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SantanderUnited KingdomHalf 1 2012London, 26 July 2012
2Disclaimer
Santander UK plc (“Santander UK”) and Banco Santander, S.A. ("Santander") both caution that this presentation contains forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. These forward-looking statements are found in various places throughout this presentation and include, without limitation, statements concerning our future business development and economic performance. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, a number of risks,uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. Factors that may affect Santander UK’s operations are described under ‘Risk Factors’ in Santander UK ’s Annual Report and Accounts on Form 20-F for 2011. A more detailed cautionary statement is also given on page 6 of Santander UK’s Annual Report and Accounts on Form 20-F for 2011.Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements.
The information contained in this presentation is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published by Santander UK or Santander. Any person at any time acquiring securities must do so only on the basis of such person's own judgment as to the merits or the suitability of the securities for its purpose and only on such information as is contained in such public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the information contained in the presentation.
In making this presentation available, both Santander UK and Santander give no advice and make no recommendation to buy, sell or otherwise deal in shares in Santander UK or Santander, or in any other securities or investments whatsoever.
No offering of Securities shall be made in the United States except pursuant to registration under the Securities Act or an exemption therefrom.Nothing contained in this presentation is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets Act 2000.
Note: Statements as to historical performance, historical share price or financial accretion are not intended to mean that future performance, future share price or future earnings (including earnings per share) for any period will necessarily match or exceed those of any prior year. Nothing in this presentation should be construed as a profit forecast.
Note: The results information contained in this presentation has been prepared according to Spanish accounting criteria and regulation in a manner applicable to all subsidiaries of the Santander Group and as a result it may differ from the one disclosed locally by Santander UK.
3Overview
Profit ahead; Balance sheet
strength
� Profit after tax 41% higher at £466m (H1’11, after PPI remediation provision of £538m)
� Solid revenues in UK Banking, despite a low growth lending environment and intensified competition for customer deposits in the second qua rter
� Continued progress in managing the cost base. Expen ses broadly flat, despite inflation, our three year £490m investment programme and continued development of our SME business
� There were some continued pressures in the legacy n on-core corporate loan portfolio and older commercial real estate exposures written befo re 2008
� Core Tier 1 capital ratio up to 12.1%, with a loan to deposit ratio improved to 131% in the first half
� H2’12 will benefit from a one-off post-tax gain ari sing from the capital buyback exercise of approximately £500m. This may be partially offset b y further provisions which may be required in the second half, given the current econ omic outlook and the evolving regulatory environment
Continued transformation
of the UK business
� Retail Banking: good volumes with the innovative 1| 2|3 product range; broadening and deepening customer relationships through growth in primary current accounts
� In the first half added 392,000 Current Accounts an d, since launch, issued 449,000 Credit Cards
� Gross mortgage origination of £8.7bn, with actions taken to reduce high LTV and interest only mortgages, with the gross lending market share of 12.9% more aligned to our stock share
� Corporate Banking: 18% SME loan growth and an expan sion of product capabilities to support UK businesses
� Improvements in service quality and customer experi ence
4
� Market Environment
Agenda
� First Half 2012
- Strategic and Business Update
- Results
5Market Environment – GDP and Interest Rates
Source - Office for National Statistics & Bank of England (f) – Santander UK current forecast
Annual GDP growth (%, annual average) Interest rates (%, annual average)
-4.0
1.8
0.80.2
1.8
2009 2010 2011 2012 (f) 2013 (f)
0.7
0.5 0.5 0.5 0.5
2009 2010 2011 2012 (f) 2013 (f)
GDP growth prospects remain weak; interest rates expected to stay on hold
6Market Environment – Inflation and Exchange RateInflation has fallen and the exchange rate apprecia ted
Source - Office for National Statistics & Bank of England (f) – Santander UK current forecast
Annual CPI inflation (%, annual average) GBP : EUR e xchange rates (annual average)
1.12
1.171.15
1.231.22
2009 2010 2011 2012 (f) 2013 (f)
2.2
3.3
4.5
2.7
2.0
2009 2010 2011 2012 (f) 2013 (f)
7Market Environment – Earnings and Unemployment
Source – Office for National Statistics (f) – Santander UK current forecast
Inflation and average earnings growth (annual %) Unemployment rate(ILO definition, end year, %)
7.87.9
8.4
8.78.6
2009 2010 2011 2012 (f) 2013 (f)
0
1
2
3
4
5
6
Dec-07
Jun-08Dec-0
8Jun-09
Dec-09
Jun-10Dec-1
0Jun-11
Dec-11
CPI inflation (%)
Average earnings growth (%3mma, regular pay)
Pressure on real earnings is easing;but slow growth risks unemployment rising
8Market Environment – Housing Volumes and PricesHousing market volumes have remained broadly flat,
with house prices falling slightly
Source – Bank of England Source – Department for Communities and Local Government.
