2008 Financial Results

YORKSHIRE BUILDING SOCIETY DELIVERS A SOLID PERFORMANCE

IN ANOTHER TURBULENT YEAR

Yorkshire Building Society has delivered another solid performance and remains one of the
UK’s strongest savings institutions in a year of unprecedented turmoil in the financial
markets. Its exceptionally strong Tier 1 capital position improved further during the year,
without recourse to taxpayer recapitalisation, and its strong funding and liquidity positions
were also strengthened.

The Society had no losses from the failed Lehman Bros or Icelandic banks. It has not lent in
the commercial or buy-to-let mortgage market and has not acquired mortgage portfolios
originated by other lenders. The Society also protected savers by not passing on the full
impact of the Bank of England base rate cuts, which over the course of a year will make its
savers £50m better off than they would have otherwise been.

The Yorkshire’s performance has not been immune to the global banking crisis or the
economic recession, but its underlying financial strength means it is very well placed to
weather the current storm.

Key highlights in 2008:

 One of the strongest capital ratios in the sector, without raising capital from the
government or the market
 Strong liquidity and funding position maintained - one of the lowest levels of
wholesale funding in the industry
 Management expense ratio reduced for third successive year
 Merger with Barnsley Building Society completed
 Saving members protected from full impact of base rate cuts
 Member savings balances increased by £1.2bn
 Growth in savings balances was more than four times the growth in mortgage
balances
 No exposure to the riskier commercial, buy-to-let or unsecured markets
 Group remains profitable, with core operating profit at £53m - pre-tax profit at £8.3m,
impacted in part by the Financial Services Compensation Scheme (FSCS) charge for
the failures of Bradford & Bingley, Icelandic and London Scottish banks
 Retail network expansion, with two new Yorkshire branches opened (Solihull and
Wolverhampton) and acquisition of eight branches through the Barnsley merger
 In a year of unprecedented uncertainty, YBS customer satisfaction survey shows that
once again 9 out of 10 members trust the Society enough to recommend it to their
friends and family

Financial Results

 Solvency ratio of 14.8%, and Tier 1 ratio at 14.1% (of which 12.0% is Core Tier 1)
 Liquid assets increased to £5.3bn (25% of Shares, Deposits and Loans), prudential
liquidity maintained above regulatory requirement
 Group assets up to £23bn
 Mortgage loan growth of 3.7%
  Increase in member savings balances of £1.2bn (including Barnsley merger)
compared to an increase in net lending of £0.3bn
 Total retail savings balances fund over 88% of the Group’s total mortgage assets
 Underlying non-interest income broadly maintained at 2007 levels despite reduction
in mortgage lending
 Management expense ratio reduced to just 0.56% - over 20% improvement in cost
efficiency since 2005
 Group core operating profit £53m - profit before tax £8.3m, after the impact of:
 a £14.7m charge through the FSCS for the failures of the Icelandic, Bradford
& Bingley and London Scottish banks
 impact of fair value and changes to the market value of our residual structured
investment portfolio
 cost of maintaining high levels of liquidity
 not passing on the full rate cuts to savers
 prudent mortgage provisioning
 No exposure to the riskier commercial, buy-to-let or unsecured mortgage markets and
no purchased loan portfolios from other lenders
 Group’s averaged indexed loan to value at 50%
 Group mortgage accounts greater than 3 months in arrears 1.59%, below the industry
average of 1.88%, and growing at a slower rate than the industry
 Arrears of over 12 months and possessions at 0.30% compared to the industry average
of 0.46%

Other highlights in 2008:

 The launch of an award winning online savings application service

 The Society’s Charitable Foundation supported almost 2,000 local charity and
community groups, donating over £400,000
 An additional 23 companies chose the Yorkshire to administer their new Sharesave
Schemes
 Recognised with a number of industry awards, including:
o Best Arrears and Debt Management Strategy - Mortgage Finance Gazette
o Award for Innovation - ifs School of Finance
o 5 Star Award for Service - Financial Adviser

Iain Cornish, Chief Executive of Yorkshire Building Society said:

“The Yorkshire reacted extremely early to a crisis which began in mid-2007 and intensified
throughout 2008. Our capital and our funding position are amongst the very strongest in the
UK financial sector, we have increased even further our already substantial holdings of high
quality liquid assets and we have never been active in the buy-to-let, commercial lending or
mortgage portfolio acquisition markets – parts of the market which appear to be suffering
most as the recession begins to bite.

“At a time when competition for retail funds has been particularly aggressive, we have
grown our retail member savings balances by £1.2bn, more than enough to fund all our
mortgage growth in 2008 and without having to resort to unsustainable savings rates. Our
commitment to savers is demonstrated by the fact that we haven’t passed on the full impact of
the Bank of England base rate cuts. As a result, over the course of a full year, our savers will
be well over £50m better off than they would otherwise have been. Our core operating
profits, although down, remain healthy, and much of the reduction reflects the deliberate
decisions we have taken to increase liquidity, lend even more cautiously and protect savers –
all of which impact directly on our margins. We have also increased our mortgage loss
provisions to reflect our belief that unemployment will rise further and house prices will fall
significantly again in 2009.

“Our pre-tax profits have been affected by the extraordinary market conditions in which we
have had to operate. We have been adversely impacted by the cost imposed on us for the
bailout of the failed Icelandic, Bradford & Bingley and London Scottish banks through the
Financial Services Compensation Scheme. I believe that our proportion of these costs, as a
building society, is disproportionate and we are lobbying hard to protect our members from
further inequitable payments. I am delighted that over 150 MPs have signed the Early Day
Motion on this, tabled by one of our local MPs, Ann Cryer. We also hold a small portfolio of
structured treasury investments that have adversely affected profits this year, although many
of these investments continue to perform and yield a good return. The portfolio accounts for
only around 0.3% of the Society’s total assets, equivalent to only 0.7% of the Group’s very
strong solvency ratio of 14.8%.

