Your Board unanimously believes that this proposed merger is in the best interest of the Yorkshire’s members. It is firmly of the view that a merger with Chelsea:

• represents an exceptional opportunity for the Yorkshire to enhance its ability to compete effectively and deliver greater value to the members in the future through added scale and by improving efficiencies;
• will ensure that the Yorkshire remains a financially secure and safe place for members’ savings;
• provides wider access to the mortgage and savings markets by adding Chelsea’s predominantly southern based branches to our own branch network;
• enables the Yorkshire to build on Chelsea’s strong brand presence in key markets by retaining and developing “Chelsea” as a separate brand; and
• will allow significant cost savings to be realised through the removal of duplicated activities whilst maintaining the level of service we currently provide to members.

The enlarged Society, which will continue to be called Yorkshire Building Society, will remain committed to mutuality, with member interests remaining at the heart of the business.

As the benefits of the merger are realised your Board believes that we will be even better placed to continue to deliver good value products and excellent service to our members, underpinned by greater financial strength.

It is anticipated that the merger will take effect on 1 April 2010. This is subject to a number of issues set out in the Merger Booklet including eligible saving and borrowing members of the Yorkshire and Chelsea voting in favour of the merger resolutions and the merger being confirmed by the Financial Services Authority (FSA).

You do not need to change anything in the way that you currently deal with the Yorkshire. Following completion of the merger you will be able to continue to use our branches and agencies, telephone, postal and website services as you currently do.

Eligible members of the Yorkshire are able to vote on the proposed merger which you are able to do immediately upon reciept of your SGM voting pack. Please refer to Q19 to Q21 and to pages 29 and 30 in the Merger Booklet for further details on how to vote.

Yes. The Yorkshire will continue to be a financially strong organisation and eligible savers who have a share or deposit account with the Yorkshire will continue to be protected by the Financial Services Compensation Scheme (FSCS).

The FSCS gives protection to savers with building societies in the event of insolvency to recover a proportion of their savings. Broadly, this means that the FSCS will pay out 100% of the first £50,000 held by a saver if the building society should become insolvent. This compensation limit applies to the entire value of savings held by an affected person with a single building society, rather than to each individual deposit held. In the case of a joint account, the FSCS will assume that the money in the account is split equally between account holders (giving £50,000 of protection to each joint account holder), unless evidence shows otherwise.

For eligibility under the FSCS rules, please refer to the FSCS website at www.fscs.org.uk

For eligible members who are savers with both the Yorkshire and Chelsea immediately prior to completion of the merger, separate £50,000 FSCS depositor protection limits will be retained. This is a temporary measure until 30 December 2010.

This means that a member who is a saver with both societies immediately prior to the merger will be entitled to a separate FSCS depositor protection limit of £50,000 for each of their “Yorkshire” and “Chelsea” branded savings. For example:

Example 1: Saver A who has £60,000 savings with the Yorkshire and £30,000 savings with Chelsea will have an aggregate FSCS protection limit of £80,000 (ie £50,000 plus £30,000).
Example 2: Saver B who has £20,000 savings with the Yorkshire and £20,000 savings with Chelsea will have an aggregate FSCS protection limit of £40,000.
Example 3: Saver C who has £60,000 savings with the Yorkshire and £70,000 savings with Chelsea will have an aggregate FSCS protection limit of £100,000.

The merger will not affect any separate FSCS cover for those members who had a Barnsley Building Society account immediately prior to the merger of the Barnsley Building Society with Yorkshire Building Society on 31 December 2008.

For eligibility under the FSCS rules, please refer to the FSCS website at www.fscs.org.uk

There will be no changes either to interest rates or to the terms and conditions of any Yorkshire savings accounts or mortgages as a result of the merger. As the benefits of the merger are realised, however, it is anticipated that we will be able to deliver more benefits to members than would have otherwise been possible.