sa – seasonally adjusted, nsa – not seasonally adjusted
House purchase and remortgage approvals (000s, sa)
UK house price inflation (annual %, nsa)
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
Halifax index (Jun'12): -0.5% annual 3m/3m (sa)
DCLG index (Apr'12): 1.4% year on year (nsa)
Estimate* for Dec'12: -1.5% year on year (nsa)
0
20
40
60
80
100
120
140 House Purchase
Remortgage
Average House Purchase 2003-07
Average Remortage 2003-07
9Market Environment – Lending and Deposits
Lending and deposits market growth expected to be s table in 2012
annual growth rates (%)Source – Bank of England (f) Sa ntander UK current forecast
Mortgage lending steady but corporate lending down; subdued retail deposit growth
Mortgage lending market stock (£bn)
Consumer credit market stock (£bn)
Corporate lending (£bn)
Retail deposits (incl. current accounts) (£bn)
1,241 1,244 1,246 1,250 1,251
0.6 0.60.7 0.8 0.8
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 (f)
438 434 424 423 420
-1.5 -2.0
-2.9 -3.0-3.5
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 (f)
210 209 207 207 208
2.02.5
1.92.3 2.2
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 (f)
1,301 1,305 1,320 1,333 1,342
2.5 2.8 3.13.7 3.5
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 (f)
10
� Market Environment
Agenda
� First Half 2012
- Strategic and Business Update
- Results
11
£bnChange
to Jun'11Change
to Dec'11
Residential Mortgages 170.7 (1%) (2%)
Corporate lending 30.7 12% (1%)
SME lending 11.4 18% 6%
Customer Assets 202.9 0% (2%)
Customer Liabilities 149.3 (3%) 0%
UK Banking Assets 191.3 1% (2%)
UK Banking Liabilities 135.7 (0%) 2%
Medium Term Funding 75.8 17% 16%
%
Total NPLs 1.83 0.02 p.p. (0.02) p.p.
Secured Coverage Ratio 20 (1) p.p. (0) p.p.
Total Coverage Ratio 40 (4) p.p. (1) p.p.
Loan to Deposit Ratio 131 7 p.p. (1) p.p.
Snapshot – United Kingdom as at 30 June 2012Santander UK’s franchise Balance Sheet (£bn) and Key Metrics
Key Market Shares - Stock
1) Residential mortgages includes residential retail mortgages and Social Housing loans, to align with mortgage industry reporting2) Corporate lending includes Social Housing loans o f £7.6bn (H1 2011; £7.5bn, also shown here within R esidential Mortgages).
Also includes SME Lending3) UK Banking consists of Retail Banking and Corpor ate Banking segments
(1)
(2)
(3)
%Change
to Jun'11Change
to Dec'11
Residential Mortgages 13.6 (0.2) p.p. (0.3) p.p.
SME lending 4.7 1.0 p.p. 0.4 p.p.
Deposits 9.5 (0.5) p.p. (0.1) p.p.
Bank Accounts 9.2 0.1 p.p. 0.1 p.p.
