Total

2021

£m

Cost

At1JanuaryAt 1 January 14.6 90.2 104.8 15.4 80.1 95.5

Additions 0.2 19.8 20.0 0.8 13.9 14.7

Retirements (12.3) (39.4) (51.7) (1.6) (3.8) (5.4)

At31DecemberAt 31 December 2.5 70.6 73.1 14.6 90.2 104.8

Amortisation

At1JanuaryAt 1 January 11.7 57.4 69.1 11.8 49.8 61.6

Charge for the year 1.1 10.7 11.8 1.5 11.0 12.5

Retirements (12.3) (38.8) (51.1) (1.6) (3.4) (5.0)

At31DecemberAt 31 December 0.5 29.3 29.8 11.7 57.4 69.1

Net book value at31DecemberNet book value at 31 December 2.0 41.3 43.3 2.9 32.8 35.7

Intangible assets primarily consist of externally acquired and internally developed software that is not an integral part of a related

hardware purchasee purchase.

Externally acquired and internally developed assets at31December2022include£0.9million and£6.6million respectiveloped assets at 31 December 2022 include £0.9 million and £6.6 million respectively (2021:ely (2021:

externally acquired£0.9million internally devexternally acquired £0.9 million, internally developed£6.1million) of assets in the course of celoped £6.1 million) of assets in the course of construction These assets relate onstruction. These assets relate

mainly to the Society’s investment in new systems and platforms to meet the future needs of the business Tf the business. To the extent that these

new systems and platforms are not yet ready for use by the business no amortisation has been charged against these assetss, no amortisation has been charged against these assets .

18.Property18. Property plant and equipment, plant and equipment

Group and Society

Land and buildings

£m

EquipmentEquipment,

fixtures and

fittings

£m

Right-of-use

assets

£m

Total

£m

Cost

At1January2022At 1 January 2022 20.9 84.2 33.4 138.5

Additions — 6.7 2.3 9.0

Disposals (2.6) (31.0) (7.8) (41.4)

At31December2022At 31 December 2022 18.3 59.9 27.9 106.1

Depreciation

At1January2022At 1 January 2022 5.4 43.1 13.9 62.4

Charge for the year 0.8 10.9 5.2 16.9

Depreciation on disposals (2.1) (28.0) (6.3) (36.4)

At31December2022At 31 December 2022 4.1 26.0 12.8 42.9

Net book value at31December2022Net book value at 31 December 2022 14.2 33.9 15.1 63.2

Right-of-use assets additions includes new leases entered into during the year and additions related to lease modifications following

changes in lease agreements during the period These changes do not constitute a new agreement but adaptations or amendmentschanges in lease agreements during the period. These changes do not constitute a new agreement but adaptations or amendments

to an existing contractto an existing contract.

Disposals relate to assets that were retired during the year.

The net book value of right-of-use assets above relates to the following types of assetselates to the following types of assets:

Right-of-use assetRight-of-use asset:

2022

Total

£m

2021

Total

£m

Property 11.9 14.8

Enhanced data infrastructure 2.5 3.0

Cars and leased equipment 0.7 1.7

Total 15.1 19.5

Coventry Building Society  Annual Report & Accounts2022 | Annual Report & Accounts 2022

Financial Statements

175

Notes to the accounts Continued

Group and Society

Land and buildings

£m

EquipmentEquipment,

fixtures and

fittings

£m

Right-of-use

assets

£m

Total

£m

Cost

At1January2021At 1 January 2021 16.3 79.0 31.9 127.2

Additions 5.3 17.2 2.8 25.3

Disposals (0.7) (12.0) (1.3) (14.0)

At31December2021At 31 December 2021 20.9 84.2 33.4 138.5

Depreciation

At1January2021At 1 January 2021 5.2 39.7 9.5 54.4

Charge for the year 0.5 11.8 5.5 17.8

Depreciation on disposals (0.3) (8.4) (1.1) (9.8)

At31December2021At 31 December 2021 5.4 43.1 13.9 62.4

Net book value at31December2021Net book value at 31 December 2021 15.5 41.1 19.5 76.1

The net book value of land and buildings owned by the Society and occupied by the Group for its own activities is shown below, and occupied by the Group for its own activities is shown below This. This

therefore excludes any right-of-use assetscludes any right-of-use assets.

Group and Society

2022

£m

2021

£m

At31DecemberAt 31 December 14.2 15.5

19.P19. Pension scheme

The Society operates both a funded defined benefit and a defined contribution pension schemeThe Society operates both a funded defined benefit and a defined contribution pension scheme.

Defined benefit obligations

The Coventry Building Society Staff Superannuation Fund (the Fund) is administered by a separate trust that is legally separated

from the Society The F. The Fund has been closed to new members since December2001and provides benefits based on finalund has been closed to new members since December 2001 and provides benefits based on final

pensionable salary and was closed to future service accrual from31December2012.The trustees of the Fcrual from 31 December 2012. The trustees of the Fund are required to act in

the best interests of the Fund members The appointment of the trustees is determined by the Fund members. The appointment of the trustees is determined by the Fund’s trust documentations trust documentation.

In June2019,the Society cIn June 2019, the Society commenced the process of transferring the Fund to a new scheme administered by TPT Retirement

Solutions (TPT) (the Scheme) the process o) (the Scheme); the process of the transfer remains ongoing at the year end and the latest valuation will be updated

as part of the next triennial update due to be completed later in2023.as part of the next triennial update due to be completed later in 2023.

The latest actuarial valuation of the Scheme showed a surplus and since the Fund is closed to future service accrual noe accrual, no

contributions were made in respect of members’ pensionable salaries during2022(2021:£nil) There have made in respect of members’ pensionable salaries during 2022 (2021: £nil). There have been no further deficit

contributions in2022(2021:£nil) and none are planned ahead of the next actuarial valuation The Society continues to meet thecontributions in 2022 (2021: £nil) and none are planned ahead of the next actuarial valuation. The Society continues to meet the

Scheme's expenses through contributions including levies to the PScheme's expenses through contributions, including levies to the Pension Protection Fundund.

Both Schemes typically expose the Society to actuarial risks such as investment risk interBoth Schemes typically expose the Society to actuarial risks such as investment risk, interest rate risk mortality risk and longevityest rate risk, mortality risk and longevity

risk A decrease in corporate bond yields a rise in inflation or an incrrisk. A decrease in corporate bond yields, a rise in inflation or an increase in life expectancy would result in an increase to Fund

liabilities This would detrimentally impact the Balance Sheet and maliabilities. This would detrimentally impact the Balance Sheet and may give rise to increased charges in future periods This effectges in future periods. This effect

would be partially offset by an increase in the value of the bonds and liability matched holdings Caps on inflationary increases are inf the bonds and liability matched holdings. Caps on inflationary increases are in

place to protect the Fund against extreme inflationund against extreme inflation.

Overall the surplus has fOverall, the surplus has fallen from£29.3million at31December2021to£3.3million at31December2022.Iallen from £29.3 million at 31 December 2021 to £3.3 million at 31 December 2022. Interest rates have

risen during the year which has impacted the discount rate used to calculate the liability position alongside rises in implied inflatio, which has impacted the discount rate used to calculate the liability position, alongside rises in implied inflatio n

rate assumptions and asset valuation movementsaluation movements.

18.Property18. Property plant and equipment , plant and equipment continued

Financial Statements

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176

The Fund assets include investments in Liability Driven Investment (LDI funds) Each fund holds a portfolio of assets whichvestment (LDI funds). Each fund holds a portfolio of assets which

are sensitive to changes in interest rates and or inflation expectations The particular funds chosen are selected so that whenest rates and/ or inflation expectations. The particular funds chosen are selected so that, when

combined the value of the Fcombined, the value of the Fund's assets are expected to move proportionately to that of the liabilities for a given change in interest

rates andrates and/or inflation expectations The funds will principally hold a combination of gilt repos interor inflation expectations. The funds will principally hold a combination of gilt repos, interest rate swaps inflation swapsest rate swaps, inflation swaps,

gilt total return swaps and physical gilts The leverage osical gilts. The leverage of each fund will vary with changes in interest rates and inflation and the

fund manager will follow a recapitalisation process if the leverocess, if the leverage in any individual fund reaches a heightened level and follow a

re-leveraging process if the leverage in any individual fund decreases to a depressed level The fund manager aims to also limit theessed level. The fund manager aims to also limit the

exposure to each counterparty to30%of each LDI fund’exposure to each counterparty to 30% of each LDI fund’s overall exposureerall exposure.

The latest full actuarial valuation was carried out as at30September2019on the TPT Scheme with a funding update carried outThe latest full actuarial valuation was carried out as at 30 September 2019 on the TPT Scheme, with a funding update carried out

for the elements of the Fund still in the process of transfer These have been updated to31December2022b. These have been updated to 31 December 2022 by a qualified actuary,

independent of the Scheme's sponsoring employer The significant assumptions used ar. The significant assumptions used are shown below There ha. There have been no changes

in the valuation methodology adopted for this period‘s disclosures compared with the previous period’s disclosuress disclosures.

The cost of the schemes was assessed in accordance with the advice of a qualified actuary on the basis of valuations using the

projected unit credit methodprojected unit credit method.

The present value of the Fund liabilities is measured by discounting the best estimate of future cash flows to be paid out by the Fund

using the projected unit credit method The vusing the projected unit credit method. The value calculated in this way is deducted from the fair value of Fund assets and the net

surplus is presented on the Balance Sheet as shown below:

Group and Society

2022

£m

2021

£m

Present value of funded obligation (157.4) (235.1)

Fair value of plan assets 160.7 264.4

Funded statuspension benefit surplusunded status/pension benefit surplus 3.3 29.3

Group and Society

2022

£m

2021

£m

Present value of obligation

As at1JanuaryAs at 1 January (235.1) (250.2)

Past service cost 1.0 —

Loss on settlements (0.2) —

Interest expense (4.2) (5.6)

Benefit payments from plan assets 7.3 5.9

Settlement payments from plan assets 2.0 —

RemeasurementsRemeasurements:

Effects of changes in demographic assumptions (1.7) (2.2)

Effects of changes in financial assumptions 99.3 5.0

Effects of experience adjustments (25.8) 12.0

As at31DecemberAs at 31 December (157.4) (235.1)

Fair value of plan assets

As at1JanuaryAs at 1 January 264.4 259.9

Interest income 4.7 3.7

Employer contributions 0.2 0.2

Benefit payments from plan assets (7.3) (5.9)

Settlement payments from plan assets (1.9) —

Return on assets (99.4) 6.5

As at31DecemberAs at 31 December 160.7 264.4

Pension benefit surplus 3.3 29.3

The movement in the Pension Benefit Surplus is analysed below:

Pension benefit surplus as at1JPension benefit surplus as at 1 January 29.3 9.7

Amount recognised in the income statement 1.3 (1.9)

Employer contributions 0.2 0.2

Remeasurement (loss) gainRemeasurement (loss)/ gain (27.5) 21.3

Pension benefit surplus as at31DecemberPension benefit surplus as at 31 December 3.3 29.3

Coventry Building Society  Annual Report & Accounts2022 | Annual Report & Accounts 2022

Financial Statements

177

Notes to the accounts Continued

Group and Society

2022

£m

2021

£m

Amount recognised in Other comprehensive incomeehensive income:

Return on plan assets (99.4) 6.5

Effect of changes in demographic assumptions (1.7) (2.2)

Effect of changes in financial assumptions 99.3 5.0

Effect of experience adjustments (25.8) 12.0

Remeasurement (loss) gain of pension benefit surplusRemeasurement (loss)/ gain of pension benefit surplus (27.5) 21.3

Amount recognised in the Income Statementome Statement:

Past service cost 1.0 —

Loss on settlements (0.2) —

Interest expense on defined benefit obligation (4.2) (5.6)

Interest income on plan assets 4.7 3.7

Net interest income(Net interest income/(expense) 1.3 (1.9)

The surplus reflects the Society's ability to recover a surplus either through reduced contributions in the future or through refunds

from the Fund after the last benefit has been paid in line with IAS19.und after the last benefit has been paid in line with IAS 19.

