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UK Asset Resolution Limited

Interim Financial Report

for the 6 months ended 30 June 2012

27 July 2012

UK Asset Resolution Limited Interim Financial Report 30 June 2012

UKAR Interim Financial Report 2012 of 70

Introduction Bradford & Bingley plc ('B&B') and Northern Rock (Asset Management) plc ('NRAM') are each required by the FSA's Disclosure and Transparency Rules to publish an Interim Financial Report for the 6 months ended 30 June 2012. UK Asset Resolution Limited ('UKAR') as an individual company has no listed debt in issue and therefore is not required to issue an Interim Financial Report. The UKAR Group presented its first set of consolidated Annual Report and Accounts for 2011 in March 2012. UKAR has voluntarily issued the UKAR Group information contained in this report.

This UK Asset Resolution Limited Interim Financial Report comprises three sections: Section A - Summary of the financial performance and half year results of the UK Asset Resolution Limited

Group. Section B - Interim Financial Report of Bradford & Bingley plc, prepared in accordance with IAS 34. Section C - Interim Financial Report of Northern Rock (Asset Management) plc, prepared in accordance with

IAS 34.


UKAR Interim Financial Report 2012 of 70

Contents Page Section A - Summary half year results of UK Asset Resolution Limited Key performance indicators - UKAR 5 Financial review 6 Primary Statements for the UKAR Group 15 Section B - Bradford & Bingley plc Interim Financial Report Interim Financial Report 17 Key performance indicators - B& B 20 Primary Statements 22 Notes to the Financial Information 27 Statement of Directors' Responsibilities 40 Independent Review Report 41 Section C - Northern Rock (Asset Management) plc Interim Financial Report Interim Financial Report 42 Key performance indicators - NRAM 45 Primary Statements 47 Notes to the Financial Information 53 Statement of Directors' Responsibilities 67 Independent Review Report 68 Contact information 69


UKAR Interim Financial Report 2012 Section A - UKAR of 70

Section A

Summary half year results of UK Asset Resolution Limited




Key performance indicators ('KPIs') - UKAR In addition to the primary Financial Statements, UKAR has adopted the following KPIs in managing business performance in the context of the Group's strategic priorities.

Strategic priorities Financial measures

6 months to

30 June 2012 6 months to

30 June 2011*

12 months to 31 December

2011

Commentary

Total lending balances £bn Secured £bn

Unsecured £bn

72.2 69.9 2.3

79.7 76.9 2.8

75.3 72.8 2.5

Lending balances reduced by 4% during H1 due to £2.4bn of secured residential redemptions, £0.1bn of unsecured loan redemptions, and £0.6bn of other capital repayments.

Residential mortgage redemption rate % Residential redemptions £bn

6.7 2.4

7.7 3.0

8.1 6.5

Redemptions have fallen relative to 2011's higher levels which were impacted by the introduction of an early repayment charge ('ERC') waiver.

Government loan repayments £bn Government loan balance £bn

0.79 45.8

1.00 47.7

2.15 46.6

£700m repaid against the B&B Working Capital Facility ('WCF') and £88m on the NRAM Government Loan.

Optimise the Balance Sheet

Total cash payments to HM Treasury £m

1,179 1,361 2,838 Total cash paid to HM Treasury during the period. This includes principal and interest repayments, guarantee fees and tax paid. The main driver of the decrease year on year is due to lower principal repayments.

Residential arrears balance : total residential mortgage balance %

Residential payments overdue £m

0.31

215.1

0.35

264.5

0.33

233.9

This represents the value of customers’ missed payments and relates this to the total balance of all residential mortgages. The reduction in the percentage is a reflection of arrears performance.

Residential arrears 3 months and over and possessions as % of the book:

- by value - by number of accounts

Number of residential arrears 3 months and over and possessions cases

6.24 4.94

30,222

7.13 5.64

37,966

6.61 5.21

33,216

The reduction in arrears reflects both the improvement in collections performance and that higher unemployment has not had a material impact, being restricted to the younger element of the population who are not part of the UKAR customer base.

Minimise impairment and losses

Impairment provisions: Residential secured £m

Cover % Unsecured £m

Cover % Commercial/other £m

Cover % Residential provision balance: residential

loans in arrears %

1,535.0

2.17 483.3 17.51 106.7 11.28

18.7

1,758.2

2.26 538.5 16.17 86.6 7.93

19.0

1,644.5

2.24 501.6 16.58 102.2 10.65

19.5

The level of residential impairment Balance Sheet provision reduced by £109.5m. The provision reflects improved arrears performance. Coverage on the unsecured book has increased to 17.51% (H1 2011: 16.17%, FY 2011: 16.58%) and on commercial loans this increased to 11.28% (H1 2011: 7.93%, FY 2011: 10.65%).

Reduce costs

Total costs £m Ongoing costs £m**

Ratio of costs to average interest-earning assets:

- statutory % - ongoing %**

107.8 107.8

0.25 0.25

109.4 106.3

0.22 0.22

285.8 220.6

0.30 0.23

The increase in ongoing costs reflects continued investment in operational teams directly supporting customers as well as higher IT costs due to a period of parallel running.

* June 2011 has been restated reflecting the changes to EIR policy. Details of the change are provided in note 3 to each of B&B's and NRAM's Interim Financial

Reports. ** Ongoing costs exclude certain items that are not expected to recur on an ongoing basis; an analysis of items excluded from ongoing costs is provided on page

9.



Financial review Performance In addition to the statutory measure of profit, the Board continues to believe it is appropriate to assess performance based on the underlying profit of the business, which excludes non-recurring costs, particularly those associated with the integration of B&B and NRAM, and certain gains such as the repurchase of capital instruments. Also excluded are movements in fair value and hedge ineffectiveness relating to financial instruments which are expected to be held to maturity as opposed to being traded. The commentary on the results in this statement uses underlying profits and its components as the measure of performance. Analysis of the difference between the statutory profit and the underlying profit of UKAR is provided below. Underlying profit before tax of £481.4m (H1 2011: £591.8m; FY 2011: £1,089.1m) was £110.4m lower than H1 2011 mainly due to the increase in the interest charged on the B&B Working Capital Facility ('WCF') and NRAM Government loan (c. £165m in total) and the lower balance sheet size, partly offset by a lower impairment charge, as a result of continued improvement in levels of arrears. The number of mortgage accounts 3 or more months in arrears reduced by 20% compared to H1 2011. Compared to H1 2011, underlying net operating income was £149.5m lower at £767.1m (H1 2011: £916.6m; FY 2011: £1,758.9m) mainly due to average interest-earning assets falling by 13% and the increased rate on Government funding, partly offset by higher asset yield as mortgage balances revert to standard variable rate and £19.6m one-off gains on the disposal of two investment assets. Underlying net interest income fell £172.8m to £728.1m (H1 2011: £900.9m; FY 2011: £1,722.4m). Ongoing administrative expenses increased £1.5m (1%) to £107.8m (H1 2011: £106.3m; FY 2011: £220.6m). Impairment on loans and advances to customers reduced by £45.3m to £170.7m (H1 2011: £216.0m; FY2011: £390.4m). Comparative Income Statement information for the 6 months to 30 June 2011 and comparative Balance Sheet information at 30 June 2011 have been restated from that reported in the 2011 Interim Financial Report in order to be consistent with the restatements in the 2011 Annual Reports & Accounts of UKAR, B&B and NRAM. Further detail is provided in note 3 to each of B&B's and NRAM's Interim Financial Reports. Summary Income Statement UKAR

6 months to 30 June 2012

6 months to 30 June 2011*

12 months to 31 December 2011

£m £m £m

Underlying net interest income 728.1 900.9 1,722.4 Underlying net non interest income** 39.0 15.7 36.5 Underlying net operating income 767.1 916.6 1,758.9 Ongoing administrative expenses (107.8) (106.3) (220.6) Impairment on loans and advances to customers (170.7) (216.0) (390.4) Net impairment on investment securities (7.2) (2.5) (58.8) Underlying profit before taxation 481.4 591.8 1,089.1 Unrealised fair value movements on financial instruments (42.9) (12.8) 79.2 Hedge ineffectiveness (22.5) (34.4) (85.2) Other net administrative expenses - (3.1) (65.2) Provision for customer redress (65.0) - - Gain on repurchase of capital instruments - - 338.1 Profit on disposal of credit linked notes - - 15.6 Defined benefit pension scheme gains - - 3.5 Statutory profit before taxation 351.0 541.5 1,375.1

* June 2011 has been restated as detailed in note 3 to each of B&B's and NRAM's Interim Financial Reports. ** Underlying net non interest income includes net fee and commission income, net gains on financial instruments designated at fair value, net realised gains

less losses on investment securities and other operating income. For an analysis of B&B refer to section B and for NRAM section C.



Financial review (continued) UKAR

Net interest income 6 months to

30 June 20126 months to 30

June 2011*


2011 £m £m £m

Interest receivable and similar income On secured advances 1,237.5 1,227.8 2,472.5On other lending 55.3 65.1 143.7On investment securities and deposits 45.6 58.8 116.8Total interest receivable and similar income 1,338.4 1,351.7 2,733.0Interest expense and similar charges On amounts due to banks and HM Treasury (325.5) (176.3) (475.6)State guarantee fee*** (24.5) (44.0) (74.9)Other (260.3) (230.5) (460.1)Total interest expense and similar charges (610.3) (450.8) (1,010.6) Net interest income 728.1 900.9 1,722.4 Average balances

Interest-earning assets ('IEA') 85,355 98,131 94,929Financed by: - Interest-bearing funding 61,222 74,994 71,610- Interest-free funding** 24,133 23,137 23,319 Average rates % % %Gross yield on IEA 3.15 2.78 2.88Cost of interest-bearing funding (1.92) (1.09) (1.31)Interest spread 1.23 1.69 1.57State guarantee fee*** (0.06) (0.09) (0.08)Contribution of interest-free funding ** 0.54 0.25 0.32Net interest margin on average IEA 1.71 1.85 1.81 Average Bank Base Rate 0.50 0.50 0.50Average 1-month LIBOR 0.71 0.63 0.65Average 3-month LIBOR 1.03 0.81 0.88

* June 2011 has been restated as detailed in note 3 to each of B&B's and NRAM's Interim Financial Reports.

** Interest-free funding is calculated as an average over the financial period, and includes the Statutory Debt and share capital and reserves.

*** At the time of the nationalisation of B&B, HM Treasury provided a guarantee with regard to certain wholesale borrowings and derivative transactions existing at

that time. The amount of this fee is dependent on balances outstanding, and hence it is included within 'interest expense and similar charges.' For an analysis of B&B refer to section B note 4 and for NRAM section C note 4.

Underlying net interest income for the period was 19% lower at £728.1m (H1 2011: £900.9m; FY 2011: £1,722.4m). There were a number of drivers of the decrease year on year. Across both books there was a reduction in income due to the decrease in average interest-earning assets of £12.8bn from £98.1bn (NRAM: £9.1bn, B&B: £3.7bn) and the impact of the introduction of increased interest rates payable on the B&B WCF and NRAM Government loan. These impacts were partly offset by higher yields on assets, primarily as mortgage accounts revert to standard variable rates. Underlying net interest margin has reduced to 1.71% (H1 2011: 1.85%; FY 2011: 1.81%) at UKAR level, the impacts of the reduced margin on B&B outweighing the increase in NRAM margins due to higher yields. On the B&B book the main driver of the 0.63% reduction in the underlying net interest margin to 0.78% (H1 2011: 1.41%; FY 2011: 1.16%) was the increase in the interest rate payable on the WCF by 3.50%, costing an additional £141.0m compared to June 2011.



Financial review (continued) Net interest income (continued) In NRAM, net interest margin increased to 2.42% (H1 2011: 2.13%; FY 2011: 2.28%), mainly due to the benefit of maturing fixed rate mortgages reverting to a standard variable rate at the end of their deal period. This was partially offset by the higher cost of £23.6m following the increase in the interest rate payable on its Government loan which was increased from Bank Base Rate + 25bps to Bank Base Rate + 100bps with effect from 4 May 2012. Underlying net non interest income Net realised gains and fair value gains on investment securities grew by £18.8m mainly due to the disposal of NRAM investment securities.

Other operating income is £5.1m higher primarily due to proceeds on the sale of the Gosforth site to Virgin Money on 22 June 2012 and receipt of additional proceeds from the sale of the Bingley site (sold July 2010). The phased withdrawal from the Gosforth site is expected to be completed by the end of 2013, reducing the number of properties under UKAR management as we focus on our two main sites in Crossflatts, Yorkshire and Doxford in the North East.

UKAR

Net non interest income

6 months to

30 June 2012

6 months to

30 June 2011*


2011 £m £m £m Total net fee and commission income 10.4 11.0 28.8 Net gains on financial instruments designated at fair value 17.5 - - Net realised gains less losses on investment securities* 1.3 - (1.2) Other operating income 9.8 4.7 8.9 Underlying net non interest income 39.0 15.7 36.5 Unrealised fair value movements on financial instruments* (42.9) (12.8) 79.2 Hedge ineffectiveness (22.5) (34.4) (85.2) Provision for customer redress (65.0) - - Statutory net non interest income (91.4) (31.5) 30.5 * Net realised gains less losses on investment securities and unrealised fair value movements on financial instruments have been reclassified in B&B to align

accounting methodology with NRAM.

For an analysis of B&B refer to section B note 5 and for NRAM section C note 5.

Accounting volatility on derivative financial instruments NRAM and B&B use derivative financial instruments for economic hedging purposes. Some of these are designated and accounted for as IAS 39 compliant fair value or cash flow hedge relationships. Where effective hedge relationships can be established, the movement in the fair value of the derivative is offset in full or in part either by opposite movements in the fair value of the instrument being hedged or by being taken to reserves. Any ineffectiveness arising from different movements in fair value will offset over time. Unrealised fair value movements were a loss of £42.9m in the period (H1 2011: loss of £12.8m; FY 2011: gain of £79.2m) generally relating to derivatives that act as an economic hedge but were not treated as an accounting hedge under IAS 39. Specifically these movements are due to changes in the value of basis swaps used to hedge the overall interest rate risk on the Balance Sheet, prior to their inclusion in hedging relationships during the half year as below. In NRAM, the cash flow hedge relationship was established on 1 June 2012 with the losses to this date mainly attributable to the movement in the value of the basis swaps, due to the narrowing of LIBOR over BBR.



Financial review (continued) Accounting volatility on derivative financial instruments (continued) In B&B, basis swaps were designated into a cash flow hedge at 1 March 2012, therefore, movements after this date are recognised in reserves. The £31.9m year on year deterioration in unrealised fair value movements is, therefore, mainly due to the impact on the valuation of basis swaps of the narrowing of LIBOR over BBR prior to this date. Provision for customer redress The proactive customer contact programme for all unsecured loan Payment Protection Insurance ('PPI') sales made from 2005 onwards is nearing completion. Around 150,000 customers who were sold PPI during this period have been contacted and, where appropriate, compensation offered. On mortgage PPI, there has been an increase in the level of claims which has been largely driven by the activity of claims management companies. A high proportion of these complaints relate to customers who do not have a PPI policy, however, the number of genuine claims has also significantly increased. Due to the general higher level of activity we have increased the overall provision for PPI compensation by £65m. Ongoing administrative expenses The increase in costs reflects the continued investment in operational teams who directly support customers, both in mortgage servicing and debt collection. In addition, IT costs are higher following a period of parallel running as capability has been built to support NRAM applications. This has included the successful migration of c 350,000 NRAM customer mortgage accounts onto the existing B&B mortgage platform. The shared system will contribute to reduced costs and provide a more stable and efficient business infrastructure from which to serve our customers. We expect these benefits to start to be realised in the next twelve months.

Administrative expenses UKAR

6 months to

30 June 20126 months to

30 June 2011


2011 £m £m £m Wages and salaries 33.5 32.8 65.6 Social security costs 3.3 3.1 6.8 Defined benefit pension costs 0.5 0.1 (0.9) Defined contribution pension costs 1.8 1.6 3.5 Other retirement benefit costs 0.2 0.2 0.5 Total staff costs 39.3 37.8 75.5 IT costs 33.0 30.1 57.9 Outsourced and professional services 12.4 14.3 29.6 Depreciation and amortisation 4.7 1.0 5.5 Other administrative expenses 18.4 23.1 52.1 Ongoing administrative expenses 107.8 106.3 220.6 Other net administrative expenses: - Transformation costs - 3.1 40.0 - Accelerated depreciation - - 25.2 Total other net administrative expenses - 3.1 65.2 Total administrative expenses 107.8 109.4 285.8




Financial review (continued) Other net administrative expenses No other net administrative expenses have been incurred in H1 2012 (H1 2011: £3.1m; FY 2011: £65.2m). The costs incurred for the full year 2011 mainly reflect one-off costs in establishing common systems across UKAR, together with expected redundancy costs and the write down of the value of buildings following the announcement of the UKAR restructure and the phased exit from the Gosforth site. Arrears and loan impairment Total UKAR loan impairment provisions as at 30 June 2012 were £2,125.0m (H1 2011: £2,383.3m; FY 2011: £2,248.3m) comprising residential mortgages £1,535.0m (H1 2011: £1,758.2m; FY 2011: £1,644.5m), unsecured loans £483.3m (H1 2011: £538.5m; FY 2011: £501.6m) and commercial property of £106.7m (H1 2011: £86.6m; FY 2011: £102.2m).