(2)
(3)
(1)
12Our Commercial Strategy is to Achieve…
More balanced business mix and SME bank of choice2
Leading efficiency and
service underpinned by
IT systems
3
A “Commercial transformation”, towards a full-servi ce, diversified, customer–centred franchise based on…
Customer Driven Model(vs. Product Driven)1
A step change in customer satisfactionA step change in customer satisfaction
Build further on the Balance Sheet’s strength and s tability
13Innovation: A New Banking Proposition to Drive Grow th of Active, Primary Banking Relationships
Our growth strategy: 3 million Current Account open ings over the next 3 years; to 3 million Credit Cards in 2013
1|2|3 Current Account� Cashback on household bills
� Attractive rates of interest on balances
� Since launch (March 2012) 392,000 accounts opened
� In Q2’12, fee paying Current Accounts constituted almost half of all personal bank account openings
1|2|3 Credit Card� Tangible benefits for customers� Since launch (September 2011) 449,000
have been opened� Spend on 1|2|3 Credit Card now exceeds
that of the rest of the credit card portfolio
more than one third of new customers holding both 1|2|3 products; this demonstrates the strength of the proposition
14
9.611.4
H1'11 H1'12
Actively supporting SME lending
� Now in our third year of consistent organic growth in lending to UK SMEs, with balances rising 18%, building on an extended product suite available to our customers and delivering profitable growth.
� The first investment has been made under our £200m Breakthrough Programme, our fund to provide capital to support fast-growth small companies.
� 5 new Corporate Business Centres opened in the first half to improve coverage and customer service, taking the number of centres to 33, with plans in place for more openings in the second half of the year. A further 175 customer facing staff were recruited in the first half
2012 progress towards the SME Bank of Choice
Building a More Balanced Business Mix
SME lending (£bn)
+18%
15
Profitability headlines
� Profit after tax was 41% higher than in H1’11 due to non recurrence of the customer remediation provision relating to payment protection insurance (PPI) of £538m in H1’11.
� Income impacted by the higher cost of term funding, the persistent low interest rate environment and higher liquidity costs
� Solid revenues in UK Banking, despite a low growth lending environment and intensified competition for customer deposits in the second quarter
� Continued progress in managing the cost base. Expenses broadly flat despite inflation; cost-to-income ratio of 51%
� There were some continued pressures in the legacy corporate loan portfolio
Strategic and Business Update – Profitability and Fu nding
� Customer lending £1bn higher than at H1’11. Increases in SME and corporate lending were partially offset by managed reductions in the retail mortgage and UPL portfolios that impacted H1’12. Residential mortgage gross lending of £8.7bn written in the period represented a 12.9% market share
� Customer deposits of £149.3bn increased relative to the year end but were lower than at H1’11, with outflows resulting from a management decision to switch funding away from rate-sensitive and shorter term deposits.
� Success in H1’12 of acquiring attractive term ISA savings with net inflows of £6.9bn and additional current account balances of c. £1.3bn
� In H1’12 raised c. £12bn of MTF, across a range of products and geographies at attractive rates
Improving funding position
16Strategic and Business Update – Risk ManagementA strong balance sheet - high quality, low risk
� Lending secured on residential property is more than 84% of customer assets
� No self-certified or sub-prime mortgages
� Ratio of loans to deposits and MTF of 90%
Robust balance
sheet
Good quality book
� Improving the quality of the deposit base, with a strong inflow of retail deposits with attractive term and price dynamics
� Strong coverage levels maintained; secured 20%, unsecured Retail portfolio above 100%, total 40%
� Arrears and PIPs continued to be significantly better than CML average
Asset reduction
