Connectingcommunitiesin the North Eastwith a betterFinancial Future.Newcastle Building SocietyMember update including SummaryFinancial Statement 2018

Call: 0345 734 4345Monday to Friday 8am to 6pmCalls may be monitored and recorded for training and security purposes.

Visit us online: www.newcastle.co.uk or call into one of our branches.Principal Office: Portland House, New Bridge Street, Newcastle upon Tyne, NE1 8AL

Branch and Financial Advice Centre DirectoryAlnwick - 28 Bondgate Within, NE66 1TD. Tel: (01665) 603 344

Ashington - 10 Station Road, NE63 9UJ. Tel: (01670) 815 919

Berwick Upon Tweed - 12 Hide Hill, TD15 1AB. Tel: (01289) 306 417

Carlisle - 65 English Street, CA3 8JU. Tel: (01228) 524 518

Chester-Le-Street - 42 Front Street, DH3 3BG. Tel: (0191) 388 5266

Consett - 19/21 Middle Street, DH8 5QP. Tel: (01207) 502 636

Cramlington - 34/35 Craster Court, NE23 6UT. Tel: (01670) 735 813

Darlington - 7/8 Horsemarket, DL1 5PW. Tel: (01325) 383 656

Durham - 73/75 Saddler Street, DH1 3NP. Tel: (0191) 384 3182

Gateshead - 12 Ellison Walk, Trinity Square, NE8 1BF. Tel: (0191) 477 2547

Gosforth - 105/107 High Street, NE3 1HA. Tel: (0191) 285 5965

Hartlepool - 133/135 York Road, TS26 9DR. Tel: (01429) 233 014

Hexham - 3 Beaumont Street, NE46 3LZ. Tel: (01434) 605 106

Middlesbrough - 38 Linthorpe Road, TS1 1RD. Tel: (01642) 243 617

Morpeth - 14 Market Place, NE61 1HG. Tel: (01670) 514 702

Newcastle - 136 Northumberland Street, NE1 7DQ. Tel: (0191) 261 4940

Newcastle - Portland House, New Bridge Street, NE1 8AL. Tel: (0191) 232 0505

North Shields - 76 Bedford Street, NE29 0LD. Tel: (0191) 259 5286

Penrith - 12 Market Square, CA11 7BX. Tel: (01768) 862 888

Ponteland - 23 Broadway, Darras Hall, NE20 9PW. Tel: (01661) 821 828

South Shields - 67 Fowler Street, NE33 1NS. Tel: (0191) 454 0407

Stokesley - 19 High Street, TS9 5AD. Tel: (01642) 711 742

Sunderland - 14 Waterloo Place, SR1 3HT. Tel: (0191) 565 0464

West Denton - 22 Denton Park Centre, NE5 2RA. Tel: (0191) 267 5038

Whickham - 28 Front Street, NE16 4DT. Tel: (0191) 488 1766

Whitley Bay - 78/84 Park View, NE26 2TH. Tel: (0191) 252 0642

Yarm Library - 41 The High Street, TS15 9BH. Tel: (01642) 785 985

AgencyAllen Sykes, 17 Galgate, Barnard Castle, DL12 8EQ. Tel: (01833) 690 474

Cover photo: Spanish City,part of the rejuvenation ofWhitley Bay in North Tyneside; one of many great locations inthe North East region.

2 3newcastle.co.uk newcastle.co.ukHighlights of 2018Highlights of 2018

Award WinsWe received a number of industry awards and for thesecond year in a row, we were voted by the public asWhat Mortgage’s Best Regional Building Society. Wealso won Best Self-Build Lender by Build It.

Durham TeapotFollowing the relocation of our Durham branch, weentrusted the care of the iconic teapot at the front ofthe branch building to the City of Durham Trust. Withthe help of a professional conservator, they re-gildedand refurbished it back to its golden glory.

New Chief Financial OfficerAt the end of 2018 we welcomed David Samper tothe Society who joined as Chief Financial Officer.David has more than 20 years’ experience as achartered accountant and brings first class financialmanagement expertise to the Society.

First BIG grantBuilding Improvement Grants (BIG) were launchedby the Newcastle Building Society Community Fund,with £49,110 awarded to Springfield CommunityAssociation as the first recipient. A further £170,000of small grants to local charities were made by theCommunity Fund in 2018.

Branch launchesWe successfully launched our Durham, Gosforth andCarlisle branches which is part of our multi-millionpound branch refurbishment, where we havecommitted to refurbishing or relocating every branchin our Network.

ApprenticeshipsFollowing a successful first apprentice intake in 2017,this year we have seen a 50% growth in ourapprenticeship intake and welcomed a further 9apprentices to the Society.

Dementia FriendsOur Dementia Friend champion, Sheila Hodgson hasnow trained over 1,500 Dementia Friends includingcolleagues, members of the public and local businessesthrough 100 Dementia awareness sessions.

Member Events updateWe hosted two successful Member Events at PrestonPark in Yarm and Alnwick Castle, both were well attendedwith valuable feedback from Members gained.

LISAThe Society introduced our Newcastle Cash LifetimeISA (LISA), paying a best-buy rate of 1.10%. LISAenables Members to save for a deposit for their firsthome or for later life. The LISA also attracts a 25% UKGovernment bonus.

Boardroom ChallengeThis year, Rainbird Primary school were announcedas our seventh annual winner of the BoardroomChallenge. They received a donation to host a festivalof fundraising for the Children’s Heart UnitFoundation (CHUF).

Highlights of

Charitable givingThroughout 2018 we continued our commitment to theSir Bobby Robson Foundation, with a further £97,000donated. Our total charitable giving, including donationsto The Newcastle Building Society Community Fund wasnearly £800,000, that’s 6% of our profits in the year.

The Prince’s TrustWe announced a four year partnership with The Prince’sTrust to help develop young North East talent, involvingmentoring and collaboration from Society colleagues.The Newcastle Building Society Community Fund alsocommitted to donating over £100,000 to The Prince’sTrust TEAM programme over the period.

4 5newcastle.co.uk newcastle.co.ukChairman’s StatementChairman’s Statement

Every year, a growing number of Members are takingthe time to come along to meet and hear about theSociety’s progress.

It is incredibly heartening to know that you arepersonally invested in your Society and in what we aretrying to achieve, with, and for communities acrossthe North East.

Our financial performance is inextricably linked withour strategic Purpose and in 2018 we delivered ourhighest growth in income in recent years, withincreasing operating profits year on year, strongcapital ratios and liquidity. Further details are set outin the Chief Executive’s Review.

Our aim is to maintain a strong balance sheet andsustainable future for the Society, which in turncontributes to and enables our ambitions to create aregional building society that delivers significantbenefits across the North East.

Subsidiary company growth and successOur award winning subsidiary, Newcastle StrategicSolutions Limited, which provides fully integratedsavings technology and services platforms for a rangeof UK financial institutions, challenger banks andglobal household brand names, retained its marketleading position, despite an increasingly competitivemarketplace. Alongside our technology solutionssubsidiary, Newcastle Systems Management Limited,it is creating numerous job opportunities and isalready a significant employer in the region. Wecontinue to invest in systems and processes to meetthreats to data and IT services.

Our communitiesHelping our communities make positive changes is acore pillar of our Purpose.

In 2018 our colleagues were out and about as part ofour volunteering programme, sharing their skills,making connections and supporting others in a rangeof situations. From food banks to farms for childrenand families living with autism – it is really uplifting tosee the difference our colleagues have been makingacross the North East.