The major categories of plan assets aree:

Group and Society

2022

£m

2021

£m

Quoted

Corporate bonds and liability matching 75.0 153.3

Diversified growth funds 1.1 9.8

Direct lending 7.1 9.5

Equities — 1.1

Cash 2.1 6.8

Unquoted

Corporate bonds and liability matching 42.6 49.3

Property 32.8 34.6

Total 160.7 264.4

The principal actuarial assumptions used are as followss:

Weighted average assumptions used to determine benefit obligation at

2022

2021

Discount rate 5.00 1.80

Rate of pensionable salary increase — —

Rates of inflation (Retail Prices Index) 3.15 3.25

Rates of inflation (Consumer Prices Index) 2.46 2.53

Weighted average assumptions used to determine net pension cost for the year ended

2022

2021

Discount rate 1.80 1.45

Rate of pensionable salary increase — —

Rates of inflation (Retail Prices Index) 3.25 2.85

Rates of inflation (Consumer Prices Index) 2.53 2.04

Throughout2022,short-term inflation has been much higher than the long term inflation assumption allowThroughout 2022,short-term inflation has been much higher than the long term inflation assumption allowed for in the calculation

of scheme obligations As such an increase to scheme obligations oof scheme obligations. As such an increase to scheme obligations of£15.7m has arisen during the year to allow for known inflationf £15.7m has arisen during the year to allow for known inflation

up to the balance sheet dateup to the balance sheet date.

19.P19. Pension scheme continued

Financial Statements

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178

20.Deferred tax20. Deferred tax

Deferred tax assets and liabilities are attributable to the following itemse attributable to the following items:

Group

2022

£m

Group

2021

£m

Society

2022

£m

Society

2021

£m

Deferred tax liabilities (assets)Deferred tax liabilities/ (assets)

Cash flow hedges 106.4 10.2 109.2 7.7

Other derivatives 5.8 (5.5) 4.6 (5.5)

Defined benefit pension scheme surplus 0.8 9.6 0.8 9.6

Transfer of engagements – fair value adjustments 0.1 0.1 — 0.1

Investment in equity shares 0.4 0.7 0.4 0.7

Fair value through other comprehensive income 1.8 2.0 1.8 2.0

Excess of capital allowances over depreciation (6.3) (4.6) (6.3) (4.6)

Provisions (0.7) (0.6) (0.7) (0.6)

IFRS16transitional adjustmentsIFRS 16 transitional adjustments (0.1) (0.2) (0.1) (0.2)

Pension fund special contribution — (0.3) — (0.3)

Research and development intangible assets 3.5 2.0 3.5 2.0

Total 111.7 13.4 113.2 10.9

Deferred tax liabilities have been offset against deferred tax assets in the balance sheet as it is deemed there is a legal right of offsetgal right of offset.

Deferred tax assets are recognised where they have arisen on the basis that sufficient future taxable trading profits will be available

to utilise the deferred tax assetsto utilise the deferred tax assets.

The deferred tax balances at31December2022rThe deferred tax balances at 31 December 2022 reflect tax rates enacted or substantively enacted at the balance sheet date Thee sheet date. The

main rate of corporation tax of25%was substantivation tax of 25% was substantively enacted by the Finance Bill2021on24Fe Bill 2021 on 24 February2022.ebruary 2022.

21.Deposits from banks21. Deposits from banks

A maturity analysis for the Group's deposits from banks is included in the Risk Management Report Liquidity and Funding sectionunding section.

For the Group and Society deposits from banks includes£5,250.0million (2021:£5,250.0million) dra, deposits from banks includes £5,250.0 million (2021: £5,250.0 million) drawn down against the Bank of

England Term Funding Scheme with additional incentives for SMEs (TFSME) ).

Deposits from banks also includes£251.8million (2021:£525.3million) in respect oDeposits from banks also includes £251.8 million (2021: £525.3 million) in respect of sale and repurchase agreements (repos)

of on-balance sheet notes in issue relating to the Coventry Building Society Covered Bonds LLP programme (see note13) at31ogramme (see note 13) at 31

December2022.December 2022.

2022 2021

Weighted average life expectancy for mortality tables used to determine benefit obligation at Male Female Male Female

Member age60(currMember age 60 (current life expectancy) 26.7 29.3 26.5 28.4

Member age45(life expectancy at age60)Member age 45 (life expectancy at age 60) 27.8 30.4 27.3 29.3

The assumptions on mortality are101%of the actuarial table knoThe assumptions on mortality are 101% of the actuarial table known as the S3PxA table with CMI2021projections with awn as the S3PxA table with CMI 2021 projections with a

1.00%pa long-term impr1.00% p.a. long-term improvement rate (2021:101%S3PMA S3PFA with CMI2020prate (2021: 101% S3PMA /S3PFA with CMI 2020 projections with a1.00%pa long-termojections with a 1.00% p.a. long-term

improvement rate)ement rate).

The Group has to make assumptions on the discount rate inflation and life expectancy when valuing the Fount rate, inflation and life expectancy when valuing the Fund surplus and changes

in these assumptions could affect the reported surplus The sensitivity oin these assumptions could affect the reported surplus. The sensitivity of the defined benefit obligation to changes in the weighted

principal assumptions is indicated below for isolated changes in assumptions in rprincipal assumptions is indicated below for isolated changes in assumptions; in reality it is likely that assumptions will be related to, it is likely that assumptions will be related to

each other and impact simultaneouslyeach other and impact simultaneously:

Impact on present value of obligationf obligation:

Change in

assumption

Increase in

assumption

Increase in

assumption

£m

Decrease in

assumption

Decrease in

assumption

£m

Discount rate 1.00% (12.0) (18.9) 14.9 23.5

Rates of inflation (Retail Prices Index and Consumer Prices

Index) 0.25% 1.8 2.9 (1.9) (3.0)

Life expectancy 1y1 year 2.4 3.7 (2.5) (4.0)

The average duration of the defined benefit obligation at the period ended31Decerage duration of the defined benefit obligation at the period ended 31 December2022is14years (2021:22years) Theember 2022 is 14 years (2021: 22 years). The

average duration has reduced in the year due to the increase in discount rate applied in2022reflecting changes to corporate bondate applied in 2022 reflecting changes to corporate bond

interest ratesinterest rates.

Coventry Building Society  Annual Report & Accounts2022 | Annual Report & Accounts 2022

Financial Statements

179

Notes to the accounts Continued

22.Debt securities in issue22. Debt securities in issue

The change in debt securities issued by the Group is as followsws:

Non-cash flows

2022

Group

Opening

£m

Cash flows

£m

Foreign

exchange move-

ments

£m

Change in ac-

crued interest

£m

Amortisation

£m

Closing

£m

Medium term notes 1,856.5 (400.0) — (6.2) 1.6 1,451.9

Covered bonds 2,565.0 434.6 89.3 8.6 2.1 3,099.6

Residential Mortgage Backed Securities 830.8 (140.2) — 0.3 0.8 691.7

Total 5,252.3 (105.6) 89.3 2.7 4.5 5,243.2

Non-cash flows

2021

Group

Opening

£m

Cash flows

£m

Foreign exchange

movements

£m

Change in ac-

crued interest

£m

Amortisation

£m

Closing

£m

Medium term notes 1,607.2 247.5 — 0.2 1.6 1,856.5

Covered bonds 2,440.3 219.0 (96.1) (0.5) 2.3 2,565.0

Residential Mortgage Backed Securities 569.7 260.3 — (0.1) 0.9 830.8

Total 4,617.2 726.8 (96.1) (0.4) 4.8 5,252.3

The position for the Society is the same as that for the Group other than the Society had no Residential Mortgage Backed Securities

at the reporting date for the current and prior year with the exception of amortising fees of£2.0million (2021:£2.8million) f amortising fees of £2.0 million (2021: £2.8 million)

associated to the set up of structured entities and subsequent issuancessuances.

In September2022,the Society issued€500.0million of external cIn September 2022, the Society issued €500.0 million of external covered bonds secured by Coventry Building Society Covered

Bonds LLP .

Coventry Godiva Covered Bonds LLP issued£2.0billion internal coved Bonds LLP issued £2.0 billion internal covered bonds in the year which are retained by the Group, which are retained by the Group .

The Society’s change in liabilities from financing activities is the same as the Group's other than they exclude Roup's, other than they exclude Residential Mortgage

Backed Securities (issued by Economic Master Issuer plc a consolidated structured entity)suer plc, a consolidated structured entity).

Debt securities in issue are repayable in the ordinary course of business as followsourse of business as follows:

Group

2022 2022

£m

Group

2021 2021

£m

Society

2022 2022

£m

Society

2021 2021

£m

Accrued interest 17.8 15.0 17.5 15.0

Other debt securities

In not more than one year 1,659.5 399.8 1,449.6 399.8

In more than one year 3,565.9 4,837.5 3,082.4 4,003.8

Total 5,243.2 5,252.3 4,549.5 4,418.6

23.Derivativ23. Derivative financial instruments

The Group elected to continue to apply the hedge accounting requirements of IAS39as permitted under IFRS9.equirements of IAS 39 as permitted under IFRS 9.

Risk management strategy

Derivative financial instruments prDerivative financial instruments, predominantly interest rate and cross currency swaps aross currency swaps, are held solely for the purposes of mitigating

interest rate risk forinterest rate risk, foreign exchange risk or interest rate and foreign exchange risk together as explained in the Risk Management, as explained in the Risk Management

Report Where apprReport. Where appropriate they are designated as hedging instruments within either fair vopriate, they are designated as hedging instruments within either fair value or cash flow hedge relationships

under the terms of IAS39.Derivativunder the terms of IAS 39. Derivatives can hedge specific assets or liabilities such as liquidity or wholesale instruments (sometimes

referred to as ‘micro’ hedges) or portions of a portfolio of fixed rate mortgages or savings products (sometimes referred to as ‘macro’

hedges)hedges).

For micro hedges the Group establishes the hedging ror micro hedges, the Group establishes the hedging ratio by matching the notional amount of the derivatives with the principal of

the instruments being hedged Fthe instruments being hedged. For macro hedges the Group establishes the hedging ror macro hedges, the Group establishes the hedging ratio by matching the notional amount of the

derivatives with the principal of that portion of the portfolio being hedged and manages this on a monthly basis by entering into

interest rate swapsaps.

Where interest rate risk is hedged only the interest rate risk element of the underlying position is designated as the hedged item andate risk is hedged, only the interest rate risk element of the underlying position is designated as the hedged item and

therefore other risks such as crtherefore other risks, such as credit risk which are managed but not hedged by the Groupedit risk, which are managed but not hedged by the Group are ex, are excludedcluded.

Financial Statements

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180

The interest rate risk element is determined with regard to the fixed rate that represents the benchmark rate of interest being

hedged Where foreign exhedged. Where foreign exchange risk is hedged the foreign currency risk cchange risk is hedged, the foreign currency risk component is determined as the change in cash flows of

the foreign currency debt arising solely from changes in the relevant forward exchange ratesates.

For fair value hedges the effor fair value hedges, the effectiveness of the hedge relationship is assessed by comparing changes in the fair value of the hedged

item attributable to changes in the benchmark rate of interest with changes in the fair value of the derivativeative.

For cash flow hedges effectivor cash flow hedges, effectiveness is assessed by comparing the changes in the fair value of the derivative with changes in the fair

value of the hedged item attributable to the hedged risk using the hypothetical derivvalue of the hedged item attributable to the hedged risk, using the hypothetical derivative methodative method.

Possible sources of ineffectiveness are as followss:

• Differences in the benchmark rates of interest used to value the hedged item and the hedging instrument such a, such as when cash

collateralised interest rate swaps are discounted using SONIA but this is not the benchmark rate of interest for the hedged

itemitem.

