UK Asset Resolution Limited Interim Financial Report/media/Files/B/Bradford-And... · UKAR Interim Financial Report 30 June 2013 Page 2 of 75 Introduction On 1 October 2010 UK Asset

UK Asset Resolution Limited Interim Financial Report 30 June 2013

UKAR Interim Financial Report 30 June 2013 Page 1 of 75

UK Asset Resolution Limited

Interim Financial Report

for the 6 months ended 30 June 2013

6 August 2013



Introduction

On 1 October 2010 UK Asset Resolution Limited ('UKAR') was established as the holding company for Bradford &Bingley plc ('B&B') and Northern Rock (Asset Management) plc ('NRAM'), bringing together the two brands undershared management and a common Board of Directors. UKAR is a private limited company incorporated anddomiciled in the United Kingdom, and is wholly owned by the Treasury Solicitor as nominee for HM Treasury.UKAR's mission is 'maximising value for the taxpayer'.

All shares in B&B were transferred to the Treasury Solicitor as nominee for HM Treasury on 29 September 2008as a result of The Bradford & Bingley plc Transfer of Securities and Property etc. Order 2008. On 1 October 2010all shares in B&B were acquired via a share-for-share exchange by UKAR. UKAR is B&B's ultimate parentundertaking. B&B considers Her Majesty's Government to remain its ultimate controlling party.

All shares in NRAM were transferred to the Treasury Solicitor as nominee for HM Treasury on 22 February 2008as a result of The Northern Rock Transfer Order 2008. On 1 October 2010 all shares in NRAM were acquired viaa share-for-share exchange by UKAR. UKAR is NRAM's ultimate parent undertaking. NRAM considers HerMajesty's Government to remain its ultimate controlling party.

The 2012 Annual Reports & Accounts of UKAR, B&B and NRAM are available on their websites www.ukar.co.uk,www.bbg.co.uk and www.nram.co.uk.

B&B and NRAM are each required by the FCA's Disclosure and Transparency Rules to publish an InterimFinancial Report for the 6 months ended 30 June 2013. UKAR as an individual company has no listed debt inissue and therefore is not required to issue an Interim Financial Report. UKAR has voluntarily issued the UKARGroup 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 LimitedGroup.

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 withIAS 34.



Contents Page

Section A - Summary half year results of UK Asset Resolution Limited

Key performance indicators 5Financial review 6Primary Statements for the UKAR Group 15

Section B - Bradford & Bingley plc Interim Financial Report

Interim Financial Report 17Key performance indicators 20Primary Statements 22Notes to the Financial Information 28Statement of Directors' Responsibilities 43Independent Review Report 44

Section C - Northern Rock (Asset Management) plc Interim Financial Report

Interim Financial Report 45Key performance indicators 48Primary Statements 50Notes to the Financial Information 57Statement of Directors' Responsibilities 72Independent Review Report 73

Contact information 74


UKAR Interim Financial Report 30 June 2013 Section A - UKAR Page 4 of 75

Section ASummary half year results ofUK Asset Resolution Limited

for the 6 months ended 30 June 2013



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

Strategicpriorities

Financial measures 6 months to 30 June

2013

6 months to30 June

2012

12 months to31 December

2012

Commentary

Total lending balances £bnSecured £bn

Unsecured £bnHeld for sale £bn

66.164.4

1.40.3

72.269.9

2.3-

68.766.8

1.9-

Lending balances reduced by 4%during H1 mainly due to £2.0bn ofsecured residential redemptions.NRAM's standalone unsecuredpersonal loan book was sold in July2013, and hence is shown at 30 June2013 as 'held for sale'.

Residential mortgage redemption rate %Residential redemptions £bn

6.12.0

6.72.4

6.34.6

Redemptions are consistent with H22012 but have fallen relative to H12012, which were impacted by anearly repayment charge ('ERC')waiver on the NRAM book.

Government loan repayments £bnGovernment loan balance £bn

1.3542.1

0.7945.8

3.1043.5

£721m repaid on the NRAMGovernment Loan and £625m repaidagainst the B&B Working CapitalFacility ('WCF').

Optimise theBalance

Sheet

Total cash payments to HM Treasury £bn 1.88 1.18 3.97 Total cash paid to HM Treasuryduring the period. This includesprincipal and interest repayments,guarantee fees and tax paid. Themain driver of the increase year onyear is higher principal repayments.

Residential arrears balance : total residentialmortgage balance %

Residential payments overdue £m0.25

161.80.31

215.10.28

185.8

The first of these measures whatproportion of the book is non-performing, related to the totalbalance of all residential mortgages,and the second the value ofcustomers’ missed payments. Thereduction in both KPIs is a reflectionof improving arrears performance.

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

- by value- by number of accounts

Number of residential arrears 3 monthsand over and possessions cases

4.863.77

21,332

6.244.94

30,222

5.544.36

25,581

The reduction in arrears reflects boththe improvement in collectionsperformance and the continuingbenefit to mortgage customers oflower interest rates.

Minimiseimpairmentand losses

Impairment provisions:Residential secured £m

Cover %Unsecured £m

Cover %Commercial/other £m

Cover %

1,317.22.03

249.115.0582.4

10.05

1,535.02.17

483.317.51106.711.28

1,411.12.09

403.817.56100.011.34

The level of residential impairmentBalance Sheet provision reduced by£93.9m from 31 December 2012 andthe level of cover decreased from2.09% to 2.03%. The provisionreflects the improved arrearsperformance.

Reducecosts

Total costs £mOngoing costs £m*

Ratio of costs to average interest-earningassets:

- statutory %- ongoing %*

104.1104.1

0.270.27

107.8107.8

0.250.25

267.0207.3

0.320.25

The decrease in costs reflects thebenefits of the integration of theoperations of the two businesses andthe lower customer base.

* 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 page9.



Financial review

Performance

In addition to the statutory measure of profit, the Board continues to believe it is appropriate to assessperformance based on the underlying profit of the business, which excludes non-recurring costs, particularly thoseassociated with the integration of B&B and NRAM, and certain gains such as the repurchase of own liabilities.Also excluded are movements in fair value and hedge ineffectiveness relating to financial instruments which areexpected to be held to maturity as opposed to being traded. The commentary on the results in this statementuses underlying profits and its components as the principal 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 £528.8m (H1 2012: £481.4m; FY 2012: £1,096.9m) was £47.4m higher than H12012 mainly due lower a lower impairment charge, as a result of continued improvement in the levels of arrears,partly offset by reduced net non-interest income. The number of mortgage accounts 3 or more months in arrearsreduced by 29% compared to H1 2012.

Compared to H1 2012, underlying net operating income was £37.9m lower at £729.2m (H1 2012: £767.1m; FY2012: £1,515.4) mainly due to lower non-interest income as the comparative period included £17.5m one-off fairvalue gains on asset disposals, £5.8m from the sale of properties and £3.4m income for the use of UKARsystems and facilities by Northern Rock plc. Underlying net interest income increased £1.9m to £730.0m (H12012: £728.1m; FY 2012: £1,484.9m). Ongoing administrative expenses decreased £3.7m (3%) to £104.1m (H12012: £107.8m; FY 2012: £207.3m). Impairment on loans and advances to customers reduced by £79.2m to£91.5m (H1 2012: £170.7m; FY 2012: £241.4m).

Summary Income StatementUKAR

6 months to30 June

2013

6 months to 30 June

2012

12 months to 31 December

2012£m £m £m

Net interest income 730.0 728.1 1,484.9Underlying net non-interest income* (0.8) 39.0 30.5Underlying net operating income 729.2 767.1 1,515.4Ongoing administrative expenses (104.1) (107.8) (207.3)Impairment on loans to customers (91.5) (170.7) (241.4)Net impairment on investment securities (4.8) (7.2) 30.2Underlying profit before taxation 528.8 481.4 1,096.9Unrealised fair value movements on financial instruments 8.1 (42.9) (42.8)Hedge ineffectiveness (6.8) (22.5) (28.4)Other net administrative expenses - - (59.7)Provision for customer redress (45.0) (65.0) (419.0)Gain on repurchase of own liabilities 2.9 - 143.5Statutory profit before taxation 488.0 351.0 690.5

* Underlying net non-interest income includes net fee and commission income, net gains on financial instruments designated at fair value, net realised gainsless 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 to30 June

2013

6 months to30 June

2012

12 months to 31December

2012£m £m £m

Interest receivable and similar incomeOn secured loans 1,119.8 1,237.5 2,426.2On other lending 31.0 55.3 111.2On investment securities and deposits 34.2 45.6 86.6Total interest receivable and similar income 1,185.0 1,338.4 2,624.0Interest expense and similar chargesOn amounts due to banks and HM Treasury (321.2) (325.5) (676.2)State guarantee fee* (19.5) (24.5) (47.4)On debt securities and other (114.3) (260.3) (415.5)Total interest expense and similar charges (455.0) (610.3) (1,139.1)

Net interest income 730.0 728.1 1,484.9

Average balances

Interest-earning assets ('IEA') 79,081 85,355 84,117Financed by:- Interest-bearing funding 54,470 61,222 59,769- Interest-free funding** 24,611 24,133 24,348

Average rates % % %Gross yield on IEA 3.02 3.15 3.12Cost of interest-bearing funding (1.61) (1.92) (1.83)Interest spread 1.41 1.23 1.29State guarantee fee* (0.05) (0.06) (0.06)Contribution of interest-free funding ** 0.50 0.54 0.54Net interest margin on average IEA 1.86 1.71 1.77

Average Bank Base Rate 0.50 0.50 0.50Average 1-month LIBOR 0.49 0.71 0.62Average 3-month LIBOR 0.51 1.03 0.83

* 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 3 and for NRAM section C note 3.

