Annual Report and Accounts Year Ended 31 October 2014

Newbury Building Society Annual Report and Accounts Year ended 31 October 2014 NEWBURY building society Contents Key Results and Trends 3 Directors’ Report 4 Purpose, Vision and Culture 10 The Year in Pictures 11 Directors 12 Corporate Governance Report 14 Directors’ Remuneration Report 17 Directors’ Responsibilities 18 Independent Auditor’s Report 19 Income and Expenditure Accounts 20 Balance Sheets 21 Group Cash Flow Statement 22 Notes to the Accounts 23 Annual Business Statement 37 Staff 39 2 2014 Report and Accounts - Newbury Building Society Key Results and Trends We receive Retail Shares and Deposits from our customers Our members and £692m £712m In 2014 our balances £653m depositors invest in our £620m increased by £20m. savings accounts which £594m The performance of our are available in branch Treasure Plus, Existing and online. Member and ISA accounts were significant factors in this achievement. 2010 2011 2012 2013 2014 And make Loans to homebuyers £662m £618m We use the retail shares £564m The Society lent and deposits received to £513m £521m £143m in the year, provide mortgages, mainly which after repayments for homebuyers in Central led to an increase of Southern England. £44m in outstanding loans. Strong demand for our first time buyer products helped this achievement. 2010 2011 2012 2013 2014 Whilst ensuring strong Capital and Liquidity positions are maintained £49.7m £45.2m £163m £161m £154m £158m £41.1m £42.4m £153m £39.4m 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Capital Liquid Assets 2014 Report and Accounts - Newbury Building Society 3 Directors’ Report The Directors have pleasure in presenting their Annual Report together with the Annual Accounts and Business Statement of the Society and its subsidiaries (the Group) for the year ended 31 October 2014. Key Performance Indicators 2014 2013 Retail Shares and Deposits £712m £692m Loans to Customers £662m £618m Total Assets £821m £781m Capital £49.7m £45.2m Management Expenses as a % of Mean Total Assets 0.97 0.90 Interest Margin as a % of Mean Total Assets 1.79 1.43 Group Profit Before Tax £6.2m £3.6m Liquid Assets as a % of Shares and Borrowings 19.9% 21.5% Mortgage Arrears - on accounts two months or more in arrears £0.12m £0.11m Business Review The Society’s management expenses have risen by Your Board is pleased to report on an outstanding £941,000 to a ratio of 0.97% during the year, mainly business performance, with the two main highlights as a result of additional staffing costs required to being pre tax profitability of £6.2m and mortgage support the performance of the business in achieving balance growth of just over 7%. Your Society has growth, additional regulatory requirements and a major therefore managed simultaneously to achieve the two systems change. We anticipate that they will remain key goals of balance sheet growth and improving the at a similar level during the next financial year, as Society’s capital strength, and both at a significant we continue to make improvements and specifically level. commence an upgrade of the online service in our new system. Thereafter, we anticipate that our management The pre tax profit figure is a record, reflecting the expenses ratio will reduce as the benefits of our Society’s need to boost its balance sheet in anticipation investment in the business manifest themselves and of the capital levels required under the new Capital the economies of scale from balance sheet growth take Requirements Directive, known as CRDIV. The growth effect. The Board is aware of the need for cost controls in profit reflects conditions in the retail savings market, and this will continue to be a major area of focus for us where interest rates have fallen to all-time lows, and as we seek an appropriate balance between investment the Society has had to manage account availability in the business and providing quality products and and interest rates carefully to ensure it did not services for members. hold inappropriately high levels of liquidity. Savings balances have grown by 3%, although as the Society Your Society has therefore was entitled to continued access to low cost funding through the Funding for Lending Scheme (FLS), larger managed simultaneously to savings balance inflows were not actively sought achieve the two key goals of balance during the year. As last year, our policy for savings in sheet growth and improving the this abnormal environment has been to prioritise and Society’s capital strength protect the interests of existing members, by restricting access to our higher-paying savings accounts, thereby enabling us to maintain interest rates for our existing members. Mortgage arrears have continued to be well below On the 1st August, the Society replaced its core market average and although there has been a modest information technology systems with a new platform, increase