• Differences in timing of cash flows between the derivative and the hedged itemitem.

• Differences between the expected and actual volume of prepayments where a portfolio is being hedged as th, as the hedging ratio is

calculated with regard to expected repayment dates ta, taking account of expected prepayments based on past experienceerience.

• Hedging derivatives with a non-zero fair value at the date of initial designation as a hedging instrumenttrument.

• Counterparty credit risk which impacts the fair value of uncollateralised swaps but not the hedged itemitem.

Hedging instruments

The following tables contain details of the hedging instruments used in the Group’s hedging strategies The notional amounts hedging strategies. The notional amount

indicates the amount on which payment flows are derived at the Balance Sheet date and do not represent risk Derivativepresent risk. Derivative assets and

liabilities are included in the Balance Sheet at fair valuealue.

2022 2021

Group

Notional amount

£m

Fair value assets

£m

Fair value

liabilities

£m

Notional amount

£m

Fair value assets

£m

Fair value

liabilities

£m

Derivatives designated as fair value hedgesair value hedges:

Interest rate risk

48,205.1 2,166.1 579.5 44,656.3 374.0 153.5

Derivatives designated as cash flow hedgesDerivatives designated as cash flow hedges:

Interest rate risk

7,129.3 81.5 31.7 3,125.4 22.9 1.0

Foreign exchange risk

1,952.1 23.4 9.0 1,518.0 — 56.3

Foreign exchange and interest rate risk

— — — — — —

Other derivativesOther derivatives:

Interest rate risk

549.0 7.1 6.3 2,495.0 9.4 9.0

Total derivatives

57,835.5 2,278.1 626.5 51,794.7 406.3 219.8

1.C1. Cash flows are expected to occur over a six year period (2021:sev: seven)en).

2022 2021

Society

Notional amount

£m

Fair value assets

£m

Fair value

liabilities

£m

Notional amount

£m

Fair value assets

£m

Fair value

liabilities

£m

Derivatives designated as fair value hedgesair value hedges:

Interest rate risk

48,205.1 2,166.1 579.5 44,656.3 374.0 153.5

Derivatives designated as cash flow hedgesDerivatives designated as cash flow hedges:

Interest rate risk

7,129.3 81.5 31.7 3,125.4 22.9 1.0

Foreign exchange risk

— — — — — —

Foreign exchange and interest rate risk

— — — — — —

Other derivatives

Interest rate basis swaps

549.0 7.1 6.3 2,495.0 9.4 9.0

Total derivatives

55,883.4 2,254.7 617.5 50,276.7 406.3 163.5

Coventry Building Society  Annual Report & Accounts2022 | Annual Report & Accounts 2022

Financial Statements

181

Notes to the accounts Continued

The following tables set out the maturity profile and average interest and foreign exchange rates of the hedging instruments used in

the Group’s hedging strategy at31December2022.Derivative contrs hedging strategy at 31 December 2022. Derivative contractual maturities are included in the Risk Management Reportactual maturities are included in the Risk Management Report.

The following table contains details of fair value hedged exposures at31December2022:air value hedged exposures at 31 December 2022:

Maturity

2022

Group

Up to one

month

£m

One to three

months

£m

Three months

to one year

£m

One to five

years

£m

More than five

years

£m

Interest rate riskInterest rate risk:

Contract notional amountContract/ notional amount 1,198.6 1,547.8 18,129.0 31,354.4 3,853.7

Average fixed interest rate 1.0% 0.4% 1.7% 1.6% 3.0%

Foreign exchange riskoreign exchange risk:

Contract notional amountContract/ notional amount — — — 1,306.7 645.4

Average fixed interest rate — — — 2.6% 1.0%

Average£/€exchange rerage £/€ exchange rate — — — 0.9 0.9

Maturity

2022

Society

Up to one

month

£m

One to three

months

£m

Three months

to one year

£m

One to five

years

£m

More than five

years

£m

Interest rate riskInterest rate risk:

Contract notional amountContract/ notional amount 1,198.6 1,547.8 18,129.0 31,354.4 3,853.7

Average fixed interest rate 1.0% 0.4% 1.7% 1.6% 3.0%

Foreign exchange riskoreign exchange risk:

Contract notional amountContract/ notional amount — — — — —

Average fixed interest rate — — — — —

Average£/€exchange rerage £/€ exchange rate — — — — —

Maturity

2021

Group

Up to one month

£m

One to three

months

£m

Three months to

one year

£m

One to five years

£m

More than five

years

£m

Interest rate riskInterest rate risk:

Contract notional amountContract/ notional amount 668.2 1,217.0 14,428.4 29,636.9 4,176.2

Average fixed interest rate 0.4% 0.5% 0.4% 0.5% 0.8%

Foreign exchange riskoreign exchange risk:

Contract notional amountContract/ notional amount — — — 872.6 645.4

Average fixed interest rate — — — 1.6% 1.0%

Average£/€exchange rerage £/€ exchange rate — — — 0.87 0.86

Maturity

2021

Society

Up to one month

£m

One to three

months

£m

Three months to

one year

£m

One to five years

£m

More than five

years

£m

Interest rate riskInterest rate risk:

Contract notional amountContract/ notional amount 668.2 1,217.0 14,428.4 29,636.9 4,176.2

Average fixed interest rate 0.4% 0.5% 0.4% 0.5% 0.8%

Foreign exchange riskoreign exchange risk:

Contract notional amountContract/ notional amount — — — — —

Average fixed interest rate — — — — —

Average£/€exchange rerage £/€ exchange rate — — — — —

23.Derivativ23. Derivative financial instruments continued

Financial Statements

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182

Hedged items

The following table contains details of fair value hedged exposures at31December2022:air value hedged exposures at 31 December 2022:

Carrying amount of hedged

item

Accumulated amount of fair

value adjustments on the

hedged item

2022

Group and Society

Assets

£m

Liabilities

£m

Assets

£m

Liabilities

£m

Fair value hedgesair value hedges:

Interest rate

1,2

41,740.2 (18,940.5) (1,647.8) 452.5

Carrying amount of hedged item

Accumulated amount of fair value

adjustments on the hedged item

2021

Group and Society

Assets

£m

Liabilities

£m

Assets

£m

Liabilities

£m

Fair value hedgesair value hedges:

Interest rate

1,2

39,901.4 (16,657.0) (290.1) 96.1

1.1. Assets presented in Loans and advances to customers and Debt securities in the Balance Sheett.

2.2. Liabilities presented in Shares and Debt securities in issue in the Balance SheetSheet.

The following tables provide additional information on cash flow hedges for2022:vide additional information on cash flow hedges for 2022:

Changes in Fair Value

Amounts reclassified from re-

serves to Income Statement

2022

Group

Hedging

derivative

£m

Hedged item

for

ineffective-

ness assess-

ment

£m

Gains(losses)Gains/(losses)

recognised in

OCI

£m

Hedged cash

flows will no

longer occur

£m

Hedged item

for affected

Income

Statement

£m

Recognised

in Income

Statement

£m

Derivatives designated as cash flow hedgesDerivatives designated as cash flow hedges:

Foreign exchange 73.5 73.2 73.2 — 92.1 0.3

Foreign exchange and interest rate — — — — — —

Interest rate 424.3 394.3 394.3 29.7 — 30.0

1.I1. Ineffectiveness is shown in note8Nee 8 Net gains from derivatives and hedge accountingaccounting.

Changes in Fair Value

Amounts reclassified from

reserves to Income Statement

2021

Group

Hedging

derivative

£m

Hedged item

for

ineffectiveness

assessment

£m

Gains(losses)Gains/(losses)

recognised in

OCI

£m

Hedged cash

flows will no

longer occur

£m

Hedged item

for affected

Income

Statement

£m

Recognised in

Income State-

ment

£m

Derivatives designated as cash flow hedgesDerivatives designated as cash flow hedges:

Foreign exchange (42.5) (42.4) (42.4) — (72.1) (0.1)

Foreign exchange and interest rate (57.2) (56.7) (56.8) — (53.5) (0.4)

Interest rate 65.0 64.8 64.8 (10.0) — (9.7)

1.I1. Ineffectiveness is shown in note8Nee 8 Net losses from derivatives and hedge accountingaccounting.

As at31December2022,balances remaining in the cash flow hedge rAs at 31 December 2022, balances remaining in the cash flow hedge reserve groseserve, gross of tax are£38.1million credit fs of tax, are £38.1 million credit for continuing

hedges and£345.1million credit for discontinued hedges (2021:52.4million crhedges and £345.1 million credit for discontinued hedges (2021: 52.4 million credit£5.7million credit respectivedit, £5.7 million credit respectively)ely).

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Financial Statements

183

Notes to the accounts Continued

Changes in Fair Value

Amounts reclassified from

reserves to Income Statement

2022

Society

Hedging

derivative

£m

Hedged item

for

ineffective-

ness assess-

ment

£m

Gains(losses)Gains/(losses)

recognised in

OCI

£m

Hedged cash

flows will no

longer occur

£m

Hedged item

for affected

Income

Statement

£m

Recognised

in Income

Statement

£m

Derivatives designated as cash flow hedgesDerivatives designated as cash flow hedges:

Foreign exchange — — — — — —

Foreign exchange and interest rate — — — — — —

Interest rate 424.3 394.3 394.3 29.7 — 30.0

1.I1. Ineffectiveness is shown in note8Nee 8 Net losses from derivatives and hedge accountingaccounting.

Changes in Fair Value

Amounts reclassified from

reserves to Income Statement

2021

Society

Hedging

derivative

£m

Hedged item

for

ineffectiveness

assessment

£m

Gains(losses)Gains/(losses)

recognised in

OCI

£m

Hedged cash

flows will no

longer occur

£m

Hedged item

for affected

Income

Statement

£m

Recognised

in Income

Statement

£m

Derivatives designated as cash flow hedgesDerivatives designated as cash flow hedges:

Foreign exchange — — — — — —

Foreign exchange and interest rate — — — — — —

Interest rate 65.0 64.8 64.8 (10.0) — (9.7)

1.I1. Ineffectiveness is shown in note8Nee 8 Net losses from derivatives and hedge accountingaccounting.

24.Pro24. Provisions for liabilities and charges

During the normal course of business the GrDuring the normal course of business, the Group receives complaints from customers in relation to past sales and ongoing

administration The Group is also subject to enquiries fradministration. The Group is also subject to enquiries from and discussions with its regulators including the Fom and discussions with its regulators, including the Financial Ombudsman

Service (FOS) on a range of mattersService (FOS), on a range of matters.

As at31December2022,£0.4million (2021:£0.4million) is recognised as a prAs at 31 December 2022, £0.4 million (2021: £0.4 million) is recognised as a provision in respect of such redress mattersf such redress matters.

The Group continues to monitor ongoing legal cases and makes assessment on potential exposure based on available information

and expected outcomes The Group does not expect the ultimate resolution oand expected outcomes. The Group does not expect the ultimate resolution of any current complaints thrf any current complaints, threatened or actual legal

proceedings reproceedings, regulatory or other matters to have a material adverse impact on its financial position Thereforerse impact on its financial position. Therefore there are no matters

which require disclosure as a contingent liability at the balance sheet datee as a contingent liability at the balance sheet date.

25.Subordina25. Subordinated liabilities

Group and Society

20222022

£m

20212021

£m

Subordinated liabilities owed to note holders are as followsed to note holders are as follows:

Fixed rate subordinated notes2032-7.54%ate subordinated notes 2032 - 7.54% 15.4 15.3

Total 15.4 15.3

All the subordinated liabilities are denominated in sterling and are repayable in the years stated or earlier in accorable in the years stated, or earlier in accordance with their

terms at the option of the Society subject to prior consent of the Prudential Re, subject to prior consent of the Prudential Regulation Authority (PRA)gulation Authority (PRA).

