Skipton Building Society to merge with rival

Skipton says the merger, which will provide three new branches for members, will further improve its capital position.

The enlarged society would create a 92-strong branch network with over 15bn of assets.

The merger is expected to become effective on June 1, subject to confirmation by the Financial Services Authority and approval by Chesham members.

Chesham already has a working relationship with Skipton as it uses its IT platform provided by a subsidiary within the Skipton Group.

The move comes as Skipton announces its pre-tax profit for 2009 increased to 63.5m, compared with 22.5m in 2008.

Pre-tax profit from continuing operations went up to 18m compared to 17.9m.

Its core tier one ratio – a key measure of financial strength – went up by nine per cent to 9.4 per cent.

Retail balances increased by 29 per cent to 10.5bn while its saving membership went up by 145,000 to 700,000.

Group mortgage assets increased by 1.3bn to 10.7bn, which it said was mainly due to its merger with Scarborough Building Society last March.

The group also reduced its reliance on wholesale funding as 79 per cent of funding now comes from retail balances, compared with 69 per cent previously.

The merger with Scarborough boosted Skipton's assets by 2.6bn last March, while the acquisition of 723m of retail savings from Capital One by its Castle Money brand brought over 45,000 new members on board.

Net interest income reduced from 86m to 53m, which the group said was due to operating in a low interest rate environment.

However, Skipton said its estate agency business, Connells, produced an "exceptional" trading performance, recording a profit of 54.1m, compared with 10.4m the previous year due to improved trading conditions and tight cost control.

The sale of its credit and marketing services subsidiary, Callcredit Information Group, in December boosted profits by approximately 40m and increased capital.

Chief executive David Cutter said: "Skipton has coped well over the past year, achieving significant year-on-year improvements in our financial performance.

"We have increased our total group profits and boosted our capital in a year that will be remembered for the impact of the worst financial crisis in almost a century.

"Our success amid these extreme trading conditions reaffirms the robustness of the group's diversified business model. However, the society itself experienced a material reduction in net interest margin.

"While the group fulfilled one of its purposes by providing a supportive financial cushion, we have taken prudent action to widen the margin in the long-term best interests of the society.

"In addition, uncertainties remain regarding the economy; the Government's finances; the impact of an historic quantitative easing programme, and the distortions in the UK savings market. We therefore remain vigilant."

He added: "That is why we announced steps, after the end of the financial year, which will enable the society to combat the challenges it faces in the current, exceptional economic environment - characterised by historically low interest rates and a distorted retail savings market.

"These steps include increasing our mortgage Standard Variable Rate (SVR) from 3.5 per cent to 4.95 per cent from March 1 2010 and the announcement of 90 redundancies within the society.

"There is a growing risk that any GDP recovery will be anaemic and slow. Our members can rest assured that Skipton will continue to take whatever proactive steps are required to ensure their society's continued prosperity as a leading independent UK mutual, in their long-term best interests."