PRESS RELEASE Wednesday 27 July 2016 INTERIM RESULTS: SKIPTON DELIVERS ANOTHER STRONG PERFORMANCE

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1 PRESS RELEASE Wednesday 27 July 2016 INTERIM RESULTS: SKIPTON DELIVERS ANOTHER STRONG PERFORMANCE Skipton Building Society today publishes its interim results covering the six month period from 1 January to 30 June The UK s fourth largest building society announces a solid first half performance for 2016, increasing savings balances by 1.1bn (a growth of 43% over the last three years to 30 June 2016) and maintaining gross lending at 1.9bn (resulting in a growth of 35% in mortgage balances over the last three years). This growth was achieved whilst maintaining strong capital ratios. The Society previously announced its plan to integrate its financial advice business, Skipton Financial Services, into the Society, a move that further demonstrates the Society s commitment to offering face-toface financial advice on the high street. The integration will occur from 1 August 2016 and will enable Skipton to support more people who need help with financial planning, together with offering a more seamless customer journey for all financial planning matters. In the six months to 30 June 2016 Skipton s key performance highlights included: Robust financial performance Total Group Profit Before Tax (PBT) was 76.8m (six months ended 30 June 2015: 72.1m), including contingent consideration of 9.6m recognised following the disposal of Homeloan Management Limited in 2014; Underlying Group PBT 1 was 72.1m (six months ended 30 June 2015: 78.2m); The Group net interest margin reduced to 1.18% (six months ended 30 June 2015: 1.39%). This reduction in the Group net interest margin over the past 12 months is mainly a result of increased competition in the mortgage market; The number of Group residential mortgages in arrears by three months or more has fallen further to 0.81% (30 June 2015: 1.00%); Group total assets increased by 7.9% to 18.9bn (31 December 2015: 17.5bn); The Common Equity Tier 1 (CET 1) ratio 2 increased to 16.97% from 16.80% at 31 December 2015; The leverage ratio 2, being a non-risk based measure of capital, was 6.0% (30 June 2015: 6.0%; 31 December 2015: 6.1%); Liquidity as a percentage of shares, deposits and borrowings was 19.32% (31 December 2015: 16.95%); and 1 Underlying Group PBT excludes Financial Services Compensation Scheme charges and gains or losses on disposal of subsidiary, associate and equity share investments. 2 The CET 1 (calculated on the Standardised Approach) and leverage ratios are calculated on the PRA-regulated prudential group basis. The prudential group is the full Group excluding Connells and Jade. These ratios are reported under CRD IV (which is a set of EU legislative requirements covering prudential rules for banks, building societies and investment firms) on a fully loaded basis. The fully loaded position represents the CRD IV end-point definition applicable from 1 January Page 1 of 9