The subordinated notes rank equally with each other and behind all other creditors of the Society and the claims of Shareholding

Members other than holders of PMembers, other than holders of Permanent Interest Bearing Shares (PIBS) and Perpetual Capital Securities (PCS) for both principalerpetual Capital Securities (PCS), for both principal

and interestand interest.

The fixed rate subordinated notes2032–7.54%can be called at the option of the Society in August2027in accordinated notes 2032 – 7.54% can be called at the option of the Society in August 2027 in accordance with their

terms subject to prior consent of the PRAterms, subject to prior consent of the PRA.

23.Derivativ23. Derivative financial instruments continued

Financial Statements

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184

26.Subscribed capital26. Subscribed capital

Group and Society Call date

20222022

£m

20212021

£m

Subscribed capital owed to permanent interest holding members is as followsest holding members is as follows:

Permanent Interest Bearing Shares -1992-121/8%est Bearing Shares - 1992 - 12 1/8%

nan/a

41.6 41.6

Total 41.6 41.6

Subscribed capital comprises the Permanent Interest Bearing Shares (PIBS) issued in1992which are only repasued in 1992 which are only repayable in the event of

the winding up of the Society Interest is paid in arrears in half y. Interest is paid in arrears in half yearly instalments at121/8%per annumearly instalments at 12 1/8% per annum.

PIBS rank equally with each other and PCS They rank behind all other creditors oPIBS rank equally with each other and PCS. They rank behind all other creditors of the Society including subordinated liabilities and

the claims of Shareholding Members (other than holders of PCS) for both principal and interest The holders of PIBS are not entitledest. The holders of PIBS are not entitled

to any share in any final surplus upon a winding up or final dissolution of the Society.

27.Other equity instruments27. Other equity instruments

The£415.0million balance of other equity instruments relates to PThe £415.0 million balance of other equity instruments relates to Perpetual Capital Securities (PCS) capital issued in April

2019.These PCS pay a fully discretionary2019. These PCS pay a fully discretionary non-cumulative fixed coupon at an initial r, non-cumulative fixed coupon at an initial rate of6.875%per annum with an optionalate of 6.875% per annum with an optional

redemption in September2024.The rate will rredemption in September 2024. The rate will reset on18September2024and every five yeset on 18 September 2024 and every five years thereafter to the prevailing rate on a

benchmark gilt plus6.111%.Coupons are paid semi-annually in September and March The cost of issuancbenchmark gilt plus 6.111%. Coupons are paid semi-annually in September and March. The cost of issuance of£2.5million (net ofe of £2.5 million (net of

tax) has been recognised within the Society’s general reserves general reserve.

The returns paid to holders of PCS are treated as an appropriation of profit after tax reflecting their categorisation as equityfit after tax, reflecting their categorisation as equity

instruments distributed directly from the generinstruments, distributed directly from the general reserve During2022,cal reserve. During 2022, coupon payments of£28.5million (2021:£28.5million)oupon payments of £28.5 million (2021: £28.5 million)

were approved and have been recognised in the Statements of Changes in Members'Iecognised in the Statements of Changes in Members' Interests and Equity.

The instruments have no maturity date They are repae no maturity date. They are repayable at the option of the Society in2024and on evyable at the option of the Society in 2024 and on every fifth anniversary

thereafter but only with the prior consent of the PRA If the end-point Common Equity Tier1r, but only with the prior consent of the PRA. If the end-point Common Equity Tier 1 ratio for the Group on either an, on either an

Individual consolidated or a consolidated basis fIndividual consolidated or a consolidated basis, falls below7%,they convalls below 7%, they convert to Core Capital Deferred Shares (CCDS) at the rate of

one CCDS for every£67PCS heldone CCDS for every £67 PCS held.

The PCS rank behind all other creditors of the Society including subordinated liabilities and the claims of Shareholding Members

(other than PIBS) for both principal and interest The holders of PCS are not entitled to any sharother than PIBS) for both principal and interest. The holders of PCS are not entitled to any share in any final surplus upon a winding

up or final dissolution of the Society.

28.F28. Financial commitments

The Group and Society are committed to the following undrawn mortgage loan facilities relating to equity release and flexible

mortgage products which are subject to the satisfmortgage products, which are subject to the satisfaction of previously agreed loan to value ratiosalue ratios:

Group

2022

£m

Group

2021

£m

Society

2022

£m

Society

2021

£m

Undrawn mortgage loan facilities 23.1 26.2 23.1 26.2

In addition the Group has also committed to advIn addition, the Group has also committed to advance£2,292.9million (2021:£2,079.6million) in respect of loans and advance £2,292.9 million (2021: £2,079.6 million) in respect of loans and advances

to customers for mortgages which have been approved but not completeded but not completed.

29.Other liabilities and capital commitments29. Other liabilities and capital commitments

Capital commitments

Group and Society

2022

£m

2021

£m

Capital expenditure contracted but not provided for in the accounts 0.8 2.9

Other liabilities

Items presented on the Balance Sheet within other liabilities as shown below:

Group

20222022

£m

Group

20212021

£m

Society

20222022

£m

Society

20212021

£m

Other taxation and social security 5.9 7.4 5.9 7.4

Lease liabilities 19.5 22.6 19.5 22.6

Other creditors 5.1 4.7 5.1 4.7

Amounts due to connected undertakings — — 647.3 783.0

Total 30.5 34.7 677.8 817.7

Amounts due to connected undertakings reflects the deemed loan to Economic Master Issuer plc on consolidationssuer plc on consolidation.

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Financial Statements

185

Notes to the accounts Continued

Lease liabilities

The table below shows the maturity profile of the gross contractual cash flows including interest charontractual cash flows, including interest charge of the lease liabilities heldge, of the lease liabilities held

at31December2022.This analysis differs frat 31 December 2022. This analysis differs from the lease liabilities balance above which rom the lease liabilities balance, above which represents the discounted future cash

flows of the operationsations.

Group and Society

2022

£m

2021

£m

Amounts falling dueAmounts falling due:

Less than three months 1.3 1.3

Greater than three months and less than one year 3.8 3.9

Between one and five years 12.0 14.5

After five years 3.3 4.1

Total 20.4 23.8

The Society has elected to adopt the exemption for short-term leases or leases of low value and these leases are recw value, and these leases are recognised in the

Income Statement as an expense IIncome Statement as an expense. In2022the total expense for these items was£nil (2021:£0.1million)n 2022 the total expense for these items was £nil (2021: £0.1 million).

Variable lease payments are not included as lease liabilities and are expensed as incurred and theariable lease payments are not included as lease liabilities and are expensed as incurred, and they amount to£0.4million for they amount to £0.4 million for the

year (2021:£0.4million)year (2021: £0.4 million).

The Society sublets three (2021:four) of its leased prThe Society sublets three (2021: four) of its leased properties The income receivoperties. The income received from this is negligible and is recognised as

rental incomerental income.

30.F30. Financial instruments – fair value of financial assets and liabilities

For the purpose of calculating fair values fair value is assesalues, fair value is assessed as the price that would be received to sell an asset or paid to transfer

a liability in an orderly transaction between market participants in the principal or in its absence the most advantageous market, in its absence, the most advantageous market

to which the Group has access at that date The Grto which the Group has access at that date. The Group measures fair value using the following fair value hierarchy that reflects the

significance of the inputs used in making the measurementssignificance of the inputs used in making the measurements:

• Level1Level 1:unadj: unadjusted quoted prices in active markets for identical instrumentsnts.

• Level2:vLevel 2: valuation techniques for which all significant inputs are based on observable market data.

• Level3Level 3:valuat: valuation techniques for which significant inputs are not based on observable market dataa.

Where applicable the Group measurWhere applicable, the Group measures fair value using the quoted price in an active market for that instrument A market ise market for that instrument. A market is

regarded as active if transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basisovide pricing information on an ongoing basis.

Where this is not applicable the Group determines fWhere this is not applicable, the Group determines fair values using other valuation techniquesair values using other valuation techniques.

The following table summarises the fair value of the Group's financial assets and liabilities measured at amortised cost in the

Group's Balance Sheet by the fair value hierarchy.

The Society position is not materially different to that of the Group except that it excludes£18,379.4million (2021:£18,068.6oup except that it excludes £18,379.4 million (2021: £18,068.6

million) of loans and advances to customers with a fair value of£14,560.3million (2021:£17,895.9million) and£10.7air value of £14,560.3 million (2021: £17,895.9 million) and £10.7

million (2021:£nil) of deposits from banks with a fair value omillion (2021: £nil) of deposits from banks with a fair value of£10.7million (2021:£nil) which are held in subsidiaries of thef £10.7 million (2021: £nil) which are held in subsidiaries of the

Society The Society includes within Loans and advances to financial institutions a balance of£nil (2021:£nil) held in collateral. The Society includes within Loans and advances to financial institutions a balance of £nil (2021: £nil) held in collateral

accounts relating to swap agreements held in securitisation programmes which are eliminated at Group level At the year end theel. At the year end, the

Society held a deposit within Amounts owed to other customers of£114.0million (2021:£96.8million) which was a cash depositf £114.0 million (2021: £96.8 million) which was a cash deposit

from subsidiaries eliminated at Group levelel.

29.Other liabilities and capital commitments 29. Other liabilities and capital commitments continued

Financial Statements

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186

Group

2022

Carrying

amount

£m

2022

Fair value

Total

£m

2021

Carrying

amount

£m

2021

Fair value

Total

£m

Financial assets

Loans and advances to credit institutions 622.8 622.8 295.8 295.7

Loans and advances to customers 48,014.3 41,547.0 46,620.6 46,285.0

Debt securities 6.2 5.5 6.6 6.2

Financial liabilities

Shares 42,288.7 38,371.1 39,890.2 39,890.3

Deposits from banks 7,542.9 7,542.8 6,040.2 6,040.6

Other deposits 5.0 5.0 5.0 5.0

Amounts owed to other customers 416.1 415.9 609.8 607.8

Debt securities in issue 5,243.2 4,935.8 5,252.3 5,273.1

Subordinated liabilities 15.4 17.5 15.3 20.9

Subscribed capital 41.6 62.5 41.6 85.2

Loans and advances to credit institutions

The fair value of loans and advances to credit institutions over the longer term is estimated by discounting expected cash flows at a

market discount rate Amounts maturing in the short term armarket discount rate. Amounts maturing in the short term are valued at carrying amounte valued at carrying amount.

Loans and advances to customers

The fair value of loans and advances to customers is assessed as the value of the expected future cash flows pralue of the expected future cash flows, projected using

contractual interest payments and repayments and the expected prepayment behaviour of borrowersers.

Conservative assumptions are applied regarding expected levels of customer prepayments and the risk of defaultsults.

The estimated future cash flows are discounted at current market rates for the loan types and adjusted where necessary to reflect

any observable market conditionsonditions.

Debt securities

Debt securities for which no market price or executable bid is available at the year end date are valued by one of two methodsf two methods.

Where there are recent market prices or executable bids for the security these are used as the basis for establishing a year end, these are used as the basis for establishing a year end

valuation Otherwise a security is valued based on its rvaluation. Otherwise, a security is valued based on its relative value to comparable bondsable bonds.

The fair value of shares available on demand approximates to the carrying value The fair value of fixalue. The fair value of fixed term or restricted access

deposits is determined from the estimated projected cash flows discounted at the current market rates for those types of depositates for those types of deposit.

Deposits from banks other deposits and amounts owDeposits from banks, other deposits and amounts owed to other customers

The fair value of deposits taken from wholesale counterparties over the longer term is estimated by discounting expected cash flows

at a market discount rate Amounts maturing in the short term arat a market discount rate. Amounts maturing in the short term are valued at carrying amounte valued at carrying amount.

Debt securities in issue subordinated liabilities and subscribed capitalDebt securities in issue, subordinated liabilities and subscribed capital

The estimated fair value of longer-dated liabilities is calculated based on quoted market prices where available or using similar issue s

as a proxy for those liabilities that are not of sufficient size or liquidity to have an active market quotee market quote.