“The outlook for 2009 is every bit as challenging as we saw in 2008 however the exceptional
strength of our capital, liquidity and funding positions mean we continue to be very well
placed. As a mutual, our primary focus is on serving our members’ interests. In this climate
that means maintaining our financial strength and doing everything we can to help savers and
borrowers through these very difficult times. Our capital strength in particular gives us the
flexibility to do this, even at the expense of short term profitability”.

Group Income Statement for the year ended 31 December 2008

2008 2007
£m £m
Net interest income 164.5 188.2
Net losses from fair value volatility (28.8) (43.6)
Net realised losses (1.0) (1.8)
Other income and charges 31.5 40.9
166.2 183.7
Administrative expenses (122.4) (120.2)
Provisions (24.0) (8.9)
19.8 54.6
Financial Services Compensation Scheme levy (14.7) -
Operating Profit 5.1 54.6
Negative goodwill 3.2 -
Profit before taxation 8.3 54.6
Taxation 0.5 (15.4)
Profit for the year 8.8 39.2

Group Statement of recognised income and expense for the year ended 31
December 2008.
 2008 2007
£m £m
Available-for-sale investments:
Valuation losses taken to equity (net of releases) (53.7) (17.2)
Cash Flow hedges:

Losses taken to equity (33.6) (8.1)

Actuarial gain on retirement benefit obligations
17.8 33.8
Tax on items taken directly to or transferred from equity
11.1 (5.0)
Net (expense)/income not recognised directly in the income statement
(62.0) 3.5
Net profit for the financial year 8.8 39.2
Total recognised income and expense for the year (53.2) 42.7

Group Balance Sheet as at 31 December 2008

2008 2007
£m £m

ASSETS
Liquid assets 5,327.7 4,721.9
Mortgages 16,291.8 15,362.0
Derivative financial instruments 1,226.7 294.9
Other assets 185.6 119.5
Total Assets 23,031.8 20,498.3

LIABILITIES
Shares 13,683.1 12,448.2
Borrowings 7,329.6 6,640.3
Derivative financial instruments 672.2 94.0
Other liabilities 157.5 111.1
Subordinated liabilities 112.9 105.0
Subscribed capital 167.2 146.0
Reserves 909.3 953.7
Total Liabilities 23,031.8 20,498.3

Group cash flow statement for the year ended 31 December 2008

2008 2007
£m £m
Net cash flows from operating activities 1,161.6 161.0
Net cash flows from investing activities
(1,220.4) 516.5
Net cash flows from financing activities
(519.1) 526.2
Taxation refunded/(paid)
4.0 (14.3)
Net (decrease)/increase in cash and cash equivalents
(573.9) 1,189.4
Cash and cash equivalents at start of year
1,961.1 771.7
Cash and cash equivalents at end of year
1,387.2 1,961.1

Analysis of cash and cash equivalents included in the balance sheet

2008 2007
£m £m
Cash and cash equivalents comprise:
Cash and balances with central banks
270.0 413.7
Loans and advances to banks
542.0 756.8
Debt securities
575.2 790.6
Cash and cash equivalents
1,387.2 1,961.1

Key ratios

2008 2007
% %
Group net interest margin 0.76 0.99
Group management expenses/mean assets
0.56 0.63
Group asset growth
12.4 16.7
Group loans and advances growth
3.7 15.1
Member balances growth
9.9 10.3
Liquidity ratio
25.4 24.7
Funding ratio
33.0 32.3
Gross capital ratio
5.7 6.3
Free capital ratio
5.2 5.9
Solvency ratio*
14.8 14.4

*The 2007 has been restated on a like-for-like basis from 11.8%.

Reconciliation of Core Operating Profits

Profit before tax 2008 2007

 £m £m
Net interest income
164.5 188.2
Other income and charges
31.9 31.9
Net gains/(losses) arising on realisation
4.0 (3.8)
Administrative expenses
(122.4) (120.2)
Mortgage impairment provisions
(25.0) (5.0)
Core Operating Profit
53.0 91.1
Net losses from fair value volatility
(28.8) (43.6)
Other losses realised/other impairment provisions
(7.0) (6.9)
Other non recurring items
5.8 14.0
23.0 54.6
Financial Services Compensation Scheme
(14.7) -
Profit before tax
8.3 54.6
Taxation
0.5 (15.4)
Profit for the year
8.8 39.2

YBS was downgraded early in 2008 due to the higher amount of loans on its books and
growth in its higher-risk broker-introduced business.

Its profitability fell as a result, but it does still have high levels of deposits from members,
according to analysts.

The society announced on 22 October 2008 that it would merge with Barnsley Building
Society (it was effectively a takeover given the differences in size), following the freezing of
Barnsley's deposits with two Icelandic banks. This has further consolidated Yorkshire's
position in the market.

In March 2009, Iain Cornish, chief executive, said: 'Our capital and our funding position are
amongst the very strongest in the UK financial sector, we have increased even further our
already substantial holdings of high quality liquid assets and we have never been active in the
buy-to-let, commercial lending or mortgage portfolio acquisition markets – parts of the
market which appear to be suffering most as the recession begins to bite.

'At a time when competition for retail funds has been particularly aggressive, we have grown
our retail member savings balances by £1.2bn, more than enough to fund all our mortgage
growth in 2008 and without having to resort to unsustainable savings rates.'