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

Underlying net interest income for the period was broadly in line with the first half of 2012 at £730.0m (H1 2012:£728.1m; FY 2012: £1,484.9m). Across both books there was a reduction in income due to the decrease inaverage interest-earning assets of £6.3bn to £79.1bn (NRAM: £5.3bn, B&B: £1.0bn). In addition, 2012 only hadtwo months' impact of the NRAM Government Loan rate increase (increased by 0.75% in May 2012) which inisolation has a year on year impact of approximately £23m. However, both these impacts were offset by theimproving funding mix on the B&B Balance Sheet as the Working Capital Facility ('WCF') is repaid.

Underlying net interest margin has increased to 1.86% (H1 2012: 1.71%; FY 2012: 1.77%) at UKAR level.

On the B&B book the main driver of the 0.27% increase in the underlying net interest margin to 1.05% (H1 2012:0.78%; FY 2012: 0.87%) was the change in funding mix, whereby a greater proportion of the Balance Sheet isfunded by free funding as the WCF is repaid.




Net interest income (continued)

In NRAM, net interest margin increased to 2.53% (H1 2012: 2.42%; FY 2012: 2.46%), mainly due to reducingfunding costs, partially offset by the higher cost of the Government Loan on which the interest rate payable wasincreased from Bank Base Rate + 25bps to Bank Base Rate + 100bps with effect from 4 May 2012.

Underlying net non-interest income

Underlying net non-interest income fell by £39.8m from H1 2012 to (£0.8m) (H1 2012: £39.0m; FY 2012 £30.5m).Net fee and commission income was £7.1m, £3.3m lower than H1 2012 due primarily to lower redemptions andarrears fee income. Included in H1 2012 were one-off fair value gains on asset disposals of £17.5m.

Net realised gains less losses on investment securities was an £8.5m loss (H1 2012: £1.3m gain; FY 2012£14.9m loss) due to the disposal or early maturity of a number of investment securities in both B&B and NRAM.

Other operating income is £9.2m lower due to 2012 including property sales (£5.8m) and income for the use ofsystems and facilities by Northern Rock plc (£3.4m).

UKAR

Net non-interest income

6 months to30 June

2013

6 months to30 June

2012


2012£m £m £m

Total net fee and commission income 7.1 10.4 17.0Net gains on financial instruments designated at fair value - 17.5 17.5Net realised gains less losses on investment securities (8.5) 1.3 (14.9)Other operating income 0.6 9.8 10.9Underlying net non-interest income (0.8) 39.0 30.5Unrealised fair value movements on financial instruments 8.1 (42.9) (42.8)Hedge ineffectiveness (6.8) (22.5) (28.4)Provision for customer redress (45.0) (65.0) (419.0)Statutory net non-interest income (44.5) (91.4) (459.7)


Accounting volatility on derivative financial instruments

NRAM and B&B use derivative financial instruments for economic hedging purposes. Some of these aredesignated and accounted for as IAS 39 compliant fair value or cash flow hedge relationships. Where effectivehedge relationships can be established, the movement in the fair value of the derivative is offset in full or in parteither by opposite movements in the fair value of the instrument being hedged or by being taken to reserves. Anyineffectiveness arising from different movements in fair value will offset over time.

Unrealised fair value movements were £8.1m gain in the period (H1 2012: loss of £42.9m; FY 2012: loss of£42.8m). These generally relate to derivatives that act as an economic hedge but were not treated as anaccounting hedge under IAS 39. Following the designation of the basis swaps into cash flow hedge relationshipsin both B&B and NRAM during H1 2012, the volatility of unrealised fair value movements through the incomestatement has been greatly reduced.




Provision for customer redress

Since the creation of UKAR we have been remediating a series of problems of process and procedure inheritedfrom the legacy businesses. The most significant of these was the mis-selling of Payment Protection Insurance('PPI') by Northern Rock. During the first half of 2013 levels of PPI claims have reduced and, at the present time,no further provision is required.

A further issue we have previously reported is in respect of non-compliant Consumer Credit Act ('CCA') loans.Following the discovery of this issue UKAR's Board commissioned an independent external review, by Deloitte, inorder to understand what went wrong in implementing the updated CCA regulations. Deloitte concluded that thedefects in CCA regulated loan letters and statements were created in 2008 before UKAR was established andwere not known by or escalated to senior management, or the Boards of NRAM or UKAR, prior to 2012.Deloitte's summary of their report was published on UKAR's website on 15 July 2013. UKAR’s Board hasaccepted Deloitte’s recommendation to strengthen some controls.

In 2012 we provided £271m for remediating non-compliant CCA loans and we have now contacted and correctedthe accounts of 120,000 customers. During the course of our investigations we identified certain accounts sold byNorthern Rock prior to nationalisation which are subject to the same problem. Remediation of these accounts hasbeen the primary driver of incurring an additional £47m of remediation costs. In addition, there was a net releaseof £2m in respect of provisions for other remediation activities.

We continue to monitor all accounts to ensure the appropriate outcomes for customers. Should we find somethingwrong we will ensure the issues are corrected quickly and affected customers are remediated where required.

Ongoing administrative expenses

The Group has continued to focus on maximising cost effectiveness and efficiency through continuousimprovement. The decrease in costs reflects the benefits of the integration of the operations of the twobusinesses and the reducing balance sheet. In June the migration of UKAR's IT infrastructure to HCLTechnologies Limited ('HCL') was completed, the benefits of which will be seen in 2014 when the old architecturehas been decommissioned. The increase in depreciation costs reflects the capital investment in integrating thetwo businesses. The exit from the Gosforth site in Newcastle has now been completed.

Administrative expenses UKAR6 months to

30 June2013

6 months to30 June

2012


2012£m £m £m

Wages and salaries 30.0 33.5 65.0Social security costs 3.0 3.3 6.6Defined benefit pension costs 0.3 0.5 0.6Defined contribution pension costs 1.5 1.8 3.4Other retirement benefit costs 0.2 0.2 0.5Total staff costs 35.0 39.3 76.1IT costs 31.8 33.0 56.0Outsourced and professional services 11.7 12.4 25.5Depreciation and amortisation 7.4 4.7 12.6Other administrative expenses 18.2 18.4 37.1Ongoing administrative expenses 104.1 107.8 207.3Other net administrative expenses:- Transformation costs - - 51.4- Accelerated depreciation - - 8.3

Total other net administrative expenses - - 59.7Total administrative expenses 104.1 107.8 267.0





Other net administrative expenses

No 'other net administrative expenses' have been incurred in H1 2013 (H1 2012: £nil; FY 2012: £59.7m). Thecosts incurred for the full year 2012 mainly reflect investment in UKAR's IT platform through the transfer to thenew outsourced provider HCL, costs associated with the phased exit of the Gosforth site and the write-down ofthe value of buildings.

Arrears and loan impairment

Total UKAR loan impairment provisions as at 30 June 2013 were £1,797.0m (H1 2012: £2,125.0m; FY 2012:£1,914.9m) comprising residential mortgages £1,317.2m (H1 2012: £1,535.0m; FY 2012: £1,411.1m), unsecuredloans £249.1m (H1 2012: £483.3m; FY 2012: £403.8m), commercial property of £82.4m (H1 2012: £106.7m; FY2012: £100.0m) and assets held for sale £148.3m.

