Final Results

Strictly embargoed until 7am, Thursday 11th March 2010

07:00 Thursday 11th March 2010

NEWCASTLE BUILDING SOCIETY ANNOUNCES FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2009

Newcastle Building Society today announces its financial results for the year ended 31 December 2009 which show a break even position after tax.

In a challenging economic environment where the effects of the credit crunch and recession were still felt, the Society was able to achieve notable progress. This includes:

·; record net retail inflows of £490m following the launch of several popular products, most notably our ISAs in conjunction with our the award winning MaximISA service. This contrasts with the overall net outflow of £2bn from the building society sector;

·; taking on a record numbers of customers with more than 50,000 new members swelling the total base to almost 500,000 customers

·; improving the funding profile such that lending is now fully funded by retail deposits (2008 86%)

·; in consequence reducing the wholesale funding ratio from 28% to 9%

·; commenced development of the new flagship branch in a prime area in Newcastle City Centre

·; following a planned reduction in balance sheet size, an improvement in solvency ratio from 11.9% to 13.4% with Tier 1 capital increasing from 9.2% to 10.2%. At year end Core Tier 1 capital amounted to 8.7%, up from 7.8%

·; strengthening liquidity from 23% to 28%; and

·; maintained lending quality with 3 month residential arrears at around a third of the CML average.

Chief Executive, Colin Seccombe, said: "It is pleasing to restore the Society to a more stable position but we must recognise the continuing pressure on us especially as the high cost of securing funding, combined with the low interest rate environment, impacts the margin.

"Over the next few years we see the Solutions part of our business as key to the Group performance. I am therefore particularly pleased we have a strong pipeline of new savings management contracts, which will commence over the next few months. Whilst the initial effect on profitability is negative as we build up resource levels ahead of the launches, the longer-term view is most encouraging.

"For the traditional building society activity, we await the opening in a few week's time of our new flagship branch in Newcastle City Centre, which reinforces our commitment to deliver exceptional service and products to those who use our branch network in our heartland.

"In 2008, our results were adversely affected by the Financial Services Compensation Scheme levy, which led us to accrue £6.8m in anticipation of the first three years charges. During the year further information on costs became available so we have written back to profit £1.3m this year. Nevertheless, the levy remains a significant burden on the Society - costing more than £5m to date - and we hope when the review of its future structure is complete, a more suitable allocation of the levy away from building societies emerges.

"Another major impact in 2008 was the need for provisions in respect of exposure to various Icelandic banks and their UK subsidiaries. During 2009 the administrators of the UK based Icelandic banks paid £6.7m to us and based on the current best estimates we anticipate future recoveries such that we have reduced our overall level of provision by £9.1m. However, we have felt it prudent to make further provisions against some of our commercial loan exposures, reflecting the current challenging market conditions.

"In December, the Society announced the appointment of Jim Willens as Deputy Chief Executive to succeed me upon my planned retirement which is tomorrow. Jim has been in situ since the beginning of January affording him the scope to understand the business and its opportunities. His extensive experience of the sector will allow the Society to build value for the future.

"There will remain many challenges in 2010, some will be testing, but I am very confident the Society will prosper under his leadership and thereby allow it to remain a strong independent mutual."

-ENDS-

NEWCASTLE BUILDING SOCIETY

PRELIMINARY ACCOUNCEMENT for the year ended 31 December 2009

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