� Management actions taken to manage the risk associated with higher LTV and interest only mortgages, whilst maintaining lending to UK individuals in key segments and to SMEs
� UPL balances reduced by 15% to £2.6bn; good quality new gross lending at favourable risk adjusted returns was written through the branch network
� Corporate Non-core legacy assets reduced to £2.8bn, from £3.6bn at H1’11. Treasury legacy asset portfolio now stands at £2.3bn, compared to £3.1bn H1’11
17
Mortgage lending focused on preferred segments; Corporate Banking growth rebalancing portfolio
(1) Corporate Lending includes Corporate Banking, So cial Housing and other Corporate Non-CoreSocial Housing, PBU and Commercial Mortgages, previ ously reported within Corporate Banking, are now re ported within Corporate Centre
Business Update – Customer Lending
Residential mortgage stock (£bn) Residential mortgag e flows (£bn)
Unsecured personal loan stock (£bn) Corporate lending (£bn) (1)
9.7 8.7
H1'11 H1'12
165.2 163.2
6.9 7.5172.1 170.7
H1'11 H1'12Social Housing Retail Residential
3.1 2.6
H1'11 H1'12
(15%)
15.2% Gross lending Mkt Share
15.7 19.1
11.811.6
30.7
H1'11 H1'12Corporate Banking Corporate Non-Core
27.5+12%
12.9%13.8% 13.6%
(1%)
Stock Mkt Share
+22%
18
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12165.2 165.6 166.2 166.2 163.2 Residential Retail Mortgage Stock
6.9 7.1 7.3 7.4 7.5 Social Housing Stock
172.1 172.6 173.5 173.7 170.7 Residential Mortgage Stock13.8% 13.9% 13.9% 13.9% 13.6% Mortgage market stock share (%)
£bn H1'12H1'12 v H1'11
H1'12 v H2'11
Residential Retail Mortgages 163.2 (1%) (2%)
Consumer Lending (1) 9.0 (4%) (2%)
Retail Banking 172.2 (1%) (2%)
Corporate Banking 19.1 22% 1%
UK Banking 191.3 1% (2%)
Corporate non-core 11.6 (2%) (3%)
Total Commercial Loans 202.9 0% (2%)
Total Residential Mortgages (£bn)
202.1203.9
206.3 205.4202.9
1.4% 1.1%1.8%
0.4%
2.1%
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
YoY growth
Total Commercial Loans
(1) Consumer Lending includes UPL’s, Banking Overdra fts, Cahoot, Santander Cards, and Santander Consume r Finance
Commercial lending performance in line with managem ent expectations…building on relationship opportunities
Business Update – Customer Lending
19
Residential mortgage gross lending (1) (£bn) Residential mortgage stock and net lending (2) (£bn)
Total residential mortgage repayments (1) (£bn) Comments
165.2 165.6 166.2 166.2 163.2
13.8% 13.9% 13.9% 13.9% 13.6%
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
5.36.5 6.1 5.5 6.0
16.8% 18.1% 17.3% 17.2% 18.6%
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
5.57.1 6.9
5.6
3.1
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
Repayment share
Stock Share (1)
Mortgage performance robust in a subdued market
(1) Includes Social Housing loans as per CML market data
(2) Excludes Social Housing
� Mortgage lending more focused on key relationship segments
� Mortgage gross lending in the first half of 2012 was £8.7bn, equivalent to a market share of 12.9% more in line with stock market share
� SVR balances continued to grow, and represent over a quarter of the mortgage book
Business Update – Mortgage Lending
20
Total UPL gross lending (£m) Total UPL stock (£bn)
Total quarterly spread growth Comments
100 101
103
105
110
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
3.1 3.0 2.9 2.8 2.6
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
(1)
359413
319377
251
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
(30%)
(1) (2)(Q2'11 rebased to 100)
(15%)
Selective lending in higher quality UPL segments
� Continued to drive value by focusing on unsecured lending only to higher quality personal customer segments, particularly those with an existing relationship with the bank
� Gross UPL lending YTD decreased 14% compared to H1’11, but with new lending written at very attractive risk-adjusted returns primarily through the branch network
Business Update – Unsecured Personal Loans
21
Commercial deposit performance managed to improve t he mix…strong retail deposit inflows in H1 2012
(1) Loans and credits / customer deposits. Includes London Branch(2) Loans and credits / customer deposits + MTF. Inc ludes London Branch