Arrears and possessionsUKAR

At 30 June 2013 30 June 2012 31 December 2012

Residential Unsecured Residential Unsecured Residential Unsecured

Arrears 3 months and overNumber of cases No. 19,309 9,251 27,747 32,987 23,376 31,140Proportion of total cases % 3.41 7.21 4.53 13.22 3.99 13.67Asset value £m 2,802.4 165.2 3,969.4 445.2 3,341.1 410.1Proportion of book % 4.40 11.75 5.75 19.55 5.06 21.64Total value of payments overdue £m 111.7 18.2 153.0 89.8 132.3 96.9Proportion of total book % 0.18 1.29 0.22 3.94 0.20 5.11

PossessionsNumber of cases No. 2,023 - 2,475 - 2,205 -Proportion of total cases % 0.36 - 0.41 - 0.37 -Asset value £m 293.3 - 340.9 - 320.5 -Proportion of book % 0.46 - 0.49 - 0.48 -Total value of payments overdue £m 19.5 - 24.9 - 20.8 -Proportion of total book % 0.03 - 0.04 - 0.03 -New possessions No. 3,550 - 3,871 - 7,326 -

Total arrears 3 months and overand possessionsNumber of cases No. 21,332 9,251 30,222 32,987 25,581 31,140Proportion of total cases % 3.77 7.21 4.94 13.22 4.36 13.67Asset value £m 3,095.7 165.2 4,310.3 445.2 3,661.6 410.1Proportion of book % 4.86 11.75 6.24 19.55 5.54 21.64Total value of payments overdue £m 131.2 18.2 177.9 89.8 153.1 96.9Proportion of total book % 0.21 1.29 0.26 3.94 0.23 5.11

Payments overdueTotal value of payments overdue £m 161.8 19.5 215.1 92.3 185.8 99.0Proportion of total book % 0.25 1.39 0.31 4.05 0.28 5.22

Loan impairment provisionAs % of total balances % 2.03 15.05 2.17 17.51 2.09 17.56





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 haveseen arrears in both companies fall notwithstanding the challenging economic conditions. At UKAR level, thenumber of mortgage accounts 3 or more months in arrears, including those in possession, has reduced by 17%since 31 December 2012, and 29% compared to 30 June 2012.

We adhere to the FCA's regulatory guidance regarding Treating Customers Fairly and continue to work closelywith 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 andability 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 17% from25,581 at the end of 2012 to 21,332 cases at 30 June 2013 (H1 2012: 30,222). The total value of debt owed byresidential customers has reduced from £185.8m at 31 December 2012 to £161.8m at 30 June 2013 (H1 2012:£215.1m) equivalent to 0.25% of mortgage balances (H1 2012: 0.31%; FY 2012: 0.28%).

Provisions for residential loan impairment held on the Balance Sheet have reduced by £217.8m since 30 June2012 to £1,317.2m (H1 2012: £1,535.0m; FY 2012: £1,411.1m) reflecting the reduction in arrears cases. TotalUKAR fraud and professional negligence provisions have reduced by £14.2m since 31 December 2012 to£357.4m (H1 2012: £335.0m; FY 2012: £371.6m). Total UKAR fraud provisions represent coverage of 47% ofsuspected fraud and professional negligence cases (H1 2012: 38%; FY 2012: 46%).

Within the B&B book, fraud and professional negligence provisions have reduced since the year end by £14.3m to£302.0m (H1 2012: £277.4m; FY 2012: £316.3m) mainly as a result of cases written off which were fully providedfor. In the NRAM book fraud and professional negligence provisions have increased by £0.1m to £55.4m (H12012: £57.6m; FY 2012: £55.3m).

As a proportion of balances, the residential impairment provision was 2.03% (H1 2012: 2.17%; FY 2012: 2.09%).The residential loan impairment charge was £61.9m, £56.9m lower than H1 2012 (H1 2012: £118.8m; FY 2012:£187.0m) as the charge benefited from lower arrears volumes.

The number of properties in possession for UKAR decreased from 2,475 in H1 2012 to 2,023 (FY 2012: 2,205).Within B&B, possession stock increased from 528 cases at 30 June 2012 to 600 at 30 June 2013 (FY 2012: 717),following a change in strategy whereby Law of Property Act ('LPA') receivers' for sale stock was taken throughpossession. In NRAM possession stock reduced to 1,423 cases from 1,947 at 30 June 2012 (FY 2012: 1,488). Atotal of 3,550 properties were taken into possession in the first half of the year (H1 2012: 3,871; FY 2012: 7,326).

In addition to residential property possessions, we also have a number of buy-to-let properties within B&Bmanaged by LPA receivers. Our LPA 'for sale' stock decreased from 306 cases at 31 December 2012 to 155 at30 June 2013, partly due to the change in repossession strategy referred to above. 311 cases were placed forsale by LPA receivers (H1 2012: 702; FY 2012: 758).

During H1, 3,732 cases (H1 2012: 4,101; FY 2012: 7,826) were sold following possession and a further 144cases (H1 2012: 586; FY 2012: 1,237) were sold which were under LPA management. Realised losses onproperties sold following possession or sold by an LPA were £179.7m (H1 2012: £236.1m; FY 2012: £458.8m).Within these losses were fraudulent and professional negligence losses within B&B of £16.7m (H1 2012: £27.6m;FY 2012: £55.8m).




Arrears and loan impairment (continued)

Arrears and loan impairment: unsecured loans

The standalone NRAM unsecured personal loan book was sold in July 2013. These loans are classified as 'heldfor sale' as at 30 June 2013 and hence are excluded from the figures below. Comparative figures include theseloans.

The number of unsecured loans 3 months or more in arrears was 9,251 (H1 2012: 32,987; FY 2012: 31,140)cases. The charge for unsecured loan impairment was lower at £39.4m (H1 2012: £45.9m; FY 2012: £42.3m).Asset coverage was 15.1% at 30 June 2013 (FY 2012: 17.6%).

The provision for unsecured loans was £249.1m (H1 2012: £483.3m; FY 2012: £403.8m). Realised losses were£30.4m (H1 2012: £72.1m; FY 2012: £155.4m).

Arrears and loan impairment: commercial loans

The provision for the commercial book has decreased to £82.4m from £106.7m at 30 June 2012 (FY 2012:£100.0m) with coverage at 10.1% (H1 2012: 11.3%; FY 2012: 11.3%). The reduction in provision was mainly dueto write-offs of fully provided accounts. We continually review the level of provisions against each individual loanbased on current and future property valuations, future rental income projections, tenant quality and generalmarket conditions.

Net impairment on investment securities

We continue to review securities held on our Balance Sheet, and we believe the risk of further impairment is notsignificant. We have identified a number of assets in NRAM that require additional impairment resulting in a netcharge of £4.8m (H1 2012: charge of £7.2m; FY 2012: credit of £30.2m).

Taxation

The total Income Statement tax charge for the period ended 30 June 2013 was £116.1m (H1 2012 £79.0m; FY2012: £126.7m). Given the statutory profit before taxation of £488.0m (H1 2012: £351.0m; FY 2012: £690.5m)this equates to an effective tax rate of 23.8% (H1 2012: 22.5%; FY 2012: 18.3%).

Balance Sheet

UKAR

Balance Sheet summary At 30 June2013

At 30 June2012

At 31 December2012

£m £m £mLoans to customers:- Residential mortgages 63,693.4 69,061.1 66,056.3- Commercial and other secured loans 737.6 839.4 781.9- Unsecured lending 1,405.7 2,276.9 1,895.4- Held for sale 312.1 - -Wholesale assets 9,892.0 10,561.0 11,778.9Fair value adjustments on portfolio hedging 363.6 518.4 493.8Derivative financial instruments 6,247.3 6,116.3 5,720.2Other assets 172.3 197.6 159.7Total assets 82,824.0 89,570.7 86,886.2Statutory Debt and HM Treasury loans 42,136.0 45,801.8 43,487.3Wholesale funding 33,650.3 37,028.9 36,415.0Derivative financial instruments 621.8 824.5 783.7Other liabilities 548.2 526.6 575.9Capital instruments 209.6 357.7 359.2Equity 5,658.1 5,031.2 5,265.1Total equity and liabilities 82,824.0 89,570.7 86,886.2

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




Balance Sheet (continued)

The Balance Sheet has reduced by £4.1bn since the year end to £82.8bn (H1 2012: £89.6bn; FY 2012: £86.9bn).

Lending balances were £2.6bn (3.8%) lower than 31 December 2012, reducing to £66.1bn during the period (H12012: £72.2bn; FY 2012: £68.7bn) reflecting £2.0bn of secured residential redemptions.

Wholesale asset balances reduced from the year end by £1.9bn to £9.9bn (H1 2012: £10.6bn; FY 2012: £11.8bn)primarily reflecting disposals and lower collateral balances.

