HINCKLEY AND RUGBY BUILDING SOCIETY ANNUAL REPORT AND ACCOUNTS 2008

Hinckley and Rugby Building Society’s Annual Report and Accounts for the year ended 30th November 2008 confirm that the Society has had another successful year despite unprecedented turmoil in the financial markets.

The Society advanced £91m on new mortgages in 2008 and continues to offer market leading fixed rate, tracker and offset mortgages. At the year end the Society’s mortgage book stood at £531m and despite intense competition it is pleasing to report that the Society has been able to achieve growth in its retail savings balances. By the year end, these totalled £550m. The Society made a profit after tax of £1.3m in 2008 and arrears on mortgage accounts remain exceptionally low, reflecting the quality of its mortgage book.

At the Hinckley and Rugby the safety and security of our members’ savings has always been of paramount importance. This is embodied in the Society’s prudent approach to mortgage lending and a simple and effective business strategy. In the past we might have been labelled as 'unadventurous' for not undertaking riskier types of mortgage lending, such as commercial, self certified, buy to let and subprime, and for not buying “mortgage books” which typically contain such risks. It is now very clear that sticking to our traditional building society values was absolutely the right thing to do. As a consequence, we continue to benefit from a low level of mortgage arrears at a time when some of our competitors are facing an alarming rise in their arrears and a significant increase in their charge for bad debts. As a result of the quality of the Society’s mortgage book it is very well placed to weather the current storm and to take advantage of any upturn in the market once confidence improves.

There has been no need for any Government bailout in the building society sector but societies have nevertheless been called upon to pay a significant share of the cost of bailing out failed institutions in the banking sector through the Financial Services Compensation Scheme (FSCS). The cost to the Society of the FSCS levy stands at £0.4m in 2008 and is expected to total a further £1.0m over the next two years.

The Society’s Board of Directors firmly believes that the funding of the FSCS needs to be revised so that institutions that are operated with concern for their long term security are not the first port of call to finance the rescue of less prudently run financial institutions. The Society has always carefully managed its exposures to other financial institutions and is pleased to confirm that it held no funds with any of the banks that failed in 2008.

The Board is also acutely aware that the decision by the Bank of England’s Monetary Policy Committee to cut rapidly Bank Base Rate to a level not seen before in living memory will have been a source of major concern for savers. A large proportion of the funds invested in the Society are held by those over the age of 60 and the Society has done what it can to protect pensioners from what has been a very sharp reduction in their income, including launching a new 60+ savings account which has proved extremely popular.

During this period of unprecedented market turbulence the Board has considered it prudent to hold a high level of liquidity invested with institutions only of the highest credit quality. At the year-end liquid assets represented 25% of shares and borrowings. This increase in short term liquidity has inevitably earned a lower yield in an environment of rapidly falling interest rates and this has reduced the Society’s profitability this year, as has the charge from the FSCS. However, with careful cost control the Society has made a satisfactory level of profit in 2008, at £1.3m after tax, which in turn has resulted in improved capital ratios.

The Society’s capital, which at 30 November 2008 stood at over £43m, represents profits accumulated over many years and provides a financial cushion against the kind of unusual events that we have been experiencing during the credit crunch, ensuring that investors are properly protected.

Despite unprecedented market conditions, for the Society, and the rest of the building society sector, the fundamental mutual model remains intact. The Building Societies Association undertakes regular research on building society and bank customers’ perceptions of the service levels which they obtain from their institutions. Time and time again we see that building societies are out in the lead in customer perceptions of trust, value for money, fairness, and quality of service. This is consistent with the feedback that this Society receives on a regular basis from its own members.

These results will be announced at the Society's AGM, which will be held at 10am on Wednesday 18th March 2009 at the Society's Principal Office in Upper Bond Street, Hinckley.

To encourage as many members as possible to vote at the AGM the Society will again be donating 25 pence to charity for each vote received. The selected charity this year will be Rainbows, the East Midlands children’s hospice that provides such vital support to terminally ill youngsters and their relatives. Last year members’ votes resulted in a donation of over £2,000 to LOROS, the Leicestershire and Rutland hospice and it would be tremendous if we could beat that total this year.