Chief Executive's Review

Introduction

At the heart of our organisation is a clear and compelling purpose: "Connecting our communities with a better financial future". This guiding principle continues to shape every decision we make and every service we deliver. In the first half of the year, we've made progress against this ambition - investing in the places, people, and products that matter most to the communities we serve.

The Group's half year results show clear evidence of our commitment to creating value for our Members as a place-based, Purpose-led organisation while delivering a solid performance, with increases seen across mortgage balances, savings balances and the number of Members.

The first half of 2025 saw operating profit before impairments and provisions of £10.5m (HY 2024: £20.1m) and profit before tax for the Group at £10.8m (HY 2024: £0.2m). Net interest and other income increased by 15% over the first half of 2025 demonstrating margin growth in the Member business, as well as growth in income in our Solutions business. Offsetting this were losses on instruments the Group holds at fair value, which were impacted by the economic environment, as well as increases in costs relating to investment in our colleagues and non-colleague related costs, including investment in systems and infrastructure. The half year 2024 profit was impacted by our decision to offer voluntary support to Members who were affected by the actions and subsequent collapse of Philips Trust.

A year on year comparison is further informed by underlying performance results: underlying operating profit for the Group was £15.9m for the half year to 2025 (HY 2024: £15.6m), demonstrating the solid underlying business model that underpins the Group.

Capital remains strong and well within regulatory limits, with Common Equity Tier 1 at 12.1% (YE 2024: 12.2%). We also continue to manage our liquidity efficiently using high quality liquid assets, with the statutory liquidity percentage at 30 June 2025 at 16.5%, well within our regulatory limits (31 December 2024: 19.0%).

Further details of financial performance can be found in the business review.

The Newcastle Building Society Group structure includes the Society and its operating brands, Newcastle Building Society and Manchester Building Society, our savings management outsourcing subsidiary, Newcastle Strategic Solutions Limited (Solutions) and our regulated financial advice subsidiary, Newcastle Financial Advisers Limited.

We have continued to use the Mutual Value Measurement framework to guide our approach to creating and measuring value for our Members of both Newcastle Building Society and Manchester Building Society brands. This has led us to making a series of Member value commitments, which can be broadly grouped into three areas:

·    Product, pricing, service and accessibility

·    Membership and community

·    Partnership and employment

Product, pricing, service and accessibility

We've made a specific Member value commitment to continue to offer our Members consistent, good value savings interest.

Over the period January - May 2025 (the latest data available), our savings rates were 0.62% higher than the market average of 3.17%, equating to an additional £13.8m of interest for our savings Members over the same period.

In the first half of 2025 we've seen a 4% growth in savings balances to £5.7bn with a net growth in branch accounts of more than 3%.

Over the period January - May 2025 (the latest data available), our branch savings balances have grown at more than double the rate of the market average across all channels, including online.

We've committed to maintain good value mortgage pricing on our Standard Variable Rate (SVR). Our SVR for residential mortgages remains one of the most competitive on the market. So far this year we've reduced SVR twice - once in April from 6.94% to 6.75% and again in July from 6.75% to 6.50%. Over the first half of the year, the competitor market average SVR was 7.60%, meaning our SVR borrowers saved more than £850,000 in additional interest.

To help people take their first steps into home ownership, we've supported more than 1,000 first time buyers in the first half of the year.

In June we were named Best Regional Building Society at the What Mortgage Awards for the ninth year in a row. Voted for by What Mortgage readers, the awards celebrate excellence in the mortgage industry. To have won the award for nine consecutive years reflects the hard work of colleagues and their dedication to outstanding customer service.

A customer satisfaction score at end of June 2025 of 97% (YE 2024: 96%) evidences our ongoing focus on personal customer service. A Net Promoter Score (NPS) of +87 (YE 2024: +86) shows customers are willing to recommend our products and services to others.

One specific Member value commitment continued into 2025 was to open our new flagship Monument branch in Newcastle city centre. I'm thrilled that following a great deal of hard work and expertise from colleagues across the business, we formally opened the branch in early July. This followed a multi-million-pound refurbishment bringing all five floors of the building back to life and into public use. Monument is more than a branch; our ambition is that the space and facilities on offer make it a focal point for meaningful conversations and collaboration, bringing together our communities and partners to drive positive change in the city and beyond.

Work is also progressing well on our new branch in King Street, Manchester, which will be the first branch under our new Manchester Building Society brand. Specialist contractors are working to create a welcoming, modern location, while respecting the historic fabric of the building, and we're on track for a planned opening later this year.