Volunteering is just one feature of our communityengagement. Our commitment to the High Street, thesupport offered to local charities by the NewcastleBuilding Society Community Fund at the CommunityFoundation, our ongoing partnership with DementiaFriends and The Prince’s Trust and our financialeducation programme all help in making a positivedifference to communities here in the region.

Our boardDuring 2018 we continued to strengthen our Board,with the arrival of David Samper who took up the reinsas our Chief Financial Officer in December fromSainsbury’s Bank, with responsibility for our Finance,Treasury and Legal departments. We also welcomedMick Thompson in January 2019 who joined us as aNon-Executive Director and member of our AuditCommittee having been a Senior Partner at KPMG fornine years. Details of David and Mick are included inthe ‘Our Directors’ page of this report. Finally, AdamBennett will be joining the Board following this year’sAnnual General Meeting and will be a member of theGroup Risk Committee.

Richard Bottomley left the Board after four years’service as Chairman of the Audit Committee. DavidBuffham, the Society’s Deputy Chairman and SeniorIndependent Director, will be standing down in thefirst half of 2019 after nine years’ service. We wouldlike to thank both for their contributions over theyears, and to wish them all the best.

We were pleased to welcome Stuart Lynn as aNon-Executive Director of our subsidiaries NewcastleSystems Management Limited and NewcastleStrategic Solutions Limited. Stuart brings a wealth ofexperience as a business leader in technology, fromhis time in the National Health Service and The SageGroup PLC.

SummaryAs the North East’s largest building society we arecommitted to delivering our Purpose for the benefit ofour region.

I am confident that with our strong Purpose andstrategy we will continue to meet the challenges of2019 and beyond, and will further realise the potentialof a dynamic, regionally focused building society suchas ours.

I would like to say a big thank you to our colleaguesand to our customers who continue to support us inthis ambition.

Phil MoorhouseChairman 26 February 2019

Brexit uncertainty has undoubtedly had an impact onhousing market confidence, with an increasing numberof potential home buyers citing concerns about futurefalls in house prices as a barrier to purchase. A no lessinfluential issue continuing to affect the marketremains that of affordability. In some regions propertyprices present considerable challenges to getting ontothe housing ladder and as such owning a homeremains out of reach for some.

Mortgage market growth remains weak, although homere-mortgaging continues to be an area of growth.

Households have benefited from relatively strongwage growth but consumer spending is weaker andhouseholds have been borrowing less. Savers may takesome comfort from the fact that fixed savings rateshave been generally rising since the start of the year,although they remain relatively low. Bank base ratescontinue at historically low levels.

Looking forward, the rate of inflation is predicted toremain low and forecasts for growth in the UKeconomy remain modest, but positive.

Despite the headwinds of Brexit, increasing competitionin the mortgage market, and ongoing regulatorydevelopments, a wholehearted commitment across ourSociety to delivering our Purpose has driven anotheryear of robust growth and strong performance,alongside an increase in our membership.

There are a few areas I would like to highlight of whichI am particularly proud.

Our commitment to our customers Our multi-million pound branch improvement andrefurbishment programme, which is well underway,reaffirms our commitment to being on your highstreet and continuing to offer a convenient, friendlyface-to-face branch service.

This year we aim to complete the transformation to anetwork of modern, digitally enabled, people firstbranches we can be proud of that sit right at the heartof our communities.

Our commitment to remaining on the high streetagainst a backdrop of continuing announcements ofbranch closures by banks and other financialinstitutions has prompted many new customers intowns and cities across the North East to join us.

Building lasting authentic relationships through ourbranch network is supported by our subsidiary,Newcastle Financial Advisers Limited, which has beenproviding accessible financial advice on the high streetfor the past 16 years. This service is valued highly bycustomers across the North East, with our in-branchPension Clinics also proving very popular.

Meeting up with our Members is a pleasure and 2018saw numerous opportunities to spend time and enjoysome valuable conversations. Our pre Annual GeneralMeeting Member Events took place at Alnwick Castlein Northumberland and Preston Park in Stockton,followed by our Annual General Meeting at St JamesPark in Newcastle.

2018 has seen good progress for theSociety. We have focused on ourPurpose - Connecting Communitiesin the North East with a BetterFinancial Future – which has drivenperformance, shaped change andchallenged us to be even better forthe benefit of our members,customers and our communities.

Phil MoorhouseChairman

Chairman’s

6 7newcastle.co.uk newcastle.co.ukChief Executive’s Review2018 Performance Highlights

This progress is underpinned with a robust financialperformance, including increased operating profit,strong capital and liquidity ratios and very low levelsof arrears.

At the heart of Newcastle Building Society lies ourPurpose, which states that we ‘connect communitiesin the North East with a better financial future’ andleads us to put our customers and the communitieswe serve foremost in our plans and ambitions forthe future.

In what proved to be a very busy and productive yearfor the Society, we achieved a number of positiveoutcomes in delivering our Purpose and making agenuine difference for the communities we serve.Just some of the highlights from the year include:

• The launch of our new branch concept for Durham,Gosforth and Carlisle branches as part of our multi-million pound branch refurbishment programme;

• Our continued support for the Newcastle BuildingSociety Community Fund at the CommunityFoundation, which has enabled the launch ofBuilding Improvement Grants, designed to helpmaintain and improve community buildings in theregion, with the first £50,000 grant awarded toSpringfield Community Association;

• The Newcastle Building Society Community Fundwas also pleased to announce a four-yearpartnership, committing donations of more than

£100,000 to The Prince’s Trust, supportingprogrammes which seek to invest in young talentand improve employability in the region. ThePrince’s Trust also provides significant leadershipdevelopment opportunities for colleagues acrossthe Society;

• Our ongoing commitment to Dementia Friends,which has to date involved over 1,500 colleagues,customers and staff from the local high street inreceiving awareness training from the Society’sDementia Friend champion; and

• By no means least welcoming new colleagues tothe Society in particular those who have joined usas part of our early talent community.

Building authentic and lasting customerrelationshipsWe were pleased to see our customer satisfactionscore improve from 96% to 98% in 2018.

Helping people own their homes is a key pillar of ourPurpose and is at the heart of our building society.Our gross lending for 2018 exceeded £520m, slightlyreduced from £535m in 2017, in a fiercely competitivemarket. Our prime net lending was over £160m leadingto an overall increase in our residential mortgagebook. Despite the broader UK economic challenges,we supported over 1,100 first time buyers in theirquest to own their own home.

1,102employees

£13.3m profitbefore tax

4,590 volunteeringhours donatedby colleagues

£183m investedby new savers

1,169 first-timebuyers

Common EquityTier 1 Capital

15.7%

98% overallcustomersatisfaction

285 self-buildmortgages

24 industryawards

Gross residentiallending £520m

63 charitiesawarded

community fundgrants totalling

£178,902

14,518 new saversacross the UK

I am very pleased to report that 2018was a year of continued positiveprogress for the Society, with growth inresidential lending, more new saversresulting in an increase in Membersand increased levels of financial advicebusiness.

Andrew HaighChief Executive

Chief Executive’s2018

9Chief Executive’s ReviewChief Executive’s Review newcastle.co.uk newcastle.co.uk8

Our Self-Employed mortgage volumes have doubledand we have also introduced ‘Help to Buy’ and‘Buy to Let’ mortgages for this growing self-employedmarket reflecting the continuing change inemployment trends.