Arrears and possessions UKAR

30 June 2012 30 June 2011 31 December 2011

Residential Unsecured Residential Unsecured Residential Unsecured

Arrears 3 months and over Number of cases No. 27,747 32,987 34,891 30,760 30,511 34,282 Proportion of total cases % 4.53 13.22 5.19 9.83 4.79 12.33 Asset value £m 3,969.4 445.2 4,973.4 444.2 4,358.8 466.1 Proportion of book % 5.75 19.55 6.56 15.92 6.06 18.47 Total value of payments overdue £m 153.0 89.8 196.1 64.1 170.4 78.8 Proportion of total book % 0.22 3.94 0.26 2.30 0.23 3.12 Possessions Number of cases No. 2,475 - 3,075 - 2,705 - Proportion of total cases % 0.41 - 0.45 - 0.42 - Asset value £m 340.9 - 437.5 - 395.9 - Proportion of book % 0.49 - 0.58 - 0.55 - Total value of payments overdue £m 24.9 - 30.4 - 27.1 - Proportion of total book % 0.04 - 0.04 - 0.04 - New possessions No. 3,871 - 4,567 - 8,848 - Total arrears 3 months and over and possessions

Number of cases No. 30,222 32,987 37,966 30,760 33,216 34,282 Proportion of total cases % 4.94 13.22 5.64 9.83 5.21 12.33 Asset value £m 4,310.3 445.2 5,410.9 444.2 4,754.7 466.1 Proportion of book % 6.24 19.55 7.13 15.92 6.61 18.47 Total value of payments overdue £m 177.9 89.8 226.5 64.1 197.5 78.8 Proportion of total book % 0.26 3.94 0.30 2.30 0.27 3.12 Payments overdue Total value of payments overdue £m 215.1 92.3 264.5 68.5 233.9 81.6 Proportion of total book % 0.31 4.05 0.35 2.45 0.33 3.23 Loan impairment provision As % of total balances % 2.17 17.51 2.26 16.17 2.24 16.58 As % of arrears 3 months and over and possessions

% 35.61 108.56 32.49 121.23 34.59 107.62




Financial review (continued) Arrears and loan impairment (continued) Arrears and loan impairment: residential loans We have continued to invest in improving our debt management operations. As a result of our actions, we have seen arrears in both companies fall not withstanding the challenging economic conditions. At UKAR level, the number of mortgage accounts 3 or more months in arrears reduced by 9% since 31 December 2011, and 20% compared to 30 June 2011. We adhere to the FSA's regulatory guidance regarding Treating Customers Fairly and continue to work closely with customers experiencing, or likely to experience, financial difficulty in maintaining their mortgage payments. We offer a range of measures to support these customers depending upon their individual circumstances and ability to pay with the long term aim of sustaining their mortgage commitments and remaining in their homes. Possession continues to be a last resort. The total number of cases 3 or more months in arrears, including those in possession, reduced by 20% from 33,216 at the end of 2011 to 30,222 cases at 30 June 2012 (H1 2011: 37,966). The total value of debt owed by residential customers has reduced from £233.9m at 31 December 2011 to £215.1m at 30 June 2012 (H1 2011: £264.5m; FY 2011: £233.9m) equivalent to 0.31% of mortgage balances (H1 2011: 0.35%; FY 2011: 0.33%). Provisions for residential loan impairment held on the Balance Sheet have reduced by £223.2m since 30 June 2011 to £1,535.0m (H1 2011: £1,758.2m; FY 2011: £1,644.5m) reflecting the reduction in arrears cases, minimal new fraud cases identified during 2012 and possession sales. Total UKAR fraud and professional negligence provisions have reduced by £28.2m to £335.0m. Total UKAR fraud provisions represent coverage of 38% of suspected fraud and professional negligence cases. Within the B&B book, fraud and professional negligence provisions have reduced since year end by £22.4m to £277.4m (H1 2011: £319.7m; FY 2011: £299.8m) mainly as a result of cases written off which were fully provided for. In the NRAM book fraud and professional negligence provisions have reduced by £5.8m to £57.6m (FY 2011: £63.4m) due to write-offs. Investigations during the year have resulted in a number of cases being cleared of suspicion. As a result, the total value of the UKAR fraud and professional negligence cases remaining under investigation has reduced by 8% to £880.5m (FY 2011: £953.6m). In a benign interest rate environment, we continue to review provisioning levels to cater for mortgage affordability and inherent credit risk in the book which may be masked by current low interest rates. We continue to include a provision for the impact of projected house price deflation on future losses. As a proportion of balances, the residential impairment provision was 2.17% (H1 2011: 2.26%; FY 2011: 2.24%). The residential loan impairment charge was £118.8m (H1 2011: £136.9m; FY 2011: £245.3m) as the charge benefited from lower arrears volumes and minimal new fraud cases. The number of properties in possession for UKAR decreased from 3,075 in H1 2011 to 2,475 (FY 2011: 2,705). Within B&B, possession stock reduced from 701 cases at 30 June 2011 to 528 at 30 June 2012 (FY 2011: 587). In NRAM possession stock reduced to 1,947 cases from 2,374 at 30 June 2011 (FY 2011: 2,118). A total of 3,871 properties were taken into possession in the first half of the year (H1 2011: 4,567; FY 2011: 8,848). In addition to residential property possessions, we also have a number of buy-to-let properties within B&B managed by LPA receivers. Our LPA 'for sale' stock increased from 785 cases at 31 December 2011 to 901 at 30 June 2012. 702 cases were placed for sale by Law of Property Act ('LPA') receivers (H1 2011: 384; FY 2011: 940). During H1, 4,101 cases (H1 2011: 4,098; FY 2011: 8,749) were sold following possession and a further 586 cases (H1 2011: 953; FY 2011: 1,533) were sold which were under LPA management. Realised losses on properties sold following possession or sold by an LPA were £236.1m (H1 2011: £228.8m; FY 2011: £454.5m). Within these losses were fraudulent and professional negligence losses within B&B of £27.6m (H1 2011: £41.1m; FY 2011: £65.1m).



Financial review (continued) Arrears and loan impairment (continued) Loan impairment: unsecured loans The number of unsecured loans 3 months or more in arrears decreased by 4% since year end to close the period at 32,987 (H1 2011: 30,760; FY 2011: 34,282) cases. The charge for unsecured loan impairment was lower at £45.9m (H1 2011: £81.3m; FY 2011: £124.9m). Asset coverage has increased from 16.6% at 31 December 2011 to 17.5% at 30 June 2012. The provision for unsecured loans reduced to £483.3m from £501.6m at the end of 2011 (H1 2011: £538.5m). Realised losses were £72.1m (H1 2011: £91.3m; FY 2011: £179.0m). Arrears and loan impairment: commercial loan book The provision for the commercial book has increased to £106.7m from £86.6m at 30 June 2011 (FY 2011: £102.2m) and realised losses were £2.0m compared to £0.1m credit at 30 June 2011 (FY 2011: £6.6m). The increase in provision was mainly due to updated property valuations on the NRAM book. We continually review the level of provisions against each individual loan based on current and future property valuations, future rental income projections, tenant quality and general market conditions. Net impairment on investment securities As a result of the continued turbulence within the Eurozone, we continue to review securities held on our Balance Sheet, and we believe the risk to UKAR is not significant. We have identified a number of assets in NRAM that are due to mature at a loss of £13m. This loss is partly offset by gains on previously impaired assets giving a net charge of £7.2m (H1 2011: £2.5m; FY 2011: £58.8m). Taxation The total charge for tax per the Income Statement for the period ended 30 June 2012 was £79.0m (H1 2011 £96.8m; FY 2011: £213.8m). Given the statutory profit before taxation of £351.0m (H1 2011: £541.5m; FY 2011: £1,375.1m) this equates to an effective tax rate of 22.5% (H1 2011: 17.9%; FY 2011: 15.5%). Balance Sheet UKAR

Balance Sheet summary 30 June 2012 30 June 2011*

31 December 2011 £m £m £m Loans and advances to customers: - Residential mortgages 69,061.1 75,866.9 71,913.3- Commercial and other secured loans 839.4 1,005.5 857.2- Unsecured lending 2,276.9 2,790.9 2,523.9Wholesale assets 10,561.0 15,083.1 11,765.3Fair value adjustments on portfolio hedging 518.4 485.6 597.5Derivative financial instruments 6,116.3 9,258.4 7,369.1Other assets 197.6 265.4 203.6Total assets 89,570.7 104,755.8 95,229.9Statutory Debt and HM Treasury loans 45,801.8 47,698.2 46,582.2Wholesale funding 37,028.9 50,366.6 42,137.4Derivative financial instruments 824.5 1,015.5 965.4Other liabilities 526.6 445.8 518.1Capital instruments 357.7 1,492.1 350.4Equity 5,031.2 3,737.6 4,676.4Total equity and liabilities 89,570.7 104,755.8 95,229.9 * The June 2011 Balance Sheet has been restated as detailed in note 3 to each of B&B's and NRAM's Interim Financial Reports.

For an analysis of B&B refer to section B and for NRAM section C.



Financial review (continued) Balance Sheet (continued) The Balance Sheet has decreased by £15.2bn to £89.6bn from £104.8bn since H1 2011. Lending balances were £3.1bn (4%) lower than 31 December 2011, reducing to £72.2bn (H1 2011: £79.7bn; FY 2011: £75.3bn) during the period, reflecting £2.4bn of secured residential redemptions, £0.1bn unsecured loan redemptions and £0.6bn of other capital repayments. Wholesale asset balances reduced from the year end by £1.2bn to £10.6bn (H1 2011: £15.1bn; FY 2011: £11.8bn) primarily reflecting disposals and lower core liquidity requirement as the Balance Sheet runs off. Liabilities Statutory Debt and HM Treasury loans reduced by £0.8bn from the year end to £45.8bn (H1 2011: £47.7bn; FY 2011: £46.6bn) due to repayments having been made in the year (NRAM: £0.1bn, B&B: £0.7bn). UKAR did not draw down on any facility during the year. In addition, £3.2bn of other external wholesale funding was repaid in the period to 30 June 2012. In July 2012, after the close of the interim financial period and therefore not included in the June Balance Sheet, UKAR completed the purchase of £532m of Granite, Whinstone and Aire Valley notes at a discount to their nominal value, realising a profit of £143m.

We sold £465m of NRAM mortgages, at par, secured on residential property assets in the UK to Virgin Money was also announced in July. The sale proceeds will be used to repay a further element of the NRAM Government loan. Cash payments At the end of 2011, UKAR had £30.9bn of funding from HM Treasury, plus a further £15.7bn owed to the Financial Services Compensation Scheme ('FSCS'). Repayment of this debt remains a primary objective of UKAR. In the period a further £0.8bn (H1 2011: £1.0bn; FY 2011: £2.15bn) of HM Treasury debt was repaid. In addition, other cash flows were generated for Her Majesty's Government in the form of State guarantee fees, interest and taxes. The Board considers the total of all these cash flows paid to HM Treasury to be an important measure. Total cash payments at 30 June 2012 to HM Treasury were £1.2bn (H1 2011: £1.4bn; FY 2011: £2.8bn). Capital The regulated Group companies met their capital requirements in full throughout the year and have received no additional capital from HM Treasury on nationalisation, or subsequently. B&B plc total capital resources are £6.0m higher than June 2011, the increase being a result of profits in the year, partly offset by the buy back of subordinated liabilities in the second half of 2011. Tier 1 capital is £202.7m higher due to the profits generated. NRAM plc total capital resources of £2,483.6m are £110.1m lower than £2,593.7m at 30 June 2011, although tier 1 capital is £668.8m higher, mainly due to profits generated in the year net of capital instruments repurchased. UKAR operates under a MIPRU regulatory status. The regulated companies within the Group are required to hold capital in excess of 1% of total Balance Sheet assets plus any undrawn commitments. However, the Board believes it should hold capital above 1% reflecting the increased risk in the business compared to a standard MIPRU firm, and at the year end capital in B&B plc represented 5% of B&B assets; NRAM plc capital represented 5% of NRAM assets.



OTHER INFORMATION UK Asset Resolution Limited UKAR was established on 1 October 2010 to facilitate the orderly management of the closed mortgage books of both B&B and NRAM to maximise value for taxpayers. The Executive team of UKAR manages both organisations focusing on this common objective, while ensuring that both companies continue to treat customers fairly, deliver consistently high levels of service and support those customers facing financial difficulty. Bradford & Bingley plc On 29 September 2008, all of B&B’s retail branches and its savings accounts were transferred to Banco Santander Group. The remainder of the business, including the mortgage books of B&B and specialist lending arm Mortgage Express, were nationalised and taken into public ownership by the Government. B&B is permanently closed to new lending, but continues to provide services to some 209,000 existing mortgage borrowers, with 289,000 mortgage accounts. Northern Rock (Asset Management) plc Northern Rock was nationalised and taken into Government ownership in February 2008 and was then restructured into two legal entities with effect from 1 January 2010 - Northern Rock plc and Northern Rock (Asset Management) plc. NRAM retained the majority of the pre-existing mortgage book and all pre-existing unsecured loan accounts. NRAM is permanently closed to new lending, but continues to provide services to some 446,000 existing borrowers, with 323,000 mortgage accounts and 249,000 unsecured loan accounts.



UK Asset Resolution - Consolidated Financial Results

Consolidated Income Statement




2011 £m £m £m Interest receivable and similar income 1,338.4 1,351.7 2,733.0 Interest expense and similar charges (610.3) (450.8) (1,010.6) Net interest income 728.1 900.9 1,722.4 Fee and commission income 16.6 19.7 43.1 Fee and commission expense (6.2) (8.7) (14.3) Net fee and commission income 10.4 11.0 28.8 Net gains on financial instruments designated at fair value 17.5 - - Net realised gains less losses on investment securities 1.3 - (1.2) Unrealised fair value movements on financial instruments (42.9) (12.8) 79.2 Hedge ineffectiveness (22.5) (34.4) (85.2) Provision for customer redress (65.0) - - Other operating income 9.8 4.7 8.9 Non interest income (91.4) (31.5) 30.5 Net operating income 636.7 869.4 1,752.9 Administrative expenses: - Ongoing (107.8) (106.3) (220.6) - Other net expenses - (3.1) (65.2) Impairment on loans and advances to customers (170.7) (216.0) (390.4) Net impairment on investment securities (7.2) (2.5) (58.8) Defined benefit pension scheme gains - - 3.5 Gain on repurchase of capital instruments - - 338.1 Profit on disposal of credit linked notes - - 15.6 Profit before taxation 351.0 541.5 1,375.1 Taxation (79.0) (96.8) (213.8) Profit for the financial period 272.0 444.7 1,161.3

* The 6 months to 30 June 2011 has been restated, as detailed in note 3 to each of B&B's and NRAM's Interim Financial Reports.



Consolidated Financial Results (continued) Consolidated Balance Sheet

30 June 2012 30 June 2011* 31 December 2011 £m £m £m Assets Cash and balances at central banks 5,333.6 8,547.3 6,170.7 Loans and advances to banks 2,664.2 2,861.8 2,746.5 Investment securities and unsecured investment loans 2,563.2 3,674.0 2,848.1 Loans and advances to customers 72,177.4 79,663.3 75,294.4 Fair value adjustments on portfolio hedging 518.4 485.6 597.5 Derivative financial instruments 6,116.3 9,258.4 7,369.1 Other assets 44.0 34.0 42.7 Deferred tax assets - 88.5 0.8 Retirement benefit assets 65.4 38.1 49.8 Investment property - 26.6 26.6 Property, plant and equipment 37.5 67.0 49.2 Intangible assets 50.7 11.2 34.5 Total assets 89,570.7 104,755.8 95,229.9 Liabilities Loans and other amounts due to banks 3,158.7 5,442.0 4,075.9 Statutory Debt and HM Treasury loans 45,801.8 47,698.2 46,582.2 Derivative financial instruments 824.5 1,015.5 965.4 Debt securities in issue 33,870.2 44,924.6 38,061.5 Other liabilities 159.2 171.1 163.9 Current tax liabilities 160.1 21.0 114.6 Deferred tax liabilities 13.4 - - Retirement benefit obligations 11.1 26.5 24.6 Provisions 182.8 227.2 215.0 Capital instruments 357.7 1,492.1 350.4 Total liabilities 84,539.5 101,018.2 90,553.5 Equity Issued capital and reserves attributable to equity holder of the parent:

- Share capital 1.2 1.2 1.2 - Reserves 1,313.0 953.8 1,226.1 - Retained earnings 3,592.2 2,573.5 3,323.4 Share capital and reserves 4,906.4 3,528.5 4,550.7 Non-shareholders' funds 124.8 209.1 125.7 Total equity 5,031.2 3,737.6 4,676.4 Total equity and liabilities 89,570.7 104,755.8 95,229.9

* The 30 June 2011 Balance Sheet has been restated, as detailed in note 3 to each of B&B's and NRAM's Interim Financial Reports.