Our financial advice subsidiary, Newcastle Financial Advisers Limited, which provides regulated financial advice across our branch network and local communities, continues to deliver strong performance with over 6,100 advice appointments undertaken, evidencing the ongoing demand for accessible, face to face advice in our communities.

Investing nearly £77m on behalf of our customers, our financial advice team again achieved Top Rated firm status from VouchedFor, the UK's leading review site for financial advisers, for the fourth consecutive year, one of only a select group of financial advisory businesses in the UK to do so.

They were also the winner of VouchedFor's Client Impact Award, recognition of the real impact on customer lives and their financial futures by providing quality and accessible financial advice for all. They have now received over 3,300 VouchedFor reviews in total with an overall rating of 4.9/5.

The acquisition in April of the trade and assets of Orchard Financial Management Limited helped expand our customer base and accessible financial advice footprint across County Durham.

Membership and community

Vital to being a mutual organisation is listening to the views of our Members. One of our Member value commitments is to expand our Member engagement, to enable more Members to have their say and thereby help influence our future plans. Throughout 2025 we are holding a series of events which allow us to do exactly that in an informal, relaxed setting. So far this year we've held evening events in Teesside, Northumberland, and Durham, all of which were very well attended and a fantastic opportunity for senior leaders in the business to hear from our customers. Members can visit www.newcastle.co.uk/events to register for listening events coming up later in the year.

Something we hear repeatedly from Members is how much they value their passbook as a way of managing their savings. Earlier this year to celebrate our commitment to them, we released a limited-edition set of artist-designed passbooks, offering a choice of three beautiful and vibrant covers.

As well as telling a story of connection to the region, the designs helped to highlight the benefits that come from saving with a passbook and offered savers something beautiful and collectable to keep. We're reviewing customer feedback on the designs and how we can continue to share everything that's special about passbooks.

In the first half of the year, nearly £100,000 in grants have been allocated through our Community Funds. In the North West, grants totalling £20,950 were issued to five charities from the Manchester Building Society Community Fund at Forever Manchester, which is one of our Greater Manchester strategic partners. The Newcastle Building Society Community Fund at the Community Foundation North East also issued 15 grants totalling £71,240.

Grants were issued to charities helping to tackle our priority community themes of work and opportunity, debt management, homelessness and insecure housing, food poverty, and the environment.

Colleagues continue to volunteer their time to a range of good causes, and in the first half of 2025, logged more than 4,000 volunteering hours. Nearly 75% of these were in support of our community priorities, helping to supercharge our impact by donating an equivalent of more than 400 working days.

Half of the branches across our network have dedicated rooms which we offer free of charge to the community for activities such as meetings, social gatherings, training, and workshops. Popular with local groups and charities, these spaces are a unique and tangible example of our commitment to place; bringing together people across the community and using our assets to support our high streets and wider social wellbeing. During the first half of the year, these spaces have been used by over 150 different groups for a total of 2,400 hours.

Employment and partnerships

We continue to embed our 'A Place to Be You' strategy, which seeks to cultivate a workforce and future talent pipeline that represents the diverse communities we serve and create a culture where every colleague feels able to be themselves and belong.

Colleague-led networks inform policy updates and are vital to the success of a range of activities which help build an inclusive culture. Recognition for this approach includes success at the FT Advisor Diversity Awards in June, where we were named winners in the category for Championing LGBT Inclusion.

Our colleague net promoter score has remained steady at end of June 2025 at +50 (YE 2024: +49), a very good result which compares well against industry benchmarking.

As well as through focused grant-giving, supporting work and opportunity in our regions is delivered through a range of partnerships and other activities.

Our long-standing partnership with Newcastle United Foundation works to tackle issues around confidence, opportunity, workplace skills and readiness, and financial education. Colleagues continue to support their work by participating in careers talks and employability skills sessions.

In the North West, we continue to build our partnership with Empower Youth Zones, supporting their new site, Salford Youth Zone, following a donation of £100,000 in 2024.

The facility, which opened this summer provides a safe and inclusive space for thousands of children and young people to explore and enjoy a range of activities, as well as access essential mental health support and advice. Our contribution will be to support young people with their financial literacy and employability skills - a key part of our commitment to the region through Manchester Building Society as we deepen our roots across Greater Manchester.

Our Helping Hand service - which is delivered in partnership with Citizens Advice Gateshead - has continued to help Members and colleagues across the UK with fast, free and confidential support on a wide range of issues, often linked to the cost of living. So far this year, the service has helped more than 100 individuals, issuing 48 emergency grants by way of shopping vouchers and advising on available benefits and support.