Once again it was great to be recognised in a numberof industry awards. For the second year in a row wehave been awarded ‘What Mortgage’s’ Best RegionalBuilding Society. We were also named Best Self BuildLender by ‘Build IT’ and we were also recognised bythe Legal and General Mortgage Club Awards as bestsmaller lender for 2018. When combined with servicequality awards received by clients of our NewcastleStrategic Solutions Limited subsidiary, we wereinvolved in winning 24 industry awards in 2018.

As well as helping customers own their home, we alsobelieve that it is important that we encourage peopleto save and help them plan their finances.

Despite the backdrop of extensive bank branchclosures across our region, our commitment to beingpresent in the towns and cities across the North Eastremains firm. We recognise the power of communitiesand the role of the high street as a focus forcommunity life. That is why we are improving thebranch experience we provide to our customers, aspart of a wider investment programme, deliveringmodern, bright and open spaces, with private meetingareas, friendly and knowledgeable colleagues, and afinancial adviser in every branch.

Our latest new branch format was launched in 2018in Durham, Gosforth and Carlisle and we continuewith our programme to update all of our branchnetwork by the end of 2019.

Our savings accounts offer some of the best buysavings rates on the high street and during 2018 wewere featured in national press best buy tables.

We added to our savings portfolio a new regular saverproduct and a one or two year fixed rate bond. Wealso increased the rate on the current issue of TheNewcastle Community Saver easy access account.

In the second half of the year we introduced ourNewcastle Cash Lifetime ISA, which enables customersto save for a deposit for their first home or for theirretirement, attracting a 25% UK Government bonuson amounts saved each tax year.

Our growing range of savings accounts has been wellreceived and I am delighted that as a result, 2018saw an increase in the number of Members of theSociety. We have offered our new Members a warmwelcome to Newcastle Building Society, committingthat we will remain on the high street now and in thefuture.

Our financial advice subsidiary, Newcastle FinancialAdvisers Limited, gives customers financial adviceregardless of how much they have to invest. NewcastleFinancial Advisers Limited has a significant andgrowing level of funds under management for peoplein the region.

Our Pension Clinics were very successful, offering free30 minute chats with a financial adviser to helppeople get answers to their pension questions andsee what they may need to do next.

Newcastle Financial Advisers Limited increasedincome and profits in 2018 and scores highly forcustomer satisfaction.

Helping our colleagues realise theirpotential Our colleagues are the driving force of our Society andin return we aim to be a great place for them to work,where they can realise their potential. It is alsoimportant to us as a significant employer, that whereappropriate, we continue to grow the employmentopportunities we offer across the region, so we werepleased to add 68 new jobs in 2018.

Our Human Resources team are central to how we workto develop the region’s talent and potential and it wasgreat to see their work recognised by the North EastHR&D CIPD Awards in June when they won the awardfor Excellence in Resourcing & Talent Management.

We have made a significant investment in our newleadership programmes for senior managers, andcontinue to build our early talent programme as webuild our contribution to nurturing regional talentwhich can come from all walks of life and irrespectiveof background and personal circumstances.

Our early talent programme has been running for anumber of years for graduate recruitment andundergraduate placement, but has been furtherdeveloped to include apprenticeships. Our growingapprenticeship opportunities are across a range ofbusiness areas, with all apprenticeships attracting aLiving Wage salary (paying above the Governmentrecommended wage), a structured learning programmewith both a nationally recognised qualification and acareer at the end. Our partnership with The Prince’sTrust also plays a key role in our developing talent andsupporting employability in the region.

An important part of our customer offering is theprovision of face-to-face financial advice. Weunderstand that this service is highly valued by ourcustomers and we are one of the few financialservices companies still offering financial advice onthe high street.

Fundamental to this is our financial adviser colleaguesand our commitment to growing the financial advisertalent of the future. Our bespoke training programmebetween Openwork and Newcastle Financial AdvisersLimited provides opportunities for growth anddevelopment and colleague applications are invitedfrom across the business. The programme leads to aprofessional status and a role as a qualified financialadviser. We are delighted that two more graduatesfrom the programme have recently taken up full timefinancial adviser positions in the branch network aftercompleting their professional training.

In 2018 we improved employer pension contributionsfor more than half our colleagues to help them build abigger pension pot, and following a review of pay andgrading, more than a third of our colleagues haveenjoyed a salary uplift over and above the cost ofliving increase also provided. We are proud to be aReal Living Wage employer, which goes further thanthe Government’s national minimum wage.

Connecting with our communitiesOur branches continue to play a key role in their localcommunities. Where possible, we are introducingcommunity spaces into our refurbished brancheswhich are available to community groups and havealready been used in a host of different ways. Wehave also tried to be sympathetic to local traditionwhen we have restored older buildings – for examplethe restoration work on the iconic Durham Teapotthat sits above our Durham branch, undertaken bythe City of Durham Trust and the stained glasswindows and chandeliers in our new location inCarlisle have both preserved features which arevalued by local residents. We consider it a privilegeto support those in our towns and cities who areactively working to improve the potential, historyand culture of our region.

We donated £797,000 or 6% of our pre-tax profits tocharity during 2018. We have continued to build theNewcastle Building Society Community Fund at theCommunity Foundation, through donations made bythe Society in proportion to balances held in ourCommunity Saver accounts and our colleaguefundraising activities.

The Community Fund is building a legacy for futureMembers, with increasing capacity to make grantswhich support local charities and community groups.Our grant programme is expanding year on year andnow includes larger grants of up to £50,000 tosupport community building improvements. Inaddition a total of £179,000 was awarded in 63smaller grants during 2018.

We have a long-standing relationship with the SirBobby Robson Foundation. The Newcastle BuildingSociety Community Fund at the CommunityFoundation is continuing that relationship with anongoing and significant level of funding support for atleast the next five years. The combined contributionsof the Society and The Newcastle Building SocietyCommunity Fund have just passed the £2.8m mark incumulative donations to this worthy cause, whichfunds leading cancer research, diagnosis andtreatment for people across our region.

Andrew Haighalongside Alex Oliver BEM

and his daughterKara-Mai, opening thenew Durham branchof Newcastle BuildingSociety.

11Chief Executive’s ReviewChief Executive’s Review newcastle.co.uk newcastle.co.uk10

There are around 35,000 people living with dementiain the North East, a statistic that is expected toincrease. We have committed to ensuring that everycolleague will become a Dementia Friend and havealso been offering Dementia Friends sessions tocustomers in our branches, and extended an openinvitation for others on the high street to join us. I amproud that we have over 1,500 Dementia Friendswho received training and learnt about improvingthe lives of those living with dementia in our region.

Our colleagues have continued to embrace ourvolunteering programme in 2018, more than doublingtheir volunteering contribution this year with 55% ofcolleagues volunteering. They have spent over 4,750hours in the community supporting 137 groups andlocal charities.

Helping our clients and partners succeedNewcastle Strategic Solutions Limited and NewcastleSystems Management Limited, two of the Society’ssubsidiaries received ISO 27001 Certification for theirInformation Security Management System. Meetingthis international standard benchmark evidences ourongoing investment in having the right controls torespond to the threats to data and IT serviceprovision. We were also pleased to renew our CyberEssentials Plus accreditation during the year.

Newcastle Strategic Solutions continues to be the UK’sleading provider of outsourced savings managementservices and were delighted to see strong growth inscale of savings balances under administrationthroughout 2018 and a number of clients winindustry awards for the quality of service provided totheir customers.