For those liabilities where quoted market prices are not available a discounted cash flow model is used based on a current yieldailable, a discounted cash flow model is used based on a current yield

curve appropriate to the remaining term to maturity.

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Financial Statements

187

Notes to the accounts Continued

The following table summarises the fair value of the Group's financial assets and liabilities measured at fair value on the face of the

Group's Balance Sheet by fair value hierarchy and product typey and product type.

The Society position is not materially different to that of the Group except that it excludes Level2cross currevel 2 cross currency liabilities of£8.9ency liabilities of £8.9

million (2021:£56.2million) which are held in subsidiaries of the Societymillion (2021: £56.2 million), which are held in subsidiaries of the Society and Level2cr, and Level 2 cross currency assets of£23.4millionoss currency assets of £23.4 million

(2021:£nil)(2021: £nil).

2022

Group

Level1 1

£m

Level2 2

£m

Level3 3

£m

Total

£m

Financial assets

Derivative financial instrumentsDerivative financial instruments:

Interest rate swaps — 2,254.7 — 2,254.7

Cross currency swaps — 23.4 — 23.4

Total — 2,278.1 — 2,278.1

Debt securitiesDebt securities:

UK Government investment securities 1,020.1 — — 1,020.1

Other listed transferable debt securities 481.8 86.7 — 568.5

Total 1,501.9 86.7 — 1,588.6

Investment in equity shareses:

Investment in equity shares 0.7 — 5.1 5.8

Total 0.7 — 5.1 5.8

Financial liabilities

Derivative financial instrumentsDerivative financial instruments:

Interest rate swaps — 616.3 1.3 617.6

Cross currency swaps — 8.9 — 8.9

Total — 625.2 1.3 626.5

2021

Group

Level1Level 1

£m

Level2Level 2

£m

Level3Level 3

£m

Total

£m

Financial assets

Derivative financial instrumentsDerivative financial instruments:

Interest rate swaps — 406.3 — 406.3

Cross currency swaps — — — —

Total — 406.3 — 406.3

Debt securitiesDebt securities:

UK Government investment securities 363.3 — — 363.3

Other listed transferable debt securities 292.3 13.8 — 306.1

Total 655.6 13.8 — 669.4

Investment in equity shareses:

Investment in equity shares 0.6 — 4.3 4.9

Total 0.6 — 4.3 4.9

Financial liabilities

Derivative financial instrumentsDerivative financial instruments:

Interest rate swaps — 157.0 6.6 163.6

Cross currency swaps — 56.2 — 56.2

Total — 213.2 6.6 219.8

30.F30. Financial instruments - fair value of financial assets and liabilities continu ed

Financial Statements

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188

Financial instruments recorded at fair value

The determination of fair value for financial instruments which are recorded at fair value using valuation techniques is described

below including the assumptions that a market participant would be expected to make when valuing the instruments, including the assumptions that a market participant would be expected to make when valuing the instruments:

Level1:Debt securities – fLevel 1: Debt securities – fair value through other comprehensive income – Listed

Market prices have been used to determine the fair value of listed debt securitiesalue of listed debt securities.

Level1:ILevel 1: Investment in equity shares – fair value through profit and loss – Listed

Market prices have been used to determine the fair value of listed equity sharesalue of listed equity shares.

Level2:DerivLevel 2: Derivatives

Derivative products utilise observable market inputs for interest rate swaps and cross currency swaps Voss currency swaps. Valuations are generated by

swap models which use present value calculations and incorporate assumptions for interest rate curves and foreign exchange spot

and forward ratesates.

Level3:ILevel 3: Investment in equity shares – fair value through profit and loss – Unlisted

Investment in equity shares represent the Group's holding in Visa Inc sharoup's holding in Visa Inc. shares These shares are valued based on futures. These shares are valued based on future cash

consideration which the Group expects to receive on sale of these instruments or the underlying market valuef these instruments, or the underlying market value.

Level3:DerivLevel 3: Derivatives

The item included within Level3is a balance trThe item included within Level 3 is a balance tracking swap which remained in place during the year, which remained in place during the year It is valued using pr. It is valued using present value

calculations based on market interest rate curves The unobservable inputs rate curves. The unobservable inputs relate to the projection of the swap notional amountelate to the projection of the swap notional amount,

which changes over time to match the balance of the underlying mortgage portfolio Projected mortgage prepa. Projected mortgage prepayment amounts

are used in the modelling of the mortgage portfolio profile The changes in the projection oofile. The changes in the projection of interest and prepayment rates of the

underlying mortgage portfolio affect both the unbounded swap and hedged item so that the net Income Statement and Balance

Sheet impact would be minimalSheet impact would be minimal.

The following table analyses fair value movements in the Level3portfolio for both the Grements in the Level 3 portfolio for both the Group and the Societyoup and the Society:

Group and Society

Investment in

equity shares

2022

£m

Derivative

financial

instruments

2022

£m

Investment in

equity shares

2021

£m

Derivative

financial

instruments

2021

£m

As at1JanuaryAs at 1 January 4.3 (6.6) 4.3 (70.5)

Gains(losses) recognised in the Income StatementGains/(losses) recognised in the Income Statement

Interest payable and similar expense — (0.6) — (2.5)

Net unrealised gains 0.8 5.2 — 63.2

Settlements — 0.7 — 3.2

As at31DecemberAs at 31 December 5.1 (1.3) 4.3 (6.6)

No sensitivities have been performed with regards the level3instruments as the balances ards the level 3 instruments as the balances are immaterial to the financial

statementsstatements.

Transfers between fair value levels

Transfers between fair value levels occur when either it becomes possible to value a financial instrument using a method that is

higher up the valuation hierarchy or it is no longer possible to value it using the current method and it must instead be valued using

a method lower down the hierarchy T. Transfers are considered to have occurred at the end of the reporting period for the purposes of

this disclosurethis disclosure.

31.Offsetting financial assets and liabilities31. Offsetting financial assets and liabilities

The Group and Society do not have any financial assets or financial liabilities that are offset with the net amount presented in the

Balance Sheets IAS32Financial IBalance Sheets. IAS 32 Financial Instruments Presentation states that there should be both an enfnstruments: Presentation states that there should be both an enforceable right to set-off and

the intention either to settle on a net basis or to realise the asset and settle the liability simultaneously to apply this treatment andthe intention either to settle on a net basis or to realise the asset and settle the liability simultaneously to apply this treatment, and

neither of these conditions is metneither of these conditions is met.

The Group has entered into master netting arrangements such as International Swaps and Derivatives Association (ISDA) master

agreements for its derivatives other than derivatives, other than derivatives held by Coventry Building Society Covered Bonds LLP.

Credit Support Annexes (CSAs) are executed in conjunction with these ISDA master agreements which typically prA master agreements, which typically provide for the

exchange of collateral to mitigate net mark-to-market credit exposureet credit exposure.

The Group has also entered into Global Master Repurchase Agreements including marepurchase Agreements, including margin collateralisation arrangements whergin collateralisation arrangements, whereby

outstanding transactions with the same counterparty can be settled net following a default or other predetermined eventent.

Coventry Building Society Covered Bonds LLP does not enter into a master netting agreement due to the structure of the covered

bond programme Hbond programme. However it has entered into a separ, it has entered into a separate ISDA agreement in respect of each of the derivatives it has transacted

with external counterparties Each agreement includes a CSA which prowith external counterparties. Each agreement includes a CSA which provides for full collateralisation of the swap exposure withf the swap exposure, with

exposure thresholds in place for a single agreement before collateral is exchanged The£13.1million net derivatival is exchanged. The £13.1 million net derivative credit exposure

in the table below relates to A1rated institutions (2021:£0.1million)in the table below relates to A1 rated institutions (2021: £0.1 million).

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Financial Statements

189

Notes to the accounts Continued

The table below shows the net exposure for sale and repurchase agreements or derivative contracts after any netting benefits and

collateral The Group did not enter into securities lending (2021:£nil) or revcollateral. The Group did not enter into securities lending (2021: £nil) or reverse sale and repurchase agreements (2021:£nil)erse sale and repurchase agreements (2021: £nil)

during the year with£93.6million being held on the Balance Sheet as at the end oduring the year with £93.6 million being held on the Balance Sheet as at the end of the periodf the period.

2022

Group

Gross amounts

11

£m

Master netting

arrangements

£m

Financial collateral

£m

Net amount

£m

Financial assets

Derivative financial instruments 2,278.1 (616.2) (1,648.8) 13.1

Total financial assets 2,278.1 (616.2) (1,648.8) 13.1

Financial liabilities

Derivative financial instruments 626.5 (616.2) (0.6) 9.7

Total financial liabilities 626.5 (616.2) (0.6) 9.7

2021

Group

Gross amounts

11

£m

Master netting

arrangements

£m

Financial collateral

£m

Net amount

£m

Financial assets

Derivative financial instruments 406.3 (155.6) (250.6) 0.1

Total financial assets 406.3 (155.6) (250.6) 0.1

Financial liabilities

Derivative financial instruments 219.8 (155.6) (4.2) 60.0

Total financial liabilities 219.8 (155.6) (4.2) 60.0

1.1. As reported on the Balance SheetSheet.

2.2. The financial collateral disclosed is limited to the amount of the related financial asset or related financial liabilityy.

2022

Society

Gross amounts

11

£m

Master netting

arrangements

£m

Financial collateral

£m

Net amount

£m

Financial assets

Derivative financial instruments 2,254.7 (616.2) (1,638.1) 0.4

Total financial assets 2,254.7 (616.2) (1,638.1) 0.4

Financial liabilities

Derivative financial instruments 617.5 (616.2) (0.6) 0.7

Total financial liabilities 617.5 (616.2) (0.6) 0.7

2021

Society

Gross amounts

11

£m

Master netting

arrangements

£m

Financial collateral

£m

Net amount

£m

Financial assets

Derivative financial instruments 406.3 (155.6) (250.6) 0.1

Total financial assets 406.3 (155.6) (250.6) 0.1

Financial liabilities

Derivative financial instruments 163.5 (155.6) (4.2) 3.7

Total financial liabilities 163.5 (155.6) (4.2) 3.7

1.As reported on the Balance SheetSheet.

2.2. The financial collateral disclosed is limited to the amount of the related financial asset or related financial liabilityy.

31.Offsetting financial assets and liabilities 31. Offsetting financial assets and liabilities continued

Financial Statements

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190

For derivative financial assets collateral rece financial assets, collateral received can be in the form of cash and UK Government investment securities Where cashestment securities. Where cash

is received it is included as a liability within deposits from banks (see note21) Where UK Goved, it is included as a liability within deposits from banks (see note 21). Where UK Government investment securities are

received these are not recognised on the Balanced, these are not recognised on the Balance Sheet as the Group does not obtain the risks and reware Sheet, as the Group does not obtain the risks and rewards of ownership.

For derivative financial liabilities collateral paid is in the form of cash and is included as an ase financial liabilities, collateral paid is in the form of cash and is included as an asset in Loans and advances to credit

institutionsinstitutions.

For sale and repurchase agreements (repos) collateral preements (repos), collateral provided is predominantly in UK Government investment securities with the

remainder in cash Again cash paid is included as an asset in Loans and advremainder in cash. Again, cash paid is included as an asset in Loans and advances to credit institutionsances to credit institutions.

UK Government investment securities are not derecognised as the Group retains substantially all the risks and rewards of ownershipwnership.

Cash collateral held and cash collateral pledged are not restricted and are returned at the end of the contracteturned at the end of the contract.

32.Capital management32. Capital management

As at31December2022,and throughout the yAs at 31 December 2022, and throughout the year the Group complied in full with the capital r, the Group complied in full with the capital requirements that were in forcee in force.

Further information on the Group's capital resources and capital management can be found in the Capital section of the Risk

Management ReportManagement Report.

33.R33. Related party transactions

The Group is controlled byy Coventry Building Society registered in England and Wales which is also considered to be the ultimate which is also considered to be the ultimate

parentparent.