As a result of the merger, the Chelsea brand will be retained with separate products from those available through the Yorkshire. The Chelsea brand will therefore be similar in operation to the Barnsley Building Society brand.

No. The Yorkshire is totally committed to its branch and agency network. We have identified 11 locations where both the Yorkshire and Chelsea have a branch, and in these places we may decide to combine the two branches into one. Where we do this, we will notify all Yorkshire members who we believe may be affected. We will ensure that the Yorkshire members will be able to operate their accounts through the Chelsea branch.

In addition, it is our intention to keep a branch or agency presence in all the communities where we are currently represented. The merger will not affect Barnsley Building Society branches.

The Yorkshire is committed to supporting local communities and the merger will not affect this. It will continue, through charitable giving, employee volunteering, sponsorship and affinity partnerships, to maintain the strong community connections of both the Yorkshire and Chelsea, with a continued focus on supporting good causes nominated by members.

Yes. The Yorkshire intends to remain independent and is committed to mutuality, which the Board firmly believes to be in the best interests of current and future members.

The merged Society will continue to be called Yorkshire Building Society.

As detailed in Q1, a merger with Chelsea offers several benefits to members of the Yorkshire. Chelsea, the UK’s fifth largest building society, shares our commitment to mutuality and the values which go with this. It is an efficient organisation with a strong branch network in the south of England which complements the Yorkshire’s branch network, and it has a high level of retail savings and telephone-based operations.

As explained on pages 8 and 9 of the Merger Booklet, the Yorkshire has been affected by the recent turmoil in the financial markets, the challenging economic conditions and the steps it has taken to safeguard members’ interests. These safeguards include holding high levels of high quality liquid assets (which reduces our earnings on interest) and protecting savers, as far as possible, by not passing on the full extent of the reductions in the Bank of England base rate. This has resulted in the Yorkshire making a small core operating profit of £1m for the first 6 months of 2009. When non-core operating items (including one off items and volatility that results purely from accounting treatments) are included, the Yorkshire recorded a statutory loss for the same period (please see pages 14 and 15 of the Merger Booklet for further details).

However, the Yorkshire has a strong capital position and this is anticipated to remain the case following completion of the merger. Your Board believes that the Yorkshire will make a profit in 2010 whether or not the merger proceeds (although in the uncertain economic climate accounting fair value adjustments are likely to remain volatile).

No. Your Board believes the enlarged Society will remain a strong, well capitalised society after the merger. Whilst Chelsea has experienced some difficulties as a result of the financial crisis, your Board has investigated these extensively and taken a number of steps to guard against the issues that Chelsea faced recently having a negative impact on the enlarged Society (please see pages 6 and 7 of the Merger Booklet for further details).

No. In order to protect the financial strength of the enlarged Society there will be no distribution of reserves by way of bonus to members of either the Yorkshire or Chelsea.

No Yorkshire or Chelsea director is being paid a bonus dependent on the merger taking place. In line with the FSA’s new best practice guidelines, future bonus payments to executive directors will be made only on the basis of high levels of personal performance, strong and sustained financial performance and high standards of risk management.

Existing contractual and statutory arrangements will be honoured for all Chelsea directors, but there will be no compensation for loss of office over and above their contractual and statutory entitlement.

The Board of the Yorkshire will run the enlarged Society and manage its business. The Chairman of the Board will be the Yorkshire’s current Chairman and the Chief Executive will be the Yorkshire’s current Chief Executive.

On the merger taking place all the directors of Chelsea will relinquish their positions as directors of Chelsea. Before completion of the merger, the Board of the Yorkshire will consider (without an obligation to do so) whether a non-executive director of Chelsea is to be appointed as a non-executive director of the Yorkshire.

Eligible members of the Society will be able to vote on any such appointment at the 2011 Annual General Meeting. If no such appointment is made, then no director of Chelsea will be joining the Board of the Yorkshire. The head office of the Yorkshire will remain in Bradford.