2 In May 2016, global ratings agency Fitch upgraded Skipton s long term rating to A- (from BBB+) with a stable outlook and its short term rating was upgraded to F1 (from F2). This reflects the continued improvement of the Society s performance. David Cutter, Skipton s Group Chief Executive, said: Skipton has delivered another strong performance during the first six months of 2016, achieving net customer growth of 20,389, climbing 11 places to 47 th position in the Sunday Times Top 100 Companies to Work For, and being named Best Cash ISA Savings Provider and Best Savings Account Provider in the 2016 MoneySuperMarket Supers awards. We ve seen a significant increase in savings balances, from 12.8bn at the year end to 13.9bn at 30 June 2016 a testament to the range of competitive savings accounts we offer. And the Society s net lending for the six months to 30 June 2016 was 0.6bn. With underlying Group PBT of 72.1m, we ve secured healthy profits, ensuring we continue to maintain a sustainable business - and one that remains resilient and robust, with strong capital and leverage ratios. Enabling our members to achieve home ownership and save for their life ahead aspirations The Society helped 11,627 homeowners during the six month period to purchase or remortgage their properties, including 1,705 first time buyers 514 of those through our participation in the Government s Help to Buy equity loan scheme; We paid an average savings rate of 1.60%, over three times the Bank Base Rate, during the six months ended 30 June 2016 (six months ended 30 June 2015: 1.70%); and The attractiveness of our mortgage and savings products was endorsed by 136 independent media best-buy table mentions during the period, as well as numerous editorial mentions. Mortgages and Savings division The Mortgages and Savings division produced PBT of 46.6m (six months ended 30 June 2015: 49.1m) which represented 61% of Group pre-tax profits (six months ended 30 June 2015: 68%); Group net interest income earned in the first six months of 2016 (97% of which is derived from this division) amounted to 107.2m (six months ended 30 June 2015: 113.3m); Administrative expenses of 54.3m were 3.9m (or 7.7%) higher than the 50.4m incurred during the comparative period in 2015 as the Society continued to invest in various areas of the business to meet customer demand and support growth; As a result, the cost income ratio of the Mortgages and Savings division was 52.57% (six months ended 30 June 2015: 44.06%), whilst the management expense ratio of the division was 0.61% (six months ended 30 June 2015: 0.63%); There was a 1.3m credit in relation to mortgage impairment (six months ended 30 June 2015: 8.0m charge) predominantly due to an increase in house prices and a fall in arrears; Our asset quality remains good and the number of Group residential mortgages in arrears by three months or more has fallen further to 0.81% (30 June 2015: 1.00%); comparing favourably to the Council of Mortgage Lenders industry average of 1.04% for residential mortgages in arrears by more than three months 3 ; Gross mortgage lending in the six months amounted to 1.9bn, the same as in the first half of The average loan-to-value (LTV) of the Society s new lending was 69% (66% for the six months ended 30 June 2015) and the maximum permitted LTV remained at 90% for residential mortgages and 75% for buy-to-let mortgages. During the six month period 95% of the Society s lending was introduced through intermediaries and 13% was on buy-to-let products; Net mortgage lending, for the Mortgages and Savings division, amounted to 0.5bn during the first six months of 2016, compared to 1.0bn for the comparative period in 2015 and 1.5bn for the whole of last year. This represents a growth rate of 3.8% (six months ended 30 June 2015: 7.8%), 3 Source: Council of Mortgage Lenders figures at 31 March Page 2 of 9

3 reflecting a continuation of Skipton s strong growth in mortgage balances over the past three years. This growth has been achieved without increasing our credit risk appetite; The Society remains primarily funded by retail savings, representing 89% of total funding (30 June 2015: 85%), as we continue to focus on retail savings balances to fund asset growth; Savings balances grew by 1.1bn (a growth rate of 8.7%) during the first six months of the year to 13.9bn (six months ended 30 June 2015: growth of 0.6bn to 12.1bn); The Society had another successful ISA season, with over 17,000 transfers-in during April and May, recording the fourth highest levels for such activity out of all UK depositor takers 4 during April; We continue to achieve high net customer satisfaction scores (92% 5 ), a reflection of the excellent level of service we always strive to deliver; and In July 2016, the Society maintained an employee engagement level of 90% 6 (June 2015: 90%), significantly ahead of industry norms. Subsidiary performance Connells, our Estate Agency division, reported profits before tax of 31.3m for the six months ended 30 June 2016, compared to 27.3m for the first six months of 2015; During the first six months of the year, Connells has seen a 24% increase in income from lettings, a 23% increase in income from mortgage services, income from surveying was 16% higher, and income from second hand house sales was 15% higher when compared to the same period in 2015; Costs increased by 19.0% as Connells continues to invest for the future by expanding its lettings footprint and increasing the number of mortgage services consultants and surveyors; The Financial Advice division reported a loss before tax of (0.9)m (six months ended 30 June 2015: loss of (0.9)m). In January 2016, the Society announced plans to integrate Skipton Financial Services into the Society and integration will take place from 1 August 2016; a move that demonstrates the Society s commitment to offering face-to-face financial advice on the high street; and Our Investment Portfolio reported losses before tax of (3.4)m (six months ended 30 June 2015: profits of 1.6m). Skipton Business Finance Limited performed well during the first half of the year with PBT of 1.5m (six months ended 30 June 2015: 1.4m). Jade Software Corporation has delivered encouraging year-on-year sales growth but continues to trade at a small loss of (0.5)m (six months ended 30 June 2015: (0.7)m). Losses recognised in relation to our investment in Wynyard Group Limited totalled (4.4)m. Giving something back to our communities In May, Skipton s award winning Grassroots Giving community funding scheme was launched for the year, having first started in 2013, and will give 500 to each of 163 small community groups across the UK voted for by the public. David Cutter, Skipton s Group Chief Executive, added: These are yet another set of solid results for Skipton, and we have seen continued strong growth in our mortgage and savings balances whilst continuing to build our capital base. The economic uncertainty that has arisen since the EU Referendum makes it more difficult to forecast trading conditions in the short to medium term, in particular any movements in Bank Base Rate and any impact on housing transactions and house prices which impacts the Mortgages and Savings division and Connells, but we are well placed to manage the risks that we face and to capitalise upon any opportunities that may arise for the benefit of our members. 4 Source: Data provided by the British Bankers Association. 5 As measured from an independent survey by KPMG Nunwood of 1,200 Society members. The net customer satisfaction score is calculated by subtracting dissatisfied customers (those scoring satisfaction with the Society as 1-3 on a scale of 1-7) from those who are satisfied (those scoring satisfaction as 5-7 on the same scale). 6 As measured by Willis Towers Watson, an independent company that provides benchmarking on employee surveys both in the UK and globally. Page 3 of 9