Since launching in 2023, Helping Hand has supported more than 400 people, and through advice and information around access to welfare and benefits, helped to realise a total support for them of more than £1m.

Powering the savings industry

The Solutions business continues to deliver year on year growth in revenue. Balances under management increased by more than £700m to £51.4bn in the first half of 2025. Solutions' clients have not only grown through the period, but they also continue to win industry recognition for the quality of service and products they are able to offer to their savings customers (over 30 awards since 2024) and we have been proud to play our part in helping deliver those achievements.

The growth of the Solutions business and continued investment in systems has increased costs in the Solutions business during the period, offsetting the growth in revenue seen, making the Solutions business loss making during the period. Reviewing costs and maximising efficiency is a key strategic focus for the short and medium term, with actions being taken to ensure sustainable business growth.

Summary

As a place-based, Purpose-led, customer-owned business we are increasingly aware of the role we can play in supporting our Members and their communities through these often challenging and turbulent times. Our high street presence and a commitment to face to face service and accessible financial advice is clearly valued by our Members, as evidenced by the growth in high street savings balances and the number of customers we have helped access their first home.

The first half of 2025 has seen significant investment in infrastructure and technology, most notably evidenced by the launch of our Monument branch in July. We remain committed to continuing to invest in those products and services that matter to our Members and ensure a robust future for the business.

As always, we are grateful for the ongoing support of our Members in the North East and as the year progresses, the North West and for the hard work of colleagues across the business in ensuring that we can continue to 'Connect our communities with a better financial future'.

Andrew Haigh | Chief Executive

31 July 2025

Business review

Group financial performance

Newcastle Building Society is the largest building society based in the North East of England and the seventh largest building society in the UK, with assets of £6.6 billion (31 December 2024: £6.6 billion). Profitability is one of the key performance measures the Board monitors closely. The Society seeks to make sufficient profit in order to invest in and grow the business for the benefit of its current and future Members.

The Group has delivered a solid half year performance against a backdrop of a volatile global political and economic environment, with profit before taxation of £10.8m, adversely impacted by fair value losses of £5.6m. At the same time, the Group continues to invest in a sustainable business model fit for the future which has led to an increased level of administrative expenses and depreciation. The Group profit before taxation of £10.8m compares to £0.2m for the first half of 2024, with the first half of 2024 being impacted by fair value gains of £6.0m and £20.0m of costs recognised for the voluntary support offered to Members who were affected by the actions and subsequent collapse of Philips Trust, further detail of which can be found in note 25 of the 2024 Annual Report & Accounts.

Operating profit before impairments and provisions decreased during the period to £10.5m compared to £20.1m for the six months to 30 June 2024. Despite strong increases seen in net interest income and other income to £81.9m (six months to 30 June 2024: £71.2m), this was offset by the volatile economic environment negatively impacting the value of instruments the Group holds at fair value, as well as increases in administrative expenses from continued investment in people, processes and systems.

The Board views the alternative performance measure of underlying operating profit as a clearer view of the underlying performance of the business for our Members, which is reported alongside the operating profit before impairments and provisions measure.

Underlying operating profit of the Group is determined by removing income or expenses arising from events or transactions distinct from the core activities of the Group which do not represent the Group's true performance.

The following table provides a reconciliation of operating profit before impairments and provisions to underlying operating profit:

Segmental information is available in note 9 and details the Member business and Solutions business segments.

Net interest income

Net interest income was £51.0m (30 June 2024: £43.6m) and net interest margin was 1.57% at 30 June 2025 (30 June 2024: 1.38%). Net interest margin benefitted from the repayment of £340m of drawings previously made under the Bank of England's Term Funding Scheme with additional incentives for SMEs (TFSME) since 30 June 2024. At the same time the Society prudently slowed down mortgage growth to maintain quality of earnings whilst awaiting the successful completion of the inaugural public securitisation issuance that took place in July 2025.

Other income and charges

Other income and charges, which includes income from Solutions and Newcastle Financial Advisers, was £30.9m for the six months ended 30 June 2025 compared to £27.6m for the first half of 2024. Solutions continued to see growth in its underlying business in the first half of 2025 as balances under management with existing clients continued to increase, with income in the Solutions business increasing by 10% compared to the first six months of 2024. Newcastle Financial Advisers delivered a pleasing performance over the first half of the year with strong appointment levels increasing regulated and servicing income such that turnover has increased 31% to £4.2m compared to £3.2m in the first half of 2024.