Bradford & Bingley plc Interim Financial Report 30 June 2012

UKAR Interim Financial Report 2012 Section B - B&B of 70

Section B Bradford & Bingley plc

Interim Financial Report for the 6 months ended 30 June 2012



Bradford & Bingley plc


KEY HIGHLIGHTS Bradford & Bingley plc • Repaid a further £700m in Government loans, reducing the total amount owed to the Government down to

£26.2bn. • £251m paid to Government in the form of interest, fees and corporation tax. • Mortgage accounts three or more months in arrears fell by 19% to 7,064 (H1 2011: 10,956; FY 2011: 8,767)

from the year end. • Completion of the integration of the two business infrastructures. • Underlying profit before tax reduced to £66.3m from £200.2m in H1 2011, after incorporating an additional

£141m interest payable to the Government. • Statutory profit before tax of £45.7m, compared with £202.5m profit in H1 2011. Events since 30 June 2012: • Purchased £83.9m of debt securities at a discount generating profit before tax of £27.5m. Repricing of the Government Loan The interest rate on the B&B WCF was increased on 1 August 2011 to BBR +5% from BBR +1.5% and will have an estimated full year impact of £268m in 2012. PERFORMANCE ON STRATEGIC PRIORITIES 1. Optimising the Balance Sheet B&B's Balance Sheet has reduced to £38.5bn in the last six months, a decrease of £1.6bn. B&B has repaid £700m of Government funding in the first half of this year (H1 2011: £nil; FY 2011: £150m). A further £0.5bn of other external wholesale funding has been repaid. These repayments have been funded largely from a 2% reduction in lending balances (£0.8bn since 31 December 2011). As a result, lending balances stand at £33.3bn at 30 June 2012 (H1 2011: £35.1bn; FY 2011: £34.1bn). Other cash flows were generated for the Government in the first half of the year in the form of guarantee fees, interest and taxes, totalling £251m (H1 2011: £284m; FY 2011: £504m). The Board considers the total of all these cash flows paid to HM Treasury to be an important measure of B&B meeting its objective in terms of maximising taxpayer value. Events since 30 June 2012 In July 2012, after the close of the interim financial period and therefore not included in the June Balance Sheet, B&B completed the purchase of £83.9m of Aire Valley notes at a discount to their nominal value, realising a profit of £27.5m. 2. Excellence in customer and debt management The number of accounts in arrears for B&B is lower than the 2011 year end as a direct consequence of proactive arrears management coupled with the continued benign interest rate environment in 2012. The total number of mortgage cases three or more months in arrears, including those in possession, reduced by 19% since the end of 2011 to 7,064 cases as at 30 June 2012 (H1 2011: 10,956; FY 2011: 8,767). The total amount of arrears owed by residential customers has fallen by £10.2m to £42.4m during the six months to 30 June 2012, a reduction of 19%. Support for customers experiencing payment difficulties B&B has a total of around 209,000 customers: they have 289,000 mortgage accounts. The majority, over 90%, of these mortgage loans continue to perform well but we do have a significant number of customers who are finding



it difficult to meet their repayments and we work closely with them to offer a range of solutions to help them manage their circumstances. Repossession proceedings for customers in arrears are always viewed as a last resort but regrettably, in some situations, this is inevitable. During the first half, the number of properties taken into possession reduced by 15% to 751 (H1 2011: 881). The stock of properties in possession at the end of June decreased from 587 at 31 December 2011 to 528 (H1 2011: 701). Where a buy-to-let landlord is in arrears we endeavour to protect tenants by honouring the terms of all valid Assured Shorthold Tenancy agreements and instructing a Law of Property Act receiver to collect rent directly from the tenant, thereby enabling the tenant to stay in the property for the duration of any agreement. 3. Maximise cost effectiveness The Group has continued to focus on reducing costs. Ongoing administrative expenses were lower at £48.2m (H1 2011: £52.6m; FY 2011: £103.9m) with the ratio of costs to assets remaining at 0.26% (H1 2011: 0.26%; FY 2011: 0.26%). The reduction in costs reflects the sharing of IT systems with NRAM as well as lower spend with external advisors. OUTLOOK The outlook for UKAR remains positive based on the progress made in combining the system infrastructures and the continued strong arrears performance. However, the UK economy continues to face uncertainty, and the rising cost of living, in addition to continued house price deflation are placing pressure on household finances. We expect these factors may lead to more of our customers experiencing difficulties in meeting their mortgage payments and we are planning to increase our programme of proactive contact to help those customers who may be at risk. OTHER INFORMATION Bradford & Bingley plc On 29 September 2008, all of B&B’s retail branches and its savings accounts were transferred to Banco Santander Group. The remainder of the business, including the mortgage books of B&B and specialist lending arm Mortgage Express, were nationalised and taken into public ownership by the Government. B&B is permanently closed to new lending, but continues to provide services to some 209,000 existing mortgage borrowers, with 289,000 mortgage accounts.



Key performance indicators ('KPIs')

In addition to the primary Financial Statements, B&B has adopted the following KPIs in managing business performance in the context of its strategic priorities.

Strategic priorities

Financial measures

6 months to 30 June

2012

6 months to 30 June

2011*


2011

Commentary

Lending balances (secured) £bn

33.3 35.1 34.1

Lending balances reduced by 2% during the period due to £0.7bn of residential redemptions, and £0.1bn of other capital repayments.


3.9 0.7

4.2 0.7

4.2 1.5

Redemptions have fallen slightly compared to 2011 due to the general worsening in market conditions.


0.70 26.2

nil 27.0

0.15 26.9

B&B has repaid £0.7bn of the WCF since December 2011. The WCF balance now standing at £7.7bn, excluding accrued interest, is within the £11.5bn maximum facility level currently agreed with HM Treasury.



951 284 654

Total cash paid to HM Treasury during the period. This includes principal and interest repayments, guarantee fees and tax paid. The main drivers of the increase year on year are £700m principal repayment and an additional £142m increase in interest payments on the WCF following the increase in the rate in August 2011.



0.13 42.4

0.19 65.3

0.16 52.6

This represents the value of customers’ missed payments and relates this to the total balance of all residential mortgages.




3.21 2.44

7,064

4.75 3.56

10,956

3.91 2.94

8,767

The reduction in arrears reflects both the improvement in collections performance and that higher unemployment has not had a material impact, being restricted to the younger element of the population who are not part of the B&B customer base.


Residential impairment provisions £m

Cover % Residential provision balance: residential

loans in arrears %

680.3

2.04

30.0

766.0 2.18

25.8

718.1 2.10

28.2

The level of the residential impairment Balance Sheet provision reduced by £37.8m, the level of cover reduced slightly but still remained at c 2%.

Reduce costs


Ratio of costs to average interest-earning assets:


48.2 48.2

0.26 0.26

54.2 52.6

0.27 0.26

128.9 103.9

0.33 0.26

The reduction in ongoing costs reflects continued focus to reduce costs as the size of the Balance Sheet falls. This reflects the benefits of investments in IT and telephony systems combined with economies of sharing IT infrastructure with NRAM.

* June 2011 has been restated reflecting the changes to EIR policy. Details of the change are provided in note 3. ** Ongoing costs exclude certain items that are not expected to recur on an ongoing basis; an analysis of items excluded from ongoing costs is provided in note 7.



Business review In addition to the statutory measure of profit, the Board believes it is appropriate to assess performance based on the underlying profit of the business, which excludes non-recurring costs, particularly those associated with the integration with NRAM, and certain gains such as the repurchase of capital instruments. Also excluded are movements in fair value and hedge ineffectiveness relating to financial instruments which are expected to be held to maturity as opposed to being traded. An analysis of the difference between the statutory accounting measure of profit and the underlying profit of B&B is provided in the table below.

Summary Balance Sheet 30 June 2012 30 June 2011*

31 December 2011 £m £m £m Loans and advances to customers: - Residential mortgages 32,708.0 34,360.3 33,491.3 - Commercial and other secured loans 583.3 690.6 588.5 Wholesale assets 2,869.7 4,208.0 3,214.4 Fair value adjustments on portfolio hedging 343.6 154.7 362.6 Derivative financial instruments 1,873.6 2,831.0 2,318.0 Other assets 136.8 139.6 127.4 Total assets 38,515.0 42,384.2 40,102.2 Statutory Debt and HM Treasury loans 26,151.2 26,980.3 26,855.8 Wholesale funding 9,007.3 12,239.2 9,899.2 Derivative financial instruments 521.6 440.3 577.9 Other liabilities 190.5 160.7 197.0 Capital instruments 138.5 404.1 131.1 Equity 2,505.9 2,159.6 2,441.2 Total equity and liabilities 38,515.0 42,384.2 40,102.2

* June 2011 has been restated as detailed in note 3. ** Underlying net non interest income includes net fee and commission income, net realised gains less losses on investment securities and other operating

income.

Summary Income Statement




£m £m £m

Underlying net interest income 143.8 285.2 458.4 Underlying net non interest income** 10.5 8.8 17.6 Underlying net operating income 154.3 294.0 476.0 Ongoing administrative expenses (48.2) (52.6) (103.9) Impairment on loans and advances to customers (43.6) (44.1) (79.4) Net impairment on investment securities 3.8 2.9 6.5 Underlying profit before taxation 66.3 200.2 299.2 Unrealised fair value movements on financial instruments (11.8) 20.1 68.3 Hedge ineffectiveness (8.8) (16.2) (59.0) Other net administrative expenses - (1.6) (25.0) Gain on repurchase of capital instruments - - 151.0 Statutory profit before taxation 45.7 202.5 434.5



Bradford & Bingley plc Condensed Financial Statements Consolidated Income Statement

Note




2011 Restated1

£m £m £m Interest receivable and similar income 4 466.8 482.8 961.0 Interest expense and similar charges 4 (323.0) (197.6) (502.6) Net interest income 4 143.8 285.2 458.4 Fee and commission income 7.2 7.6 17.3 Net realised gains less losses on investment securities 0.1 0.9 - Unrealised fair value movements on financial instruments 6 (11.8) 20.1 68.3 Hedge ineffectiveness 6 (8.8) (16.2) (59.0) Other operating income 3.2 0.3 0.3 Non interest income 5 (10.1) 12.7 26.9 Net operating income 133.7 297.9 485.3 Administrative expenses: - Ongoing 7 (48.2) (52.6) (103.9) - Other net expenses 7 - (1.6) (25.0) Impairment on loans and advances to customers 10 (43.6) (44.1) (79.4) Net impairment on investment securities 3.8 2.9 6.5 Gain on repurchase of capital instruments - - 151.0 Profit before taxation 45.7 202.5 434.5 Taxation 8 (10.5) (55.8) (101.0) Profit for the financial period 35.2 146.7 333.5

1 See note 3. B&B's business and operations comprise one single activity, principally within the United Kingdom, and B&B has only one operating segment for the purposes of IFRS 8 'Operating Segments'. The results above arise from continuing activities, and are attributable to the equity shareholder.



Bradford & Bingley plc Condensed Financial Statements (continued) Consolidated Statement of Comprehensive Income


Gross of tax

Tax Net of tax

£m £m £m Profit for the financial period 45.7 (10.5) 35.2 Available-for-sale instruments: - Net gains recognised in available-for-sale reserve during the period 9.5 (2.2) 7.3 - Amounts transferred from available-for-sale reserve and recognised in profit during the period

2.6

(0.6)

2.0

Cash flow hedges: - Net gains recognised in cash flow hedge reserve during the period 30.2 (7.8) 22.4 - Amounts transferred from cash flow hedge reserve and recognised in profit during the period

3.0

(0.8)

2.2

Actuarial losses on retirement benefit obligations (5.4) 1.0 (4.4)Total other comprehensive income 39.9 (10.4) 29.5 Total comprehensive income for the financial period 85.6 (20.9) 64.7

6 months to 30 June 2011 (Restated1)

Gross of tax

Tax Net of tax

£m £m £m Profit for the financial period 202.5 (55.8) 146.7 Available-for-sale instruments: - Net gains recognised in available-for-sale reserve during the period 34.2 (9.0) 25.2- Amounts transferred from available-for-sale reserve and recognised in profit during the period

(1.2) 0.3 (0.9)

Cash flow hedges: - Net gains recognised in cash flow hedge reserve during the period 9.9 (1.6) 8.3- Amounts transferred from cash flow hedge reserve and recognised in profit during the period

(14.2) 2.3 (11.9)

Actuarial gains on retirement benefit obligations 32.4 (10.2) 22.2Effect of funding plan for retirement benefit obligations 117.6 (30.7) 86.9Total other comprehensive income 178.7 (48.9) 129.8Total comprehensive income for the financial period 381.2 (104.7) 276.5


Gross of tax

Tax Net of tax

£m £m £m Profit for the financial year 434.5 (101.0) 333.5 Available-for-sale instruments: - Net gains recognised in available-for-sale reserve during the year 8.4 (2.3) 6.1 - Amounts transferred from available-for-sale reserve and recognised in profit during the year

(0.6) 0.2 (0.4)

Cash flow hedges: - Net gains recognised in cash flow hedge reserve during the year 163.1 (30.7) 132.4 - Amounts transferred from cash flow hedge reserve and recognised in profit during the year

(28.8) 5.4 (23.4)

Actuarial gains on retirement benefit obligations 34.0 (11.0) 23.0 Effect of funding plan for retirement benefit obligations 117.6 (30.7) 86.9 Total other comprehensive income 293.7 (69.1) 224.6 Total comprehensive income for the financial year 728.2 (170.1) 558.1

1 See note 3.



Bradford & Bingley plc Condensed Financial Statements (continued) Consolidated Balance Sheet

Note30 June 2012 30 June 2011

Restated1 31 December 2011 £m £m £m Assets Cash and balances at central banks 722.5 1,150.6 884.6 Loans and advances to banks 1,302.5 1,510.2 1,386.7 Investment securities 844.7 1,547.2 943.1 Loans and advances to customers 9 33,291.3 35,050.9 34,079.8 Fair value adjustments on portfolio hedging 9 343.6 154.7 362.6 Derivative financial instruments 1,873.6 2,831.0 2,318.0 Other assets 31.6 18.7 36.0 Deferred tax assets 8 31.0 84.2 34.2 Property, plant and equipment 24.7 25.5 23.9 Intangible assets 49.5 11.2 33.3 Total assets 38,515.0 42,384.2 40,102.2 Liabilities Loans and other amounts due to banks 336.8 1,047.3 393.7 Statutory Debt and HM Treasury loans 26,151.2 26,980.3 26,855.8 Derivative financial instruments 521.6 440.3 577.9 Debt securities in issue 13 8,670.5 11,191.9 9,505.5 Other liabilities 92.3 95.0 98.7 Current tax liabilities 43.8 11.7 26.0 Retirement benefit obligations 11.1 26.5 24.6 Provisions 43.3 27.5 47.7 Capital instruments 138.5 404.1 131.1 Total liabilities 36,009.1 40,224.6 37,661.0 Equity Issued capital and reserves attributable to equity holder of the parent:

- Share capital 361.3 361.3 361.3 - Reserves 15 364.2 236.3 330.3 - Retained earnings 1,780.4 1,562.0 1,749.6 Share capital and reserves 2,505.9 2,159.6 2,441.2 Total equity and liabilities 38,515.0 42,384.2 40,102.2

1 See note 3.



Bradford & Bingley plc Condensed Financial Statements (continued) Consolidated Statement of Changes in Equity


Share capital

Share premium

reserve

Capital redemption

reserve

Available-for-sale reserve

Cash flow hedge

reserve

Retained earnings

Total share

capital and

reserves £m £m £m £m £m £m £m At 1 January 2012 361.3 198.9 29.2 19.7 82.5 1,749.6 2,441.2 Other comprehensive income:

- Net movement in available-for-sale reserve

- - - 12.1 - - 12.1

- Net movement in cash flow hedge reserve

- - - - 33.2 - 33.2

- Actuarial losses - - - - - (5.4) (5.4) - Tax effects of the above - - - (2.8) (8.6) 1.0 (10.4)

Total other comprehensive income - - - 9.3 24.6 (4.4) 29.5 Profit for the financial period - - - - - 35.2 35.2 At 30 June 2012 361.3 198.9 29.2 29.0 107.1 1,780.4 2,505.9


Share capital

Share premium reserve

Capital redemption

reserve


Cash flow hedge

reserve

Retained earnings

Total share

capital and

reserves £m £m £m £m £m £m £m At 1 January 2011 (Restated1) 361.3 198.9 29.2 14.0 (26.5) 1,306.2 1,883.1 Other comprehensive income:

- Net movement in available-for- sale reserve

- - - 33.0 - - 33.0


- - - - (4.3) - (4.3)

- Actuarial gains - - - - - 32.4 32.4 - Effect of funding plan for

retirement benefit obligations - - - - - 117.6 117.6

- Tax effects of the above - - - (8.7) 0.7 (40.9) (48.9)Total other comprehensive income - - - 24.3 (3.6) 109.1 129.8Profit for the financial period - - - - - 146.7 146.7At 30 June 2011 (Restated1) 361.3 198.9 29.2 38.3 (30.1) 1,562.0 2,159.6


Share capital


Capital redemption

reserve


Cash flow hedge

reserve

Retained earnings

Total share

capital and

reserves £m £m £m £m £m £m £m At 1 January 2011 361.3 198.9 29.2 14.0 (26.5) 1,306.2 1,883.1 Other comprehensive income:


- - - 7.8 - - 7.8


- - - - 134.3 - 134.3

- Actuarial gains - - - - - 34.0 34.0 - Effect of funding plan for

retirement benefit obligations - - - - - 117.6 117.6

- Tax effects of the above - - - (2.1) (25.3) (41.7) (69.1) Total other comprehensive income - - - 5.7 109.0 109.9 224.6 Profit for the financial year - - - - - 333.5 333.5 At 31 December 2011 361.3 198.9 29.2 19.7 82.5 1,749.6 2,441.2

1 See note 3.



Bradford & Bingley plc Condensed Financial Statements (continued) Consolidated Cash Flow Statement

6 months to 30 June

2012

6 months to 30 June

2011 Restated1


2011 £m £m £m Cash flows from operating activities Profit before taxation for the financial period 45.7 202.5 434.5 Adjustments to reconcile profit to cash flows from/(used in) operating activities: - Depreciation and amortisation 3.8 0.2 6.8 - Impairment on loans and advances to customers 43.6 44.1 79.4 - Net impairment on investment securities (3.8) (2.9) (6.5) - Gain on repurchase of capital instruments - - (151.0) - Income taxes paid - (156.7) (157.8) - Fair value adjustments on financial instruments (49.1) 37.0 (48.4) - Other non-cash movements 34.1 190.2 162.1 Cash flows from operating activities before changes in operating assets and liabilities 74.3 314.4 319.1

Net (increase)/decrease in operating assets: - Loans and advances to banks and customers 744.9 1,770.8 2,706.5 - Derivative financial instruments receivable 444.4 98.1 611.1 - Other assets 5.3 (11.3) (18.4) Net increase/(decrease) in operating liabilities: - Loans and other amounts due to banks (56.9) (1,106.9) (1,759.0) - Derivative financial instruments payable (56.3) (91.6) 46.0 - Debt securities in issue (703.7) (1,232.7) (3,013.1) - Other liabilities (72.6) (259.5) (87.2) - Provisions (4.4) (7.0) 13.2

Net cash from/(used) in operating activities 375.0 (525.7) (1,181.8) Cash flows from investing activities - Purchase of property, plant and equipment and intangible assets (20.7) (15.0) (42.2)

- Proceeds from sale of property, plant and equipment and intangible assets - 0.2 0.3 - Proceeds from sale and redemption of investment securities 99.4 124.2 702.6 Net cash from investing activities 78.7 109.4 660.7 Cash flows used in financing activities - Repayment of Working Capital Facility (700.0) - (150.0) - Repurchase of capital instruments - - (134.3) Net cash used in financing activities (700.0) - (284.3) Net decrease in cash and cash equivalents (246.3) (416.3) (805.4) Cash and cash equivalents at beginning of period 2,271.3 3,076.7 3,076.7

Cash and cash equivalents at end of period 2,025.0 2,660.4 2,271.3 Represented by cash and assets with original maturity of three months or less within: - Cash and balances at central banks 722.5 1,150.6 884.6 - Loans and advances to banks 1,302.5 1,509.8 1,386.7 Total 2,025.0 2,660.4 2,271.3

1See note 3.