Group undertakings Key management

2022

£m

2021

£m

2022

£m

2021

£m

Loans payable to the Society

Loans outstanding as at1JanuaryLoans outstanding as at 1 January 17,544.7 16,207.0 0.5 —

Loans issued during the year 327.0 1,337.7 — 0.5

Repayments during the year

— — (0.1) —

Loans outstanding as at31DecemberLoans outstanding as at 31 December 17,871.7 17,544.7 0.4 0.5

Loans and deposits payable by the Society

Deposits outstanding at1JanuaryDeposits outstanding at 1 January 783.0 405.0 0.7 1.7

Deposits received during the year

— 378.0 1.0 0.5

Repayments during the year

(135.7) — (0.6) (1.5)

Deposits outstanding at31DecemberDeposits outstanding at 31 December 647.3 783.0 1.1 0.7

Net interest income

Interest receivable 292.3 293.8 — —

Interest payable (16.3) (19.4) — —

Total 276.0 274.4 — —

Other income and expenses

Fees and expenses paid to the Society 45.9 46.6 — —

1.1. Includes loans and deposits for key management on retirement from the SocietySociety.

2.2. Includes loans and deposits received from connected undertakings in respect of securitisation transactions during the year (Group undertakings) and existing deposits for key management on

appointment (key management)).

Interest on outstanding loans and deposits accrues at a rate agreed between the Society and its subsidiaries in the normal course of

businessbusiness.

Loans and deposits payable by the Society to Group undertakings relate to amounts owing to the Society's structured entities ined entities, in

accordance with the accounting policy set out in note1.These intercompany balances hacounting policy set out in note 1. These intercompany balances have been presented within Other liabilities

on the Society Balance Sheeton the Society Balance Sheet.

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Financial Statements

191

Notes to the accounts Continued

Transactions with key management

Transactions with key management are on the same terms and conditions applicable to members and other employees within the

Group The Board of directors is c. The Board of directors is considered to be the only'key management'for the purposes oonsidered to be the only 'key management' for the purposes of the related party transactions

disclosures under IAS24Related Pdisclosures under IAS 24 Related Party Disclosures No director has any interes. No director has any interest in the shares or debentures of any connected

undertaking of the Society See the Directors’ Remuner. See the Directors’ Remuneration Report in the Governance section for information on directors’

remuneration for2022.remuneration for 2022.

In accordance with Section68of the Building Societies Act1986,the Society maintains a register odance with Section 68 of the Building Societies Act 1986, the Society maintains a register of loans falling within Section65f loans falling within Section 65

made to directors and connected persons A statement containing rmade to directors and connected persons. A statement containing requisite particulars of such transactions may be inspected by

members at the Society's Annual General Meeting (AGM) or at the Principal Office of the Society during the period15da) or at the Principal Office of the Society during the period 15 days prior to

the AGM.

Transactions with related undertakings

Transactions are entered into with related parties in the normal course of business These include loans deposits and the paymentf business. These include loans, deposits, and the payment

and recharge of interest and administrative expenses Where these charges are ase expenses. Where these charges are associated to Group subsidiaries they are settledsociated to Group subsidiaries, they are settled

through the intercompany accountsy accounts.

34.Cash flow34. Cash flows from financing activities

For the purposes of the Statements of Cash Flows debt securities in issue subordinated liabilities and subscribed capital arf Cash Flows, debt securities in issue, subordinated liabilities and subscribed capital are

classified as liabilities arising from financing activities The table below prclassified as liabilities arising from financing activities. The table below provides a reconciliation of movements in liabilities arising

from financing activitiesfrom financing activities.

Group

20222022

£m

Group

20212021

£m

Society

20222022

£m

Society

20212021

£m

At1JanuaryAt 1 January 5,309.2 4,684.4 4,475.5 4,112.2

Cash flowsCash flows:

Net proceeds form issue of debt securities 434.3 1,272.4 434.4 889.1

Repayment of debt securities in issue (540.0) (545.6) (400.0) (423.9)

Repurchase of subordinated liabilities — (10.3) — (10.3)

Non-cash flowsNon-cash flows:

Amortisation of premium discount on issueAmortisation of premium/ discount on issue 4.7 4.8 4.9 4.7

Accrued interest movements 2.7 (0.4) 2.4 (0.2)

Foreign exchange movements 89.3 (96.1) 89.3 (96.1)

At31DecemberAt 31 December 5,300.2 5,309.2 4,606.5 4,475.5

33.R33. Related party transactions continued

Financial Statements

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192

For the year ended31December2022

Annual Business Statement

1.Statutory percentages

2022 2021 Statutory

limits

% % %

Lending limit 1.6 0.5 25.0

Funding limit 23.4 22.8 50.0

The above percentages have been calculated in accordance with the provisions of the Building Societies Act1986as amended by

the Building Societies Act1997.

The lending limit measures the proportion of the business assets not in the form of loans fully secured on residential property and is

calculated as (X-Y)X where

X=business assets being the total assets of the Group plus loan impairment less liquid assets intangible assets and property plant

and equipment The value of X used is the value at31December2022.

Y=the principal value of and interest accrued on loans owed to the Group which are fully secured on residential property The

value of Y used is the value at31December2022.

The funding limit measures the proportion of shares and borrowings not in the form of shares held by individuals and is calculated as

(X-Y)X where

X=shares and borrowings being the aggregate of

I The principal value of and interest accrued on shares in the Society

II The principal value of and interest accrued on the amounts deposited with the Society or any subsidiary undertaking by

banks credit institutions and other customers

III The principal value of and interest accrued on the amounts of debt securities of the Society or any subsidiary undertaking

Y=the principal value of and interest accrued on shares in the Society held by individuals other than bare trustees (or in Scotland

simple trustees) for bodies corporate or for persons that include bodies corporate

2.Other percentages

2022

2021

As a percentage of shares and borrowings

Gross capital 5.46 4.87

Free capital 5.27 4.65

Liquid assets 18.2 14.7

As a percentage of mean total assets

Profit for the financial year 0.50 0.36

Management expenses 0.52 0.50

Net profit as a percentage of total Balance Sheet 0.49 0.35

Shares and borrowings represents the total of shares deposits from banks other deposits amounts owed to other customers and

debt securities in issue

Gross capital represents the aggregate of reserves other equity instruments subordinated liabilities and subscribed capital

Free capital represents the aggregate of gross capital and collective impairment less intangible assets and property plant and

equipment

3.Principal Office

Coventry Building Society is a building society incorporated and domiciled in the United Kingdom The address of the Principal

Office is Coventry House Harry Wentry House, Harry Weston Road Binleyeston Road, Binley Coventry CV32T, Coventry CV3 2TQ

Coventry Building Society  Annual Report & Accounts2022

Financial Statements

193

4.Information relating to directors

Name (Date of birth) Occupation Other directorships and appointments

Date of appointment as

a director of the Society

Iraj Amiri BSc MSc ACA Non-Executive Director Development Bank of Wales plc 28.06.2018

(20.02.1954) AON UK Limited

Catherine Doran BA Non-Executive Director ClearBank Limited 01.08.2016

(11.09.1956)

Peter Frost BA (Hons) Building Society Coventry Financial Services Limited 01.11.2012

(27.10.1965)

Chief Customer Officer Coventry Property Services Limited

Godiva Financial Services Limited

Godiva Housing Developments Limited

Godiva Securities and Investments Limited

Godiva Savings Limited

David Thorburn LLB MCIBS Non-Executive Director EY UK LLP 28.04.2022

(09.01.1958) Chartered Bank Institute2025Foundation

Foundation for Governance Research and

Education

Stephen Hughes CIMA Building Society Godiva Mortgages Limited 20.04.2020

(05.05.1972) Chief Executive ITL Mortgages Limited

BSA Council

The Money and Pension Service

The Pennies Foundation

UK Finance Limited

Joanne Kenrick LLB Non-Executive Director Dwr Cymru Cyfyngedig 06.11.2017

(21.09.1966) Glas Cymru Holdings Cyfyngedig

Global Charities

Global Charities (Trading) Limited

Pay UK – Mobile Payments Service Company Ltd

Rhapsody Court Freehold Limited

Sirius Real Estate Ltd

Shamira Mohammed ACA Non-Executive Director Pezula Limited 01.05.2019

(17.11.1968)

Brendan O’Connor MBA Non-Executive Director Ford Credit Europe Bank plc 18.01.2021

(21.06.1965)

Lee Raybould FCCA Building Society Godiva Mortgages Limited 06.04.2021

Chief Financial Officer ITL Mortgages Limited

(05.03.1973) Arkose Funding Limited

Martin Stewart MEng Non-Executive Director Clayton Stewart Properties Limited 01.09.2018

Clayton Stewart Limited

(08.09.1966) OakNorth Bank plc

Northern Bank Limited

Documents may be served on the above named directors at Coventry Building Society co PwC LLP One Chamberlain Square

Birmingham B33AX

The Society has entered into service contracts with the following directors Peter Frost (Chief Operating Officer) Steve Hughes

(Chief Executive) and Lee Raybould (Chief Financial Officer) These are terminable by the individual on six months’ notice and by

the Society on one year’s notice

Annual Business Statement Continued

Financial Statements

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194

The following glossary defines terminology within the Annual Report & Accounts to assist the reader and to facilitate comparison

with publications by other institutions

Glossary

Additional Tier1(AT1) capital

Capital that meets certain criteria set out in CRD IV In particular the criteria require that

upon the occurrence of a trigger event the AT1capital instrument converts to a form of

Common Equity Tier1capital or the principal is written down on a permanent basis or

grandfathered instruments such as Permanent Interest Bearing Shares (PIBS)

Arrears

The financial value of unpaid obligations which arise when contractual payments are not

paid as they fall due

Automated Valuation Model (AVM)

A service used by the Society to estimate a property’s value using mathematical or

statistical modelling combined with databases of existing properties and transactions to

calculate real estate values at a point in time

Average loan to value

The average of individual loan to values (simple average) The average loan to value of

the residential mortgage book weighted by balance (balance weighted) For indexed

loan to value – see ‘Indexed loan to value’

Basel3.1

The name given by the PRA to the Basel Committee's final implementation of its

Basel III Banking Supervision reforms published in December2017addressing

credit risk (including regulatory floors on IRB risk weights) and operational risk The

PRA's proposals for the implementation of Basel3.1are contained in CP16/22

"implementation of the Basel3.1standards"and are applicable from January2025,

phased in over five years

Basis point

One hundredth of a percent (0.01percent) Used when quoting movements in interest

rates and yields on securities

Buy to let mortgage A mortgage secured on a residential property that is rented out to tenants

Capital Conservation Buffer (CCoB)

A CRD V risk adjusted capital requirement for all banks that can be used to absorb losses

whilst avoiding breaching minimum capital requirements

Capital requirements

Amount of capital required to be held by the Group to cover the risk of losses and to

protect against excessive leverage The level is set by regulators and the firm’s own

assessment of its risk profile

Capital Requirements Regulation and

Capital Requirements Directive V

(CRD V)

CRD V is the European Union legislation (part regulation and part directive) which

came into force to implement Basel III revising the capital requirements framework and

introducing liquidity requirements which regulators use when supervising firms

Capital resources

Capital comprising the general reserve fair value through other comprehensive income

reserve eligible Additional Tier1capital less all required regulatory adjustments

Central clearing

The process by which parties to an over-the-counter derivative contract replace this

with a separate contract with a central counterparty which takes over each party’s

positions under the original contract

Climate Biennial Exploratory Scenario

exercise (CBES)

Bank of England initiative to explore the financial risks posed by climate change The

exercise will test the resilience of the current business models of the largest banks

insurers and the financial system to climate-related risks and therefore the scale of

adjustment that will need to be undertaken in coming decades for the system to remain

resilient

Climate-related risks - physical

The physical risks arising from the direct physical impacts of climate change Physical

risks from climate change arise from a number of factors and relate to specific weather

events (such as heatwaves floods and storms) and longer-term shifts in the climate

(such as changes in precipitation extreme weather variability sea level rise and rising

mean temperatures)

Climate-related risks - transition

The transition risks arising from the transition to a low-carbon economy Transition risks

arise from the process of adjustment towards a Net-Zero Carbon economy The UK

Government has set a target of achieving Net Zero greenhouse gas emissions by2050

to respond to the challenge climate change poses A range of factors influence this risk

including climate-related developments in policy and regulation the emergence of

disruptive technology or business models shifting sentiment and societal preferences

and the potential for'stranded assets'to be created

Climate-related opportunities

Refers to the potential positive impacts that climate change may have on the Society’s

business model and the opportunities this may present for example by growing our

lending by supporting borrowers who make energy efficiency improvements on their

homes

Collateral Security pledged by the borrower to the lender in case of default

Coventry Building Society  Annual Report & Accounts2022

Financial Statements

195

Common Equity Tier1(CET1) capital

Common Equity Tier1capital comprises general reserve and the fair value through other

comprehensive income reserve less regulatory deductions Common Equity Tier1must

absorb losses on a going concern basis

Common Equity Tier1ratio Common Equity Tier1capital as a percentage of risk weighted assets

Conduct risk

The risk that the Society’s behaviour and decision making fails to deliver good customer

outcomes

Contractual maturity

The date in the terms of a financial instrument on which the last payment or receipt

under the contract is due for settlement

Core Capital Deferred Shares (CCDS)

A form of Common Equity Tier1(CET1) capital The Society’s Perpetual Capital

Securities (PCS) convert into CCDS at the rate of one CCDS for every£67PCS held if

the end-point CET1ratio calculated on either an individual or consolidated basis falls

below7%.

