Half Yearly Report

MANCHESTER BUILDING SOCIETY GROUP

HALF-YEARLY FINANCIAL INFORMATION

30 JUNE 2011

Business Review

The Group reported a profitable start to 2011.

Highlights for the period include:

·; Profit after tax for the half year of £6.68m

·; Disposal of banking subsidiary at a net profit of £5.95m

·; Improved Core Tier 1 Capital

Mortgage lending and arrears

New mortgage lending during the first half of the year has been subdued. The small reduction in overall mortgage balances reported during the period was in line with the Society's expectations. A cautious approach has continued to be taken to the underwriting of new applications, with interest rates offered reflecting the Society's caution.

The Society continues to take a sympathetic and pragmatic approach to working with those borrowers that fall into arrears. Whilst the overall level of arrears seen on mortgage balances has increased during the first half of 2011, the number of properties in possession at the end of June 2011 was lower than the position a year earlier (June 2011: 10; June 2010: 16).

Retail savings and liquid funds

Retail balances at the end of June 2011 were on target, being marginally lower than the £721m position at the end of December 2010.

Over the past three years, the Society has grown its retail balances by 23%.

The Society maintained its low level of reliance on the wholesale funding markets during the period, operating such balances within the range of 7.0%-8.5%, expressed as a percentage of Shares, Deposits and Loans; the comparable level of wholesale funding from three years earlier had been 23.4%.

Robust levels of liquidity have been maintained throughout the period.

Divestment of subsidiary

During January 2011, the Society disposed of its banking subsidiary, Whiteaway Laidlaw Bank Limited four years after its acquisition; the net profit on disposal was £5.95m. The Society now benefits from a more streamlined Group structure and also from a notable improvement in its capital position.

Board and staff changes

There have been no material changes to either the Group's organisational structure or its headcount. The Board considers that the current staffing compliment will support existing business levels and can accommodate increased activity in the short term as and when the housing market recovers.

Risks and uncertainties

In common with all institutions funded primarily through retail deposits, the Group's interest margin has been squeezed by the low interest rate environment. Nevertheless, the underlying business model has been sufficiently robust to maintain profitability, albeit at reduced levels; the careful management of interest margin has been a particular focus for the Board.

Uncertainty within both the UK and global economies continues to be a major factor and for the building society sector as a whole competition for retail deposits continues to be fierce; it is the Board's view that this will continue for the foreseeable future.

Forward-looking statements

Within the half yearly information we make comments about anticipated future events, which we believe to be reasonable. As these statements are based on the Group's current view of the UK economy and banking market, we can give no assurances that the markets will develop in the way that we document and actual outcomes may differ to those that we anticipate.

The Group does not undertake to update any of the statements that it has made about future events prior to reporting of the full year results.

The directors confirm that, to the best of their knowledge:

·; The condensed set of consolidated accounts has been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union.

·; The half yearly accounts include the information required by the Financial Services Authority Disclosure and Transparency Rules (DTR 4.2.7 and DTR 4.2.8)

The results for the half year ended 30 June 2011 and those comparable figures for the half year ended 30 June 2010 are unaudited. The figures for the year ended 2010 are extracted from the 2010 Annual Report and Accounts, on which the Independent Auditors gave an unqualified opinion.

The Board of Directors responsible for the half yearly accounts are listed below:

J. Allen Non-executive director

D.E. Cowie Chief Executive

R.W. Dyson Non-executive director

A. Finch Non-executive director

C.W. Gee Finance Director

P.A. Lynch Operations Director

S.M. Molloy Non-executive director

M.J. Prior Chairman

I.M. Richardson Executive Director

J. Smith Vice Chairman

Signed on behalf of the Board of Directors

M.J. Prior

Chairman

23 August 2011

NOTES

HALF-YEARLY FINANCIAL INFORMATION

30 JUNE 2011

Basis of preparation

The half yearly financial information for the 6 months ended 30 June 2011 has been prepared in accordance with both the Financial Services Authority's Disclosure and Transparency Rules and IAS 34 Interim Financial Reporting, as adopted by the European Union.

The half yearly financial information set out above does not constitute Accounts within the meaning of the Building Societies Act 1986.

The financial information for the 12 months to 31 December 2010 has been extracted from the 2010 Annual Report and Accounts on which the external auditors gave an unqualified opinion.

The half-yearly financial information for the 6 months ended 30 June 2011 and the 6 months ended 30 June 2010 is unaudited.

This financial information should be read in conjunction with the 2010 Annual Report and Accounts.

Accounting policies

The half yearly financial information has been prepared consistently with the accounting policies described on pages 18 to 21 of the 2010 Annual Report and Accounts. The Group expects that these accounting policies will be applied at the time of compiling the 2011 Annual Report and Accounts.

There were no new reporting standards that affected the results reported for the half year ended 30 June 2011.

Taxation

Corporation tax has been accrued at the rate of 27% (H1 2010: 28%). The tax charge has been calculated as far as possible to approximate to the expected full year tax rate. 

Related Party Transactions

The Group had no material or unusual related party transactions during the 6 months ended 30 June 2011.

Segmental information

The operations of the Group is not sufficiently diverse to require segmental analysis or reporting.

Financial commitments and contingencies

There is no material change to Group's financial commitments or its contingent liabilities from the position reported in the 2010 Annual Report and Accounts

Events after the end of the reporting period

There have been no events occurring after the end of the reporting period that would have impacted upon the results reported.

Approval of interim financial statements

The interim financial statements were approved by the Board of directors on 23 August 2011.