4 The number of new and second hand houses sold (subject to contract) in any period by Connells, our Estate Agency division, is a key leading indicator of the overall state of the housing market. It is difficult to quantify the recent impact on future house sales from either the increase in stamp duty introduced on 1 April 2016 on investment properties and second homes, or from the EU referendum held on 23 June In comparison to previous periods in 2015 on a like-for-like basis, the number of houses sold by our Estate Agency division in the first quarter was 5.7% higher than the prior year, in the second quarter was 3.3% lower than the prior year, and our latest estimate is that sales in July 2016 will be approximately 9.0% lower than July Looking after the savings of people and enabling home ownership is at the very heart of Skipton as a mutual building society. We are acutely aware of the pressures on our savings members in a low interest rate environment and are constantly balancing what we pay our savers against what we earn on mortgages and other assets. But despite the continued historical low Bank Base Rate, we continue to attract thousands of new customers to Skipton through our range of competitive and award winning accounts together with our first class personal service. ENDS For further information, or to arrange interviews, please contact the Skipton Press Office on , newsline@skipton.co.uk or visit the press section of our website at Follow us on Editors notes Stacey Stothard, Senior Corporate Communications Manager If outside Press Office hours (9am 5pm, Monday to Friday), please call Skipton is the UK s fourth largest building society, with over 858,000 customers, 18.9bn of assets and a national presence represented by its network of 95 branches and 3 agencies. It heads the Skipton Building Society Group, whose subsidiary companies include Skipton International Limited, significant interests in estate agency and related businesses through the Connells group, Skipton Financial Services (SFS) and an investment portfolio. 2. Skipton s mortgages and savings were independently endorsed with 136 independent media bestbuy table mentions in the first six months of saw Skipton named for the second year running as one of the UK s Top 100 Companies to Work For. The Society climbed 11 places to 47th position in the Sunday Times list which is widely acknowledged as the most searching and extensive research into employee engagement carried out in the country. In 2016 Skipton also achieved a double success at the MoneySuperMarket Supers awards - being named Best Cash ISA Savings Provider and Best Savings Account Provider. The Society was also named a Trusted Savings Account Provider in the 2016 Moneywise Customer Service Awards. In June Skipton Intermediaries scooped a Five Star Award at the FT Adviser Service Online Innovation and Service Awards also saw the Society awarded a long service award from Investors in People in recognition of twenty years accreditation. Investors in People is recognised worldwide and holding Gold standard puts Skipton in the top 7% of all accredited organisations. In July 2016, Skipton has been declared the Best National Building Society 2016 in the What Mortgage Awards. 4. In May 2016, global ratings agency Fitch upgraded Skipton s long term rating to A- (from BBB+) with a stable outlook and its short term rating was upgraded to F1 (from F2). Skipton Building Society is also rated by Moody s (Baa2/P-2 with a stable outlook). Page 4 of 9