Countercyclical Buffer (CCyB)

A CRD V risk adjusted capital requirement for all banks that is varied over the financial

cycle to match the resilience of the banking system to the scale of risks faced

Countercyclical Leverage Buffer (CCLB)

A leverage capital requirement under the UK leverage regime that is set at35%of the

corresponding risk adjusted Countercyclical Buffer (CCyB)

Covered bonds

Debt securities that are backed by both the resources of the issuer and a portfolio of

mortgages that are segregated from the issuer’s other assets solely for the benefit of the

holders of the covered bonds The Society issues covered bonds as part of its funding

activities

Credit risk

The risk that borrowers or counterparties do not meet their financial obligations to the

Society as they fall due Within this class the Society considers risks arising from retail

credit risk and treasury credit risk to be individual principal risk categories

Credit valuation adjustment

An adjustment to the valuation of financial instruments held at fair value to reflect the

creditworthiness of the counterparty

Currency swap

An arrangement in which two parties exchange equivalent principal amounts of different

currencies at inception and subsequently exchange interest payments on the principal

amounts At the maturity of the swap the principal amounts are re-exchanged at the

original rates protecting the participants from changes in exchange rates

Debt securities

Transferable instruments creating or acknowledging indebtedness They include bonds

and loan notes The holder of a debt security is typically entitled to the payment of

principal and interest together with other contractual rights under the terms of the issue

Debt securities are generally issued for a fixed term and are redeemable by the issuer at

the end of that term Debt securities can be secured on other assets or unsecured

Debt securities in issue

Liabilities of the Group that are transferable by external investors that operate within the

global financial markets

Deferred tax assets(liabilities)

Corporation tax recoverable (or payable) in future periods as a result of the carry-

forward of tax losses or unused tax credits or from deductible (or taxable) temporary

differences between the accounting value of assets and liabilities and the tax base of

those assets and liabilities

Defined benefit obligation

The present value of expected future payments required to settle the obligations of a

defined benefit pension scheme resulting from past employee service

Defined benefit plan pension scheme

A pension or other post-retirement benefit plan offering guaranteed benefits usually as

a fraction of the final salary

Defined contribution plan pension

scheme

Pension or other post-retirement benefit plan where the employer’s obligation is limited

to its contributions to the fund

Derivative financial instrument

A contract or agreement which derives its value or cash flows from changes in an

underlying index such as an interest rate foreign exchange rate or market index The

most common type of derivative instruments are interest rate swaps

Effective Interest Rate (EIR)

The rate of interest earned over the life of an instrument that is equivalent to the

discounted rate of projected cash flows of the instrument adjusted for compounding

Effective tax rate The tax charge in the Income Statement as a percentage of profit before tax

Encumbered assets

Assets used to secure liabilities or otherwise pledged This excludes loans and advances

to customers that although technically encumbered are held in respect of undrawn self-

issued notes under the Group’s covered bond and securitisation programmes

Glossary Continued

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196

End-point Full implementation of regulation (for example CRD V) with no transitional provisions

Energy Performance Certificate (EPC)

A report that assesses the energy efficiency of a property and recommends specific ways

in which the efficiency of a property could be improved Certification is graded from A

(most efficient) to G (least efficient)

Enterprise Risk Management Framework

(ERMF)

A Board approved framework which provides the context guidance and principles

needed for cohesive risk management activity across the Society and its subsidiaries

European Banking Authority

An independent European Union authority which works to ensure effective and

consistent financial regulation and supervision across the European banking sector

EV100

Economic Value100.Measure of the change in the net present value of interest rate

sensitive instruments over their remaining life resulting from a100basis points (1%)

parallel shock to the yield curve

EV200

Economic Value200.Measure of the change in the net present value of interest rate

sensitive instruments over their remaining life resulting from a200basis points (2%)

parallel shock to the yield curve

Expected credit loss (ECL)

The present value of all cash shortfalls over the expected life of a financial instrument

The term is used for the accounting for impairment provisions under the IFRS9

standard

ECL –12month

Cash shortfalls resulting from default events that are possible in the next12months

weighted by the probability of that default occurring

ECL – lifetime

Cash shortfalls resulting from default events that are possible over the remaining

expected life of the loan weighted by the probability of that default occurring

Expected loss

A calculation under the IRB approach to estimate the potential losses on current

exposures due to expected defaults over a12month time period

Exposure The quantified potential for loss that might occur as a result of a risk occurring

Exposure at default (EAD) A calculation of the amount expected to be outstanding at the time of default

Fair value

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 in the principal or in

its absence the most advantageous market to which the Group has access at that date

Fair value through other comprehensive

income (FVOCI)

Financial assets held at fair value on the Balance Sheet with changes on the fair value

recognised through other comprehensive income

Fair value through profit and loss

(FVTPL)

Financial assets held at fair value on the Balance Sheet with changes in fair value being

recognised through the Income Statement

Financial Conduct Authority (FCA)

A statutory body responsible for the conduct of business regulation and supervision of

UK financial institutions in the UK

Financial Ombudsman Service

The Financial Ombudsman Service provides an independent and impartial service to

resolve individual complaints that consumers and financial institutions have been unable

to settle themselves

Financial Policy Committee (FPC)

A committee based at the Bank of England charged with identifying monitoring and

taking action to reduce or remove systemic risks with a view to protect and enhance the

resilience of the UK financial system It is also responsible for supporting the economic

policy of the UK Government

Fitch

A credit rating agency which provides credit ratings and research covering financial

institutions and governments and their debt instruments and securities

Forbearance

Forbearance takes place when a concession which can be temporary or permanent

is made on the contractual terms of a loan in response to the borrower’s financial

difficulties

Foreign currency risk

The risk of loss arising as a result of movements in exchange rates on investments

obligations or derivatives in foreign currencies

General reserve

The general reserve is the accumulation of historical and current year profits and

includes remeasurements of the defined benefit pension scheme and distributions to

holders of Perpetual Capital Securities (net of tax)

Government investment securities

(gilts)

The name given to long-term fixed income debt securities (bonds) issued by the UK

Government

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197

Greenhouse gas (GHG) emissions

GHGs are atmospheric gases that absorb and emit radiation within the thermal infrared

range and that contribute to the greenhouse effect and global climate change Many

different GHGs are produced as a result of human activities The seven gases mandated

under the Kyoto Protocol and to be included in national inventories under the United

Nations Framework Convention on Climate Change (UNFCCC) - carbon dioxide (CO2)

methane (CH4) nitrous oxide (N2O) hydrofluorocarbons (HFCs) perfluorocarbons

(PFCs) sulphur hexafluoride (SF) and nitrogen trifluoride (NF3)

Gross capital

The aggregate of reserves other equity instruments subscribed capital and subordinated

liabilities

Hedge accounting

The Society issues fixed rate instruments particularly fixed rate mortgages products

which create interest rate risk This risk is offset or hedged by purchasing other financial

instruments (swaps) that convert a fixed rate of interest to a variable one

Hedge accounting matches these swaps to the fixed rate products to reduce the fair

value volatility that would otherwise exist if they were unmatched which would lead

to volatility within the income statement Where the matching of items in a hedged

relationship is not100%effective this gives rise to a hedge accounting adjustment in the

income statement

IBOR

The Interbank Offered Rate (IBOR) is the interest rate at which banks lend to and

borrow from one another in interbank markets IBORs serve as an indicator of levels of

demand and supply in all financial markets

IFRIC

The International Financial Reporting Interpretations Committee IFRIC interprets

the application of IAS and IFRS and provides timely guidance on financial reporting

issues not specifically addressed in IAS and IFRS in the context of the International

Accounting Standards Board framework

IFRSIAS

International Financial Reporting StandardsInternational Accounting Standards A set

of international accounting standards stating how particular types of transactions and

other disclosures should be reported in financial statements

Impaired loans Impaired loans are defined as those which are defaulted loans in IFRS9stage3.

Impairment provision Either12months or lifetime expected credit losses (ECLs) held under IFRS9

Indexed loan to value

Loan to value calculated on the basis of the latest property valuation being adjusted by

the relevant house price index movement since that date

Individual Liquidity Guidance (ILG)

Guidance from the PRA on a firm’s required quantity of liquidity resources and funding

profile

Interest rate risk

Interest rate risk arises from the different interest rate characteristics of the Society’s

mortgages and savings products and from other financial instruments The Society is

subject to the risk that changes in interest rates will cause material variations in earnings

because of differences between interest rates received and paid on mortgages deposits

and financial instruments

Interest rate swap

A contract under which two counterparties agree to exchange periodic interest

payments based on a predetermined notional principal amount

Internal Capital Adequacy Assessment

Process (ICAAP)

The Society’s own assessment of the amount of capital that it needs to hold to support

all relevant current and future risks This assessment includes determination of a number

of capital buffers to be held in case of potential future economic stress and provides

confirmation that the Society has appropriate processes in place to ensure compliance

with regulatory requirements

Internal Liquidity Adequacy Assessment

Process (ILAAP)

The Society’s own assessment of the liquidity resources that are required to remain

within the risk tolerances it has set This will include an evaluation of potential stresses

based on regulatory benchmarks and on Society-specific tests

Internal Ratings Based (IRB) approach

An advanced approach to measuring capital requirements in respect of credit risk under

Pillar1.The IRB approach may only be used with permission from the PRA

ISDA

International Swaps and Derivatives Association is the global trade association for

over-the-counter derivatives and providers of the industry-standard documentation for

derivative transactions

ISO14064-1certification

an international standard that quantifies the reporting of greenhouse gas (GHG)

emissions and the verification

Leverage ratio

A calculation as part of CRD V which measures the relationship between eligible Tier1

capital and exposures to on and off-balance sheet items UK institutions are subject to

the PRA's interpretation of the leverage ration - see UK leverage ratio

Glossary Continued

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LIBOR

London Interbank Offered Rate A benchmark interest rate at which banks can borrow

funds from other banks in the London interbank market This is expected to cease at the

end of2022.