Fair value gains less losses and hedge accounting

The impact of market interest rate changes on the Society is mitigated by hedging our exposure to interest rate risks using interest rate swaps. This significantly reduces the impact of changes in market interest rates on net interest income, ensuring that existing lending remains profitable as interest rates move.

Interest rate swaps are held at fair value and therefore the value of the swap changes when market interest rates move. As a result of changing interest rates, net values of the interest rate swaps have decreased by £44.5m in the six month period to June 2025 (six month period to 30 June 2024: £40.3m increase). This was largely offset by increases in the Society's hedge adjustments and the value of mortgages held at fair value, resulting in a net loss of £5.6m (30 June 2024: £6.0m gain), which is included in the fair value gains less losses on financial instruments and hedge accounting line in the Income Statement. Additional information on derivative and fair value movements is provided in notes 10 and 11 to the financial information.

Administrative expenses and depreciation

Administrative expenses and depreciation increased by £8.7m from £57.1m for the half year to June 2024 to £65.8m for the half year to June 2025. The number of colleagues increased during the period, increasing staff costs. Whilst increasing headcount to address current demand, the Group continues to invest further into its systems to drive improved customer service, business capacity and efficiency, which will support the strategic ambitions of the Group.

The Board considers the cost to income ratio to be a simple measure of financial efficiency. Our cost to income ratio at 30 June 2025 has increased to 86.3% (30 June 2024: 74.0%), as our administrative expenses increase outstripped the increases in income in the period. Excluding fair value gains less losses and hedge accounting, our cost to income ratio remained broadly static at 80.4% (30 June 2025: 80.2%).

Reshaping our cost base and maximising efficiency is a key strategic focus for the short and medium term, with actions being taken to align our unwavering Purpose and ongoing commitment to our Members with investments to drive efficiency and ensure sustainable business growth.

Impairment on loans and advances to customers

During the six months to 30 June 2025 there was no net charge recognised for impairment on loans and advances to customers (six months to 30 June 2024: reversal of £0.6m).

Provisions against our residential and buy to let mortgages have remained broadly static during the first six months of the year. The book has grown modestly by £156m and we have seen small increases in stage 3 assets. However, those increases have been partly offset by impairment reductions due to lower than expected losses occurring from the continuing higher interest rate environment across the UK, with Members adapting to the increasing borrowing costs. In addition, there was a release of part of the provision held in relation to properties with unsuitable cladding or other fire safety risks following reassessment of the valuation of these properties. The result of these movements is a £0.3m charge for impairment provisions on residential and buy to let mortgages, whilst provisions against legacy loans have reduced by £0.3m during the period due to redemption of, or capital repayments against, these loans.

Balance Sheet

A consolidated Balance Sheet is set out below with key Balance Sheet items discussed in further detail within this report.

Liquid assets

We continue to manage our liquidity levels efficiently using high quality liquid assets, comprising of assets held in cash or that can easily be converted to cash through treasury markets (repo) or via the various Bank of England liquidity schemes.

The statutory liquidity percentage (liquid assets as a percentage of shares, deposits and liabilities) at 30 June 2025 was 16.5% (31 December 2024: 19.0%). This is in excess of the Group's minimum operating level. The Group reduced its excess liquidity position utilising cash reserves and repaid a further £207m of maturing TFSME funding in the six months to 30 June 2025.

The liquidity coverage ratio (LCR) measures unencumbered high quality liquid assets as a percentage of net cash outflows over a 30 day stress period. The LCR at 30 June 2025 was 179% (31 December 2024: 229%), comfortably in excess of the minimum regulatory limit of 100%. The Group successfully completed its inaugural public securitisation with a £350m issuance on 1 July 2025, which will be a route to maintain and develop wholesale funding in the future. Since the completion of the deal the LCR has increased to over 200%.

Loans and advances to customers

The net increase in loans and advances to customers after provisions was £138m for the first half of the year (six months to 30 June 2024: £220m), with total mortgage balances increasing to £5.4bn at the end of June 2025 from £5.3bn at the end of 2024. Net residential lending, including buy to let, was £156m for the first half of the year, compared to £280m for the same period in 2024. Gross lending for the first half of the year was £570m (six months to 30 June 2024: £584m).

The Society prudently slowed down mortgage growth in the lead up to the securitisation issuance in July 2025 to efficiently manage liquidity and capital, resulting in a reduction in net lending in the first half of the year compared to the same period in 2024.