Financial performanceIt is only possible for the Society to thrive andcontinue to serve the region if our underlying businessmodel is sustainable in the long term and our financialperformance is robust. Profitability is one of the keyfinancial performance measures.

Profit before tax improved to £13.3m for the yearended 31 December 2018 compared to £13.1m for2017. Our 2017 profit before tax was positivelyimpacted by a one-off credit of over £2m relating tothe purchase of our Cobalt office and it is pleasing toreport that in 2018 we saw that one-off creditreplaced by an overall improvement in OperatingProfit before provisions and exceptional items, whichincreased by £2.6m to £14.7m.

Overall growth in income of £6.6m, was offset by anincrease in costs of £3.9m associated with thesignificant ongoing investment into the business,including our branch refurbishment programme andpay and grading project. The cost to income ratioimproved from 79% to 77%. Net interest marginimproved from 0.79% to 0.92% reflecting increasedincome.

Mortgage impairment charges have increased, from£0.2m to £1.5m, the majority of which reflects a smallnumber of legacy non-performing commercial loans.

Provisions for liabilities and charges decreased by£1.1m from £1.0 debit to £0.1m credit. The creditrelates to the reduction in the provisions required forthe Financial Services Compensation Scheme levyand consumer redress.

The Group’s capital ratios remain robust withCommon Equity Tier 1 ratio improving from 15.3%to 15.7% and Tier 1 capital ratio reducing slightlyfrom 16.6% to 16.3%. The Group’s overall capital ratio(Solvency ratio) also reduced to 17.7% compared to18.9% at the end of 2017. Both reductions were as aresult of a planned repayment of one of the Group’sPermanent Interest Bearing Shares during 2018. Theleverage ratio (on a transitional basis) was 5.4%.

Despite the weak growth in the mortgage marketduring 2018 and strong competition, as noted above,our gross residential mortgage lending was £520mand net residential lending was £160m. Thepercentage of mortgage loans in arrears of 3 monthsor more, across our whole mortgage portfolio basedon the number of loans, reduced again from 0.34%to 030%; lower than the industry average. Possessioncases also continued at very low levels reflecting theexcellent credit quality of the Society’s residentiallending.

The Group’s liquidity, excluding encumbered assets,ended the year as 14.6%, compared to 17.0% in2017. This had been actively managed down overthe second half of the year to improve efficiencybut remains well within in our planned operatingguidelines and above our minimum operatingrequirements.

The Society’s liquidity coverage ratio was 179%against a regulatory minimum required level of 100%.This significant headroom reflects the quality of theSociety’s liquidity with the majority of it invested inAAA/AA rated assets, in the UK.

Summary2018 has been a significant year of change andprogress for Newcastle Building Society. We haveseen our highest growth in income compared torecent years with increasing profitability year on yearand our Member base has started to grow again. Wehave seen good levels of lending and are particularpleased to be able to support new homeowners intaking their first steps onto the property ladder.

Our connection to our communities is even moreevident and embedded in the day to day operationsof the Society. Our contributions to the NewcastleBuilding Society Community Fund at the CommunityFoundation are both enabling a positive impact to bemade immediately through community grants andbuilding a legacy for future generations as the fundcontinues to grow.

Finally, our Newcastle Strategic Solutions Limited andNewcastle Systems Management Limited subsidiariescontinue to offer market leading services and make apositive contribution to our financial performance.

Whilst economic uncertainties continue from Brexitand other global issues, we passionately believe inour Purpose of

“Connecting Communitiesin the North East with a betterFinancial Future.”and continue to invest in our business, colleagues andcommunities to build a strong regional brand that isrecognised for making a genuine difference for thecommunities we serve.

We have no doubt that the year ahead will bringmany unique challenges but we believe we are wellplaced to address them and continue in our long termaspiration to live out our Purpose and make a genuine,positive contribution in supporting our Members byhelping them save, plan their finances and own theirhome, and in our support for their communities acrossthe region.

Andrew HaighChief Executive 26 February 2019

Andrew Haigh with AlanShearer at the openingof a revolutionary newcancer treatment andresearch project fundedby the Sir Bobby RobsonFoundation, at theNorthern Centre forCancer Care, FreemanHospital in Newcastle.

12 13newcastle.co.uk newcastle.co.ukCommunity SupportCommunity Support

Brandon BoxingBrandon Boxing Club was established in 2013 by AlexOliver BEM. The aim of the club is to provide support andencouragement to people in the East-Durham area. Theclub received a grant of £795 to purchase new boxingequipment. Alex of Brandon Boxing, who is well known inhis local community for working with young people andhelping to keep them off the streets helped us open ourDurham branch at the beginning of 2018.

Colleague Fund RaisingColleague raised money by holding various themed“FunD Days” throughout 2018. Ranging from fitness tosummer to Halloween themes colleagues had fun andalso raised over £20,000 for the Newcastle BuildingSociety Community Fund, Macmillan Cancer Support andChildren in Need.

Building Improvement GrantsSpringfield Community Association was our first BuildingImprovement Grant recipient and received a grant of£49,110. They are a volunteer led charity based in ForestHall, established using money raised by the local community.Springfield will be using the grant to transform theircommunity space through a number of refurbishments.The grant will help provide a brand-new accessiblecommunity facility with many social and economicbenefits for existing and new service-users and partners.

Changing LivesChanging Lives supports over 17,500 vulnerable peoplea year, changing their lives for the better. A nationalcharity which began and is based in the North East, thecharity received a grant of £1,645 to help revamp theircommunity kitchen at Ridley Villas. The renovationenables families to cook, eat together and share stories.The charity provides opportunities for people to cometogether to tackle isolation.

Bay FoodbankNominated by Ian GT Miller, The Bay Foodbank receiveda grant of £3,000 which has enabled them to providefood for breakfast and lunch clubs at a local school. TheBay Foodbank is based in North Shields and wasfounded in February 2012 with the aim to provideemergency food provision to individuals or familiesexperiencing a financial crisis.

Supporting our communitiesis core to what we do. Fromcolleague fundraising andenabling grants to localprojects and charities, tovolunteering for causesacross the North East.In 2018 total charitable giving was £797,000that’s equivalent to 6% of our pre-tax profit.Support from the Newcastle Building SocietyCommunity Fund increased with £178,902given in the form of 63 community grants.Here are some of the local causes that havebeen supported over the year.

Building on the success of community grants,the Newcastle Building Society CommunityFund introduced Building Improvement Grantsin 2018. This grant programme provides largeramounts of up to £50,000 for communitygroups or charities in the region who need tomake improvements to their communitybuildings. This might include: construction,expansion, renovation or replacement of anexisting facility or facilities.

Members can nominate local communitygroups, causes and charities across the NorthEast for grants of up to £3,000.

If you would like to nominate a cause local toyou and to our branch network, please see ourwebsite: newcastle.co.uk/community or visityour local branch for more information.

Newcastle Building SocietyCommunity Fundat the Community Foundation

Silver Fox MotorcyclistsSilver Fox Motorcyclists group, based in Berwick used agrant of £1,125 to offer first aid training to approximately25 group members. The group take part in a motorbikeride of up to 200 miles every week. The importance ofriders having some first aid knowledge was brought tolight in 2017 after one of the group was involved in ahead on collision during a ride. While the rider wasrecovering in hospital, an introductory course wasorganised for members.