Liabilities

The WCF and HM Treasury loans reduced by £1.3bn from the year end to £42.1bn (H1 2012: £45.8bn; FY 2012:£43.5bn) due to repayments having been made in the year (B&B: £0.6bn, NRAM: £0.7bn). UKAR did not drawdown on any facility during the period. In addition, £2.9bn of other external wholesale funding was repaid in theperiod to 30 June 2013.

The sale of the NRAM standalone unsecured personal loan book will result in loans to customers reducing by£0.3bn in July. The sale proceeds will be used to repay a further element of the NRAM Government loan in thethird quarter of 2013.

Cash payments

At the end of 2012, UKAR had £27.8bn of funding from HM Treasury, plus a further £15.7bn owed to the FinancialServices Compensation Scheme ('FSCS'). Repayment of this debt remains a primary objective of UKAR. In theperiod a further £1.3bn (H1 2012: £0.8bn; FY 2012: £3.1bn) of HM Treasury debt was repaid. In addition, othercash 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. Totalcash payments during the 6 months to 30 June 2013 to HM Treasury were £1.9bn (H1 2012: £1.2bn; FY 2012:£4.0bn).

Capital

The Group's capital is provided by its shareholders (currently HM Treasury) and the holders of subordinated notesand subordinated liabilities.

The regulated Group companies met their capital requirements in full throughout the year and have received noadditional capital from HM Treasury.

Capital Resources - B&B plc (company only)

Capital resources - Bradford & Bingley plcAt

30 June2013

30 June2012

31 December2012

£m £m £m

Share capital and reserves 2,614.6 2,394.7 2,382.6Available-for-sale reserve adjustments (38.5) (28.9) (17.1)Cash flow hedge reserve adjustments (49.8) (76.0) (86.8)Net pension adjustment (11.4) (97.8) (103.3)Less: deductions (517.7) (524.5) (521.3)Tier 1 capital 1,997.2 1,667.5 1,654.1Capital instruments 79.9 82.5 83.6Total capital 2,077.1 1,750.0 1,737.7




Capital (continued)

Capital Resources - NRAM plc (company only)

Capital resources - Northern Rock (Asset Management) plcAt

30 June2013

30 June2012

31 December2012

£m £m £m

Share capital and reserves 2,746.7 2,281.4 2,515.1Available-for-sale reserve adjustments 55.2 92.7 73.7Cash flow hedge reserve adjustments (150.5) (141.7) (192.2)Net pension adjustment (65.4) (65.4) (43.0)Reserve capital instruments 101.4 101.4 101.4Tier one notes 41.5 42.3 41.9Less: deductions (0.9) (1.2) (1.1)Tier 1 capital 2,728.0 2,309.5 2,495.8Subordinated notes 23.4 23.4 23.4Subordinated liabilities - 150.7 150.7Total capital 2,751.4 2,483.6 2,669.9

B&B plc total capital resources and Tier 1 capital are £339.4m and £343.1m higher than 31 December 2012respectively, the increases being a result of profits in the year and reduced pension funding costs. In 2012, B&B'sTier 1 capital was adjusted to reflect future payments which B&B had committed to make to address the deficit onthe defined benefit pension scheme (30 June 2012: £97.8m; 31 December 2012: £103.3m). At 30 June 2013, aspermitted by FCA capital rules, Tier 1 capital has instead been adjusted to remove the balance sheet surplus of£11.4bn.

NRAM plc total capital resources are £81.5m higher than 31 December 2012 due to profits generated in the year,partly offset by the maturity of £150.7m subordinated liabilities. Tier 1 capital is £232.2m higher due to profitsgenerated in the period.

B&B and NRAM operate under a MIPRU regulatory status. The regulated companies within the UKAR Group arerequired 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 astandard MIPRU firm, and at 30 June 2013 capital in B&B plc represented 5.8% of B&B company assets; NRAMplc capital represented 6.2% of NRAM company assets.

OTHER INFORMATION

UK Asset Resolution Limited

UKAR was established on 1 October 2010 to facilitate the orderly management of the closed mortgage books ofboth B&B and NRAM to maximise value for taxpayers. The Executive team of UKAR manages both organisationsfocusing on this common objective, while ensuring that both companies continue to treat customers fairly, deliverconsistently 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 SantanderGroup. The remainder of the business, including the mortgage books of B&B and specialist lending arm MortgageExpress, were nationalised and taken into public ownership by the Government. B&B is permanently closed to newlending, but continues to provide services to some 196,000 existing mortgage borrowers, with 273,000 mortgageaccounts.

Northern Rock (Asset Management) plc

Northern Rock was nationalised and taken into Government ownership in February 2008 and was then restructuredinto 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 388,000 existing borrowers,with 292,000 mortgage accounts and 212,000 unsecured loan accounts.



UK Asset Resolution Limited - Consolidated Financial Results

Consolidated Income Statement6 months to

30 June2013

6 months to30 June

2012


2012£m £m £m

Interest receivable and similar income 1,185.0 1,338.4 2,624.0Interest expense and similar charges (455.0) (610.3) (1,139.1)Net interest income 730.0 728.1 1,484.9

Fee and commission income 13.1 16.6 29.3Fee and commission expense (6.0) (6.2) (12.3)Net fee and commission income 7.1 10.4 17.0

Net gains on financial instruments designated at fair value - 17.5 17.5Net realised gains less losses on investment securities (8.5) 1.3 (14.9)Unrealised fair value movements on financial instruments 8.1 (42.9) (42.8)Hedge ineffectiveness (6.8) (22.5) (28.4)Provision for customer redress (45.0) (65.0) (419.0)Other operating income 0.6 9.8 10.9Non-interest income (44.5) (91.4) (459.7)

Net operating income 685.5 636.7 1,025.2

Administrative expenses:- Ongoing (104.1) (107.8) (207.3)- Other net expenses - - (59.7)

Impairment on loans to customers (91.5) (170.7) (241.4)Net impairment on investment securities (4.8) (7.2) 30.2Gain on repurchase of own liabilities 2.9 - 143.5Profit before taxation 488.0 351.0 690.5

Taxation (116.1) (79.0) (126.7)

Profit for the financial period 371.9 272.0 563.8



Consolidated Financial Results (continued)

Consolidated Balance Sheet

At 30 June 2013 30 June 2012 31 December 2012£m £m £m

Assets

Balances with the Bank of England 5,141.0 5,333.6 5,599.8Cash at bank and in hand 3,144.2 2,664.2 4,129.2Investment securities 1,606.8 2,563.2 2,049.9Loans to customers 65,836.7 72,177.4 68,733.6Assets classified as held for sale: loans to customers 312.1 - -Fair value adjustments on portfolio hedging 363.6 518.4 493.8Derivative financial instruments 6,247.3 6,116.3 5,720.2Other assets 23.9 44.0 40.7Retirement benefit assets 76.8 65.4 43.0Property, plant and equipment 28.0 37.5 28.7Intangible assets 43.6 50.7 47.3Total assets 82,824.0 89,570.7 86,886.2

Liabilities

Amounts due to banks 4,079.8 3,158.7 4,794.9Statutory Debt and HM Treasury loans 42,136.0 45,801.8 43,487.3Derivative financial instruments 621.8 824.5 783.7Debt securities in issue 29,570.5 33,870.2 31,620.1Other liabilities 140.6 159.2 169.8Current tax liabilities 141.8 160.1 64.1Deferred tax liabilities 41.4 13.4 43.9Retirement benefit obligations 9.6 11.1 70.5Provisions 214.8 182.8 227.6Capital instruments 209.6 357.7 359.2Total liabilities 77,165.9 84,539.5 81,621.1

Equity

Issued capital and reserves attributable to equity holderof the parent:- Share capital 1.2 1.2 1.2- Reserves 1,305.1 1,313.0 1,319.3- Retained earnings 4,227.0 3,592.2 3,819.8

Share capital and reserves 5,533.3 4,906.4 5,140.3

Non-shareholders' funds 124.8 124.8 124.8

Total equity 5,658.1 5,031.2 5,265.1

Total equity and liabilities 82,824.0 89,570.7 86,886.2

Bradford & Bingley plc Interim Financial Report 30 June 2013

UKAR Interim Financial Report 30 June 2013 Section B - B&B Page 17 of 75

Section BBradford & Bingley plc

Interim Financial Reportfor the 6 months ended 30 June 2013




Interim Financial Report for the 6 months ended 30 June 2013

KEY HIGHLIGHTS

Bradford & Bingley plc Repaid a further £625m in Government loans, reducing the total amount owed to the Government to £24.8bn. £218m paid to Government in the form of interest, fees and corporation tax. Mortgage accounts three or more months in arrears fell by 13% to 5,146 (H1 2012: 7,064; FY 2012: 5,914)

from the year end. Underlying profit before tax increased to £142.3m from £66.3m in H1 2012. Statutory profit before tax of £144.8m, compared with £45.7m profit in H1 2012.