from £0.11m to £0.12m during the year supplied by Sopra Group Solutions UK Ltd. This was and the number of cases over two months in arrears a major project, which will ultimately give members has increased from 41 to 43 accounts, the Board is enhanced products and services as we develop and pleased to report that the Group’s overall position optimise the functionality now available to us. The in both arrears cases and those where forbearance Board was very pleased at how well the project was is being deployed is stable. The Society also had no completed, which was due in no small part to the skill, properties in possession at year end (compared with effort and dedication of the Society’s staff. two properties in 2013) and incurred just a loss of 4 2014 Report and Accounts - Newbury Building Society £749 on a single case during the year. These figures savings account attracts a minimum rate of 0.4% and demonstrate the quality of your Society’s mortgage that existing members still earn over 2% in selected book. accounts. In such a low interest rate environment, we The Society’s performance in 2014 has reflected believe strongly that our savings members have been the increasing confidence of the domestic economy, well served by our pricing policy. Indeed, the Society where housebuilding figures are improving after years has recently won the Savings Champion Award for Best in the doldrums. Your Board’s strategy and planning Provider for Supporting Existing or Local Customers. has optimised those favourable conditions, and with The Financial Services Compensation Scheme (FSCS) the Society not restricted by the legacy issues which continues to have a significant impact on your Society have hindered the progress of several of the biggest as a result of the failures including Bradford & Bingley participants in our markets, building societies generally, plc and three Icelandic banks in 2008. The Society’s and Newbury in particular, have thrived. Against this contribution to FSCS rose from £442,000 in 2013 to backdrop, your Board is pleased to be able to present £476,000 in 2014. Further detail is contained within such a solid business and financial performance. note 17 of the Accounts. Retail Shares and Deposits Loans to Customers The Society’s retail balances increased by £20m to The growth of the balance sheet is a strategic aim for £712m during the year, an appropriate level of growth the Society and the Board is therefore very satisfied in view of the Society’s reduced liquidity requirements with mortgage balance growth of £44m during the given the availability of the FLS and the Bank of year, representing an increase in balances of over England’s Discount Window Facility. It is fair to say 7%. Total lending at £143m was just short of last that the Society could have achieved significantly year’s record level, which the Board considers to be higher levels of growth in savings balances this year, an excellent result in a market where competition has as evidenced by the large inflows into Notice Cash ISA, intensified significantly as all the major lenders have Treasure Plus and Senior Saver accounts, before they returned to the market after a period of consolidation were closed to new business. The decision to suspend and recapitalisation. Not only has competition for these accounts to new investors was taken in order to mortgage lending increased, April 2014 also saw protect the interest rates for existing members, whilst the introduction of the Financial Conduct Authority’s simultaneously preventing the Society from being Mortgage Market Review, a long-awaited regulatory overwhelmed by demand from customers experiencing response to some of the causes of the banking crisis. interest rate cuts elsewhere. This new piece of regulation introduced a mandatory advice process for face to face interactions and new The Society also restricted one year fixed rate bonds prescriptive rules on affordability. The outcome of the to those members with maturing bonds, a policy which new rules has yet to be fully felt but initial impressions resulted in balances reducing from 12.3% to 6.7% of suggest that the overall size of the marketplace has savings during the year, thus creating the capacity for reduced as fewer customers now qualify for the range more business of this type in the post FLS era whilst of mortgages permitted. The new rules have only had simultaneously ensuring that the Society’s current a limited impact on the Society as practices similar to liquidity levels remain prudent. the new affordability rules were adopted several years Despite these restrictions to product availability, the ago and the Society has always offered advice since Society’s savings accounts exceeded 70,000 in number mortgage regulation began in 2004. If the market size for the first time, as our products remained in demand.

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