Liquid assets

An amount as defined by the Building Societies (Accounts and Related Provisions)

Regulations1998.This comprises cash in hand balances with the Bank of England

debt securities (including Government investment securities (gilts)) loans to credit

institutions and other liquid assets

Liquidity and funding risk

Liquidity risk is the risk that the Society has insufficient funds to meet its obligations as

and when they fall due Funding risk is the inability to access funding markets or to only

do so at excessive cost andor liquidity risk Liquidity and funding risk are the principal

risk of the Society

Liquidity Coverage Ratio (LCR)

A measure which is part of CRD V 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 resources

Assets held in order to manage liquidity risk Liquidity resources comprise cash

and balances with the Bank of England UK Government securities and multilateral

development banks other securities and bank deposits and self-issued covered bonds

RMBS and Bank of England approved mortgage portfolios

Loan to value (LTV) The amount of mortgage loan as a percentage of the value of the property

Loss given default (LGD)

A parameter used to estimate the difference between exposure at default (EAD) and the

net amount of the expected recovery expressed as a percentage of EAD

Management expenses The aggregate of administrative expenses depreciation and amortisation

Market risk

Market risk is defined as the risk of a reduction in Society earnings andor value resulting

from adverse movements in financial markets

Medium term notes

Securities offered by a company to investors through a dealer across a range of maturity

periods

Member A person who holds a share in the Society or has a mortgage loan with the Society

Minimum Requirement for own funds

and Eligible Liabilities (MREL)

A requirement under the Bank Recovery and Resolution Directive which requires deposit

takers to hold minimum levels of capital plus debt eligible for bail-in

Model risk

The risk that an ineffective model or incorrectly interpreted model output leads to a loss

reputational damage or regulatory censure

Moody’s

Moody’s Investor Services is a credit rating agency which provides credit ratings and

research covering financial institutions and governments and their debt instruments and

securities

Mortgage backed securities

Asset backed securities that represent interests in a group of mortgages which give the

investor the right to cash received from future mortgage payments of both principal and

interest

Net interest income

The difference between interest receivable on assets and similar income and interest

paid on liabilities and similar charges

Net interest margin Net interest income as a percentage of average total assets

Net Promoter Score (NPS)

A measure of customer advocacy that ranges between -100and+100and represents

how likely a customer is to recommend a brand product or service to a friend or

colleague Net Promoter® Net Promoter Score® and NPS® are trademarks of Satmetrix

Systems Inc Bain & Company Inc and Fred Reichheld

Net Stable Funding Ratio (NSFR)

A ratio which assesses the amount of stable funding in place as a proportion of the on

and off-balance sheet funding requirements of an institution The requirement is still to

be formally implemented

Operational risk

The risk of loss arising from inadequate internal processes systems or people or from

external events

Owner-occupier mortgage A mortgage on residential property that is to be occupied by the borrower

Partnership for Carbon Accounting

Financial (PCAF)

Global partnership of financial institutions that work together to develop and implement

a harmonised approach to assess and disclose the greenhouse gas emissions associated

with their loans and investments

Past due

A financial asset such as a loan is past due when the counterparty has failed to make a

payment when contractually due

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199

Pension fund surplus The assets in a pension fund that are in excess of its liabilities

Permanent Interest Bearing Shares

(PIBS)

Unsecured perpetual deferred shares of the Society offering a fixed coupon

Perpetual Capital Securities (PCS)

Securities that pay a non-cumulative coupon at the discretion of the Society and qualify

as Additional Tier1capital

Pillar1/2/2A/3

Components of the Basel capital framework Pillar1covers the minimum requirement

Pillar2covers capital requirement of risks not covered in Pillar1and Pillar3covers

disclosures

PRA buffer

A buffer to ensure that banks that are more at risk of loss than the system in aggregate

have additional capital buffers to reflect that risk

Post Model Adjustment (PMA)

A PMA is applied when the Society considers that a modelled output is not sufficiently

accurate or complete due to there being potential for additional risks that have not been

identified or that cannot be adequately modelled

PRAFCA Remuneration Code

The PRA Remuneration Code sets out the expectations of firms in relation to

proportionality Material Risk Takers (MRTs) application of malus and clawback to

variable remuneration governing bodyremuneration committees risk management

and control functions remuneration and capital risk adjustment (including long-term

incentive plans) personal investment strategies remuneration structures (including

guaranteed variable remuneration buyouts and retention awards) deferral and

breaches of the remuneration rules

Probability of default (PD)

An estimate of the probability that a borrower will default on their credit obligations

over a fixed time period With respect to impairment provisions under IFRS9,12month

ECLs use12month PDs whilst a lifetime ECL uses the estimated PD over the remaining

contractual life of the loan With respect to IRB PD is the probability of a loan defaulting

in the next12months calculated as an average over an economic cycle

Principal risk

Principal risk is a class of significant inherent risk which could materially compromise

the Society’s ability to grow and provide attractive products to savings and borrowing

members

Prudential Regulation Authority (PRA)

The statutory body responsible for the prudential regulation and supervision of banks

building societies credit unions insurers and major investment firms The PRA is a

subsidiary of the Bank of England

Research and development expenditure

credits

A UK Government tax incentive that rewards companies for investing in research and

development

Representative Concentration Pathway

(RCP)

a method for capturing assumptions about climate change and global mean temperature

increases over the21st century Each pathway results in a different range of global mean

temperature which helps the Society to understand how its assets will perform under a

range of scenarios

Residential Mortgage Backed Securities

(RMBS)

Securities issued with interest and principal backed by interests in a group of residential

mortgages which give the investor the right to cash received from future mortgage

payments of both principal and interest

Retail deposits See Shares

Reverse stress test

A regulatory stress test that requires a firm to assess scenarios and circumstances

that would render its business model unviable thereby identifying potential business

vulnerabilities

Risk appetite

An articulation of the level of risk that the Society is willing to accept in order to

safeguard the interests of the Society’s members whilst also achieving its business

objectives

Risk weighted assets (RWAs)

The value of assets after adjustment to reflect the degree of risk they represent in

accordance with the relevant capital rules

Sale and repurchase agreement (repo)

An agreement to sell a financial security together with a commitment by the seller to

repurchase the asset at a specified price on a given date In substance this forms a

secured loan with the difference between the purchase price and repurchase price being

the interest rate

Scope1emissions

Scope1emissions are direct greenhouse gas (GHG) emissions that occur from our own

operations (eg our company vehicles gas usage & fugitive emissions)

Scope2emissions

Scope2emissions are indirect GHG emissions associated with the purchase of our

electricity

Glossary Continued

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Scope3emissions

Scope3emissions are the result of activities from assets not owned or controlled by

the Society but that the Society indirectly impacts in its value chain Scope3emissions

include all sources not within an organisation's Scope1and2boundary and can be

separated into the following two categories

• Upstream Scope3emissions business travel by means not owned or controlled by

the Society waste disposal and purchased goods & services and

• Downstream Scope3emissions the emissions from the properties financed through

the Society’s operations – ie our mortgage customers

Securitisation

A pool of loans used to back the issuance of new securities The loans are transferred to

a structured entity which then issues securities (RMBS) backed by the assets The Group

has used residential mortgages as the loan pool for securitisation purposes

Self-certified mortgage

An owner-occupier mortgage where the lending decision with respect to affordability

has been based solely on the borrower’s declaration of their income

Senior unsecured debt funding

Bonds issued by corporate bodies and financial institutions which are not secured by

any collateral and are not subordinated to any other wholesale liabilities of the issuer

Funds deposited by a person in a retail savings account with the Society Such funds are

recorded as liabilities of the Society

Shares and borrowings

The total of shares deposits from banks other deposits amounts due to customers and

debt securities in issue

Significant increase in credit risk

A significant increase in credit risk on a financial asset is judged to have occurred when

an assessment using quantitative and qualitative factors identifies at a reporting date

that the credit risk has increased significantly since the asset was originally recognised

SONIA

A rate reflecting the interest earned or paid in respect of sterling overnight interbank

loans

Sovereign exposure

Exposures to governments and on account of cash balances and deposits with central

banks

Stage1

Stage1assets are assets which under IFRS9have not experienced a significant

increase in credit risk since the asset was originally recognised on the Balance Sheet12

month ECLs are recognised as the impairment provision for all financial assets on initial

recognition Interest revenue is the EIR on the gross carrying amount

Stage2

Stage2assets have experienced a significant increase in credit risk since initial

recognition under IFRS9.Lifetime ECL is recognised as an impairment provision

Interest revenue is EIR on the gross carrying amount

Stage3

Stage3assets are identified as in default and are considered credit impaired under IFRS

9.Lifetime ECL is also recognised as an impairment provision Interest revenue is the EIR

on the net carrying amount

Standardised approach

The basic method used to calculate capital requirements for credit and operational risk

In this approach the risk weighting used in the capital calculation is determined by

specified percentages

Strategic investment

A significant one-off programme instigated from strategic intent rather than business as

usual or regulatory change activity

Strategic risk

Strategic risk is the risk that changes to business model or macroeconomic geopolitical

regulatory or other factors may lead to the business model strategy or Strategic Plan

becoming inappropriate This includes the risk of an overly ambitious Strategic Plan as

well as unforeseen market consumer competitor or regulatory changes

Stress testing

Testing undertaken to provide an understanding of the Society’s resilience to internal

and external shocks

Structured entity

An entity in which voting or similar rights are not the dominant factor in deciding control

Structured entities are consolidated when the substance of the relationship indicates

control

Subordinated liabilities

A form of Tier2capital that is unsecured Subordinated notes rank equally with each

other and behind all other creditors of the Society and the claims of Shareholding

Members (other than holders of Permanent Interest Bearing Shares and Perpetual

Capital Securities) as to principal and interest

Subscribed capital See Permanent Interest Bearing Shares

Supplementary Leverage Ratio Buffer

(SLRB)

Applied to systemically important banks and building societies As a guiding principle

the FPC sets the buffer at35%of the risk weighted Systemic Risk Buffers

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Financial Statements

201

Surcharge

A tax surcharge on the profits of banking companies which is recognised in the tax

charge line of the income statement

Systemic Risk Buffer (SRB)

Buffer set for ring-fenced banks and large building societies to reduce their probability

of failure or distress commensurately with the greater cost their failure or distress would

have for the UK economy

Task Force for Climate Related Financial

Disclosures (TCFD)

The Financial Stability Board created the TCFD to improve the quality and quantity of

reporting of climate related financial information including the concentration of carbon

related assets within the financial sector and the financial system's exposure to climate

related risks

Term Funding Scheme with additional

incentives for SMEs (TFSME)

The Term Funding Scheme with additional incentives for SMEs was launched in March

2020as part of measures to respond to the economic shock from Covid-19to support

the supply of credit during periods of heightened risk aversion and economic downturns

The Scheme closed to new drawings in2021.

Tier1capital

A component of regulatory capital comprising Common Equity Tier1and Additional

Tier1capital

Tier2capital

A component of regulatory capital comprising qualifying subordinated debt and eligible

collective impairment allowances

Total Capital Requirement (TCR)

The minimum amount of capital the Society should hold as set by the PRA under Pillar

1and Pillar2A and informed by the Internal Capital Adequacy Assessment Process

(ICAAP)

UK Corporate Governance Code (the

Code)

The Code issued by the Financial Reporting Council sets out standards of good practice

in relation to board leadership and effectiveness remuneration accountability and

relations with shareholders

UK Finance A trade association that incorporates residential mortgage lending

UK leverage ratio

A ratio prescribed by the PRA based on the CRR leverage ratio but modified to restrict

the amount of AT1capital that can be included in Tier1capital and to exclude eligible

central bank holdings from leverage ratio exposures

Unencumbered assets

Assets readily available as collateral to secure funding This includes loans and advances

to customers that although technically encumbered are held in respect of undrawn self-

issued notes under the Group’s covered bond and securitisation programmes and are

therefore readily available as collateral to secure funding or to pledge as collateral against

margin calls

Wholesale funding

Funding received from external counterparties that operate within the global financial

markets (for example insurance companies pension funds large businesses financial

institutions and sovereign entities)

Write off

To write off a financial asset when it has exhausted all practical recovery efforts and it is

concluded that there is no reasonable expectation of recovery

Glossary Continued

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