Community

14 15newcastle.co.uk newcastle.co.ukSavings and MortgagesEarly Talent

Early Savings and Mortgages

Saving smart foryour first homeor retirement

Lifetime ISA

Not many banks and building societies offer acash Lifetime ISA, and we joined with the bestbuy rate of 1.1%, which incorporates a 25%Government bonus - helping our Memberseither save for their first home deposit orhelping them save for later life. We are onlythe third provider of the Cash Lifetime ISAand only the second to provide nationally (viaonline channels).

We firmly believe that getting into the savingshabit and saving little and often is a keyfoundation for good financial health. We werepleased to introduce our new regular saveraccounts alongside our mascot Poppy thePound. We offer three Regular Saver accountsfor savers from the ages 0-10, 11-15 and 16+

Regular Saver

North EastExclusiveMortgagesAs the North East’s largest building society, it’simportant to us that we help borrowers in ourregion to own their own home. Throughout2018 we offered a range of exclusive NorthEast products which represented just under aquarter of our completed business. Themajority of the customers we helped wereFirst-Time Buyers.

HelpingFirst-TimeBuyersHelping Members buy their first home issomething we continuously support and in2018 we helped 1,169 customers own theirfirst home. We expanded our product range in2018 for both First-Time Buyers and Help toBuy customers providing more choice andflexibility.

Talent

Our EarlyTalent andtheir journeyOur early talent programme is designed to helppeople realise their potential, by providingopportunities through work experience,business objectives and personal developmentgoals. Our programme supports bright,ambitious and brave new talent to help usbuild a great future, by helping to shapecareers and nurture talent. We offer a widerange of opportunities designed to give ournew colleagues the skills and experience todevelop their abilities.

ApprenticeshipsIn 2018, nine apprentices joined us toundertake a 12-18 month training anddevelopment programme. We know that byinvesting in apprentices we are growing ournext generation of talent.

An apprenticeship offers a supported tailoreddevelopment programme and rewardsapprentices with a real living wage. We havea number of apprentices within variousdepartments around the Society.

GraduateProgrammeOur graduate programme is designed to growour future leaders. Over 18 months, graduatesare expected to challenge our thinking andbring forward new creative ideas on how wecan improve the way we work within theSociety. In 2018 we were pleased to welcomethree graduates to the Society.

UndergraduatePlacementsAs a great way to kick start careers, we offerundergraduate placements, where students cangain 12 months of real business experience aspart of their University course, providing themwith a real insight into their chosen businessarea. In 2018 we were pleased to welcomeseven students into a number of businessareas of the Society.

16 17newcastle.co.uk newcastle.co.ukBIG talksNewcastle Financial Advisers Limited

Financial Advice BIG talks

AskNewcastleFinancialAdvisersNewcastle Building Society established NewcastleFinancial Advisers over 16 years ago, to provideMembers with access to financial advice. Trustedfinancial advice is something everyone deservesand as many banks are withdrawing from the highstreet or no longer offer this service it’s gettingharder for people to plan their finances with thehelp of a trained professional. Our financialadvisers are in each of the Society’s 27 branchesand we’re here to stay.

This year we launched ‘Ask Newcastle FinancialAdvisers’ in branch and online to raise awareness ofthe service and advice we offer across the region.We hosted 156 Pension Clinics across the region,which are free 30 minute chats with a financialadviser for people to ask questions about theirpension and see what they may need to do next.These are proving to be a real success, and we willcontinue to host these as a way of helping peopleengage with their finances.

We would like to say thank you forthe responses to our customersatisfaction survey.

We appreciate getting feedback as it is reallyimportant for us to ensure we are offering you theservice you need. We are pleased to announce that93% of our customers value our service withcomments on how professional, approachable andknowledgeable our advisers are.

“There was no pressure. All the options weredetailed and the adviser took time to explain thepros and cons of each option. I was left to taketime to mull it all over and if I wanted to proceedwith any option I could go back at any time. I wasreally happy with the service.”

It was also encouraging to see that 77% ofcustomers who responded would recommend ourservice. This is a tribute to the service we provideand that our customers trust us and wouldrecommend us to their friends and family.

What you sayabout us!

Stuart DodsonManaging Director -Newcastle FinancialAdvisers Limited

Growing our own talent – Our AcademyWe continue to invest and grow our own talent through our Academy, a professional training programme which leadsto qualified financial adviser status. We welcomed an additional recruit to our ranks in 2018, with more to come in2019. Our aim is to create the financial advisers of the future and make sure they have the skills and values to provideexpert advice to our customers.

If you’re looking for financial advice or have some questions to ask us, contact our Support Teamon: 0345 600 4330 to make an appointment with your local financial adviser.

BIG talks in yourcommunityTaking place across our heartland areathroughout the year, our BIG talks arerelaxed and informal events that helpyou stay up to date on financialinformation that’s relevant to you.

Not sure how to invest, or how to make plans forpassing on your estate the way you want?Confused about what you should be doing withyour pension? Our BIG talks explain things in away that’s easy to understand.

Meet Ken. He delivers all our BIG talks. With yearsof experience as a financial adviser in the NorthEast, Ken has more than a few financial tales totell! His relaxed style puts everyone at ease andhe provides financial information that’s useful forevery stage of life.

Why not come along? Bring a partner, relative,or friend and we’ll provide a light buffet and acup of tea or coffee!

Ken HinesSeminar & CommunitySpecialist

Thursday 9th May 2019Beaumont Hotel, Beaumont Street, Hexham

Wednesday 15th May 2019Linden Hall Hotel, Longhorsley, Morpeth

Tuesday 21 May 2019Consett AFC, Delves Lane, Co. Durham

Thursday 13th June 2019Judges Country House Hotel, Kirklevington

Tuesday 18th June 2019Emirates Riverside, Chester-le-Street, Co. Durham

Wednesday 26th June 2019The Town Hall, Marygate, Berwick Upon Tweed

Wednesday 3rd July 2019Cairndale Hotel, English Street, Carlisle

Wednesday 10th July 2019White Swan Hotel, Bondgate Within, Alnwick

Thursday 8th August 2019The Golden Fleece Hotel, Thirsk, York

If you’re interested,come along, here is alist of our upcomingdates and venues:

To book your place, or see a full list of dates,please visit: www.newcastle.co.uk/events/

Alternatively, you can ask in your local branchwhen your next BIG talk seminar is scheduledand they can reserve your place for you.

We look forward toseeing your there!

AGM Business1. The Annual Report and Accounts for the year

ended 31 December 2018 are required to bereceived formally by Members at the AGM.

2. It is a requirement that the auditors areappointed by the Members each year. TheBoard is proposing the re-appointment ofPricewaterhouseCoopers LLP as auditors.

3/4. The Directors’ Remuneration Report includedon pages 22 to 24 summarises the Society’sapproach to pay for the period 1 January to31 December 2018. It sets out the remunerationpolicy and remuneration details for the Executiveand Non-Executive Directors of the Society. Thesummary is split into three main sections:-

i) Statement by the Chairman of theRemuneration Committee;

ii) Report on Remuneration; and

iii) Directors’ Remuneration Policy.

A full version can be found in the 2018 AnnualReport and Accounts.

Voting on the Report and PolicyAt the AGM there will be separate votes on theReport (sections (i) and (ii) above) and Policy(section (iii) above), which will both be on anadvisory basis. We will take the views of ourMembers seriously, as expressed through theadvisory votes, and will consider the resultscarefully to determine what action, if any, isappropriate.

The Directors’ Remuneration Policy wasapproved by Members at the 2018 AGM. For2019 and future years (until changed) a bonusscheme will apply for Executive Directors.Further details are set out in the Policy onpages 22 to 24.