Business Update – Customer Deposits
UK Banking deposit stock (£bn) Customer deposit flow s (£bn)
MTF issuance (£bn) Loan:deposit ratio (1) Loan:deposit + MTF ratio (2)
(0.2)0.1
H1'11 H1'12
3.0(1.7) Retail deposit flows
136.2 135.7
H1'11 H1'12
18.6
11.8
H1'11 H1'12
131%124%
H1'11 H1'12
89% 90%
H1'11 H1'12
(0%)
9% MTF issuance as % of UK commercial
assets
6%
22
(1) Managed through Santander Asset Management
Deposits managed in response to significant competi tive pressures
Business Update – Customer Deposits and Funds Under Management
£bn H1'12H1'12 v H1'11
H1'12 v H2'11
Retail Banking 120.7 (0%) 3%
Corporate Banking 14.9 (0%) (6%)
UK Banking 135.7 (0%) 2%
Non-core corporate 13.7 (20%) (13%)
Total customer deposits 149.3 (3%) 0%
FUM (1) 6.8 7% 4%
Total funds under management 156.1 (2%) 0%
153.3 150.8 149.2 149.4 149.3
0.2%(2.6%) (2.6%)
3.3%
(2.8%)
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
YoY growth
23
Customer deposit flows (£bn) and stock market shar e Investment new business sales - API (1) (£bn)
Retail deposit flows (£bn) Comments
0.80.6 0.6
0.5 0.6
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
(0.1)
(2.5)
(1.6)
0.2
(0.1)
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
9.6%10.0% 9.8% 9.5% 9.5%
(1.1)(1.7) (1.8)
1.31.7
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
Strategy to rebalance funding mix away from less pr ofitable sources
� Retail deposit inflows included a very strong cross tax year ISA campaign, amounting to £6.9bn of net inflows in the first half of 2012
� Flows were also supported by current account growth where total balances rose by c. £1.3bn in the first half of 2012
� Offsetting these, we have reduced short term and rate sensitive deposits that offered limited long term relationship opportunities
Business Update – Deposits and Investment Sales
(1) API: Annual Premium Income measures the new busi ness flows that impact revenue and commissions, exc luding redemptions and market movements
24
Bank account openings ('000s) Current account liabil ities (£bn)
Credit card openings ('000s) Comments
120 130 138175 181
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
51%
11.8 12.0 12.0 12.6 13.3
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
192
240
187
236212
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
38% 48% 55% 50% 46%12%
Focus on core primary account relationships…early s uccess
� Bank current account openings were up 10%, primarily due to the new 1|2|3 Current Account (launched March 2012)
� 1|2|3 Credit Card (launched September 2011) offers valuable rewards for customers using the card regularly in return for a monthly fee
� The combined marketing of 1|2|3 World products has been effective, with many 1|2|3 World customers benefiting from using both products
Business Update – Current Accounts and Credit Cards
Switchers as % of total openings (1)
(1) Customers using the dedicated switcher service as a percentage of adult retail openings
25
� Market Environment
Agenda
� First Half 2012
- Strategic and Business Update
- Results
26
Total Gross Income £m
Total Commercial Margin £m
Net Interest Income 1,510 (22%) (19%)
Net Fees 489 6% 3%
Total Commercial Margin 1,998 (16%) (14%)
Gains on Financial Transactions 195 (22%) 89%
Other Operating Income 11 6% (5%)
Gross Income 2,204 (17%) (10%)
£m H1'12H1'12 v H1'11
H1'12 v H2'11
942 929 924800
709
6 4 8
7
4
260 246 230
244
245
11577
26
93102
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
Gains on Financial Transactions Net Fees
Other Operating Income Net Interest Income
1,322 1,256 1,188 1,144 1,060
1,202 1,175 1,154 1,044 954
Income impacted by cost of funding and persistent l ow interest ratesResults – Gross Income
� The commercial margin narrowed, with increased new lending margins on mortgages and SME loans more than offset by the structural market conditions above and the increased cost of retail deposits
� Net fees were marginally higher than in H1’11, supported by an uplift in fees and ancillary income from increased SME lending
27Results – Commercial Banking Margin