5 Condensed Consolidated Income Statement Interest receivable and similar income Interest payable and similar charges (112.7) (104.5) (216.2) Net interest receivable Fees and commissions receivable Fees and commissions payable (4.8) (4.0) (10.1) Fair value (losses) / gains on financial instruments (4.7) (1.8) 4.0 Profits on treasury assets Profit / (loss) on disposal of subsidiary undertakings 9.4 (0.5) (0.4) Profit on part disposal of equity share investments (Loss) / profit on full or part disposal of associate (0.9) Dividend income from equity share investments Share of profits from joint ventures Share of losses from associate (2.4) (0.9) (2.3) Other income Total income Administrative expenses (243.0) (215.8) (464.4) Operating profit before impairment losses and provisions Impairment credit / (losses) on loans and advances to customers 1.3 (8.0) (8.4) Impairment losses on associate investments (1.1) - - Provisions for liabilities (7.1) (9.3) (11.8) Profit before tax Tax expense (17.5) (14.1) (33.5) Profit for the period Profit for the period attributable to: Members of Skipton Building Society Non-controlling interests (0.3) (0.3) (0.6) Underlying Group PBT for the six months ended 30 June 2016 was 72.1m (six months ended 30 June 2015: 78.2m; year ended 31 December 2015: 153.3m) as follows: Unaudited 6 months to Unaudited 6 months to Unaudited 12 months to Total Group profit before tax Less profit / add back loss on disposal of subsidiary undertakings (9.4) Add back loss / less profit on part disposal of associate and equity share investments 0.9 (1.2) (1.4) Add back FSCS levy Underlying Group profit before tax Page 5 of 9

6 Condensed Consolidated Statement of Comprehensive Income Profit for the period Other comprehensive income: Items that will not be reclassified to profit or loss: Remeasurement (losses) / gains on defined benefit obligations (29.4) Movement in reserves attributable to non-controlling interests 0.6 (0.4) (0.3) Income tax on items that will not be reclassified to profit or loss 6.7 (1.9) - (22.1) Items that may be reclassified subsequently to profit or loss: Available-for-sale investments: valuation gains taken to equity Available-for-sale investments: realised gains transferred to Income Statement (0.4) - (0.3) Cash flow hedges: gains / (losses) taken to equity 7.2 (2.4) 1.0 Cash flow hedges: realised (gains) / losses transferred to Income Statement (0.4) Exchange differences on translation of foreign operations 1.2 (2.4) (1.0) Translation loss transferred to Income Statement on deemed disposal of associate Income tax on items that may be reclassified to profit or loss (2.4) (2.2) (0.6) Other comprehensive (expense) / income for the period, net of tax (11.9) Total comprehensive income for the period Total comprehensive income attributable to: Members of Skipton Building Society Non-controlling interests 0.3 (0.7) (0.9) Page 6 of 9

7 Condensed Consolidated Statement of Financial Position Assets as at as at Restated* as at Cash in hand and balances with the Bank of England 1, , ,180.8 Loans and advances to credit institutions Debt securities 1, , ,104.4 Derivative financial instruments Loans and advances to customers 15, , ,363.2 Deferred tax asset Investments in joint ventures Investments in associates Equity share investments Property, plant and equipment Investment property Intangible assets Other assets Total assets 18, , ,511.4 Liabilities Shares 14, , ,828.2 Amounts owed to credit institutions , Amounts owed to other customers 1, , ,389.5 Debt securities in issue Derivative financial instruments Current tax liability Other liabilities Accruals and deferred income Provisions for liabilities Deferred tax liability Retirement benefit obligations Subordinated liabilities Subscribed capital Total liabilities 17, , ,333.8 Members interests General reserve 1, , ,146.3 Available-for-sale reserve Cash flow hedging reserve 1.9 (6.2) (3.2) Translation reserve Attributable to members of Skipton Building Society 1, , ,179.2 Non-controlling interests (1.3) (1.4) (1.6) Total members interests 1, , ,177.6 Total members interests and liabilities 18, , ,511.4 * The comparative figures have been restated due to a change in accounting policy relating to dividend payments to non-controlling shareholders of subsidiary undertakings. Page 7 of 9