Notes to the Financial Information 1. Reporting entity Bradford & Bingley plc ('B&B') is a public limited company incorporated and domiciled in the United Kingdom. The financial information in this Interim Financial Report consolidates B&B and its subsidiaries (including special purpose vehicles ('SPVs')), together referred to as B&B. B&B's Consolidated Financial Statements for the year ended 31 December 2011 are included in B&B's 2011 Annual Report & Accounts available on B&B's website www.bbg.co.uk. 2. Basis of preparation This Interim Financial Report has been prepared on a going concern basis. At the date of approval of this Interim Financial Report B&B is reliant on the financing facilities and also upon the guarantee arrangements provided to B&B by HM Treasury. Withdrawal of the financing facilities or the guarantee arrangements would have a significant impact on B&B's operations and its ability to continue as a going concern, in which case adjustments may have to be made to reduce the carrying value of assets to recoverable amounts and to provide for further liabilities that might arise. At the date of approval of this Interim Financial Report, HM Treasury has confirmed its intentions to continue to provide funding until at least 1 October 2013. In preparing this Interim Financial Report there have been no material changes to the accounting policies previously applied by B&B in preparing, and detailed in, its Annual Report & Accounts for the year ended 31 December 2011, which were prepared in accordance with IFRS as adopted by the European Union.

The Directors consider that B&B's accounting policies are the most appropriate to B&B's circumstances, have been consistently applied in dealing with items which are considered material, and are supported by reasonable and prudent estimates and judgements. The preparation of this Interim Financial Report requires the use of estimates and assumptions that affect the reported values of assets and liabilities at the Balance Sheet date and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. This Interim Financial Report has been prepared in accordance with IAS 34 'Interim Financial Reporting'. The information in this document does not include all of the disclosures required by IFRS in full annual financial statements, and it should be read in conjunction with the Consolidated Financial Statements of B&B for the year ended 31 December 2011.



Notes to the Financial Information (continued) 3. Impact of restatement of the results of B&B for the 6 months to 30 June 2011 B&B was subject to a change in accounting policy and reclassifications during 2011. Consequently, the comparative Income Statement information for the 6 months to 30 June 2011 and the comparative Balance Sheet information for 30 June 2011 have been restated from that reported in the 2011 Interim Financial Report. The changes applied are as follows:

Income Statement For the 6 months to 30 June 2011

Reported

in 2011

EIR

adjustment

Reclassification

Restated 2011

values £m £m £m £m Underlying net interest income 222.0 63.2 - 285.2 Underlying net non interest income* 23.8 - (15.0) 8.8 Underlying net operating income 245.8 63.2 (15.0) 294.0 Ongoing administrative expenses (52.6) - - (52.6) Impairment on loans and advances to customers (44.1) - - (44.1) Net impairment on investment securities 2.9 - - 2.9 Underlying profit before taxation 152.0 63.2 (15.0) 200.2 Unrealised fair value movements on financial instruments 5.1 - 15.0 20.1 Hedge ineffectiveness (16.2) - - (16.2) Other net administrative expenses (1.6) - - (1.6) Statutory profit before taxation 139.3 63.2 - 202.5

* Underlying net non interest income includes net fee and commission income, net realised gains less losses on investment securities and other operating income.

Balance Sheet At 30 June 2011

Reported in 2011

EIR adjustment Reclassification

Restated 2011

values £m £m £m £m

Loans and advances to customers:

- Residential mortgages 34,735.7 (375.4) - 34,360.3 - Commercial and other secured loans 690.6 - - 690.6

Wholesale assets 4,208.0 - - 4,208.0 Fair value adjustments on portfolio hedging 154.7 - - 154.7 Derivative financial instruments 2,831.0 - - 2,831.0 Other assets 116.9 22.7 - 139.6 Total assets 42,736.9 (352.7) - 42,384.2 Statutory Debt and HM Treasury loans 26,980.3 - - 26,980.3 Wholesale funding 12,239.2 - - 12,239.2 Derivative financial instruments 440.3 - - 440.3 Other liabilities 236.2 (75.5) - 160.7 Capital instruments 404.1 - - 404.1 Equity 2,436.8 (277.2) - 2,159.6 Total equity and liabilities 42,736.9 (352.7) - 42,384.2 EIR adjustment: In respect of loans and advances to customers, the EIR accounting policy of B&B was changed during 2011. Integral fees and charges are now amortised over a shorter period, being the period to which the product reprices to a standard or product variable rate. Reclassification: Previously, B&B included the amortisation of de-designated cash flow hedge reserves after the disposal of derivatives within 'net realised gains less losses on investment securities'. In order to be consistent with the treatment adopted by UKAR, in 2011 B&B changed its approach and now includes these items within 'unrealised fair value movements on financial instruments', and the comparative prior period Income Statement has been restated accordingly.



Notes to the Financial Information (continued) 4. Net interest income

6 months to 30 June

2012

6 months to

30 June 2011

Restated*


2011 £m £m £m Interest receivable and similar income On secured advances 450.9 462.5 922.1 On investment securities and deposits 15.9 20.3 38.9 Total interest receivable and similar income 466.8 482.8 961.0 Interest expense and similar charges On amounts due to banks and HM Treasury (221.8) (84.0) (295.3) State guarantee fee*** (24.5) (44.0) (74.9) Other (76.7) (69.6) (132.4) Total interest expense and similar charges (323.0) (197.6) (502.6) Net interest income 143.8 285.2 458.4 Average balances Interest-earning assets ('IEA') 37,024 40,743 39,570 Financed by: - Interest-bearing funding 15,765 19,707 18,528 - Interest-free funding** 21,259 21,036 21,042 Average rates % % % - Gross yield on IEA 2.54 2.39 2.43 - Cost of interest-bearing funding (3.81) (1.57) (2.31) Interest spread (1.27) 0.82 0.12 State guarantee fee*** (0.13) (0.22) (0.19) Contribution of interest-free funding ** 2.18 0.81 1.23 Net interest margin on average IEA 0.78 1.41 1.16 Average Bank Base Rate 0.50 0.50 0.50 Average 1-month LIBOR 0.71 0.63 0.65 Average 3-month LIBOR 1.03 0.81 0.88

* See note 3. ** Interest-free funding is calculated as an average over the financial period, and includes the Statutory Debt and share capital and reserves. *** At the time of the nationalisation of B&B, HM Treasury provided guarantees with regard to certain wholesale borrowings and derivative transactions existing at

that time. The amount of this fee is dependent on balances outstanding, and hence it is included within 'interest expense and similar charges'.



Notes to the Financial Information (continued) 5. Net non interest income




£m £m £m Total net fee and commission income 7.2 7.6 17.3 Net realised gains less losses on investment securities* 0.1 0.9 - Other operating income 3.2 0.3 0.3 Underlying net non interest income 10.5 8.8 17.6

Unrealised fair value movements on financial instruments* (11.8) 20.1 68.3 Hedge ineffectiveness (8.8) (16.2) (59.0) Statutory net non interest income (10.1) 12.7 26.9 * Net realised gains less losses on investment securities and unrealised fair value movements on financial instruments have been restated for the 6 months to 30

June 2011 as detailed in note 3. 6. Unrealised fair value movements on financial instruments and hedge ineffectiveness 6 months to

30 June 2012

6 months to 30 June

2011


2011 £m £m £m Net (loss)/gain in fair value: - fair value movements on derivatives which are economic

hedges but are not in hedge accounting relationships (11.8) 20.1 68.3 Unrealised fair value movements (11.8) 20.1 68.3 Net gains/(losses) on fair value hedging instruments 37.2 75.2 (150.0) Net (losses)/gains on fair value hedged items attributable to hedged risk (46.0) (91.4) 91.0 Net hedge ineffectiveness losses (8.8) (16.2) (59.0) Total (20.6) 3.9 9.3 7. Administrative expenses On 1 January 2010 all employees previously employed by NRAM transferred to Northern Rock plc under the terms of the Northern Rock Transfer Order 2009, SI 2009/3226. On 1 November 2010, 1,254 of these employees transferred to B&B and staff allocated to NRAM are included in the table below. The average number of persons employed by UKAR companies during the period was as follows:

30 June 2012

30 June 2011

31 December 2011

Average headcount Full time 1,919 1,808 1,855 Part time 520 518 538 Total employed 2,439 2,326 2,393 Working for NRAM: Full time 1,072 933 982 Part time 358 368 382 Total working for NRAM 1,430 1,301 1,364 Working for B&B: Full time 847 875 873 Part time 162 150 156 Total working for B&B 1,009 1,025 1,029 Total average full time equivalent 2,253 2,131 2,199 Total average full time equivalent working for NRAM 1,295 1,158 1,221 Total average full time equivalent working for B&B 958 973 978



Notes to the Financial Information (continued)

7. Administrative expenses (continued) The number of persons employed by UKAR companies at the end of the period was as follows:

At 30 June

2012 30 June

2011 31 December

2011 Full time 1,907 1,810 1,954 Part time 507 553 538 Total employed 2,414 2,363 2,492 Working for NRAM: Full time 1,062 943 1,089 Part time 345 400 378 Total working for NRAM 1,407 1,343 1,467 Working for B&B: Full time 845 867 865 Part time 162 153 160 Total working for B&B 1,007 1,020 1,025 Total full time equivalent headcount 2,237 2,151 2,305 Total full time equivalent headcount working for NRAM 1,281 1,182 1,332 Total full time equivalent headcount working for B&B 956 969 973

Staff numbers include Directors on service contracts. In addition to the permanent staff above, B&B employed a full-time equivalent of 167 temporary staff and specialist contractors at 30 June 2012 (30 June 2011: 142; 31 December 2011: 220). 6 months to

30 June 2012

6 months to 30 June

2011


2011 £m £m £m B&B's aggregate costs of permanent staff were as follows: Wages and salaries 12.9 14.7 31.1 Social security costs 1.8 1.7 3.2 Defined benefit pension costs 0.7 0.1 (0.4) Defined contribution pension costs 0.9 0.9 1.3 Other retirement benefit costs 0.2 0.2 0.5 Total staff costs 16.5 17.6 35.7 IT costs 13.7 15.8 27.2 Outsourced and professional services 7.1 8.0 16.2 Depreciation and amortisation 0.5 0.2 1.8 Other administrative expenses 10.4 11.0 23.0 Ongoing administrative expenses 48.2 52.6 103.9 Other net administrative expenses: - Transformation costs* - 1.6 19.4 - Accelerated depreciation - - 5.6 Total other net administrative expenses - 1.6 25.0 Total 48.2 54.2 128.9 *Transformation costs relate to the integration with NRAM into UKAR. 8. Taxation The tax charge for the period includes an overseas tax charge of £nil (6 months to 30 June 2011: £0.5m; 12 months to 31 December 2011: £2.0m). The tax charge for the 6 months to 30 June 2012 has been calculated using the expected effective tax rate for the full year 2012, i.e. 24.5% (2011: 26.5%). Deferred taxation appropriately reflects a change to the standard rate of UK corporation tax from 26% to 24% with effect from 1 April 2012. This change was substantively enacted on 26 March 2012. The announced further rate reductions by an additional 1% on each of 1 April 2013 and 2014 to 22% would have the maximum potential impact of reducing B&B's deferred tax assets by approximately £2.6m. £2.5m (30 June 2011: £2.8m; 31 December 2011: £2.6m) of deferred tax assets have not been recognised, relating to unused tax losses of £10.3m (30 June 2011: £10.3m; 31 December 2011: £10.3m). £42.1m (30 June 2011: £44.1m; 31 December 2011: £46.5m) of deferred tax assets have been recognised in respect of tax losses carried forward; based upon detailed business plans, there will be sufficient taxable profits in future years to utilise the losses on which deferred tax has been recognised.



Notes to the Financial Information (continued) 9. Loans and advances to customers Residential mortgages include all of B&B's buy-to-let loans. Commercial loans comprise loans secured on commercial properties. All of B&B's loans and advances to customers are to UK customers. Balances include accounting adjustments in respect of provisioning requirements. Loans and advances to customers include loans amounting to £19,832.5m (30 June 2011: £20,493.2m; 31 December 2011: £20,246.2m) which have been sold to bankruptcy remote SPVs whereby substantially all of the risks and rewards of the portfolio are retained by B&B. Accordingly, all of these loans and advances are retained on B&B's Balance Sheet. Further details are provided in note 13. Fair value adjustments on portfolio hedging amounting to £343.6m (30 June 2011: £154.7m; 31 December 2011: £362.6m) relate to fair value adjustments to loans and advances to customers in relation to interest rate risk as a result of their inclusion in a fair value portfolio hedge relationship. Loans and advances to customers comprise the following product types:

Balances Redemptions Balances Redemptions At 30 June

2012 £m %


£m

At 30 June 2011 Restated*

£m %


£m Residential mortgages Buy-to-let 21,145.6 65 (307.7) 21,958.6 64 (362.8)Self Cert 6,731.8 20 (143.1) 7,121.2 21 (156.3)Standard and other 4,830.6 15 (202.1) 5,280.5 15 (229.5)Total residential mortgages 32,708.0 100 (652.9) 34,360.3 100 (748.6)Residential loans 32,708.0 98 (652.9) 34,360.3 98 (748.6)Commercial loans 583.3 2 (5.9) 690.6 2 (27.4)

Total 33,291.3 100 (658.8) 35,050.9 100 (776.0) * See note 3.

Balances Redemptions

At 31 December 2011 £m %


2011 £m

Residential mortgages Buy-to-let 21,535.5 64 (710.7) Self Cert 6,902.4 21 (330.6) Standard and other 5,053.4 15 (454.7) Total residential mortgages 33,491.3 100 (1,496.0) Residential loans 33,491.3 98 (1,496.0) Commercial loans 588.5 2 (130.7)

Total 34,079.8 100 (1,626.7) Redemptions comprise full redemptions and voluntary partial redemptions, but exclude overpayments and regular monthly payments.



Notes to the Financial Information (continued) 10. Impairment on loans and advances to customers Allowances for credit losses against loans and advances to customers have been made as follows:

On residential mortgages On commercial loans Total 6 months to 30 June 2012 £m £m £m

At 1 January 2012 718.1 52.3 770.4 Movements during the period: - Write-offs (85.5) - (85.5) - Loan impairment charge 47.7 - 47.7 Net movements during the period (37.8) - (37.8) At 30 June 2012 680.3 52.3 732.6 The Income Statement charge comprises: - Loan impairment charge 47.7 - 47.7 - Recoveries net of costs (3.8) (0.3) (4.1)

Total Income Statement charge 43.9 (0.3) 43.6

On residential mortgages

On commercial loans Total

6 months to 30 June 2011 £m £m £m At 1 January 2011 832.1 58.6 890.7 Movements during the period: - Write-offs (112.4) - (112.4) - Loan impairment charge 46.3 - 46.3 Net movements during the period (66.1) - (66.1)

At 30 June 2011 766.0 58.6 824.6 The Income Statement charge comprises: - Loan impairment charge 46.3 - 46.3 - Recoveries net of costs (2.1) (0.1) (2.2)

Total Income Statement charge 44.2 (0.1) 44.1

On residential mortgages On commercial loans Total 12 months to 31 December 2011 £m £m £m At 1 January 2011 832.1 58.6 890.7 Movements during the year: - Write-offs (196.5) (4.4) (200.9) - Loan impairment charge 82.5 (1.9) 80.6 Net movements during the year (114.0) (6.3) (120.3) At 31 December 2011 718.1 52.3 770.4 The Income Statement charge comprises: - Loan impairment charge 82.5 (1.9) 80.6 - Recoveries net of costs (1.2) - (1.2)

Total Income Statement charge 81.3 (1.9) 79.4 In the Balance Sheet the carrying values of loans and advances to customers are presented net of these impairment allowances.