PERFORMANCE ON STRATEGIC PRIORITIES

1. Optimise the Balance Sheet

B&B's Balance Sheet has reduced to £37.7bn in the last six months, a decrease of £0.8bn. B&B has repaid£625m of Government funding in the first half of this year (H1 2012: £700m; FY 2012: £1,425m). A further £0.3bnof 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 2012). As a result, lending balances stand at £31.7bnat 30 June 2013 (H1 2012: £33.3bn; FY 2012: £32.5bn).

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 £218m (H1 2012: £251m; FY 2012: £503m). The Board considers the total of allthese cash flows paid to HM Treasury to be an important measure of B&B meeting its objective in terms ofmaximising taxpayer value.

2. Debt Management

The number of accounts in arrears for B&B is lower than the 2012 year end as a direct consequence of proactivearrears management coupled with the continued low interest rate environment.

The total number of mortgage cases three or more months in arrears, including those in possession, reduced by13% since the end of 2012 to 5,146 cases as at 30 June 2013 (H1 2012: 7,064; FY 2012: 5,914). The totalamount of arrears owed by residential customers has fallen by £4.9m to £29.7m during the six months to 30 June2013, a reduction of 14%.

Support for customers experiencing payment difficulties

B&B has a total of around 196,000 customers: they have 273,000 mortgage accounts. The majority, 95%, ofthese mortgage loans continue to perform well but we do have a significant number of customers who are findingit difficult to meet their repayments. In those cases, we work closely with customers to offer a range of solutionsto help them manage their circumstances. During the first half of 2013, 5,400 arrangements were successfullycompleted and approximately 400 account modifications were made (H1 2012: 300; FY 2012: 700) to assistcustomers with their repayments and continue their existing mortgage.

We also work with a range of non-fee charging debt advice agencies to help customers reorganise their financesand ensure, wherever possible, that they can continue as homeowners. Research conducted by YouGov and theMoney Advice Service shows that individuals who seek advice are twice as likely to have their debt becomemanageable within 12 months compared to those who do not.

Repossession proceedings for customers in arrears are always viewed as a last resort but regrettably, in somesituations, this is inevitable. During the first half, the number of properties taken into possession increased by27% to 952 (H1 2012: 751); however this included 318 transferred from LPA receivers following a change instrategy. The stock of properties in possession at the end of June decreased from 717 at 31 December 2012 to600 (H1 2012: 528).



Where a buy-to-let landlord is in arrears we endeavour to protect tenants by honouring the terms of all validAssured Shorthold Tenancy agreements and instructing an LPA receiver to collect rent directly from the tenant,thereby enabling the tenant to stay in the property for the duration of any agreement.

3. Customers and Conduct

It is a key objective for UKAR to work with customers to achieve the most appropriate outcome for their particularsituation. In addition to our reactive and proactive customer contact strategies for customers in financial difficulty,a further area of focus for UKAR is whether our interest only customers have plans in place to repay theirmortgage at the end of their term. During the first half of 2013, we have proactively written to or called a sample ofinterest only customers, with mortgage terms of ten years or less remaining. This activity is designed to ensurecustomers are aware of the need to plan for the repayment of the loan at the end of its term and to encouragethem to share details of their plans so we can help ensure they are robust. We have had an excellent response tothe campaign so far.

4. Reduce costs

The Group has continued to focus on reducing costs.

Ongoing administrative expenses for the period were consistent with H1 2012 at £48.3m (H1 2012: £48.2m; FY2012: £93.4m) with the ratio of costs to assets marginally higher than the year-end at 0.27% (H1 2012: 0.26%; FY2012: 0.25%) due to reducing balance sheet assets.

OTHER INFORMATION


On 29 September 2008, all of B&B’s retail branches and its savings accounts were transferred to BancoSantander Group. The remainder of the business, including the mortgage books of B&B and specialist lendingarm Mortgage Express, were nationalised and taken into public ownership by the Government. B&B ispermanently closed to new lending, but continues to provide services to some 196,000 existing mortgageborrowers, with 273,000 mortgage accounts.



Key performance indicators ('KPIs')

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

Strategicpriorities

Financial measures 6 monthsto 30 June

2013

6 monthsto 30 June

2012


2012

Commentary

Lending balances (secured) £bn 31.7 33.3 32.5 Lending balances reduced by 2% duringthe period due to £0.6bn of residentialredemptions, and £0.2bn of other capitalrepayments.


4.00.6

3.90.7

4.01.3

Redemptions have fallen slightlycompared to H1 2012 due to a smallermortgage book and the continuing lowinterest rate environment.


0.6324.8

0.7026.2

1.4325.4

B&B has repaid £0.6bn of the WCF sinceDecember 2012. The WCF balance of£6.4bn is within the £11.5bn maximumfacility level currently agreed with HMTreasury.

Optimise theBalance Sheet

Total cash payments to HM Treasury £bn 0.84 0.95 1.93 Total cash paid to HM Treasury duringthe period. This includes principal andinterest repayments, guarantee fees andtax paid. The main components of thedecrease year on year are £75m lowerprincipal repayments and lower interestpayments on the WCF as the balancedecreases.

Residential arrears balance : totalresidential mortgage balance %

Residential payments overdue £m0.0929.7

0.1342.4

0.1134.6

The first of these measures whatproportion of the book is non-performing,related to the total balance of allresidential mortgages, and the secondthe value of customers’ missedpayments. The reduction in both KPIs isa reflection of improving arrearsperformance.

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


Number of residential arrears 3 months andover and possessions cases

2.391.88

5,146

3.212.44

7,064

2.722.10

5,914

The reduction in arrears reflects both theimprovement in collections performanceand the continuing benefit to mortgagecustomers of lower interest rates.


Impairment provisions:Residential £m

Cover %Commercial £m

Cover %

595.21.8749.18.47

680.32.0452.38.23

637.61.9650.38.29

The level of the residential impairmentBalance Sheet provision reduced by£42.4m from 31 December 2012 and thecommercial provision reduced by £1.2m.

Reducecosts


Ratio of costs to average interest-earningassets:


48.348.3

0.270.27

48.248.2

0.260.26

117.493.4

0.320.25

Ongoing administrative expenses wereconsistent with H1 2012. As the balancesheet has continued to decrease this hasresulted in a small increase in cost assetratios.

* 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 6.



Business review

In addition to the statutory measure of profit, the Board believes it is appropriate to assess performance based on theunderlying profit of the business, which excludes non-recurring costs, particularly those associated with the integration withNRAM, and certain gains such as the repurchase of own liabilities. Also excluded are movements in fair value and hedgeineffectiveness 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 the B&B Group isprovided in the table below.

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

Summary Balance SheetAt 30 June

2013At 30 June

2012At 31 December

2012£m £m £m

Loans to customers:- Residential mortgages 31,177.3 32,708.0 31,911.3- Commercial and other secured loans 530.9 583.3 556.5

Wholesale assets 3,662.8 2,869.7 3,717.2Fair value adjustments on portfolio hedging 243.2 343.6 341.4Derivative financial instruments 1,963.1 1,873.6 1,800.3Other assets 119.5 136.8 134.9Total assets 37,696.8 38,515.0 38,461.6

Statutory Debt and HM Treasury loans 24,795.2 26,151.2 25,424.2Wholesale funding 9,473.6 9,007.3 9,559.1Derivative financial instruments 385.6 521.6 502.2Other liabilities 189.0 190.5 265.4Capital instruments 147.6 138.5 146.2Equity 2,705.8 2,505.9 2,564.5Total equity and liabilities 37,696.8 38,515.0 38,461.6

Summary Income Statement6 months to

30 June2013

6 months to30 June

2012


2012£m £m £m

Net interest income 187.4 143.8 323.1Underlying net non-interest income* 9.4 10.5 19.4Underlying net operating income 196.8 154.3 342.5Ongoing administrative expenses (48.3) (48.2) (93.4)Impairment on loans to customers (6.8) (43.6) (62.1)Net impairment on investment securities 0.6 3.8 51.1Underlying profit before taxation 142.3 66.3 238.1Unrealised fair value movements on financial instruments 0.8 (11.8) (6.6)Hedge ineffectiveness (1.2) (8.8) (9.4)Other net administrative expenses - - (24.0)Provision for customer redress - - (12.0)Gain on repurchase of own liabilities 2.9 - 27.6Statutory profit before taxation 144.8 45.7 213.7



Bradford & Bingley plc Condensed Financial Statements

Consolidated Income Statement

Note

6 months to30 June

2013

6 months to30 June

2012


2012£m £m £m

Interest receivable and similar income 3 421.3 466.8 916.3Interest expense and similar charges 3 (233.9) (323.0) (593.2)Net interest income 3 187.4 143.8 323.1