(1) Undiluted Margin: Sum of Loans Margin and Deposi t Margin(2) Commercial Banking Margin: Calculated as ‘total net interest income over total customer assets’; in cludes the cost
of MTF. Prepared on a statutory basis
Loans spreads continue to widen…deposit margins ref lect intensifying competition…structural effects impact commercial ma rgin
Commercial Banking Margin (2)Loans and Deposits Margins (1)
2.00% 2.01% 2.04% 1.98%1.85%
2.40% 2.46% 2.53% 2.57% 2.61%
-0.40% -0.45% -0.50% -0.59%-0.76%
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
1.89%1.80% 1.77%
1.63%
1.42%
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12LoansMargin
UndilutedMargin
DepositMargin
28
FTE
General & administrative expenses 978 1%
Depreciation & amortisation 152 (3%)
Operating Expenses 1,130 0%
£m H1'12H1'12 v H1'11
561 557 570 562 568
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
24,591 24,972 25,198 25,395 25,006
Operating expenses £m
Results – Operating ExpensesContinuing to fund investments primarily through ef ficiencies
� Costs were well controlled with expenses broadly flat on 2011 despite inflation, investment in Corporate Banking and more customer facing staff in Retail Banking
� Investment programmes continued to support the business transformation, the planned RBS businesses acquisition and provide the underpinning for future efficiency improvements
� We announced in March 2012 the closure of 56 branches to address the overlap that arose from the combination of Abbey, Alliance & Leicester and Bradford & Bingley
29
Total Coverage (Reserves / NPL)
Total NPL (NPL / Customer Loans)
127152 141
179 183
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
1.81% 1.86% 1.85% 1.82% 1.83%
Loan Loss Provision £m
43% 42% 40% 40% 40%
Credit provisions higher in H1 2012 driven by the l egacy corporate portfolioResults – Net Loan Loss Provision
� Overall the performance of the loan portfolio is still good
� Continued pressures in the legacy corporate loan portfolio and older commercial real estate exposures written before 2008.
� Corporate lending written in the last three years is continuing to perform better than expected to date
� Mortgage NPL coverage remained at 20% in the first half of 2012
Comments
30
Properties in posession (PIPs) Mortgage NPLs
Secured coverage ratio High quality mortgage book
0.06% 0.06% 0.06% 0.06% 0.06%
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12Santander UK PIP CML PIP
0.13% 0.13% 0.12% 0.12% n/a
1.44% 1.42% 1.46% 1.50% 1.57%
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
Santander UK Mortgage NPLs CML NPLs
2.11% 2.08% 2.00% 1.96% n/a
21% 20% 20% 20% 20%
62% 60% 61% 62% 62%
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12Secured Coverage % Secured NPLs / Total NPLs
Results – Mortgage Credit Quality
(1) CML data for June 2012 not available at time of reporting
(2) Santander UK Mortgage NPLs on a value basis
(3) CML NPLs relates to the UK banking sector’s resi dential mortgages on a volume basis
…and with strong mortgage coverage levels maintaine d
(1) (2) (1) (3)
� In March announced tightening of lending criteria on higher loan to value and interest only mortgages, as part of a range of actions to further improve the credit quality and profitability of the mortgage book
� Mortgage coverage flat over the last four quarters
� Secured loan arrears as a proportion of the total book remained broadly unchanged
31Results – Mortgage Credit Quality
(1) Based on mortgage completions
New business and stock LTVs confirmed our mortgage credit quality
Average new business mortgage LTV (%) Average indexe d mortgage LTV on stock (%)
64% 65% 65% 66%62%
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
65% 65% 66% 65% 63%
52% 52% 52% 53% 53%
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
% CompletionsApprovals
(1)
32Results – Profit Before Tax
Profit before tax impacted by high funding costs an d low interest rates
PBT 623 35% (37%)
(157) 21% (39%)
H1'12H1'12 v H1'11
H1'12 v H2'11
(36%)
Provision for income tax
£m
Profit after tax 466 41%
470
347276
(129)
519
Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
£m