Notes to the Financial Information (continued) 11. Credit quality of loans and advances to customers In respect of loans and advances to residential customers, B&B holds collateral in the form of mortgages over residential properties. The fair value of this collateral was as follows:

At

30 June 2012

£m

30 June 2011

£m

31 December 2011

£m Neither past due nor impaired 42,314.9 43,969.1 43,342.3 Past due but not impaired 2,067.3 2,521.9 2,239.5 Impaired 450.4 704.9 556.4 Total 44,832.6 47,195.9 46,138.2

If the collateral amount on each individual loan were capped at the amount of the balance outstanding, and any surplus of collateral values over balances outstanding ignored, the fair value of collateral held would be as follows:

At

30 June 2012

£m

30 June 2011

£m

31 December 2011

£m Neither past due nor impaired 30,490.5 31,446.9 31,097.0 Past due but not impaired 1,732.3 2,149.8 1,882.1 Impaired 417.4 656.2 515.7

Total 32,640.2 34,252.9 33,494.8 The impaired balances above include £58.4m (30 June 2011: £87.1m; 31 December 2011: £69.0m) of assets in possession, capped at the balance outstanding. The fair value of the collateral is estimated by taking the most recent valuation of the property and adjusting for house price inflation or deflation up to the Balance Sheet date. The indexed average loan to value ('LTV') of residential loans and advances to customers was as follows:

At

30 June 2012

%

30 June 2011

%

31 December 2011

% To 50% 7.2 7.7 7.6 50% to 75% 16.9 15.4 16.5 75% to 100% 47.4 45.7 48.9 Over 100% 28.5 31.2 27.0 Total 100.0 100.0 100.0

The average indexed loan to value based on a simple average is 74.5% (30 June 2011: 74.4%; 31 December 2011: 74.1%) and on a weighted average is 87.0% (30 June 2011: 87.3%; 31 December 2011: 86.2%).

At 30 June 2012 Residential

mortgages Commercial

loans Total £m £m £m Neither past due nor impaired 31,067.2 422.2 31,489.4 Past due but not impaired: - less than 3 months 1,176.9 - 1,176.9 - 3 to 6 months 374.3 - 374.3 - over 6 months 251.3 - 251.3 Impaired 518.6 213.4 732.0 33,388.3 635.6 34,023.9 Impairment allowances (680.3) (52.3) (732.6) Loans and advances to customers net of impairment allowances

32,708.0 583.3 33,291.3

Impairment allowances: - individual 155.3 52.3 207.6 - collective 525.0 - 525.0 Total impairment allowances 680.3 52.3 732.6



Notes to the Financial Information (continued) 11. Credit quality of loans and advances to customers (continued)



loans Total £m £m £m

Neither past due nor impaired 32,129.4 441.6 32,571.0 Past due but not impaired: - less than 3 months 1,311.2 - 1,311.2 - 3 to 6 months 522.8 - 522.8 - over 6 months 409.9 - 409.9 Impaired 753.0 307.6 1,060.6 35,126.3 749.2 35,875.5 Impairment allowances (766.0) (58.6) (824.6) Loans and advances to customers net of impairment allowances 34,360.3 690.6 35,050.9 Impairment allowances: - individual 308.8 58.6 367.4 - collective 457.2 - 457.2 Total impairment allowances 766.0 58.6 824.6

At 31 December 2011 Residential


loans Total £m £m £m Neither past due nor impaired 31,631.1 429.3 32,060.4 Past due but not impaired: - less than 3 months 1,204.4 - 1,204.4 - 3 to 6 months 426.8 - 426.8 - over 6 months 324.1 - 324.1 Impaired 623.0 211.5 834.5 34,209.4 640.8 34,850.2 Impairment allowances (718.1) (52.3) (770.4) Loans and advances to customers net of impairment allowances

33,491.3 588.5 34,079.8

Impairment allowances: - individual 179.1 52.3 231.4 - collective 539.0 - 539.0 Total impairment allowances 718.1 52.3 770.4

'Impaired' loans are those which are 12 months or more in arrears, in possession or held for sale with a LPA receiver, and others which management consider to be individually impaired. The above table includes balances within 'neither past due nor impaired' which would have been shown as past due or impaired other than due to renegotiation; these were loans where arrears were capitalised during the previous 12 months. These loans amounted to £12.5m for the 12 months to 30 June 2012 (£65.6m for the 12 months to 30 June 2011; £35.0m for the 12 months to 31 December 2011). A loan is eligible for capitalisation of arrears only once the borrower has complied with stringent terms for a set period. B&B also offers other forbearance methods to borrowers, subject to compliance with loan terms, including extension of repayment date and switching to interest-only products, the aim of these being to assist the borrower to reduce the level of arrears. Management have taken into consideration the forbearance options in applying loan default probabilities and in their overall assessment of the total impairment provision.



Notes to the Financial Information (continued) 12. Arrears and possessions on residential mortgages Arrears and possessions are monitored for B&B as a whole, and also split by type of product.

At 30 June

2012 30 June

2011 31 December

2011 Arrears 3 months and over

Number of cases No. 6,536 10,255 8,180 Proportion of total % 2.26 3.33 2.74 Asset value £m 967.6 1,523.6 1,212.3 Proportion of book % 2.95 4.43 3.62 Total value of payments overdue £m 29.8 49.7 38.6 Proportion of total book % 0.09 0.14 0.11 Possessions Number of cases No. 528 701 587 Proportion of total % 0.18 0.23 0.20 Asset value £m 83.9 108.8 96.0 Proportion of book % 0.26 0.32 0.29 Total value of payments overdue £m 5.2 6.8 6.1 Proportion of total book % 0.02 0.02 0.02 New possessions No. 751 881 1,702 Total arrears 3 months and over and possessions

Number of cases No. 7,064 10,956 8,767 Proportion of total % 2.44 3.56 2.94 Asset value £m 1,051.5 1,632.4 1,308.3 Proportion of book % 3.21 4.75 3.91 Total value of payments overdue £m 35.0 56.5 44.7 Proportion of total book % 0.11 0.16 0.13 Payments overdue Total value of payments overdue £m 42.4 65.3 52.6 Proportion of total book % 0.13 0.19 0.16 Loan impairment provision As % of residential balances % 2.04 2.18 2.10 As % of residential arrears of 3 months and over and possessions

% 64.70 46.92 54.89



Notes to the Financial Information (continued) 12. Arrears and possessions on residential mortgages (continued) Analysis of residential mortgages 3 months and over in arrears by product

At 30 June

2012 30 June

2011 31 December

2011 Buy-to-let Number of cases No. 3,144 5,385 4,127 Proportion of total % 1.74 2.89 2.25 Asset value £m 462.4 808.7 614.6 Proportion of book % 2.19 3.68 2.85 Total value of payments overdue £m 14.7 26.6 19.9 Proportion of total book % 0.07 0.12 0.09 Self Cert Number of cases No. 1,774 2,534 2,080 Proportion of total % 4.00 5.45 4.59 Asset value £m 309.2 441.0 362.3 Proportion of book % 4.59 6.19 5.25 Total value of payments overdue £m 8.4 13.1 10.4 Proportion of total book % 0.12 0.18 0.15 Standard and other Number of cases No. 1,618 2,336 1,973 Proportion of total % 2.51 3.10 2.84 Asset value £m 196.0 273.9 235.4 Proportion of book % 4.06 5.19 4.66 Total value of payments overdue £m 6.7 10.0 8.3 Proportion of total book % 0.14 0.19 0.16

13. Debt securities in issue Securitised

notes Covered

Bonds Other Total £m £m £m £m At 1 January 2012 4,823.7 3,990.3 691.5 9,505.5 Repayments (238.4) (125.1) (91.7) (455.2) Other movements (66.7) (289.5) (23.6) (379.8) At 30 June 2012 4,518.6 3,575.7 576.2 8,670.5 Securitised assets 10,629.8 9,202.7 - 19,832.5 Securitised

notes Covered

Bonds Other Total £m £m £m £m At 1 January 2011 5,272.9 4,977.6 2,297.2 12,547.7 Repayments (166.5) (694.1) (527.0) (1,387.6) Other movements 55.4 (73.1) 49.5 31.8 At 30 June 2011 5,161.8 4,210.4 1,819.7 11,191.9 Securitised assets 11,069.6 9,423.6 - 20,493.2 Securitised

notes Covered

Bonds Other Total £m £m £m £m At 1 January 2011 5,272.9 4,977.6 2,297.2 12,547.7 Repayments (352.3) (744.9) (1,603.6) (2,700.8) Other movements (96.9) (242.4) (2.1) (341.4) At 31 December 2011 4,823.7 3,990.3 691.5 9,505.5 Securitised assets 10,838.2 9,408.0 - 20,246.2 Notes to the Financial Information (continued)



13. Debt securities in issue (continued) Other movements comprise exchange rate movements, accrued interest and hedge accounting adjustments. B&B issued debt securities to securitise loans and advances to customers through SPVs and Covered Bonds, and also raised unsecured medium term funding, the amounts of which are shown above. Certain of these have been subject to fair value hedge designation, and the carrying values of these instruments are adjusted where appropriate to reflect the fair values of the risks being hedged. HM Treasury has provided guarantees with regards to certain wholesale borrowings; B&B pays a fee for these guarantees as shown in note 4. Securitised assets represent loans and advances to customers which have been used to securitise issued notes, including notes which are held by other B&B companies. On 10 May 2012 a Non-Asset Trigger Event (as defined in the Offering Circular) occurred within B&B's Master Trust securitisation structure, due to the aggregate current balance of loans comprising the Trust Property falling below the minimum trust size of £10.7bn. The impact of this event is to change the order of priority of the Funding 1 Available Principal Receipts. As a result of the Non-Asset Trigger Event, all principal is allocated to Funding 1 and will continue to be so allocated until all holders of Aire Valley residential mortgage-backed securities have been repaid in full if sufficient funds are available. The principal is then passed to the Issuers based on their respective notes outstanding. Each Issuer then utilises this principal to pay down prorata and sequentially by class of note. The timing of future redemptions will be dependent on the availability of funds. 14. Contingent liabilities On 20 January 2009 a solicitor's letter was received notifying B&B and certain present and former B&B directors of a potential claim by former individual shareholders who subscribed for additional shares in the £401m rights issue approved on 17 July 2008. These former shareholders claim to have suffered loss through having been induced to subscribe for shares in the rights issue by allegedly materially misleading and/or incomplete statements made in the associated prospectus dated 24 June 2008 as revised and supplemented by the supplementary prospectus dated 11 July 2008. Should such a claim result in proceedings which are pursued through the courts and which succeed, the defendant directors and/or B&B could be liable in damages to certain former shareholders in B&B who subscribed for shares in the rights issue. In May 2009 B&B together with its legal advisers responded to the allegations raised. Nothing further was heard until 23 January 2012 when further correspondence was received from the solicitors representing the former shareholders, to which B&B together with its legal advisers responded. This correspondence contained no further allegations or details of the former shareholders’ potential claim. It is not possible at this stage to determine the outcome or timing of any conclusion to this matter. No provision has been made in respect of these allegations 15. Reserves Reserves comprise: At 30 June

201230 June

2011 31 December

2011 £m £m £m Share premium reserve 198.9 198.9 198.9 Capital redemption reserve 29.2 29.2 29.2 Available-for-sale reserve 29.0 38.3 19.7 Cash flow hedge reserve 107.1 (30.1) 82.5 Total 364.2 236.3 330.3

16. Related party disclosures B&B considers the Board of Directors and the members of the Executive Committee to be the key management personnel. Transactions during the period with B&B's key management personnel and other related parties were similar in nature to those during the year ended 31 December 2011. B&B repaid £700m of the Working Capital Facility during the period (6 months to 30 June 2011: £nil; 12 months to 31 December 2011: £150m).



Notes to the Financial Information (continued) 17. Capital structure Capital resources - B&B plc At

30 June 2012 30 June 2011 Restated1 31 December 2011

£m £m £m Share capital and reserves 2,394.7 2,118.1 2,331.1 Available-for-sale reserve adjustments (28.9) (30.6) (19.6) Cash flow hedge reserve adjustments (76.0) 30.1 (46.6) Net pension deficit adjustment (97.8) (74.6) (77.6) Less: deductions (524.5) (578.2) (508.3) Tier 1 capital 1,667.5 1,464.8 1,679.0 Capital instruments 82.5 279.2 81.5 Total capital 1,750.0 1,744.0 1,760.5 1 The capital resources of B&B plc at 30 June 2011 have been restated consistently with the restatement detailed in note 3 of B&B's Annual Report and Accounts

for 2011. 18. Risks and uncertainties The Directors are aware of the following material risks and uncertainties which may affect B&B during the remainder of 2012: external economic factors including unemployment, house price movements, the extent and timing of changes in interest rates, operational risks arising as a result of the ongoing integration with NRAM, the rate of interest charged on the WCF and the rate of the Government guarantee fee. There may be other risks that are not listed above that the Directors are not aware of or that the Directors do not consider material. The business, financial condition or results of operations of B&B could be adversely affected by any of these risks. Further discussion of risk management and control were provided on pages 10-13 of B&B's 2011 Annual Report and Accounts.

19. Events after the reporting period On 19 June 2012 B&B announced tender offers in respect of the securities issued by Aire Valley. The tender process closed on 4 July 2012, resulting in the purchase of notes with a face value of £83.9m, for cash of £56.4m including costs, resulting in a profit of £27.5m.

The financial information in this document is unaudited and does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. The comparative figures for the financial year ended 31 December 2011 are not the statutory accounts for that financial year for Bradford & Bingley plc. The 2011 statutory accounts of Bradford & Bingley plc have been reported on by that company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. This document may contain forward-looking statements with respect to certain plans and current goals and expectations relating to the future financial conditions, business performance and results of Bradford & Bingley plc. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of Bradford & Bingley plc including, amongst other things, UK domestic and global economic and business conditions, market related risks such as fluctuation in interest rates and exchange rates, inflation, deflation, the impact of competition, changes in customer preferences, risks concerning borrower credit quality, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations within relevant industries, the policies and actions of regulatory authorities, the impact of tax or other legislation and other regulations in the jurisdictions in which Bradford & Bingley plc and its affiliates operate. As a result, the actual future financial condition, business performance and results of Bradford & Bingley plc may differ materially from the plans, goals and expectations expressed or implied in these forward-looking statements.



Statement of Directors' Responsibilities The Directors confirm that this Interim Financial Report has been prepared in accordance with IAS 34 as adopted by the European Union and that the management commentary and related notes includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

• An indication of important events that have occurred during the first six months and their impact on the condensed Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

• Material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

The Directors of Bradford & Bingley plc at the date of this report are: Richard Pym Kent Atkinson Richard Banks Michael Buckley Sue Langley Phillip McLelland Keith Morgan Jim O'Neil Louise Patten John Tattersall By order of the Board Richard Banks Phillip McLelland Chief Executive Officer Finance Director 26 July 2012 26 July 2012



Independent Review Report to Bradford & Bingley plc Introduction We have been engaged by the company to review the condensed set of Financial Statements in the Interim Financial Report for the six months ended 30 June 2012, which comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Cash Flow Statement and the related notes. We have read the other information contained in the Interim Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of Financial Statements. Directors' responsibilities The Interim Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Financial Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. As disclosed in note 2, the Annual Financial Statements of B&B are prepared in accordance with IFRS as adopted by the European Union. The condensed set of Financial Statements included in this Interim Financial Report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union. The maintenance and integrity of the Bradford & Bingley plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Our responsibility Our responsibility is to express to the company a conclusion on the condensed set of Financial Statements in the Interim Financial Report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland), and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Financial Statements in the Interim Financial Report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. PricewaterhouseCoopers LLP Chartered Accountants Leeds 26 July 2012

Northern Rock (Asset Management) plc Interim Financial Report 30 June 2012

UKAR Interim Financial Report 2012 Section C - NRAM of 70

Section C

Northern Rock (Asset Management) plc Interim Financial Report




Northern Rock (Asset Management) plc


KEY HIGHLIGHTS Northern Rock (Asset Management) plc • Repaid a further £88m in Government loans, reducing the total owed to the Government down to £19.6bn. • £140m paid to Government in the form of interest, fees and corporation tax. • Mortgage accounts three or more months in arrears fell by 5% to 23,158 (H1 2011: 27,010; FY 2011: 24,449)

from the year end. • Completion of the integration of the two business infrastructures including the successful transfer of c 350,000

mortgage customer accounts. • Underlying profit before tax of £415.1m, compared with £391.6m profit in H1 2011. • Statutory profit before tax of £305.3m, compared with £339.0m profit in H1 2011. Events since 30 June 2012: • Purchased £448.5m of debt securities at a discount generating profit before tax of £115.2m. • Sold £465m of mortgages, at par, to Virgin Money which generates a further repayment of the Government

loan. Repricing of the NRAM Government Loan HM Treasury gave notice of an increase in the rate payable on the NRAM Government loan to BBR +1% from BBR +0.25% effective from 4 May 2012. The decision to increase the rate reflects the strengthening of NRAM's liquidity and capital positions since nationalisation which are now more able to withstand the increased rate. It is estimated the 0.75% higher rate will increase interest payable from NRAM to HM Treasury by c £95m in 2012. PERFORMANCE ON STRATEGIC PRIORITIES 1. Optimising the Balance Sheet NRAM's Balance Sheet has reduced to £51.2bn in the last six months, a decrease of £4.1bn. NRAM has repaid £88m of Government funding in the first half of this year (H1 2011: £1,008m; FY 2011: £2,000m). A further £2.7bn of other funding has been repaid. These repayments have been funded largely from a 6% reduction in lending balances (£2.3bn since 31 December 2011). As a result, lending balances stand at £38.9bn at 30 June 2012 (H1 2011: £44.6bn; FY 2011: £41.2bn). Other cash flows were generated for the Government in the first half of the year in the form of guarantee fees, interest and taxes, totalling £140m (H1 2011: £70m; FY 2011: £184m). The Board considers the total of all these cash flows paid to HM Treasury to be an important measure of NRAM meeting its objective in terms of maximising taxpayer value. Events since 30 June 2012 In July 2012, after the close of the interim financial period and, therefore, not included in the June Balance Sheet, NRAM completed the purchase of £448.5m of Granite and Whinstone notes at a discount to their nominal value, realising a profit of £115.2m. The sale of £465m of NRAM mortgages, at par, secured on residential property assets to Virgin Money was also announced in July. The sale proceeds will be used to repay a further element of the NRAM Government loan. 2. Excellence in customer and debt management The number of accounts in arrears for NRAM is lower than the 2011 year end as a direct consequence of proactive arrears management coupled with the continued benign interest rate environment in 2012. The total number of mortgage cases three or more months in arrears, including those in possession, reduced by 5% since the end of 2011 to 23,158 cases as at 30 June 2012 (H1 2011: 27,010; FY 2011: 24,449). The total amount of arrears owed by residential customers has fallen by £8.6m to £172.7m during the six months to 30 June 2012, a reduction of 5%.