Fee and commission income 7.2 7.2 14.4Net realised gains less losses on investment securities 1.8 0.1 1.4Unrealised fair value movements on financial instruments 5 0.8 (11.8) (6.6)Hedge ineffectiveness 5 (1.2) (8.8) (9.4)Provision for customer redress - - (12.0)Other operating income 0.4 3.2 3.6Non-interest income 4 9.0 (10.1) (8.6)

Net operating income 196.4 133.7 314.5

Administrative expenses:- Ongoing 6 (48.3) (48.2) (93.4)- Other net expenses 6 - - (24.0)

Impairment on loans to customers 9 (6.8) (43.6) (62.1)Net impairment on investment securities 0.6 3.8 51.1Gain on repurchase of own liabilities 2.9 - 27.6Profit before taxation 144.8 45.7 213.7

Taxation 7 (36.1) (10.5) (48.4)


The B&B Group's business and operations comprise one single activity, principally within the United Kingdom, and it has onlyone 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

6 months to 30 June 2013Gross of

taxTax Net of

tax£m £m £m

Profit for the financial period 144.8 (36.1) 108.7

Other comprehensive income

Items that may be reclassified subsequently to profit or loss:Available-for-sale instruments:- Net gains recognised in available-for-sale reserve during the period 29.1 (6.8) 22.3- 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 225.7 (55.4) 170.3- Amounts transferred from cash flow hedge reserve and recognised in profit during the period (270.9) 66.5 (204.4)

(17.3) 4.6 (12.7)Items that will not be reclassified subsequently to profit or loss:Actuarial gains on retirement benefit obligations 41.7 (9.6) 32.1

41.7 (9.6) 32.1

Total other comprehensive income 24.4 (5.0) 19.4Total comprehensive income for the financial period 169.2 (41.1) 128.1

6 months to 30 June 2012Gross of

taxTax Net of

tax£m £m £m



Items that may be reclassified subsequently to profit or loss: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) 2.0Cash 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

45.3 (11.4) 33.9Items that will not be reclassified subsequently to profit or loss:Actuarial losses on retirement benefit obligations (5.4) 1.0 (4.4)

(5.4) 1.0 (4.4)





Consolidated Statement of Comprehensive Income (continued)

12 months to 31 December 2012Gross of

taxTax Net of

tax£m £m £m

Profit for the financial year 213.7 (48.4) 165.3


Items that may be reclassified subsequently to profit or loss:Available-for-sale instruments:- Net losses recognised in available-for-sale reserve during the year (0.8) 0.2 (0.6)- Amounts transferred from available-for-sale reserve and recognised in profit during the year

(2.7) 0.7 (2.0)

Cash flow hedges:- Net losses recognised in cash flow hedge reserve during the year (335.4) 166.9 (168.5)- Amounts transferred from cash flow hedge reserve and recognised in profit during the year

356.5 (177.4) 179.1


(64.3) 14.3 (50.0)

Total other comprehensive income (46.7) 4.7 (42.0)Total comprehensive income for the financial year 167.0 (43.7) 123.3




Consolidated Balance SheetAt Note 30 June 2013 30 June 2012 31 December 2012

£m £m £m

Assets

Balances with the Bank of England 1,091.0 722.5 841.3Cash at bank and in hand 2,082.5 1,302.5 2,252.0Investment securities 489.3 844.7 623.9Loans to customers 8 31,708.2 33,291.3 32,467.8Fair value adjustments on portfolio hedging 8 243.2 343.6 341.4Derivative financial instruments 1,963.1 1,873.6 1,800.3Other assets 41.0 31.6 60.9Deferred tax assets 7 - 31.0 3.0Retirement benefit assets 11.4 - -Property, plant and equipment 24.4 24.7 24.8Intangible assets 42.7 49.5 46.2Total assets 37,696.8 38,515.0 38,461.6

Liabilities

Amounts due to banks 1,208.2 336.8 1,221.2Statutory Debt and HM Treasury loans 24,795.2 26,151.2 25,424.2Derivative financial instruments 385.6 521.6 502.2Debt securities in issue 12 8,265.4 8,670.5 8,337.9Other liabilities 90.6 92.3 103.8Current tax liabilities 39.1 43.8 18.2Deferred tax liabilities 7 6.9 - -Retirement benefit obligations 9.6 11.1 70.5Provisions 42.8 43.3 72.9Capital instruments 147.6 138.5 146.2Total liabilities 34,991.0 36,009.1 35,897.1

Equity

Issued capital and reserves attributable to equityholder of the parent:- Share capital 361.3 361.3 361.3- Reserves 13 325.6 364.2 338.3- Retained earnings 2,018.9 1,780.4 1,864.9






Consolidated Statement of Changes in Equity

6 months to 30 June 2013Sharecapital

Sharepremium

reserve

Capitalredemption

reserve

Available-for-salereserve

Cash flowhedge

reserveRetainedearnings

Total sharecapital and

reserves£m £m £m £m £m £m £m

At 1 January 2013 361.3 198.9 29.2 17.1 93.1 1,864.9 2,564.5

Other comprehensive income:- Net movement in available-for-sale

reserve- - - 27.9 - - 27.9

- Net movement in cash flow hedgereserve

- - - - (45.2) - (45.2)

- Actuarial gains - - - - - 41.7 41.7- Tax effects of the above - - - (6.5) 11.1 (9.6) (5.0)Total other comprehensive income - - - 21.4 (34.1) 32.1 19.4Profit for the financial period - - - - - 108.7 108.7Total comprehensive income - - - 21.4 (34.1) 140.8 128.1Release of time-expired provision forunclaimed shares and dividends (seenote 14)

- - - - - 13.2 13.2

At 30 June 2013 361.3 198.9 29.2 38.5 59.0 2,018.9 2,705.8

6 months to 30 June 2012Sharecapital

Sharepremium

reserve

Capitalredemption

reserve


Cash flowhedge




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-salereserve

- - - 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) 29.5Profit for the financial period - - - - - 35.2 35.2Total comprehensive income - - - 9.3 24.6 30.8 64.7At 30 June 2012 361.3 198.9 29.2 29.0 107.1 1,780.4 2,505.9

12 months to 31 December 2012Sharecapital

Sharepremium

reserve

Capitalredemption

reserve


Cash flowhedge




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- - - (3.5) - - (3.5)

- Net movement in cash flow hedgereserve

- - - - 21.1 - 21.1

- Actuarial losses - - - - - (64.3) (64.3)- Tax effects of the above - - - 0.9 (10.5) 14.3 4.7Total other comprehensive income - - - (2.6) 10.6 (50.0) (42.0)Profit for the financial year - - - - - 165.3 165.3Total comprehensive income - - - (2.6) 10.6 115.3 123.3At 31 December 2012 361.3 198.9 29.2 17.1 93.1 1,864.9 2,564.5




Consolidated Cash Flow Statement6 months to

30 June2013

6 months to 30 June

2012


2012£m £m £m

Cash flows from operating activitiesProfit before taxation for the financial period 144.8 45.7 213.7Adjustments to reconcile profit to cash flows generated from/(used in)operating activities:- Depreciation and amortisation 7.0 3.8 10.6- Impairment on loans to customers 6.8 43.6 62.1- Net impairment on investment securities (0.6) (3.8) (51.1)- Gain on repurchase of own liabilities (2.9) - (27.6)- Income taxes paid (10.3) - (22.3)- Fair value adjustments on financial instruments 77.1 (49.1) (93.7)- Other non-cash movements 235.7 34.1 (152.2)Cash flows generated from/(used in) operating activities beforechanges in operating assets and liabilities

457.6 74.3 (60.5)

Net (increase)/decrease in operating assets:- Loans to customers 752.8 744.9 1,549.9- Derivative financial instruments receivable (162.8) 444.4 517.7- Other assets 21.6 5.3 (25.0)Net increase/(decrease) in operating liabilities:- Amounts due to banks (13.0) (56.9) 827.5- Derivative financial instruments payable (116.6) (56.3) (75.7)- Debt securities in issue (324.3) (703.7) (757.7)- Other liabilities (4.0) (72.6) 7.5- Provisions (30.1) (4.4) (21.5)Net cash generated from operating activities 581.2 375.0 1,962.2Cash flows from investing activities- Purchase of property, plant and equipment and intangible assets (3.2) (20.7) (24.5)- Proceeds from sale of property, plant and equipment and intangible assets - - 0.1- Proceeds from sale and redemption of investment securities 130.5 99.4 365.0Net cash from investing activities 127.3 78.7 340.6Cash flows used in financing activities- Repayment of Working Capital Facility (625.0) (700.0) (1,425.0)- Repurchase of own liabilities (3.2) - (56.5)Net cash used in financing activities (628.2) (700.0) (1,481.5)Net increase/(decrease) in cash and cash equivalents 80.3 (246.3) 821.3Cash and cash equivalents at beginning of period 3,092.6 2,271.3 2,271.3Cash and cash equivalents at end of period 3,172.9 2,025.0 3,092.6Represented by cash and assets with original maturity of three months orless within:- Balances with the Bank of England 1,090.6 722.5 840.9- Cash at bank and in hand 2,082.3 1,302.5 2,251.7Total 3,172.9 2,025.0 3,092.6



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 purposevehicles ('SPVs')), together referred to as the B&B Group. B&B's Consolidated Financial Statements for the year ended 31December 2012 are included in B&B's 2012 Annual Report & Accounts available on B&B's website www.bbg.co.uk.