During the period there was also a £19m reduction (30 June 2024: £51m) in our exposure to the legacy lending book, which continues to run off.

The percentage of mortgages in arrears by three months or more was 1.02% (31 December 2024: 0.94%). Movement in the Group's mortgage provisions are outlined earlier in the report.

There were 25 properties in possession at 30 June 2025 (31 December 2024: 13). Overall, properties in possession remain low as a total volume of our lending. We always strive to ensure repossession is a last resort.

Funding

The Society is predominantly funded by retail savings with wholesale funding used to provide a diversified funding source. The Society manages its funding levels, mix and duration carefully to ensure it has the required resources in place to meet its liquidity and lending targets.

Retail savings balances were £5.7bn at 30 June 2025 (31 December 2024: £5.4bn), increasing by £231m during the first half of 2025 (six months to 30 June 2024: £261m), as savings volumes were carefully managed to balance with mortgage volumes and other funding sources.

The ratio of shares and deposits to wholesale balances has moved to 93% / 7% at 30 June 2025, from 89% / 11% at 31 December 2024.

Wholesale funding, which is made up of deposits and includes drawdown on Bank of England Funding Schemes, decreased by £246m during the first half of the year to £413m (31 December 2024: £659m). The Society currently utilises the Bank of England TFSME and at 30 June 2025 had £152m of drawings (31 December 2024: £359m), which is due to be repaid in 2025.

On 1 July 2025 the Group successfully raised £350m of funding through its first public securitisation using a special purposes vehicle, Hadrian Funding 2025-1 PLC, with similar vehicles expected to be utilised for future wholesale funding with additional market issuances. More detail is found in note 16 to the financial information.

Provisions for liabilities

During 2024 the Group committed to providing voluntary financial support to help customers whose trusts were affected by the actions and subsequent collapse of Philips Trust. A provision of £21.2m was recognised during 2024 in respect of this.

During the six months to 30 June 2025, payments of £8.6m were made to affected customers.

In addition, in the six months to 30 June 2025, £1.0m has been received from the administrators of Philips Trust from the recoveries made from Philips Trust investments. The amounts received as recoveries from the administrators are recognised within 'Provisions for liabilities and charges' within the Income Statement.

The remaining provision being held in respect of this scheme was £1.8m at 30 June 2025, which is expected to be utilised during the year for final payments in relation to this scheme. Further detail is found in note 14 to the financial information.

Reserves

The Group's reserves increased by £1.7m during the period (six months to 30 June 2024: £7.8m); with the retained profit in the period of £8.9m increasing general reserves (six months to June 2024: £4.3m), offset by reductions in the cashflow hedging reserve of £4.4m due to market interest rate movements impacting instruments held at fair value (six months to 30 June 2024: £3.7m increase), as well as being further reduced by £2.8m of distributions made to Additional Tier 1 holders (six months to 30 June 2024: £nil). These instruments pay a fully discretionary, non-cumulative fixed coupon at an initial rate of 14% per annum, which are paid semi-annually, and are recognised directly in reserves rather than through the Income Statement.

Capital

Total capital resources increased from £369m at 31 December 2024 to £375m in the six months to 30 June 2025 primarily as a result of profitability in the period. In the same period, risk weighted assets increased from £2,354m to £2,405m due to growth of the Society's residential mortgage portfolio.

The net result is a small decrease in capital ratios, as the Group started to utilise the capital raised in the previous year. Total Capital ratio (Solvency) was 15.6% as at 30 June 2025 (31 December 2024: 15.7%) and Common Equity Tier 1 ratio was 12.1% (31 December 2024: 12.2%). The regulatory minimum is 8.0% and 4.5% for Total Capital ratio and Common Equity Tier 1 ratio respectively. The Group's UK Leverage ratio was 5.0% at 30 June 2025 (31 December 2024: 5.2%). The Prudential Regulatory Authority (PRA) expects UK firms to maintain their leverage ratio above 3.25%.

Key performance indicators

The Board regards key performance indicators (KPIs) as an important way of monitoring achievement of short term objectives and progress against the strategic plan. The KPIs that are reported to the Board monthly are detailed below and are consistent with the prior year.

Please refer to the Strategic Report in the 2024 Annual Report & Accounts for further details on our KPIs.

Principal risks and uncertainties

The principal risks and uncertainties faced by the Group are detailed below. A more detailed explanation of the risks below and how the Group seeks to mitigate them can be found in the Risk Management report of the 2024 Annual Report & Accounts.

Income Statements

Condensed Consolidated Income Statement