Support for customers experiencing payment difficulties NRAM has a total of around 446,000 customers: they have 323,000 mortgage accounts and 249,000 unsecured personal loan accounts. The majority, c 90%, of these mortgage loans continue to perform well but we do have a significant number of customers who are finding it difficult to meet their repayments and we work closely with them to offer a range of solutions to help them manage their circumstances. Repossession proceedings for customers in arrears are always viewed as a last resort but regrettably, in some situations, this is inevitable. During the first half, the number of accounts taken into possession reduced by 15% to 3,120 (H1 2011: 3,686). The stock of properties in possession at the end of June decreased from 2,118 at 31 December 2011 to 1,947 (H1 2011: 2,374). Where a buy-to-let landlord is in arrears we endeavour to protect tenants by honouring the terms of all valid Assured Shorthold Tenancy agreements and instructing a Law of Property Act receiver to collect rent directly from the tenant, thereby enabling the tenant to stay in the property for the duration of any agreement. 3. Maximise cost effectiveness The Group has continued to focus on reducing costs. Ongoing administrative expenses were higher at £59.6m (H1 2011: £53.7m; FY 2011: £116.7m) with the ratio of costs to assets increasing to 0.25% (H1 2011: 0.19%; FY 2011: 0.21%). The increase in costs reflects the continued investment in operational teams which directly support customers, both in mortgage servicing and debt collection. In addition, IT costs are higher following a period of parallel running as capability has been built to support the NRAM business. This has included the successful migration of c 350,000 NRAM customer mortgage accounts onto the existing B&B mortgage platform. The shared system will contribute to reduced costs and provide a more stable and efficient business infrastructure from which to serve our customers. We expect these benefits to start to be realised in the next twelve months. UKAR sold its Gosforth site to Virgin Money on 22 June, as part of its phased withdrawal from the site that will complete in 2013. This reduces and simplifies the number of properties under UKAR management as we focus on our two main sites in Crossflatts in Yorkshire and Doxford in the North East. The proactive customer contact programme for all unsecured loan Payment Protection Insurance ('PPI') sales made by NRAM from 2005 onwards is nearing completion. Around 150,000 customers who were sold PPI during this period have been contacted and, where appropriate, compensation offered. On mortgage PPI, there has been an increase in the level of claims which has been largely driven by the activity of claims management companies. A high proportion of these complaints relate to customers who do not have a PPI policy, however, the number of genuine claims has also significantly increased. Due to the general higher level of activity we have increased the overall provision for PPI compensation within NRAM by £65m. OUTLOOK The outlook for UKAR remains positive based on the progress made in combining the system infrastructures and the continued strong arrears performance. However, the UK economy continues to face uncertainty and the rising cost of living, in addition to continued house price deflation are placing pressure on household finances. We expect these factors may lead to more of our customers experiencing difficulties in meeting their mortgage payments and we are planning to increase our programme of proactive contact to help those customers who may be at risk. OTHER INFORMATION Northern Rock (Asset Management) plc Northern Rock was nationalised and taken into Government ownership in February 2008 and was then restructured into two legal entities with effect from 1 January 2010 - Northern Rock plc and Northern Rock (Asset Management) plc. NRAM retained the majority of the pre-existing mortgage book and all pre-existing unsecured loan accounts. NRAM is permanently closed to new lending, but continues to provide services to some 446,000 existing borrowers, with 323,000 mortgage accounts and 249,000 unsecured loan accounts.



Key Performance Indicators ('KPIs') In addition to the primary Financial Statements, NRAM has adopted the following KPIs in managing business performance in the context of its strategic priorities.

Strategic priorities Financial measures 6 months

to 30 June2012

6 months to 30 June

2011*


2011

Commentary

Total lending balances £bn Secured £bn

Unsecured £bn

38.9 36.6 2.3

44.6 41.8 2.8

41.2 38.7 2.5

Lending balances reduced by 6% during H1 due to £1.8bn of residential redemptions, £0.1bn of unsecured loan redemptions and £0.4bn of other capital repayments. Unsecured balances include both the Together and Standalone unsecured loan books.


9.2 1.8

10.2 2.3

11.2 5.0

Redemptions have fallen relative to 2011's higher levels which were impacted by the introduction of an early repayment charge ('ERC') waiver.


0.1 19.6

1.0 20.7

2.0 19.7

Only a nominal amount has been paid in the period on the NRAM Government Loan, as £1.2bn unsecured funding matured and hence was repaid in H1.



228

1,078 2,184 Total cash paid to HM Treasury during the period. This includes principal and interest repayments, guarantee fees and tax paid. The main driver of the decrease year on year is due to lower principal repayments on the Government loan.



0.48

172.7

0.48

199.2

0.47

181.3

This represents the value of customers’ missed payments and relates this to the total balance of all residential mortgages.




8.96 7.17

23,158

9.10 7.41

27,010

8.97 7.19

24,449

The reduction in arrears reflects both the improvement in collections performance and that higher unemployment has not had a material impact, being restricted to the younger element of the population who are not part of the NRAM customer base.


Residential impairment provisions £m Cover %

Residential provision balance: residential loans in arrears %

854.7 2.30

14.4

992.2 2.33

15.8

926.4 2.35

15.7

The level of the residential impairment Balance Sheet provision reduced by £71.7m and the level of cover decreased from 2.35% to 2.30%.

Reduce costs


Ratio of costs to average interest-earning assets


59.6 59.6

0.25 0.25

55.2 53.7

0.19 0.19

156.9 116.7

0.28 0.21

The increase in ongoing costs partly reflects the continued investment in operational teams who directly support customers both in mortgage servicing and debt collection. In addition higher IT costs have been incurred following a period of parallel running.

* June 2011 has been restated reflecting the changes to EIR policy. Details of the change are provided in note 3. ** Ongoing costs exclude certain items that are not expected to recur on an ongoing basis; an analysis of items excluded from ongoing costs is provided in note 8.



Business review In addition to the statutory measure of profit, the Board believes it is appropriate to assess performance based on the underlying profit of the business, which excludes non-recurring costs, particularly those associated with the integration with B&B, and certain gains such as the repurchase of capital instruments. Also excluded are movements in fair value and hedge ineffectiveness relating to financial instruments which are expected to be held to maturity as opposed to being traded. An analysis of the difference between the statutory accounting measure of profit and the underlying profit of NRAM is provided in the table below. Summary Income Statement

6 months to 30 June

2012

6 months to 30 June

2011*


2011 £m £m £m

Underlying net interest income 584.3 615.7 1,264.0 Underlying net non interest income** 28.5 6.9 18.9 Underlying net operating income 612.8 622.6 1,282.9 Ongoing administrative expenses (59.6) (53.7) (116.7) Impairment on loans and advances to customers (127.1) (171.9) (311.0) Net impairment on investment securities (11.0) (5.4) (65.3) Underlying profit before taxation 415.1 391.6 789.9 Unrealised fair value movements on financial instruments (31.1) (32.9) 10.9 Hedge ineffectiveness (13.7) (18.2) (26.2) Other net administrative expenses - (1.5) (40.2) Provision for customer redress (65.0) - - Gain on repurchase of capital instruments - - 187.1 Profit on disposal of credit linked notes - - 15.6 Defined benefit pension scheme gains - - 3.5 Statutory profit before taxation 305.3 339.0 940.6

Summary Balance Sheet

30 June

2012 30 June

2011* 31 December

2011 £m £m £m Loans and advances to customers: - Residential mortgages 36,353.1 41,506.6 38,422.0 - Commercial and other secured loans 256.1 314.9 268.7 - Unsecured lending 2,276.9 2,790.9 2,523.9 Wholesale assets 7,823.4 11,020.5 8,685.4 Fair value adjustments on portfolio hedging 174.8 330.9 234.9 Derivative financial instruments 4,242.7 6,427.4 5,051.1 Other assets 116.4 134.5 138.3 Total assets 51,243.4 62,525.7 55,324.3 HM Treasury loans 19,650.6 20,717.9 19,726.4 Wholesale funding 28,163.5 38,288.0 32,387.2 Derivative financial instruments 302.9 575.2 387.5 Other liabilities 389.5 289.5 379.6 Capital instruments 219.2 1,088.0 219.3 Equity 2,517.7 1,567.1 2,224.3 Total equity and liabilities 51,243.4 62,525.7 55,324.3

* June 2011 has been restated, as detailed in note 3. ** Underlying net non interest income includes net fee and commission income, net gains on financial instruments designated at fair value, net realised gains

less losses on investment securities and other operating income.



Northern Rock (Asset Management) plc Condensed Financial Statements Consolidated Income Statement



Restated1


2011 Note £m £m £m Interest receivable and similar income 4 872.6 869.9 1,774.1 Interest expense and similar charges 4 (288.3) (254.2) (510.1) Net interest income 4 584.3 615.7 1,264.0 Fee and commission income 9.4 12.1 25.8 Fee and commission expense (6.2) (8.7) (14.3) Net fee and commission income 3.2 3.4 11.5 Net gains on financial instruments designated at fair value 6 17.5 - - Net realised gains less losses on investment securities 1.2 (0.9) (1.2) Unrealised fair value movements on financial instruments 7 (31.1) (32.9) 10.9 Hedge ineffectiveness 7 (13.7) (18.2) (26.2) Provision for customer redress 15 (65.0) - - Other operating income 6.6 4.4 8.6 Non interest income 5 (81.3) (44.2) 3.6 Net operating income 503.0 571.5 1,267.6 Administrative expenses: - Ongoing 8 (59.6) (53.7) (116.7) - Other net expenses 8 - (1.5) (40.2) Impairment on loans and advances to customers 11 (127.1) (171.9) (311.0) Net impairment on investment securities (11.0) (5.4) (65.3) Defined benefit pension scheme gains - - 3.5 Gain on repurchase of capital instruments - - 187.1 Profit on disposal of credit linked notes - - 15.6 Profit before taxation 305.3 339.0 940.6 Taxation 9 (68.5) (41.0) (112.8) Profit for the financial period 236.8 298.0 827.8

1 See note 3. NRAM's business and operations comprise one single activity, principally within the United Kingdom, and NRAM has only one operating segment for the purposes of IFRS 8 'Operating Segments'. The results above arise from continuing activities, and are attributable to the equity shareholder.



Northern Rock (Asset Management) plc Condensed Financial Statements (continued) Consolidated Statement of Comprehensive Income

Gross of tax Tax Net of tax 6 months to 30 June 2012 £m £m £m Profit for the financial period 305.3 (68.5) 236.8 Available-for-sale instruments: - Net gains recognised in available-for-sale reserve during the period 36.5 (8.9) 27.6 - Amounts transferred from available-for-sale reserve and recognised in profit during the period

5.6 (1.4) 4.2

Cash flow hedges: - Net losses recognised in cash flow hedge reserve during the period (698.2) 332.8 (365.4) - Amounts transferred from cash flow hedge reserve and recognised in profit during the period

745.2 (355.2) 390.0

Actuarial gains on retirement benefit obligations 0.2 0.6 0.8 Total other comprehensive income 89.3 (32.1) 57.2 Total comprehensive income for the financial period 394.6 (100.6) 294.0

Gross of tax Tax Net of tax 6 months to 30 June 2011 (Restated1) £m £m £m Profit for the financial period 339.0 (41.0) 298.0 Available-for-sale instruments: - Net gains recognised in available-for-sale reserve during the period 55.5 23.5 79.0 - Amounts transferred from available-for-sale reserve and recognised in profit during the period

1.1 0.5 1.6

Cash flow hedges: - Net gains recognised in cash flow hedge reserve during the period 27.9 11.9 39.8 - Amounts transferred from cash flow hedge reserve and recognised in profit during the period

(1.2) (0.5) (1.7)

Actuarial gains on retirement benefit obligations 11.3 1.5 12.8 Total other comprehensive income 94.6 36.9 131.5 Total comprehensive income for the financial period 433.6 (4.1) 429.5

Gross of tax Tax Net of tax 12 months to 31 December 2011 £m £m £m Profit for the financial year 940.6 (112.8) 827.8 Available-for-sale instruments: - Net gains recognised in available-for-sale reserve during the year 125.6 (20.3) 105.3 - Amounts transferred from available-for-sale reserve and recognised in profit during the year

(2.9) 0.5 (2.4)

Cash flow hedges: - Net losses recognised in cash flow hedge reserve during the year (79.5) 8.3 (71.2) - Amounts transferred from cash flow hedge reserve and recognised in profit during the year

296.5 (30.9) 265.6

Actuarial gains on retirement benefit obligations 17.3 (4.8) 12.5 Total other comprehensive income 357.0 (47.2) 309.8 Total comprehensive income for the financial year 1,297.6 (160.0) 1,137.6

1 See note 3.



Northern Rock (Asset Management) plc Condensed Financial Statements (continued) Consolidated Balance Sheet

Note

30 June 2012

30 June 2011 Restated1

31 December 2011

£m £m £m Assets Cash and balances at central banks 4,611.1 7,396.7 5,286.1 Loans and advances to banks 1,361.7 1,351.6 1,359.8 Investment securities and unsecured investment loans 1,850.6 2,272.2 2,039.5 Loans and advances to customers 10 38,886.1 44,612.4 41,214.6 Fair value adjustments on portfolio hedging 10 174.8 330.9 234.9 Derivative financial instruments 4,242.7 6,427.4 5,051.1 Other assets 37.0 19.8 35.4 Deferred tax assets - 8.5 - Retirement benefit assets 65.4 38.1 49.8 Investment property - 26.6 26.6 Property, plant and equipment 12.8 41.5 25.3 Intangible assets 1.2 - 1.2 Total assets 51,243.4 62,525.7 55,324.3 Liabilities Loans and other amounts due to banks 2,821.9 4,394.7 3,682.2 HM Treasury loans 19,650.6 20,717.9 19,726.4 Derivative financial instruments 302.9 575.2 387.5 Debt securities in issue 14 25,341.6 33,893.3 28,705.0 Other liabilities 91.9 80.5 93.9 Current tax liabilities 116.3 9.3 88.6 Deferred tax liabilities 9 41.8 - 29.8 Provisions 15 139.5 199.7 167.3 Capital instruments 219.2 1,088.0 219.3 Total liabilities 48,725.7 60,958.6 53,100.0 Equity Issued capital and reserves attributable to equity holder of the parent:

- Share capital 124.0 124.0 124.0 - Reserves 16 470.1 235.1 413.7 - Retained earnings 1,798.8 998.9 1,560.9 Share capital and reserves 2,392.9 1,358.0 2,098.6 Non-shareholders' funds 124.8 209.1 125.7 Total equity 2,517.7 1,567.1 2,224.3 Total equity and liabilities 51,243.4 62,525.7 55,324.3

1 See note 3.



Northern Rock (Asset Management) plc Condensed Financial Statements (continued) Consolidated Statement of Changes in Equity

Sharecapital

Share Premium

reserve

Capital Redemption

reserve

Other reserves

Retained earnings

Total share capital and

reserves

Non-

share-holders'

funds Total

equity 6 months to 30 June 2012 £m £m £m £m £m £m £m £m At 1 January 2012 124.0 403.2 7.3 3.2 1,560.9 2,098.6 125.7 2,224.3 Other comprehensive income:


- - - 42.1 - 42.1 - 42.1


- - - 47.0 - 47.0 - 47.0

- Actuarial gains - - - - 0.2 0.2 - 0.2 - Tax effects of the above - - - (32.7) 0.6 (32.1) - (32.1)

Total other comprehensive income

- - - 56.4 0.8 57.2 - 57.2

Profit for the financial period - - - - 236.8 236.8 - 236.8 Gain on repurchase of capital instruments

- - - - 0.3 0.3 (0.9) (0.6)

At 30 June 2012 124.0 403.2 7.3 59.6 1,798.8 2,392.9 124.8 2,517.7

Sharecapital

Share premium

reserve

Capital redemption

reserve Other

reservesRetained earnings


reserves

Non -

share-holders'

funds Total equity 6 months to

30 June 2011 £m £m £m £m £m £m £m £m At 1 January 2011 (Restated1) 124.0 403.2 7.3 (294.1) 688.1 928.5 209.1 1,137.6 Other comprehensive income: - Net movement in available- for-sale reserve

- - - 56.6 - 56.6 - 56.6


- - - 26.7 - 26.7 - 26.7

- Actuarial gains - - - - 11.3 11.3 - 11.3

- Tax effects of the above - - - 35.4 1.5 36.9 - 36.9


- - - 118.7 12.8 131.5 - 131.5

Profit for the financial period - - - - 298.0 298.0 - 298.0

At 30 June 2011 (Restated1) 124.0 403.2 7.3 (175.4) 998.9 1,358.0 209.1 1,567.1

1See note 3.