As explained in B&B's 2012 Annual Report & Accounts, B&B's accounting reference date has been changed from 31December to 31 March. B&B's next Annual Report & Accounts will cover the 15 months to 31 March 2014. Prior to that anInterim Financial Report will be published for the period to 30 September 2013.

2. Basis of preparation

This Interim Financial Report has been prepared on a going concern basis. At the date of approval of this Interim FinancialReport 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 andits ability to continue as a going concern, in which case adjustments may have to be made to reduce the carrying value ofassets to recoverable amounts and to provide for further liabilities that might arise. At the date of approval of this InterimFinancial Report, HM Treasury has confirmed its intentions to continue to provide funding until at least 1 November 2014.

In preparing this Interim Financial Report, including the 2012 comparative financial information where applicable, the B&BGroup has adopted for the first time the following statements:

- IFRS 13 ‘Fair Value Measurement’. This statement is mandatory for 2013 financial statements, with 2012 comparativeinformation. This standard sets out principles for how to measure the fair value of financial assets and liabilities. It does notchange which items are carried at fair value. IFRS 13 has not had any material impact on the B&B Group's fair values.IFRS 13 also requires that Interim Financial Reports from 2013 should include some additional fair value disclosures; theseare included in note 15.

- The June 2011 amendments to IAS 1 ‘Presentation of Financial Statements’ relating to ‘Presentation of Items of OtherComprehensive Income’. This statement is mandatory for 2013 financial statements, with 2012 comparative information.As a result, the B&B Group's Statement of Comprehensive Income now shows which elements of other comprehensiveincome may be reclassified subsequently to profit or loss.

- The June 2011 amendments to IAS 19 ‘Employee Benefits’. This statement is mandatory for 2013 financial statements, with2012 comparative information. This was applied in calculating the 2013 cost of the defined benefit pension scheme, and inthe calculation of defined benefit scheme assets and obligations as at 30 June 2013.

- The Annual Improvements to IFRSs 2009-2011 Cycle, issued in May 2012. These changes are mandatory for 2013 financialstatements, with 2012 comparative information. These changes had no material impact on the B&B Group.

There have been no other material changes to the accounting policies previously applied by the B&B Group in preparing, anddetailed in, its Annual Report & Accounts for the year ended 31 December 2012, which were prepared in accordance withIFRS as adopted by the European Union.

The Directors consider that the B&B Group's accounting policies are the most appropriate to its circumstances, have beenconsistently applied in dealing with items which are considered material, and are supported by reasonable and prudentestimates and judgements.

The preparation of this Interim Financial Report requires the use of estimates and assumptions that affect the reported valuesof assets and liabilities at the Balance Sheet date and the reported amounts of revenues and expenses during the reportingperiod. Although these estimates are based on management's best knowledge of the amount, event or actions, actual resultsultimately 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 December2012.



Notes to the Financial Information (continued)

3. Net interest income

6 months to30 June

2013

6 months to 30 June

2012


2012£m £m £m

Interest receivable and similar incomeOn secured loans 408.6 450.9 884.8On investment securities and deposits 12.7 15.9 31.5Total interest receivable and similar income 421.3 466.8 916.3Interest expense and similar chargesOn amounts due to banks and HM Treasury (183.8) (221.8) (426.1)State guarantee fee** (19.5) (24.5) (47.4)On debt securities and other (30.6) (76.7) (119.7)Total interest expense and similar charges (233.9) (323.0) (593.2)Net interest income 187.4 143.8 323.1

Average balancesInterest-earning assets ('IEA') 36,039 37,024 36,968Financed by:- Interest-bearing funding 14,677 15,765 15,643- Interest-free funding* 21,362 21,259 21,325

Average rates % % %- Gross yield on IEA 2.36 2.54 2.48- Cost of interest-bearing funding (2.95) (3.81) (3.49)

Interest spread (0.59) (1.27) (1.01)State guarantee fee** (0.11) (0.13) (0.13)Contribution of interest-free funding * 1.75 2.18 2.01Net interest margin on average IEA 1.05 0.78 0.87


* 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'.




4. Net non-interest income6 months to

30 June 2013

6 months to30 June

2012


2012

£m £m £mTotal net fee and commission income 7.2 7.2 14.4Net realised gains less losses on investment securities 1.8 0.1 1.4Other operating income 0.4 3.2 3.6Underlying net non-interest income 9.4 10.5 19.4

Unrealised fair value movements on financial instruments 0.8 (11.8) (6.6)Hedge ineffectiveness (1.2) (8.8) (9.4)Provision for customer redress - - (12.0)Statutory net non-interest income 9.0 (10.1) (8.6)

5. Unrealised fair value movements on financial instruments and hedge ineffectiveness

6 months to30 June

2013

6 months to 30 June

2012


2012£m £m £m

Net gain/(loss) in fair value:- fair value movements on derivatives which are economic hedges but

are not in hedge accounting relationships 0.8 (11.8) (6.6)Unrealised fair value movements 0.8 (11.8) (6.6)

Net (losses)/gains on fair value hedging instruments (115.2) 37.2 26.2Net gains/(losses) on fair value hedged items attributable to hedged risk 114.0 (46.0) (35.6)Net hedge ineffectiveness losses (1.2) (8.8) (9.4)

Total (0.4) (20.6) (16.0)

6. Administrative expenses

Certain employees of B&B provide services to NRAM, and the staff numbers below show B&B's employees split by whichcompany they provide services to. NRAM had no direct employees during the periods presented.

The monthly average number of persons employed by B&B during the period was as follows:

6 months to30 June

2013Number

6 months to30 June

2012Number


2012Number

Average headcount:Full time 1,941 1,919 1,923Part time 442 520 501Total employed 2,383 2,439 2,424Providing services to NRAM:Full time 940 1,072 1,017Part time 285 358 342Total providing services to NRAM 1,225 1,430 1,359Providing services to B&B:Full time 1,001 847 906Part time 157 162 159Total providing services to B&B 1,158 1,009 1,065Total average full time equivalent 2,237 2,253 2,249Total average full time equivalent providing services to NRAM 1,126 1,295 1,234Total average full time equivalent providing services to B&B 1,111 958 1,015

The full time equivalent is based on the average hours worked by employees in the period.




6. Administrative expenses (continued)

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

At

30 June2013

Number

30 June2012

Number

31 December2012

NumberFull time 1,832 1,907 1,965Part time 391 507 471Total employed 2,223 2,414 2,436Providing services to NRAM:Full time 848 1,062 839Part time 236 345 319Total providing services to NRAM 1,084 1,407 1,158Providing services to B&B:Full time 984 845 1,126Part time 155 162 152Total providing services to B&B 1,139 1,007 1,278Total full time equivalent headcount 2,099 2,237 2,277Total full time equivalent headcount providing services to NRAM 1,005 1,281 1,046Total full time equivalent headcount providing services to B&B 1,094 956 1,231

Staff numbers include Executive but not Non-Executive Directors. In addition to the permanent staff above, B&B employed afull-time equivalent of 156 temporary staff and specialist contractors at 30 June 2013 (30 June 2012: 167; 31 December 2012:191).

6 months to30 June

2013

6 months to 30 June

2012


2012£m £m £m

B&B's costs of permanent staff were as follows:Wages and salaries 13.0 12.9 28.0Social security costs 1.4 1.8 3.0Defined benefit pension costs 1.4 0.7 0.9Defined contribution pension costs 0.9 0.9 1.4Other retirement benefit costs 0.2 0.2 0.5Total staff costs 16.9 16.5 33.8IT costs 15.6 13.7 25.9Outsourced and professional services 6.2 7.1 13.4Depreciation and amortisation 2.9 0.5 4.7Other administrative expenses 6.7 10.4 15.6Ongoing administrative expenses 48.3 48.2 93.4Other net administrative expenses:- Transformation costs* - - 24.0Total other net administrative expenses - - 24.0Total 48.3 48.2 117.4

*Transformation costs relate to the integration with NRAM into UKAR.