5. In accordance with best practice on corporategovernance, all of the Society’s Directors arestanding for either election or re-election at theAGM.

The biographical details of all the Directors areset out on pages 20 and 21, those details includetheir skills, experience and qualifications. TheBoard confirms that all the Directors seekingelection or re-election continue to be effectivewith a strong commitment to the role.

The Board recommends that you vote infavour of all the resolutions and for theelection or re-election of the Directors.

Staying safe onlineAt Newcastle Building Society, we take security veryseriously but there are a few things you can do tohelp keep your online accounts safe:

n Don't write down your online log in details;

n Make sure you have up-to-date anti-virus andanti-spyware software installed on yourcomputer;

n Take care when opening email attachments;

n Ensure you always log off properly when you'vefinished transacting online; and

n We will never ask you to send personal details inan email; do not respond to suspicious emailsasking for such information.

Notice of AGMNotice is given that the AGM of Members ofNewcastle Building Society will be held onWednesday 24 April 2019 in the Bamburgh Suite,St James’ Park, Newcastle United Football Club,Newcastle upon Tyne, NE1 4ST at 1.45pm prompt,for the following purposes:

Ordinary Resolutions1. To receive the Annual Report and Accounts

2. To re-appoint PricewaterhouseCoopers LLPas auditors

3. To approve the Directors’ Remuneration Report

4. To approve the Directors’ Remuneration Policy

Election and Re-election of Directors5. i) To re-elect David John Buffham

ii) To re-elect Patrick Ferguson

iii) To re-elect Bryce Paul Glover

iv) To re-elect Andrew Scott Haigh

v) To re-elect Karen Ingham

vi) To re-elect Anne Laverack(Business name: Anne Shiels)

vii) To re-elect Stuart Miller

viii) To re-elect Philip James Moorhouse

ix) To re-elect John Morris

x) To elect David Alan Samper

xi) To elect Michael Roger Thompson

xii) To re-elect Ian William Ward

By order of the Board

Ian GoodGroup Secretary26 February 2019

Notes1. These notes form part of the Notice of Meeting.

2. Under the Society’s Rules, a Member entitled toattend the Meeting and vote may appoint aproxy to attend and vote on their behalf.

You may appoint the Chairman of the Meetingor anyone else as your proxy and your proxydoes not have to be a Member of the Society.

Your proxy may vote for you at the Meeting butonly on a poll.

3. You may instruct your proxy how to vote at theMeeting. Please read the instructions on theVoting Form.

How to VoteOnline1. You can vote online at

www.newcastle.co.uk/agm

2. You must vote online by 5pm on Wednesday17 April 2019. 30p will be donated to TheNewcastle Building Society Community Fund atthe Community Foundation for every votesubmitted online.

Freepost1. Complete, sign and detach the Voting Form.

2. Post it in the pre-paid envelope provided.No stamp is required. Your form should bereceived by the independent scrutineers no laterthan 5pm on Wednesday 17 April 2019.

Please do not include passbooks or cheques inthe pre-paid envelope.

At the AGM1. You can vote in person at the AGM on

Wednesday 24 April 2019.

2. Bring your Voting Form, or other evidence ofmembership, to the Meeting.

Agenda:n Registration 1:00pm.

n AGM 1:45pm prompt.

n Refreshments served upon registration andafter conclusion of the Meeting.

18 19newcastle.co.uk newcastle.co.ukAnnual General Meeting (AGM)Annual General Meeting (AGM)

Annual General Meeting

20 21newcastle.co.uk newcastle.co.ukOur DirectorsOur Directors

1. Andrew HaighChief Executive

Andrew became the Society’s ChiefExecutive in May 2015 havingjoined the Board as Chief OperatingOfficer in January 2014. He has atrack record in transforming anddeveloping businesses, with morethan 30 years’ business experienceand over 20 years in the mutualsector.

2. Phil MoorhouseChairman

Phil, the Society’s Chairman sinceApril 2013, is an experiencedaccountant and a Fellow of theChartered Association of CertifiedAccountants. He brings 38 years ofbusiness experience to the Society’sBoard and his expertise wasrecognised when he was awarded‘North East Non-Executive of theYear 2015’ at the North East BusinessExecutive of the Year Awards.

3. David SamperChief Financial OfficerDavid joined the Society in 2018as Chief Financial Officer. Anaccomplished strategic leader withover 20 years’ experience as achartered accountant, David hasheld senior roles across a number ofmultinational organisations in theUK and abroad.

4. Patrick FergusonStrategy, Planning andRisk Director

Patrick joined the Society’s Board inFebruary 2014. Before this he was theSociety’s Group Risk Executive foralmost four years. He has extensiveexperience in risk management,including conduct risk and regulatorycompliance, in addition to financialreporting, planning, and budgeting.He has 19 years’ experience in thebuilding society sector.

5. Stuart MillerCustomer Director

Stuart became a Director of theSociety in January 2018. He is anAssociate of the Chartered Instituteof Bankers and holds the CustomerExperience Professionals Associationqualification for senior businessleaders. Stuart has over 30 years'customer service expertise infinancial services.

6. John MorrisNon-Executive Director

John is a Fellow of the Institute ofChartered Accountants and bringsto the Society a significant amountof experience of both the bankingand building society sectorsincluding several years as Directorof Finance for the Retail BankingDivision of HBOS.

12. Mick ThompsonNon-Executive Director

Mick spent 21 years as a Partnerand nine years as Office SeniorPartner at KPMG Newcastle, wherehe was responsible for drivinggrowth and expansion. He hasworked with companies andorganisations across a broadrange of industry sectors.

9. David BuffhamDeputy Chairman and SeniorIndependent DirectorDavid has spent most of his careerat the Bank of England. He held awide variety of banking and otherroles, including the post of Bank ofEngland Agent for the North Eastwhere he was responsible forreporting to the Bank’s MonetaryPolicy Committee on the region’seconomy.

8. Karen InghamNon-Executive Director

Karen has an extensive customerservices background within theconsumer sector and is extremelypeople and customer focused.She is currently Senior OperationsDirector for Europe, Middle Eastand Africa at Expedia Inc.

10. Anne ShielsNon-Executive Director

Anne is an HR professional withextensive Executive and Boardlevel experience, across a ange ofsectors including retail, financialservices, telecommunications,manufacturing and Fast MovingConsumer Goods.

11. Bryce GloverNon-Executive Director

Bryce is a highly experiencedDirector who has operated atExecutive Committee and Boardlevel in a number of leading UKfinancial services businesses. Themajority of his career has focusedon corporate and commercialbanking.

7. Ian WardNon-Executive Director

Ian has extensive experience infinancial services that includes hisrole as Chief Executive of LeedsBuilding Society for 16 years untilhis retirement in 2011. He is anexperienced Non ExecutiveDirector.

For full Directors’ biographies, please see the 2018 Annual Report and Accounts, available online and in branch.

1 2 3

4 5 6

7 8 9

10 11 12

Our

This report details the Society’s approach to pay for the period 1 January to31 December 2018. It sets out the remuneration policy and remuneration detailsfor the Executive and Non-Executive Directors of the Society. A full version ofeach section can be found in the 2018 Annual Report and Accounts.

i) Statement by the Chairman of theRemuneration CommitteeThe Remuneration Committee’s purpose is to consider,agree and recommend to the Board an overallremuneration policy and approach that promotesachievement of the Society’s long term businessstrategy and business objectives and is aligned with thelong term interests of the Society’s Members, otherstakeholders and risk appetite.