8 Condensed Consolidated Statement of Cash Flows Cash flows from operating activities Profit before tax Adjustments for: Impairment (credit) / losses on loans and advances to customers (1.3) Loans and advances written off, net of recoveries (1.3) (2.5) (5.5) Depreciation and amortisation Impairment of investment property and property, plant and equipment Impairment losses on associate investments Dividend income from equity share investments (0.7) (0.3) (0.3) Interest on subscribed capital and subordinated liabilities Profit on sale of property, plant and equipment, investment property and intangible assets - (0.2) (0.2) Realised gains on treasury assets (0.3) - (0.1) Share of losses / (profits) from joint ventures and associates 1.3 (0.3) (0.2) Loss / (profit) on full or part disposal of associate 0.9 (1.2) (1.1) Profit on part disposal of equity share investments - - (0.3) (Profit) / loss on disposal of subsidiary undertakings (9.4) Remeasurement (losses) / gains on defined benefit obligations (29.4) Other non-cash movements 9.0 (0.7) (0.8) Changes in operating assets and liabilities: Movement in prepayments and accrued income (8.3) (3.5) 2.7 Movement in accruals and deferred income (20.2) (20.0) 2.3 Movement in provisions for liabilities (5.9) Movement in fair value of derivatives Movement in fair value adjustments for hedged risk (85.1) 4.6 (30.5) Fair value movements in debt securities (17.9) Movement in loans and advances to customers (543.2) (990.4) (1,513.5) Movement in shares 1, ,366.9 Income Statement charge for fair value of management incentive scheme liability Net movement in amounts owed to credit institutions and other customers (49.9) Net movement in debt securities in issue 38.1 (10.6) (122.4) Net movement in loans and advances to credit institutions (67.8) 20.0 (2.9) Net movement in other assets (11.1) (19.7) (8.7) Net movement in other liabilities Income taxes paid (18.1) (19.1) (36.6) Net cash flows from operating activities Page 8 of 9

9 Condensed Consolidated Statement of Cash Flows - continued Net cash flows from operating activities Cash flows from investing activities Purchase of debt securities (599.5) (386.9) (500.3) Proceeds from disposal of debt securities Purchase of property, plant and equipment and investment property (11.6) (5.8) (13.9) Purchase of intangible assets (1.8) (0.9) (2.4) Proceeds from disposal of property, plant and equipment, investment property and intangible assets Dividends received from equity share investments Exercise of share options in management incentive scheme (10.0) - - Proceeds from disposal of equity share investments Dividends received from joint ventures Purchase of subsidiary undertakings, net of cash acquired (4.3) - (4.8) Further investment in subsidiary undertakings - (0.9) (0.9) Investment in joint ventures and equity share investments (0.4) (0.3) (1.2) Investment in associate (2.5) - - Purchase of other business units (7.4) (0.8) (1.2) Cash received from sale of subsidiary undertakings, net of cash disposed of Net cash flows from investing activities (136.3) (20.3) 28.1 Cash flows from financing activities Redemption of subordinated liabilities - - (18.0) Interest paid on subordinated liabilities (1.5) (1.9) (3.7) Interest paid on subscribed capital (4.2) (4.2) (8.4) Net cash flows from financing activities (5.7) (6.1) (30.1) Net increase in cash and cash equivalents Cash and cash equivalents at 1 January 1, , ,202.6 Cash and cash equivalents at end of period 1, , ,291.6 Analysis of cash balances as shown within the Statement of Financial Position: Cash in hand and balances with the Bank of England 1, , ,180.8 Mandatory reserve deposit with the Bank of England (23.7) (20.6) (22.0) 1, , ,158.8 Loans and advances to credit institutions Cash and cash equivalents at end of period 1, , ,291.6 Skipton Building Society, Principal Office, The Bailey, Skipton, BD23 1DN Skipton Building Society is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Skipton Building Society is a member of the Building Societies Association and Financial Ombudsman Service. Page 9 of 9