Newcastle Building Society 2016 Year End Figures & Review

3^rd March 2017

At the start of 2016 Newcastle Building Society announced the start of an ambitious £10m investment programme to deliver enhancements to its customer service across branch, telephone and online channels, including the creation of 100 new jobs in the region. The Society has surpassed its jobs target and delivered on its goals for 2016 despite the challenging backdrop of unforeseen events and changing regulatory agenda.

2016 Key highlights

Mortgage lending up 46% to £496m (gross) and £195m (net)

Record low 3 month arrears rate at 0.4%

Strong growth in Newcastle Strategic Solutions

Profit before tax up by 50% to £8.1m, from £5.4m

Launch of Newcastle Building Society Community Saver accounts to help create a legacy of funding for charities and communities in the North East

118 jobs created across the Group

In 2016 Newcastle Building Society achieved a significant uplift in mortgage lending despite a fiercely competitive mortgage market. Its gross residential lending rose 46%, from £340m to £496m, and net lending increased from £10m to £195m. This reflects higher levels of lending alongside greater retention of existing mortgage customers, and can be attributed to investment in distribution, expanded product range, and improved online systems capability for brokers. The Society helped more than 700 first time buyers get a foot on the property ladder in 2016, and alongside that achieved record low arrears figures across its mortgage book (The percentage of mortgage loans in arrears of 3 months or more, reduced again from 0.49% to 0.42% - which is below the industry average).

Overall profit before tax increased to £8.1m for the year ended 31 December 2016, compared with £5.4m for 2015, an increase of 50%. Operating profit before impairment charges and the Financial Services Compensation Scheme (FSCS) Levy was maintained at £11.9m.

The Society's sustained prudent approach ensured capital ratios continued to improve, with Common Equity Tier 1 ratio moving from 13.6% to 14.3% and Tier 1 capital ratio increasing from 15.4% to 15.9%. Liquidity at the end of the year was 17.4%, excluding encumbered assets, down slightly compared to the level at the end of 2015 of 17.7% but well above minimum operating requirements. The majority of the Society's liquidity is invested in AAA/AA rated assets, in the UK.

Net interest margin improved from 0.75% to 0.77%, reflecting the increased levels of residential mortgage lending, although the mortgage market continued to be very competitive with mortgage rates at historically low levels.

As part of its ongoing £10m investment and service improvements programme, a new website offering greater mobile functionality, improved account set up and servicing for online savings customers, together with web chat and enhanced online mortgage broker functionality were launched in 2016. Chief executive, Andrew Haigh commented,

"We are committed to giving customers convenience and choice within a rapidly digitising world. We believe it is critical that when customers want help, information or advice, they can access this in a way that's easy and convenient for them, whether that is online, over the phone or face to face."

The Society sees its branch network as an essential part of its service delivery. Two new purpose-built, City centre financial advice centre branches were introduced in 2016, and its Gateshead branch was relocated to a bright and modern Trinity Square location. A new branch in Yarm Library, in partnership with Stockton Borough Council - the first of its kind - received a warm welcome from local residents when it launched in October.

The Society's award winning subsidiary, Newcastle Strategic Solutions, which provides market leading, multi channel savings management services for UK banks, building societies and other financial institutions from its North Tyneside base, provided a higher financial contribution to the Group in 2016. The growing scale of client contracts contributed to Improvements in the performance of Solutions and enabled investment into the Group infrastructure and staff, building additional growth capability.

2016 saw significant investment in IT systems and supporting processes, particularly around combating cybercrime, enhancing resilience to meet the latest regulatory developments, and improved functionality for customers. The Society was awarded the Cyber Essentials Plus Standard of assurance and will continue to invest in developing its cyber defences, maintaining a sustained focus on this key area.

2016 was also significant for the Group in that the Newcastle Building Society Community Fund at the Community Foundation was launched, alongside a new Community Saver account, to provide an increasing and long term level of financial support to groups and charities in the region. The contribution so far to the fund has exceeded £100,000. Grants to the value of £18,000 have been made available to a diverse range of community projects in the North East. The Fund is growing fast and will seek to increase the scale of grant support it provides to communities across the region.

Chief executive, Andrew Haigh said: "We are very pleased with the progress we made last year. The increase in profit reflects the impact of the investment to date and the hard work of our staff, and enables us to continue investing for the benefit of our members and the region as a whole. From great employment and development opportunities for local people, to continuously improving digital and branch customer service, and our commitment to growing our community support both through funding and staff volunteering, Newcastle Building Society is connecting people in the North East with a better financial future."

For further information contact your local Business Development Manager, find out which member of the team covers your area here. Alternatively, please don't hesitate to get in touch with our Intermediary Support Team on 0345 602 2338 (Monday to Friday, 8am to 6pm).