Northern Rock (Asset Management) plc Condensed Financial Statements (continued)

Consolidated Statement of Changes in Equity (continued)

Share capital


Capital redemption

reserve

Other reserves

Retainedearnings


reserves

Non-

share-holders'

funds Total

equity 12 months to 31 December 2011 £m £m £m £m £m £m £m £m At 1 January 2011 124.0 403.2 7.3 (294.1) 688.1 928.5 209.1 1,137.6 Other comprehensive income:


- - - 122.7 - 122.7 - 122.7


- - - 217.0 - 217.0 - 217.0

- Actuarial gains - - - - 17.3 17.3 - 17.3 - Tax effects of the above - - - (42.4) (4.8) (47.2) - (47.2)


- - - 297.3 12.5 309.8 - 309.8

Profit for the financial year - - - - 827.8 827.8 - 827.8 Gain on repurchase of capital instruments

- - - - 32.5 32.5 (83.4) (50.9)

At 31 December 2011 124.0 403.2 7.3 3.2 1,560.9 2,098.6 125.7 2,224.3



Northern Rock (Asset Management) plc Condensed Financial Statements (continued) Consolidated Cash Flow Statement



Restated1


£m £m £m Cash flows from operating activities Profit before taxation for the financial period 305.3 339.0 940.6 Adjustments to reconcile profit to cash flows (used in)/generated from operating activities: - Depreciation and amortisation 1.0 0.8 17.8 - Net loss on sale of property, plant and equipment and intangible assets 0.2 - -

- Impairment on loans and advances to customers 127.1 171.9 311.0 - Net impairment on investment securities 11.0 5.4 65.3 - Provision for customer redress 65.0 - - - Gain on repurchase of capital instruments - - (187.1) - Income taxes paid (61.0) - (50.0) - Fair value adjustments on financial instruments (22.4) 78.8 379.5 - Other non-cash movements (476.1) (40.9) (240.2) Cash flows from operating activities before changes in operating assets and liabilities (49.9) 555.0 1,236.9 Net (increase)/decrease in operating assets: - Loans and advances to banks and customers 2,200.0 2,790.4 6,048.1 - Derivative financial instruments receivable 808.4 115.1 1,491.4 - Other assets (0.1) (3.3) (16.6) Net increase/(decrease) in operating liabilities: - Loans and other amounts due to banks (859.7) (508.5) (1,220.2) - Derivative financial instruments payable (84.6) (251.2) (438.9) - Debt securities in issue (2,737.9) (2,034.0) (6,928.9) - Other liabilities (3.5) (64.4) (90.5) - Provisions (92.8) (13.6) (49.9) Net cash (used in)/generated from operating activities (820.1) 585.5 31.4 Cash flows from investing activities - Purchase of property, plant and equipment and intangible assets - (0.4) (2.6)- Proceeds from sale of property, plant and equipment, intangible assets and investment property 38.0 - 0.2

- Purchase of investment securities (27.5) (19.0) (231.7)- Proceeds from sale and redemption of investment securities 233.4 262.3 627.7Net cash from investing activities 243.9 242.9 393.6 Cash flows used in financing activities - Repayment of HM Treasury loans (87.5) (1,008.4) (1,999.6) - Repurchase of capital instruments (0.8) - (709.1) Net cash used in financing activities (88.3) (1,008.4) (2,708.7) Net decrease in cash and cash equivalents (664.5) (180.0) (2,283.7) Cash and cash equivalents at beginning of period 6,641.1 8,924.8 8,924.8

Cash and cash equivalents at end of period 5,976.6 8,744.8 6,641.1

Represented by cash and assets with original maturity of three months or less within:

- Cash and balances at central banks 4,609.2 7,393.6 5,283.6 - Loans and advances to banks 1,356.4 1,351.2 1,354.5 - Investment securities and unsecured investment loans 11.0 - 3.0 Total 5,976.6 8,744.8 6,641.1

1 See note 3.



Notes to the Financial Information

1. Reporting entity Northern Rock (Asset Management) plc ('NRAM') is a public limited company incorporated and domiciled in the United Kingdom. The financial information in this Interim Financial Report consolidates NRAM and its subsidiaries (including special purpose vehicles ('SPVs')), together referred to as NRAM. NRAM's Consolidated Financial Statements for the year ended 31 December 2011 are included in NRAM's 2011 Annual Report & Accounts available on NRAM's website www.nram.co.uk. 2. Basis of preparation This Interim Financial Report has been prepared on a going concern basis. At the date of approval of this Interim Financial Report, NRAM is reliant on the financing facilities and also upon the guarantee arrangements provided to NRAM by HM Treasury. Withdrawal of the financing facilities or the guarantee arrangements would have a significant impact on NRAM's operations and its ability to continue as a going concern, in which case adjustments may have to be made to reduce the carrying value of assets to recoverable amounts and to provide for further liabilities that might arise. At the date of approval of this Interim Financial Report, HM Treasury has confirmed its intentions to continue to provide funding until at least 1 October 2013. In preparing this Interim Financial Report there have been no material changes to the accounting policies previously applied by NRAM in preparing, and detailed in, its Annual Report & Accounts for the year ended 31 December 2011, which were prepared in accordance with IFRS as adopted by the European Union.

The Directors consider that NRAM's accounting policies are the most appropriate to NRAM's circumstances, have been consistently applied in dealing with items which are considered material, and are supported by reasonable and prudent estimates and judgements. The preparation of this Interim Financial Report requires the use of estimates and assumptions that affect the reported values of assets and liabilities at the Balance Sheet date and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. This Interim Financial Report has been prepared in accordance with IAS 34 'Interim Financial Reporting'. The information in this document does not include all of the disclosures required by IFRS in full annual financial statements, and it should be read in conjunction with the Consolidated Financial Statements of NRAM for the year ended 31 December 2011.



Notes to the Financial Information (continued) 3. Impact of restatement of the results of NRAM for the 6 months to 30 June 2011 NRAM was subject to a change in accounting policy during 2011. Consequently, the comparative Income Statement information for the 6 months to 30 June 2011 and the comparative Balance Sheet information for 30 June 2011 have been restated from that reported in the 2011 Interim Financial Report. The changes applied are as follows:

Income Statement

Reported

in 2011 EIR

adjustment

Restated 2011

values For the 6 months to 30 June 2011 £m £m £m Underlying net interest income 568.2 47.5 615.7 Underlying net non interest income* 6.9 - 6.9 Underlying net operating income 575.1 47.5 622.6 Ongoing administrative expenses (53.7) - (53.7) Impairment on loans and advances to customers (171.9) - (171.9) Net impairment on investment securities (5.4) - (5.4) Underlying profit before taxation 344.1 47.5 391.6 Unrealised fair value movements on financial instruments (32.9) - (32.9) Hedge ineffectiveness (18.2) - (18.2) Other net administrative expenses (1.5) - (1.5) Statutory profit before taxation 291.5 47.5 339.0 * Underlying net non interest income includes net fee and commission income, net gains on financial instruments designated at fair value, net realised gains less

losses on investment securities and other operating income.

Balance sheet

Reported

in 2011 EIR

adjustment

Restated 2011

values At 30 June 2011 £m £m £m Loans and advances to customers: - Residential mortgages 41,639.9 (133.3) 41,506.6 - Commercial and other secured loans 314.9 - 314.9 - Unsecured lending 2,790.9 - 2,790.9 Wholesale assets 11,020.5 - 11,020.5 Fair value adjustments on portfolio hedging 330.9 - 330.9 Derivative financial instruments 6,427.4 - 6,427.4 Other assets 134.5 - 134.5 Total assets 62,659.0 (133.3) 62,525.7 HM Treasury loans 20,717.9 - 20,717.9 Wholesale funding 38,288.0 - 38,288.0 Derivative financial instruments 575.2 - 575.2 Other liabilities 300.7 (11.2) 289.5 Capital instruments 1,088.0 - 1,088.0 Equity 1,689.2 (122.1) 1,567.1 Total equity and liabilities 62,659.0 (133.3) 62,525.7 EIR adjustment: In respect of loans and advances to customers, the EIR accounting policy of NRAM was changed during 2011. Integral fees and charges are now amortised over a shorter period, being the period to which the product reprices to a standard or product variable rate.



Notes to the Financial Information (continued) 4. Net interest income

6 months to 30 June

2012

6 months to 30 June

2011 Restated*


2011 £m £m £m Interest receivable and similar income On secured advances 786.6 765.3 1,550.4 On other lending 55.3 65.1 143.7 On investment securities and deposits 30.7 39.5 80.0 Total interest receivable and similar income 872.6 869.9 1,774.1 Interest expense and similar charges On amounts due to banks and HM Treasury (103.7) (92.3) (180.3) Other (184.6) (161.9) (329.8) Total interest expense and similar charges (288.3) (254.2) (510.1) Net interest income 584.3 615.7 1,264.0 Average balances Interest-earning assets ('IEA') 48,465 57,534 55,501 Financed by: - Interest-bearing funding 45,605 55,448 53,239 - Interest-free funding** 2,860 2,086 2,262 Average rates % % % - Gross yield on IEA 3.62 3.02 3.20 - Cost of interest-bearing funding (1.27) (0.92) (0.96) Interest spread 2.35 2.10 2.24 Contribution of interest-free funding** 0.07 0.03 0.04 Net interest margin on average IEA 2.42 2.13 2.28 Average Bank Base Rate 0.50 0.50 0.50 Average 1-month LIBOR 0.71 0.63 0.65 Average 3-month LIBOR 1.03 0.81 0.88

* See note 3. ** Interest-free funding is calculated as an average over the financial period, and includes share capital and reserves.



Notes to the Financial Information (continued) 5. Net non interest income

6 months to 30 June

2012

6 months to 30 June

2011


2011 £m £m £m Total net fee and commission income 3.2 3.4 11.5 Net gains on financial instruments designated at fair value 17.5 - - Net realised gains less losses on investment securities 1.2 (0.9) (1.2) Other operating income 6.6 4.4 8.6 Underlying net non interest income 28.5 6.9 18.9

Unrealised fair value movements on financial instruments (31.1) (32.9) 10.9 Hedge ineffectiveness (13.7) (18.2) (26.2) Provision for customer redress (65.0) - - Statutory net non interest income (81.3) (44.2) 3.6 6. Net gains on financial instruments designated at fair value The gains of £17.5m arose on the disposal of assets which had previously been held at a fair value of £nil on the Balance Sheet. 7. Unrealised fair value movements on financial instruments and hedge ineffectiveness 6 months to

30 June 2012

6 months to 30 June

2011


2011 £m £m £m Net (loss)/gain in fair value: - translation (losses)/gains on underlying instruments (179.8) (154.7) 160.6 - fair value movements on derivatives which are economic hedges but

are not in hedge accounting relationships 148.7 121.8 (149.7) Unrealised fair value movements (31.1) (32.9) 10.9 Net gains on fair value hedging instruments 63.2 423.3 378.8 Net gains/(losses) on fair value hedged items attributable to hedged risk 20.9 (441.1) (380.5) Ineffectiveness on cash flow hedges (97.8) (0.4) (24.5) Net hedge ineffectiveness losses (13.7) (18.2) (26.2) Total (44.8) (51.1) (15.3)



Notes to the Financial Information (continued) 8. Administrative expenses NRAM had no employees during the periods presented, as services were provided to NRAM by employees of B&B. Employee costs recharged by B&B are included within total staff costs and these employees are included in the table below. The average number of persons employed during the period was as follows:

30 June 2012

30 June 2011

31 December 2011

Average headcount Full time 1,072 933 982 Part time 358 368 382 Total working for NRAM 1,430 1,301 1,364 Total average full time equivalent working for NRAM 1,295 1,158 1,221

The number of persons employed at the end of the period was as follows:

At 30 June

2012 30 June

2011 31 December

2011 Full time 1,062 943 1,089 Part time 345 400 378 Total working for NRAM 1,407 1,343 1,467 Total full time equivalent headcount working for NRAM 1,281 1,182 1,332

The full time equivalent is based on the average hours worked by employees in the period. In addition to the permanent staff above, NRAM employed a full-time equivalent of 112 temporary staff and specialist contractors at 30 June 2012 (30 June 2011: 120; 31 December 2011: 70). 6 months to

30 June 2012

6 months to 30 June

2011


2011 £m £m £m NRAM's aggregate costs of permanent staff were as follows: Wages and salaries 20.6 18.1 34.5 Social security costs 1.5 1.4 3.6 Defined benefit pension costs (0.2) (0.2) (0.5) Defined contribution pension costs 0.9 0.9 2.2 Total staff costs 22.8 20.2 39.8 IT costs 19.3 14.3 30.7 Outsourced and professional services 5.3 6.3 13.4 Depreciation and amortisation 4.2 0.8 3.7 Other administrative expenses 8.0 12.1 29.1 Ongoing administrative expenses 59.6 53.7 116.7 Other net administrative expenses: - Transformation costs* - 1.5 26.1 - Accelerated depreciation - - 14.1 Total other net administrative expenses - 1.5 40.2 Total 59.6 55.2 156.9 * Transformation costs relate to the separation of NRAM from Northern Rock plc and its integration into UKAR.




9. Taxation The tax charge for the 6 months to 30 June 2012 has been calculated using the expected effective tax rate for the full year 2012, i.e. 24.5% (2011: 26.5%). Deferred taxation appropriately reflects a change to the standard rate of UK corporation tax from 26% to 24% with effect from 1 April 2012. This change was substantively enacted on 26 March 2012. The announced further rate reductions by an additional 1% on each of 1 April 2013 and 2014 to 22% would have the maximum potential impact of reducing NRAM's deferred tax liabilities by approximately £3.5m. £16.8m (30 June 2011: £26.7m; 31 December 2011: £20.0m) of deferred tax assets have not been recognised, relating to deductible differences of £69.9m (30 June 2011: £102.7m; 31 December 2011: £80.0m). 10. Loans and advances to customers Residential mortgages include all of NRAM’s buy-to-let loans. Commercial loans comprise loans secured on commercial properties. The Together product, previously offered by NRAM, combines a secured and unsecured loan all at one interest rate and with flexible payments. Outstanding secured balances in respect of this product are included within total residential mortgages while outstanding unsecured balances are included within unsecured loans. All of NRAM's loans and advances to customers are to UK customers. Balances include accounting adjustments in respect of provisioning requirements. Loans and advances to customers include loans amounting to £28,792.8m (30 June 2011: £33,129.0m; 31 December 2011: £30,501.4m) which have been sold to bankruptcy remote SPVs whereby substantially all of the risks and rewards of the portfolio are retained by NRAM. Accordingly, all of these loans and advances are retained on NRAM's Balance Sheet. Further details are provided in note 14. Fair value adjustments on portfolio hedging amounting to £174.8m (30 June 2011: £330.9m; 31 December 2011: £234.9m) relate to fair value adjustments to loans and advances to customers in relation to interest rate risk as a result of their inclusion in a fair value portfolio hedge relationship. Loans and advances to customers comprise the following product types:

Balances Redemptions Balances Redemptions At 30 June

2012 £m %


£m

At 30 June 2011 Restated*

£m %


£m Residential mortgages Buy-to-let 4,138.2 11 (97.9) 4,446.8 11 (78.0) Together 13,693.0 38 (449.5) 15,114.6 36 (543.9) Standard and other 18,521.9 51 (1,211.7) 21,945.2 53 (1,636.4) Total residential mortgages 36,353.1 100 (1,759.1) 41,506.6 100 (2,258.3) Residential loans 36,353.1 93 (1,759.1) 41,506.6 93 (2,258.3) Commercial loans 256.1 1 (8.9) 314.9 1 (1.4) Total secured loans 36,609.2 94 (1,768.0) 41,821.5 94 (2,259.7) Unsecured loans 2,276.9 6 (123.0) 2,790.9 6 (194.7) Total 38,886.1 100 (1,891.0) 44,612.4 100 (2,454.4)

* See note 3.



Notes to the Financial Information (continued) 10. Loans and advances to customers (continued)

Redemptions comprise full redemptions and voluntary partial redemptions, but exclude overpayments and regular monthly payments. 11. Impairment on loans and advances to customers Allowances for credit losses against loans and advances to customers have been made as follows:


On residential

mortgages £m

On commercial

loans £m

On unsecured

loans £m

Total £m

At 1 January 2012 926.4 49.9 501.6 1,477.9 Movements during the period: - Write-offs (150.6) (2.0) (72.1) (224.7) - Loan impairment charge 78.9 6.5 53.8 139.2 Net movements during the period (71.7) 4.5 (18.3) (85.5) At 30 June 2012 854.7 54.4 483.3 1,392.4 The Income Statement charge comprises: - Loan impairment charge 78.9 6.5 53.8 139.2 - Recoveries net of costs (4.0) (0.2) (7.9) (12.1) Total Income Statement charge 74.9 6.3 45.9 127.1


On residential

mortgages £m

On commercial

loans £m

On unsecured

loans £m

Total £m

At 1 January 2011 1,013.0 30.0 542.3 1,585.3 Movements during the period: - Write-offs (116.4) 0.1 (91.3) (207.6) - Loan impairment charge 95.6 (2.1) 87.5 181.0 Net movements during the period (20.8) (2.0) (3.8) (26.6) At 30 June 2011 992.2 28.0 538.5 1,558.7 The Income Statement charge comprises: - Loan impairment charge 95.6 (2.1) 87.5 181.0 - Recoveries net of costs (2.9) - (6.2) (9.1) Total Income Statement charge 92.7 (2.1) 81.3 171.9

Balances Redemptions At 31 December

2011 £m %


£m Residential mortgages Buy-to-let 4,264.0 11 (183.4) Together 14,312.0 37 (1,183.5) Standard and other 19,846.0 52 (3,587.7) Total residential mortgages 38,422.0 100 (4,954.6) Residential loans 38,422.0 93 (4,954.6) Commercial loans 268.7 1 (47.9) Total secured loans 38,690.7 94 (5,002.5) Unsecured loans 2,523.9 6 (362.7) Total 41,214.6 100 (5,365.2)



Notes to the Financial Information (continued) 11. Impairment on loans and advances to customers (continued)


On residential

mortgages £m

On commercial

loans £m

On unsecured

loans £m

Total £m

At 1 January 2011 1,013.0 30.0 542.3 1,585.3 Movements during the year: - Write-offs (258.0) (2.2) (179.0) (439.2) - Loan impairment charge 171.4 22.1 138.3 331.8 Net movements during the year (86.6) 19.9 (40.7) (107.4) At 31 December 2011 926.4 49.9 501.6 1,477.9 The Income Statement charge comprises: - Loan impairment charge 171.4 22.1 138.3 331.8 - Recoveries net of costs (7.4) - (13.4) (20.8) Total Income Statement charge 164.0 22.1 124.9 311.0

In the Balance Sheet the carrying values of loans and advances to customers are presented net of these impairment allowances. 12. Credit quality of loans and advances to customers In respect of loans and advances to residential customers, NRAM holds collateral in the form of mortgages over residential properties. The fair value of this collateral was as follows:

At

30 June 2012

£m

30 June 2011

£m

31 December 2011

£m Neither past due nor impaired 44,991.2 53,182.6 50,161.0 Past due but not impaired 5,467.2 5,786.7 5,352.9 Impaired 882.1 1,256.3 1,057.5 Total 51,340.5 60,225.6 56,571.4

If the collateral amount on each individual loan were capped at the amount of the balance outstanding, and any surplus of collateral values over balances outstanding ignored, the fair value of collateral held would be as follows:

At

30 June 2012

£m

30 June 2011

£m

31 December 2011

£m Neither past due nor impaired 30,089.3 34,742.8 32,385.8 Past due but not impaired 4,721.1 4,377.7 4,595.4 Impaired 806.2 1,182.6 966.9 Total 35,616.6 40,303.1 37,948.1

The impaired balances above include £170.7m (30 June 2011: £227.2m; 31 December 2011: £197.1m) of assets in possession, capped at the balance outstanding. The fair value of the collateral is estimated by taking the most recent valuation of the property and adjusting for house price inflation or deflation up to the Balance Sheet date. The indexed average loan to value ('LTV') of residential loans and advances to customers was as follows:

The average indexed loan to value based on a simple average is 72.5% (30 June 2011: 70.6%; 31 December 2011: 69.6%) and on a weighted average is 92.1% (30 June 2011: 90.6%; 31 December 2011: 92.2%).