(1) Q2’ 11 profit before tax includes £731m PPI prov ision raised in June 2011
(1)
33
APPENDIX
� Financial Results
� Balance Sheet
34
Financial Results
35
* Including dividends, income from equity-accounted method and other operating income/expenses
Financial Results – United Kingdom Profit and Loss£ million
H1'12 H1'11 Amount %
Net interest income 1,510 1,926 (416) (21.6%)Net fees 489 459 29 6.3%Gains (losses) on financial transactions 195 249 (54) (21.8%)Other operating income* 11 11 1 5.6%Gross income 2,204 2,644 (440) (16.6%)Operating expenses (1,130) (1,125) (4) 0.4% General administrative expenses (978) (970) (8) 0.8% Personnel (601) (590) (11) 1.9% Other administrative expenses (377) (380) 3 (0.8%) Depreciation and amortisation (152) (156) 4 (2.5%)Net income 1,075 1,519 (445) (29.3%)Net loan loss provisions (362) (256) (106) 41.6%Other income (89) (803) 713 (88.9%)Profit before taxes (w/o capital gains) 623 461 162 35. 2%Tax on profit (157) (130) (27) 21.0%Profit from continuing operations (w/o capital gain s) 466 331 135 40.8%Net profit from discontinued operations — — — 0.0%Consolidated profit (w/o capital gains) 466 331 135 40. 8%Minority interests — — — 0.0%Attributable profit to the Group (w/o capital gains ) 466 331 135 40.8%
Variation
36Financial Results – United Kingdom Profit and Loss
* Including dividends, income from equity-accounted method and other operating income/expenses
£ millionQ1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
Net interest income 984 942 929 924 800 709Net fees 199 260 246 230 244 245Gains (losses) on financial transactions 134 115 77 26 93 102Other operating income* 5 6 4 8 7 4Gross income 1,322 1,322 1,256 1,188 1,144 1,060Operating expenses (564) (561) (557) (570) (562) (568) General administrative expenses (486) (483) (478) (498) (483) (494) Personnel (297) (293) (314) (324) (300) (301) Other administrative expenses (190) (190) (164) (174) (183) (193) Depreciation and amortisation (78) (78) (79) (72) (78) (73)Net income 758 761 700 618 582 492Net loan loss provisions (129) (127) (152) (141) (179) (183)Other income (39) (764) (29) (7) (56) (34)Profit before taxes (w/o capital gains) 590 (129) 519 4 70 347 276Tax on profit (158) 28 (144) (115) (92) (65)Profit from continuing operations (w/o capital gain s) 431 (101) 375 355 255 210Net profit from discontinued operations — — — — — —Consolidated profit (w/o capital gains) 431 (101) 375 3 55 255 210Minority interests — — — — — —Attributable profit to the Group (w/o capital gains ) 431 (101) 375 355 255 210
37
Balance Sheet
38
* Not including profit of the year** Excludes London Branch
Financial Results – United Kingdom Balance Sheet£ million Variation
30.06.12 30.06.11 Amount %
Loans and credits 222,500 203,614 18,885 9.3
Trading portfolio (w/o loans) 32,062 42,081 (10,019) (23.8)
Available-for-sale financial assets 4,851 43 4,808 —
Due from credit institutions 13,786 23,864 (10,079) (42.2)
Intangible assets and property and equipment 1,955 1,984 (29) (1.5)
Other assets 36,967 42,720 (5,753) (13.5)Total assets 312,119 314,307 (2,187) (0.7)
Customer deposits 170,390 164,569 5,821 3.5
Marketable debt securities 65,056 65,350 (294) (0.4)
Subordinated debt 6,864 6,573 291 4.4
Insurance liabilities — 1 (1) (100.0)
Due to credit institutions 26,908 39,966 (13,057) (32.7)
Other liabilities 32,071 26,637 5,434 20.4
Shareholders' equity* 10,830 11,212 (382) (3.4)Total liabilities & shareholders' equity 312,119 314, 307 (2,187) (0.7)
Mutual funds 12,997 13,116 (119) (0.9)
Pension funds — — — —
Managed portfolios — — — —
Savings-insurance policies — — — —Customer funds under management 255,308 249,608 5,700 2 .3
Commercial Loans included above** 202,901 202,057 844 0 .4
Commercial deposits included above 149,321 153,299 (3, 978) (2.6)
UK Investor Relations2 Triton SquareRegents PlaceLondon NW1 3AN
e-mail: [email protected]
James S. Johnson
Tel. +44 (0) 20 7756 5014
Group Investor Relations Ciudad Grupo Santander
Edificio Pereda, 1st floorAvda de Cantabria, s/n 28660 Boadilla del Monte, Madrid (Spain)Tel.: +34 91 259 65 14 - +34 91 259 65 20
Fax: +34 91 257 02 45e-mail: [email protected]
