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The boards of Skipton Building Society and Scarborough Building Society today announce that they have agreed heads of terms for a merger. It is anticipated that the merger will be completed in the first quarter of next year.

This is a real opportunity for the North Yorkshire based societies to create an enlarged Society that is even better placed to deal with any future uncertainties in the financial marketplace. The two societies are well matched, having similar business models, a strong geographical fit and shared commitment to mutuality, their members, their people and their local communities.

Scarborough Building Society has seen difficult trading conditions leading to a substantial impact on profit and a resultant weakening capital position. In addition, the board of Scarborough has considered the possible impacts of continuing house price falls and the impending recession in the UK, and has concluded that the effect would be an unacceptable reduction in its capital resources and that, to fully protect the interests of its members, it should approach Skipton Building Society as its preferred merger partner.

David Cutter will become chief executive of the enlarged Society, which will be called Skipton Building Society and will be headquartered at The Bailey, Skipton. As previously announced, the current chief executives of both societies, John Goodfellow and John Carrier, will continue with their planned retirements on 31 December 2008.

It is anticipated that the enlarged Society will be a top 5 building society with approximately 860,000 members and over 16bn of assets.

Summary of the merger process
The merger will proceed under section 42B(3)(b) of the Building Societies Act on the basis of a board resolution of Scarborough as permitted by a direction given by the Financial Services Authority (FSA). The FSA has also consented to Skipton proceeding by a resolution of its board of directors. As such, this means that a vote by Skipton and Scarborough members will not be required. The merger is also subject to confirmation by the FSA and approval by the Office of Fair Trading (OFT).

Merger Terms
The merger terms are subject to final agreement by both societies, and it is the intention that the terms of the merger will include:

All Scarborough borrowers currently making payments at or linked to Scarborough's standard variable rate (SVR) (currently 7.24%) will benefit from Skipton's lower SVR (currently 6.45%). There is no guarantee as to what Skipton's SVR will be in the future. All Scarborough savings accounts will move to the enlarged Society and will be on similar, or better, terms and interest rates to those applying prior to the merger. To preserve the reserves of the enlarged Society, the merger will not involve any distribution to the members of either society. The enlarged Society expects to retain a significant presence in Scarborough and no compulsory redundancies are planned. The enlarged Society will keep a branch presence in all towns where Scarborough is currently represented and the modern, purpose-built head office, in Scarborough, will continue as a key operational and administrative centre. Two non-executive directors of Scarborough will join the board of the enlarged Society. It is expected that the executive directors of Scarborough will take up positions in the enlarged Society, with the exception of John Carrier, who will, as previously announced, retire in December.

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