The Board believes remuneration should be sufficient toattract, retain and motivate senior managers tocontinue to run the Society successfully. TheRemuneration Policy, therefore, focuses on rewardingour Executives in line with the achievement of our goalsset out in the Strategic Plan and Corporate KeyPerformance Indicators whilst continuing to providevalue for money for our Members.

The Committee comprises solely of Non-ExecutiveDirectors who have no personal financial interest in therecommendations. The Chairman of the Committee isJohn Morris, the other members are David Buffham,Karen Ingham and Anne Shiels. The Chairman, ChiefExecutive and HR Director (except for items relating totheir remuneration) also attend meetings but are notmembers of the Committee. The Company Secretaryacts as Secretary to the Committee.

ii) Report on RemunerationThe total remuneration received by Executive Directorsis shown opposite. The information has been auditedand shows remuneration for the years ended 31December 2017 and 31 December 2018 as requiredunder the Building Society (Accounts and RelatedProvisions) Regulations 1998.

The Chief Executive is the Society’s most highly paidemployee and no employee earns more than anyExecutive Director. For details of other non-SocietyBoard positions held by the Society’s Executive Directorteam see the Annual Business Statement on page 100of the 2018 Annual Report and Accounts. None of thecurrent Executive Directors retained any remunerationas a result of their non-Society positions.

Calculation of 2018 Annual BonusThe Society’s Remuneration Policy as appliedthroughout 2018 did not include significantperformance related variable remuneration. Bonusesare paid as a percentage of basic salary. A corporatebonus of 4% of basic salary has been awarded toExecutive Directors in relation to 2018.

iii) Directors’ Remuneration PolicyThis section sets out the Director’s Remunerationpolicy that will apply during 2019.

The Society’s Remuneration Policy is designed toprovide competitive remuneration packages thatattract, retain and reward our Executives, includingour Executive Directors, to deliver business objectivesin support of the Society’s strategy while providingvalue for Members.

In implementing the Policy, the following key principlesare to be observed:

• The Policy is clearly linked to the Society’s purpose,strategic plan, objectives and values;

• Policy, process and practice are consistent withand promote effective risk management in linewith the Group risk appetite statement anddetailed policies;

• Basic pay and total remuneration are set at acompetitive level to attract and retain theappropriate calibre of people;

• The approach to pay satisfies regulatoryrequirements and good Corporate Governancepractice;

• Remuneration arrangements are transparent,consistent and fair, reflecting individualresponsibilities and performance; and

• Remuneration arrangements are straightforward tounderstand, communicate and administer.

Directors’ Emoluments (Audited)Emoluments of the Society's Directors from the Society and its subsidiaries are detailed below:

Executive Directors

22 23newcastle.co.uk newcastle.co.ukSummary Directors’ Remuneration ReportSummary Directors’ Remuneration Report

AS Haigh - Note 2 2018 306 41 9 - 3562017 293 40 9 - 342

S Miller - Note 4 - (Appointed 16 January 2018) 2018 147 18 5 5 1752017 - - - - -

Non-Executive Directors

PJ Moorhouse 2018 69 - - - 692017 68 - - - 68

RJ Bottomley OBE - (Retired 24 September 2018) 2018 32 2 - - 342017 41 2 - - 43

DJ Buffham 2018 56 - - - 562017 54 - - - 54

K Ingham 2018 40 - - - 402017 39 - - - 39

RJ McCormick - (Retired 26 April 2017) 2018 - - - - -2017 17 1 - - 18

J Morris 2018 53 2 - - 552017 50 2 - - 52

BP Glover - (Appointed 11 August 2017) 2018 39 4 - - 432017 15 1 - - 16

IW Ward 2018 52 1 - - 532017 47 1 - - 48

A Laverack - (Appointed 17 July 2017) 2018 40 1 - - 41(Business name: Anne Shiels) 2017 18 - - - 18

AM Russell - Note 3 - (Retired 25 April 2018) 2018 64 14 - - 782017 191 26 6 2 225

P Ferguson 2018 150 10 5 14 1792017 139 10 4 13 166

D Samper - (Appointed 20 December 2018) 2018 6 - - - 62017 - - - - -

D Thompson - (Resigned 24 April 2017) 2018 - - - - -2017 53 10 - 4 67

2018 673 83 19 19 7942017 676 86 19 19 800

2018 381 10 - - 3912017 349 7 - - 356

Salaryor fees

£000

Other benefits

£000

Annual bonus(Note 1)

£000

Pension contributionsto defined contribution

scheme (Notes 2,3,4 & 5)

£000

Totalcontractual

benefits

£000

Year

Total for Executive Directors

Total for Non-Executive Directors

2018 1,054 93 19 19 1,1852017 1,025 93 19 19 1,156

Total for all Directors

Notes:1. During 2017 and 2018 the Society’s Executive Directors participated in the

Group’s annual Corporate Bonus Scheme.

2. Mr AS Haigh has elected to take his pension contribution amounting to£27,506 as a cash payment. He is liable for his own tax and national insurancecontributions on this payment.

3. Mrs AM Russell elected to take her pensions contribution amounting to £5,759as a cash payment. She is liable for her own tax and national insurancecontributions on this payment.

4. Mr S Miller has elected to take part of his pension contribution amounting to£8,072 as a cash payment. He is liable for his own tax and national insurancecontributions on this payment.

5. None of the Society’s Directors participate in the Group’s defined benefitpensions scheme.

Summary Directors’ Remuneration Report

This Summary Financial Statement is a summary of information in the auditedAnnual Accounts, the Directors’ Report and the Annual Business Statement, all ofwhich will be available to Members and depositors free of charge, on demand, atevery branch of the Newcastle Building Society from 19 March 2019. Thisinformation is also available online at: www.newcastle.co.uk/agm2019

Summary Directors’ ReportThe requirements of the Summary Directors’ Report for the year ended 31 December 2018 can be found withinthe Chief Executive’s Review on pages 6 to 11. The Directors consider the Group has adequate resources tocontinue in operational existence for the foreseeable future. Accordingly, the going concern basis has continuedto be adopted in preparing the Annual Report and Accounts.

Approved by the Board of Directors on 26 February 2019

Phil Moorhouse, ChairmanJohn Morris, Chairman of the Audit Committee Andrew Haigh, Chief Executive

For the year ended 31 December 2018

Group results for the year2018 2017£m £m

Net interest receivable 34.2 29.1

Other income and charges 30.2 28.7

Gains less losses from financial instruments and hedge ineffectiveness 0.1 0.1

Administrative expenses and depreciation (49.8) (45.8)

Operating profit before impairments, provisions 14.7 12.1and exceptional items

Impairment charges on loans and advances to customers (1.5) (0.2)

Provisions for liabilities and charges 0.1 (1.0)

Exceptional gain on purchase - 2.2

Profit for the year before taxation 13.3 13.1

Taxation expense (2.5) (2.2)

Profit after taxation for the financial year 10.8 10.9

24 25newcastle.co.uk newcastle.co.ukSummary Financial StatementSummary Directors’ Remuneration Report

Key changes to the Director’s RemunerationPolicy for 2019In February 2019, the Board approved the introductionof an Executive Bonus Scheme in relation to 2019performance. The key driver for the introduction of theExecutive Bonus Scheme is to ensure that the Societymeets the objectives of the Remuneration Policy as setout overleaf.