At

30 June 2012

%

30 June 2011

%

31 December 2011

% To 50% 6.4 6.9 6.9 50% to 75% 11.4 11.4 11.9 75% to 100% 42.4 40.0 44.1 Over 100% 39.8 41.7 37.1 Total 100.0 100.0 100.0






loans Unsecured

loans Total £m £m £m £m

Neither past due nor impaired 31,228.5 222.2 2,084.4 33,535.1 Past due but not impaired: - less than 3 months 2,660.1 8.1 212.8 2,881.0- 3 to 6 months 1,414.1 - - 1,414.1- over 6 months 930.9 - - 930.9Impaired 974.2 80.2 463.0 1,517.4 37,207.8 310.5 2,760.2 40,278.5Impairment allowances (854.7) (54.4) (483.3) (1,392.4)

Loans and advances to customers net of impairment allowances 36,353.1 256.1 2,276.9 38,886.1

Impairment allowances: - individual 124.2 28.0 - 152.2- collective 730.5 26.4 483.3 1,240.2Total impairment allowances 854.7 54.4 483.3 1,392.4



loans Unsecured

loans Total £m £m £m £m

Neither past due nor impaired 36,144.0 299.9 2,652.6 39,096.5 Past due but not impaired: - less than 3 months 2,548.1 8.2 125.9 2,682.2- 3 to 6 months 1,461.3 1.1 7.4 1,469.8- over 6 months 693.6 1.0 14.4 709.0Impaired 1,651.8 32.7 529.1 2,213.6 42,498.8 342.9 3,329.4 46,171.1Impairment allowances (992.2) (28.0) (538.5) (1,558.7)Loans and advances to customers net of impairment allowances 41,506.6 314.9 2,790.9 44,612.4 Impairment allowances: - individual 132.5 13.0 - 145.5- collective 859.7 15.0 538.5 1,413.2Total impairment allowances 992.2 28.0 538.5 1,558.7




At 31 December 2011 Residential


loans Unsecured

loans Total £m £m £m £m Neither past due nor impaired 33,367.2 277.1 2,327.3 35,971.6Past due but not impaired: - less than 3 months 2,464.3 2.7 207.2 2,674.2- 3 to 6 months 1,374.9 1.3 - 1,376.2- over 6 months 992.0 - - 992.0Impaired 1,150.0 37.5 491.0 1,678.5 39,348.4 318.6 3,025.5 42,692.5Impairment allowances (926.4) (49.9) (501.6) (1,477.9)Loans and advances to customers net of impairment allowances 38,422.0 268.7 2,523.9 41,214.6

Impairment allowances: - individual 137.8 19.2 - 157.0- collective 788.6 30.7 501.6 1,320.9Total impairment allowances 926.4 49.9 501.6 1,477.9

'Impaired' loans are those which are 12 months or more in arrears, in possession or held for sale with an LPA receiver, and others which management consider to be individually impaired. The above table includes balances within 'neither past due nor impaired' which would have been shown as past due or impaired other than due to renegotiation; these were loans where arrears were capitalised during the previous 12 months. These loans amounted to £58.5m for the 12 months to 30 June 2012 (£626.4m for the 12 months to 30 June 2011; £46.9m for the 12 months to 31 December 2011). A loan is eligible for capitalisation of arrears only once the borrower has complied with stringent terms for a set period. NRAM also offers other forbearance methods to borrowers, subject to compliance with loan terms, including extension of repayment date and switching to interest-only products, the aim of these being to assist the borrower to reduce the level of arrears. Management have taken into consideration the forbearance options in applying loan default probabilities and in their overall assessment of the total impairment provision.



Notes to the Financial Information (continued) 13. Arrears and possessions on residential mortgages and unsecured loans Arrears and possessions are monitored for NRAM as a whole, and also split by type of product.

At 30 June 2012 30 June 2011 31 December 2011

Residential Unsecured Residential Unsecured Residential Unsecured

Arrears 3 months and over

Number of cases No. 21,211 32,987 24,636 30,760 22,331 34,282 Proportion of total % 6.57 13.22 6.76 9.83 6.57 12.33 Asset value £m 3,001.8 445.2 3,449.8 444.2 3,146.5 466.1 Proportion of book % 8.26 19.55 8.31 15.92 8.19 18.47 Total value of payments overdue £m 123.2 89.8 146.4 64.1 131.8 78.8 Proportion of total book % 0.34 3.94 0.35 2.30 0.34 3.12 Possessions Number of cases No. 1,947 - 2,374 - 2,118 - Proportion of total % 0.60 - 0.65 - 0.62 - Asset value £m 257.0 - 328.7 - 299.9 - Proportion of book % 0.70 - 0.79 - 0.78 - Total value of payments overdue £m 19.7 - 23.6 - 21.0 - Proportion of total book % 0.05 - 0.06 - 0.06 - New possessions No. 3,120 - 3,686 - 7,146 - Total arrears 3 months and over and possessions

Number of cases No. 23,158 32,987 27,010 30,760 24,449 34,282 Proportion of total % 7.17 13.22 7.41 9.83 7.19 12.33 Asset value £m 3,258.8 445.2 3,778.5 444.2 3,446.4 466.1 Proportion of book % 8.96 19.55 9.10 15.92 8.97 18.47 Total value of payments overdue £m 142.9 89.8 170.0 64.1 152.8 78.8 Proportion of total book % 0.39 3.94 0.41 2.30 0.40 3.12 Payments overdue Total value of payments overdue £m 172.7 92.3 199.2 68.5 181.3 81.6 Proportion of total book % 0.48 4.05 0.48 2.45 0.47 3.23 Loan impairment provision As % of total balances % 2.30 17.51 2.33 16.17 2.35 16.58 As % of arrears 3 months and over and possessions

% 26.23 108.56 26.26 121.23 26.88 107.62



Notes to the Financial Information (continued) 13. Arrears and possessions on residential mortgages and unsecured loans (continued) Analysis of residential mortgages and unsecured loans 3 months and over in arrears by product

At

30 June 2012 30 June 2011 31 December 2011

Residential

Unsecured

Residential

Unsecured

Residential

Unsecured Buy-to-let Number of cases No. 1,372 - 1,550 - 1,496 -Proportion of total % 4.62 - 5.01 - 4.90 -Asset value £m 234.8 - 275.0 - 256.1 -Proportion of book % 5.67 - 6.18 - 6.01 -Total value of payments overdue £m 10.5 - 11.9 - 11.4 -Proportion of total book % 0.25 - 0.27 - 0.27 - Together Number of cases No. 9,686 14,708 11,655 16,290 10,391 15,149Proportion of total % 7.21 10.58 8.01 10.73 7.43 10.49Asset value £m 1,099.3 252.3 1,317.6 285.4 1,178.9 262.3Proportion of book % 8.03 14.21 8.72 14.32 8.24 13.95Total value of payments overdue £m 45.5 23.4 57.3 22.0 50.4 21.9Proportion of total book % 0.33 1.32 0.38 1.10 0.35 1.16 Standard and other Number of cases No. 10,153 18,279 11,431 14,470 10,444 19,133Proportion of total % 6.39 16.54 6.08 8.99 6.16 14.31Asset value £m 1,667.7 192.9 1,857.2 158.8 1,711.5 203.8Proportion of book % 9.00 38.49 8.46 19.89 8.62 31.68Total value of payments overdue £m 67.2 66.4 77.2 42.1 70.0 56.9Proportion of total book % 0.36 13.25 0.35 5.27 0.35 8.84

14. Debt securities in issue Securitised

notes Covered

Bonds Other Total £m £m £m £m At 1 January 2012 19,208.8 8,105.7 1,390.5 28,705.0 Repayments (1,573.3) (250.0) (914.6) (2,737.9) Other movements (273.6) (344.6) (7.3) (625.5) At 30 June 2012 17,361.9 7,511.1 468.6 25,341.6 Securitised assets 18,972.1 9,951.3 - 28,923.4 Securitised

notes Covered

Bonds Other Total £m £m £m £m At 1 January 2011 24,027.2 9,936.1 2,088.1 36,051.4 Repayments (2,017.8) - (560.7) (2,578.5) Other movements 153.0 229.0 38.4 420.4 At 30 June 2011 22,162.4 10,165.1 1,565.8 33,893.3 Securitised assets 22,247.2 11,010.3 - 33,257.5 Securitised

notes Covered

Bonds Other Total £m £m £m £m At 1 January 2011 24,027.2 9,936.1 2,088.1 36,051.4 Repayments (4,536.3) (1,750.7) (641.9) (6,928.9) Other movements (282.1) (79.7) (55.7) (417.5) At 31 December 2011 19,208.8 8,105.7 1,390.5 28,705.0 Securitised assets 20,212.1 10,417.9 - 30,630.0




14. Debt securities in issue (continued) Other movements comprise exchange rate movements, accrued interest and hedge accounting adjustments. NRAM issued debt securities to securitise loans and advances to customers through SPVs and Covered Bonds, and also raised unsecured medium term funding, the amounts of which are shown above. Certain of these have been subject to fair value hedge designation, and the carrying values of these instruments are adjusted where appropriate to reflect the fair values of the risks being hedged. As detailed in NRAM's 2011 Annual Report and Accounts the Granite Master Trust moved into pass through in 2008. HM Treasury has provided guarantees with regard to certain wholesale borrowings; NRAM pays a fee for these guarantees currently at the rate of £12.0m per annum. The fee is not dependent on balances outstanding, and hence it is included within 'fee and commission expense'. Securitised assets represent loans and advances to customers which have been used to securitise issued notes and cash deposits of SPV companies held with third parties. 15. Provisions Provisions include £129.9m (30 June 2011: £189.8m; 31 December 2011: £156.2m) in respect of potential claims from customers regarding Payment Protection Insurance ('PPI') and other mis-sold products. NRAM commenced a proactive customer contact programme for unsecured lending PPI in July 2011 which is now nearing completion, with all customers having been mailed and the majority of responses received. Due to the higher than expected response rate to this programme and the level of mortgage PPI complaints received, a further provision of £65.0m has been made during the period. 16. Reserves Reserves comprise:

At 30 June 2012

30 June 2011

31 December 2011

£m £m £m Share premium reserve 403.2 403.2 403.2Capital redemption reserve 7.3 7.3 7.3Available-for-sale reserve (92.9) (147.0) (124.7)Cash flow hedge reserve 152.5 (28.4) 127.9Total 470.1 235.1 413.7

17. Related party disclosures NRAM considers the Board of Directors and the members of the Executive Committee to be the key management personnel. Transactions during the period with NRAM's key management personnel and other related parties were similar in nature to those during the year ended 31 December 2011. NRAM repaid £0.1bn of the HM Treasury loan during the period (6 months to 30 June 2011: £1.0bn; 12 months to 31 December 2011: £2.0bn).



Notes to the Financial Information (continued) 18. Capital structure Capital resources - NRAM plc At 30 June 2012 30 June 2011

Restated1 31 December 2011

£m £m £m Share capital and reserves 2,281.4 1,212.8 1,933.5 Available-for-sale reserve adjustments 92.7 147.2 124.6 Cash flow hedge reserve adjustments (141.7) 28.4 (68.1) Pension scheme asset (65.4) (38.1) (49.8) Reserve capital instruments 101.4 156.2 102.3 Tier one notes 42.3 134.2 42.9 Less: deductions (1.2) - (1.2) Tier 1 capital 2,309.5 1,640.7 2,084.2 Subordinated notes 23.4 52.9 23.4 Subordinated liabilities 150.7 900.1 150.7 Total capital 2,483.6 2,593.7 2,258.3 1 The share capital and reserves of NRAM plc at 30 June 2011 have been restated consistently with NRAM's restatement detailed in note 3. 19. Risks and uncertainties The Directors are aware of the following material risks and uncertainties which may affect NRAM during the remainder of 2012: external economic factors including unemployment, house price movements, the extent and timing of changes in interest rates, operational risks arising as a result of the separation from Northern Rock plc and ongoing integration with B&B and the rate of interest charged on the Government loan. There may be other risks that are not listed above that the Directors are not aware of or that the Directors do not consider material. The business, financial condition or results of operations of NRAM could be adversely affected by any of these risks. Further discussion of risk management and control were provided on pages 10-13 of NRAM's 2011 Annual Report and Accounts.

20. Events after the reporting period On 19 June 2012 NRAM announced tender offers in respect of the securities issued by Granite and by Whinstone. The tender process closed on 4 July 2012, resulting in the purchase of notes with a face value of £448.5m, for cash of £333.3m including costs, resulting in a profit of £115.2m. On 23 July 2012 NRAM announced the sale of £465m of mortgages, at par, secured on residential property to Virgin Money. The sale proceeds will be used to repay a further element of the HM Treasury loan.

The financial information in this document is unaudited and does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. The comparative figures for the financial year ended 31 December 2011 are not the statutory accounts for that financial year for Northern Rock (Asset Management) plc. The 2011 statutory accounts of Northern Rock (Asset Management) plc have been reported on by that company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. This document may contain forward-looking statements with respect to certain plans and current goals and expectations relating to the future financial conditions, business performance and results of Northern Rock (Asset Management) plc. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of Northern Rock (Asset Management) plc including, amongst other things, UK domestic and global economic and business conditions, market related risks such as fluctuation in interest rates and exchange rates, inflation, deflation, the impact of competition, changes in customer preferences, risks concerning borrower credit quality, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations within relevant industries, the policies and actions of regulatory authorities, the impact of tax or other legislation and other regulations in the jurisdictions in which Northern Rock (Asset Management) plc and its affiliates operate. As a result, the actual future financial condition, business performance and results of Northern Rock (Asset Management) plc may differ materially from the plans, goals and expectations expressed or implied in these forward-looking statements.



Statement of Directors' Responsibilities The Directors confirm that this Interim Financial Report has been prepared in accordance with IAS 34 as adopted by the European Union and that the management commentary and related notes includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

• An indication of important events that have occurred during the first six months and their impact on the condensed Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

• Material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

The Directors of Northern Rock (Asset Management) plc at the date of this report are: Richard Pym Kent Atkinson Richard Banks Michael Buckley Sue Langley Phillip McLelland Keith Morgan Jim O'Neil Louise Patten John Tattersall By order of the Board Richard Banks Phillip McLelland Chief Executive Officer Finance Director 26 July 2012 26 July 2012



Independent Review Report to Northern Rock (Asset Management) plc Introduction We have been engaged by the company to review the condensed set of Financial Statements in the Interim Financial Report for the six months ended 30 June 2012, which comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Cash Flow Statement and the related notes. We have read the other information contained in the Interim Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of Financial Statements. Directors' responsibilities The Interim Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Financial Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. As disclosed in note 2, the Annual Financial Statements of NRAM are prepared in accordance with IFRS as adopted by the European Union. The condensed set of Financial Statements included in this Interim Financial Report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union. The maintenance and integrity of the Northern Rock (Asset Management) plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Our responsibility Our responsibility is to express to the company a conclusion on the condensed set of Financial Statements in the Interim Financial Report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland), and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Financial Statements in the Interim Financial Report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. PricewaterhouseCoopers LLP Chartered Accountants Leeds 26 July 2012


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Contact information The 2012 Interim Financial Reports for B&B and NRAM are available on the websites at www.bbg.co.uk and www.nram.co.uk within the Company Information sections. Contacts Brunswick Jonathan Glass / Nick Cosgrove Tel: +44 20 7404 5959 Email: [email protected] Investor relations contacts Neil Vanham Tel: +44 1274 806341 Email: [email protected]

UK Asset Resolution Limited - Registered Office: Croft Road, Crossflatts, Bingley, West Yorkshire BD16 2UA. Registered in England and Wales under company number 7301961. www.ukar.co.uk

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