Where a Yorkshire and Chelsea branch combine (as mentioned in Q8) there may be some staff reductions. There may also be a small reduction in numbers at the Yorkshire’s head office. However, in the first instance, we will seek to deal with any such reductions through normal staffing turnover, for example, by not replacing staff who leave or retire.

By law only the first-named account holder on a joint account is eligible to vote. It is for this reason that the pack and the voting form only include your name and not those of the other joint account holders.

Yes, eligible members of the Yorkshire will be able to vote on the proposed merger at a Special General Meeting (SGM) to be held on 26 January 2010 in Bradford.

Full details of your eligibility to vote are contained in the Yorkshire’s rules, but the main provisions are that:

• If you are a shareholding member (ie. a saver) you are eligible to vote if you are over 18 years of age on 26 January 2010 and you are the sole or first-named holder of shares in the Yorkshire to the value of £100 or more at midnight at the end of 31 December 2009 and you do not cease to be the sole or first-named holder of shares at any time between midnight at the end of 31 December 2009 and 21 January 2010 if voting by proxy, or 26 January 2010 if voting in person at the SGM.
• If you are a borrowing member you are eligible to vote if you are over 18 years of age on 26 January 2010 and are a sole or first-named borrowing member of the Yorkshire with a mortgage debt of £100 or more outstanding at midnight at the end of 31 December 2009 and 21 January 2010 if voting by proxy, or 26 January 2010 if voting in person at the SGM.

Although one of the voting conditions is that a member must be a saver or borrower at 31 December 2009, you can still vote before this date. The Society’s Independent Scrutineers will cancel any vote made prior to the SGM where the person submitting the vote does not meet the relevant voting conditions referred to above.

There are two separate resolutions to be voted on which are contained in the Notice of the Meeting which can be found on page 28 of the Merger Booklet. These are a shareholding members’ (savers’) resolution and a borrowing members’ resolution.

There are separate voting forms for each of these resolutions; a green form for eligible savings members and a blue form for eligible borrowing members. You will only receive the voting form(s) that apply to you. If you qualify to vote on both resolutions then you will receive two sets of this SGM pack; one containing the green savers’ voting form and the other containing the blue borrowers’ voting form (both packs may not arrive on the same day).

Of those members of the Yorkshire who actually vote at the SGM, at least 75% of eligible savers and more than 50% of eligible borrowers need to vote in favour in order for the merger with Chelsea to be approved. Eligible Chelsea members will also receive a Chelsea merger booklet and will be asked to vote on the proposed merger in the same way at a separate SGM of Chelsea to be held on 22 January 2010.

In your pack you will find a Merger Booklet which contains important information in deciding how to vote in relation to the proposed merger. You can vote in one of two ways:

1. by attending and voting at the SGM to be held on 26 January 2010 at 2.30pm at the Cedar Court Hotel, Mayo Avenue, Off Rooley Lane, Bradford BD5 8HW. A location map of the venue is enclosed in this pack; or
2. by appointing someone else (who is known as your proxy) to attend the SGM and vote on your behalf. You can do this by either:
   • completing the voting form enclosed in your SGM voting pack, and returning it to the Independent Scrutineers. A first class pre-paid envelope is provided for your use; or
   • you can use your unique security number on the voting form to vote online

The latest time that your vote can be received by the Independent Scrutineers is midnight at the end of 21 January 2010. If you use the voting form, you should ensure that it is signed and dated and posted in good time to arrive by that time and date. Branches will not be able to accept completed voting forms.

Detailed voting instructions can be found on the voting form and on pages 29 and 30 of the Merger Booklet.

Your Board is unanimously of the view that this merger is in the best interests of members of the Yorkshire and strongly recommends you use this opportunity to vote in favour of the proposal.

PLEASE VOTE NOW

You should contact the Merger Helpline on 0845 1669 200 or email merger@ybs.co.uk