The development of the new Executive Bonus Schemewas underpinned by a robust benchmarking processwith support from an external remuneration specialist.

The Corporate Bonus Scheme will remain in place forother colleagues, however it is our intention to reviewthe Corporate Bonus Scheme during 2019 with theintention of replacing it in performance year 2020.

Remuneration for Executive DirectorsThe elements of remuneration for Executive Directorsand the way they operate are set out below.

Basic salary - Basic salary reflects the size of the roleand responsibilities, individual performance (assessedannually) and the skills and experience of the individual.In setting appropriate salary levels, the Committee takesinto account data for similar roles in comparableorganisations as determined by the Group JobEvaluation Policy. The Society aims to position ExecutiveDirectors competitively within the reference group.

Pension - Generally the Society contributes to a definedcontribution pension scheme for the ExecutiveDirectors. The contribution can instead be paid in cash(which is excluded from bonus calculations) if theExecutive Director is likely to be affected by the limitsfor tax approved pension saving.

Other benefits - A number of benefits are provided toExecutive Directors, including car or car allowance,private medical insurance, life insurance, relocationallowance and permanent health insurance.

The Committee reviews benefits and from time to timemay make changes, for example to reflect marketpractice or the needs of the business.

Executive Bonus Scheme - The Executive BonusScheme supports the attraction and retention ofExecutive Directors, the development of a highperformance culture and rewards performance withinthe context of achieving corporate goals and objectivesas set out in the corporate strategy. The ExecutiveBonus Scheme considers a number of performancemeasures and targets linked to the delivery of corporatestrategy with measures including financial, customer,people and personal objectives. Targets will be setannually and payments are to be made at the discretionof the Remuneration Committee.

Payments will be made in three equal parts, with thefirst payment in the year after the bonus is earned andthe remainder over the following two years.

The maximum potential bonus opportunity is 50% ofbase salary. On target bonus opportunity is 30% ofbase salary. The measures will be assessed by theRemuneration Committee on an annual basis and willbe subject to discretion. Performance measures areweighted as follows: 40% financial, 30% non-financial,30% personal objectives.

Executive Directors are employed on service agreementswhich can be terminated by either the Society or theDirector giving 6 months’ notice.

Remuneration of Non-Executive DirectorsThe elements of Non-Executive Directors’ remunerationand the policy on how each element is determined areset out below.

Base fees - Reviewed annually based on timecommitment and responsibility required by Board andBoard Committee meetings. Review takes into accountfees paid by comparable financial services organisations.

Additional fees - Additional fees are payable foradditional responsibilities such as Committeechairmanship or membership.

Other items - Non-Executive Directors are not eligibleto participate in any form of performance pay and donot receive pensions or other benefits in kind.

Consideration of Member ViewsAt the 2019 AGM there will be separate votes on theRemuneration Report (sections (i) and (ii) above) andRemuneration Policy (section (iii) above), which willboth be on an advisory basis. We will take the views ofour Members seriously, as expressed through theadvisory votes, and will consider the results carefully todetermine what action, if any, is appropriate.

John MorrisChairman of the Remuneration Committee26 February 2019

Summary Financial Statement

Respective responsibilities ofDirectors and AuditorsThe directors are responsible for preparing the SummaryFinancial Statement, in accordance with the BuildingSocieties Act 1986.

Our responsibility is to report to you our opinion on theconsistency of the Summary Financial Statement with thefull Annual Accounts, the Annual Business Statement andthe Directors' Report and its compliance with the relevantrequirements of Section 76 of the Building Societies Act1986 and the regulations made under it.

We also read the other information contained in theSummary Annual Report and consider the implications forour report if we become aware of any apparentmisstatements or material inconsistencies with theSummary Financial Statement. The other informationcomprises only the Chairman’s statement, ChiefExecutive’s review, Summary Directors’ RemunerationReport and Directors’ Emoluments.

This statement, including the opinion, has been preparedfor and only for the Society’s members as a body inaccordance with Section 76 of the Building Societies Act1986 and for no other purpose. We do not, in giving thisopinion, accept or assume responsibility for any other

purpose or to any other person to whom this statement isshown or into whose hands it may come save whereexpressly agreed by our prior consent in writing.

Basis of opinionOur examination involved agreeing the balances in theSummary Financial Statement to the full Annual Accounts.Our report on the Society’s full Annual Accounts describesthe basis of our audit opinion on those Annual Accounts,the Annual Business Statement and the Directors’ Report.

OpinionIn our opinion, the Summary Financial Statement isconsistent with the full Annual Accounts, the AnnualBusiness Statement and the Directors' Report ofNewcastle Building Society for the year ended 31December 2018 and complies with the applicablerequirements of Section 76 of the Building Societies Act1986, and the regulations made under it.

PricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsNewcastle upon Tyne26 February 2019

Gross capital as a percentageof shares and borrowingsGross capital represents reserves, plus subordinated liabilitiesand subscribed capital. The purpose of capital is to providea buffer against any losses arising from the Society’sactivities, thereby protecting investors’ funds. The grosscapital ratio measures the extent to which a society’sactivities are funded by capital, compared to shares andborrowings. The higher this ratio is, the greater theprotection for investors.

Liquid assets as a percentage ofshares and borrowingsLiquid assets are assets held by the Society, which are in theform of cash or assets which are readily convertible intocash. The ratio is maintained at a level which the Directorsconsider appropriate for the activities of the Society.

Profit for the year as a percentageof mean total assetsA building society needs to make a reasonable level ofprofit each year in order to maintain and strengthen itsgross capital ratio. It is similar to a company’s return onassets. The Society operates a policy of ‘profit sufficiency’and one of the most appropriate measures of profitabilityis to express profit as a percentage of mean total assets.

Management expenses for the year asa percentage of mean total assetsManagement expenses are the costs of running the Societyand comprise administrative expenses and depreciation.The lower this ratio is, the greater a society’s efficiency.The Directors also look at a number of other efficiencymeasures which more accurately reflect efficiency in theSociety’s business.

Notes

We have examined the Summary Financial Statement of Newcastle BuildingSociety (the ‘Society’), set out on pages 25 to 26, which comprises the Groupresults for the year, the Group financial position as at 31 December 2018, thesummary of key financial ratios and notes.

Summary of key financial ratios2018 2017

% %Gross capital as a percentage of shares and borrowings 7.37 7.36

Liquid assets as a percentage of shares and borrowings 21.20 23.94

Profit for the year as a percentageof mean total assets 0.29 0.29

Management expenses for the year as a percentage of mean total assets 1.33 1.24

For the year ended 31 December 2018

Group financial position at the end of the year

2018 2017Assets £m £m

Liquid assets 692.4 789.8

Mortgages 2,768.9 2,692.7

Fair value adjustments for hedged risk 175.9 206.2

Other loans 3.3 14.6

Derivative financial instruments 3.5 4.9

Fixed and other assets 53.8 53.9

Total assets 3,697.8 3,762.1

LiabilitiesShares 2,713.7 2,788.5

Fair value adjustments for hedged risk 0.4 1.6

Borrowings 552.4 504.6

Derivative financial instruments 178.3 210.2

Other liabilities 12.9 15.4

Subordinated liabilities 25.0 25.0

Subscribed capital 20.0 30.0

Reserves 195.1 186.8

Total liabilities 3,697.8 3,762.1

Independent auditors' statement on the Summary Financial Statement to themembers of Newcastle Building Society

26 27newcastle.co.uk Summary Financial StatementSummary Financial Statement newcastle.co.uk