7. Taxation

Taxation appropriately reflects changes in tax rates which had been substantively enacted by 30 June 2013.

The tax charge for the period included an overseas tax charge of £nil (£nil for 2012). The tax charge for the 6 months to 30June 2013 has been calculated using the expected effective tax rate for the 15 month period to 31 March 2014, ie 23.2% (yearended 31 December 2012: 24.5%). Deferred taxation appropriately reflects a change to the standard rate of UK corporationtax to 23% with effect from 1 April 2013. The announced further rate reductions to 20% with effect from 1 April 2015, whichwere substantively enacted on 17 July 2013, would have maximum potential impact of reducing B&B's deferred tax assets byapproximately £4.3m.

No deferred tax assets were unrecognised at 30 June 2013 (at 30 June 2012: £2.5m; and at 31 December 2012: £nil ofdeferred tax assets were unrecognised, relating to unused tax losses of £10.3m at 30 June 2012). £11.0m (30 June 2012:£42.1m; 31 December 2012: £22.5m) 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 whichdeferred tax has been recognised.




8. Loans to customers

Residential mortgages include all of the B&B Group's buy-to-let loans. Commercial loans comprise loans secured oncommercial properties.

All of the B&B Group's loans to customers are to UK customers.

Balances include accounting adjustments in respect of provisioning requirements.

Loans to customers include loans amounting to £18,968.8m (30 June 2012: £19,832.5m; 31 December 2012: £19,393.4m)which have been sold to bankruptcy remote SPVs whereby substantially all of the risks and rewards of the portfolio areretained by B&B. Accordingly, all of these loans are retained on B&B's Balance Sheet. Further details are provided in note12.

Fair value adjustments on portfolio hedging amounting to £243.2m (30 June 2012: £343.6m; 31 December 2012: £341.4m)relate to fair value adjustments to loans to customers in relation to interest rate risk as a result of their inclusion in a fair valueportfolio hedge relationship.

Loans to customers comprise the following product types:

Balances Redemptions Balances RedemptionsAt 30 June

2013£m %

6 months to 30 June 2013

£m

At 30 June2012

£m %

6 months to 30June 2012

£mResidential mortgagesBuy-to-let 20,308.0 65 (328.5) 21,145.6 65 (307.7)Self Cert 6,393.7 21 (129.0) 6,731.8 20 (143.1)Standard and other 4,475.6 14 (169.9) 4,830.6 15 (202.1)Total residential mortgages 31,177.3 100 (627.4) 32,708.0 100 (652.9)Residential loans 31,177.3 98 (627.4) 32,708.0 98 (652.9)Commercial loans 530.9 2 (26.2) 583.3 2 (5.9)

Total 31,708.2 100 (653.6) 33,291.3 100 (658.8)

Balances Redemptions

At 31 December2012£m %


2012£m

Residential mortgagesBuy-to-let 20,694.4 65 (646.4)Self Cert 6,561.8 20 (291.0)Standard and other 4,655.1 15 (394.5)Total residential mortgages 31,911.3 100 (1,331.9)Residential loans 31,911.3 98 (1,331.9)Commercial loans 556.5 2 (35.7)

Total 32,467.8 100 (1,367.6)

Redemptions comprise full redemptions and voluntary partial redemptions, but exclude overpayments and regular monthlypayments.




9. Impairment on loans to customers

Allowances for credit losses against loans to customers have been made as follows:

On residential mortgages On commercial loans Total6 months to 30 June 2013 £m £m £m

At 1 January 2013 637.6 50.3 687.9Movements during the period:- Write-offs (66.8) - (66.8)- Loan impairment charge 24.4 (1.2) 23.2Net movements during the period (42.4) (1.2) (43.6)At 30 June 2013 595.2 49.1 644.3The Income Statement charge comprises:- Loan impairment charge 24.4 (1.2) 23.2- Recoveries net of costs (16.4) - (16.4)

Total Income Statement charge 8.0 (1.2) 6.8

On residential mortgages On commercial loans Total6 months to 30 June 2012 £m £m £m

At 1 January 2012 718.1 52.3 770.4Movements during the period:- Write-offs (85.5) - (85.5)- Loan impairment charge 47.7 - 47.7Net movements during the period (37.8) - (37.8)

At 30 June 2012 680.3 52.3 732.6The Income Statement charge comprises:- Loan impairment charge 47.7 - 47.7- Recoveries net of costs (3.8) (0.3) (4.1)


On residential mortgages On commercial loans Total12 months to 31 December 2012 £m £m £m

At 1 January 2012 718.1 52.3 770.4Movements during the year:- Write-offs (175.8) - (175.8)- Loan impairment charge 95.3 (2.0) 93.3Net movements during the year (80.5) (2.0) (82.5)At 31 December 2012 637.6 50.3 687.9The Income Statement charge comprises:- Loan impairment charge 95.3 (2.0) 93.3- Recoveries net of costs (30.8) (0.4) (31.2)


In the Balance Sheet the carrying values of loans to customers are presented net of these impairment allowances.




10. Credit quality of loans to customers

In respect of loans to residential customers, the B&B Group holds collateral in the form of mortgages over residentialproperties. The fair value of this collateral was as follows:

At

30 June2013

£m

30 June2012

£m

31 December2012

£mNeither past due nor impaired 42,198.0 42,314.9 41,467.9Past due but not impaired 1,760.6 2,067.3 1,815.6Impaired 305.8 450.4 362.9Total 44,264.4 44,832.6 43,646.4

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

At

30 June2013

£m

30 June2012

£m

31 December2012

£mNeither past due nor impaired 29,671.5 30,490.5 29,972.9Past due but not impaired 1,415.4 1,732.3 1,515.7Impaired 274.9 417.4 335.7

Total 31,361.8 32,640.2 31,824.3

The impaired balances above include £63.4m (30 June 2012: £58.4m; 31 December 2012: £71.2m) 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 priceinflation or deflation up to the Balance Sheet date.

The indexed loan to value ('LTV') of residential loan balances, weighted by loan balance, falls into the following ranges:

At

30 June2013

%

30 June2012

%

31 December2012

%To 50% 7.0 7.2 7.050% to 75% 19.8 16.9 18.175% to 100% 49.0 47.4 47.7Over 100% 24.2 28.5 27.2Total 100.0

100100.0

100100.0

The average indexed loan to value based on a simple average is 71.8% (30 June 2012: 74.5%; 31 December 2012: 74.6%)and on a weighted average is 85.0% (30 June 2012: 87.0%; 31 December 2012: 86.4%).

At 30 June 2013 Residentialmortgages

Commercialloans Total

£m £m £mNeither past due nor impaired 29,997.2 396.6 30,393.8Past due but not impaired:- less than 3 months 983.2 - 983.2- 3 to 6 months 279.8 - 279.8- over 6 months 190.7 - 190.7Impaired 321.6 183.4 505.0

31,772.5 580.0 32,352.5Impairment allowances (595.2) (49.1) (644.3)Loans to customers net of impairment allowances 31,177.3 530.9 31,708.2Impairment allowances:- individual 90.5 49.1 139.6- collective 504.7 - 504.7Total impairment allowances 595.2 49.1 644.3




10. Credit quality of loans to customers (continued)

At 30 June 2012Residentialmortgages

Commercial loans Total

£m £m £mNeither past due nor impaired 31,067.2 422.2 31,489.4Past 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 - 251.3Impaired 518.6 213.4 732.0


At 31 December 2012Residentialmortgages

Commercial loans Total

£m £m £mNeither past due nor impaired 30,562.4 397.9 30,960.3Past due but not impaired:- less than 3 months 1,053.2 - 1,053.2- 3 to 6 months 306.8 - 306.8- over 6 months 216.7 - 216.7Impaired 409.8 208.9 618.7


'Impaired' loans are those which are 12 months or more in arrears, in possession or held for sale with a LPA receiver, andothers 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 orimpaired other than due to renegotiation; these were loans where arrears were capitalised during the previous 12 months.These loans amounted to £5.5m for the 12 months to 30 June 2013 (£12.5m for the 12 months to 30 June 2012; £7.5m for the12 months to 31 December 2012). A loan is eligible for capitalisation of arrears only once the borrower has complied withstringent terms for a set period.

The B&B Group also offers other forbearance methods to borrowers, subject to compliance with loan terms, the aim of thesebeing to assist the borrower to reduce the level of arrears. Management have taken into consideration the forbearanceoptions in applying loan default probabilities and in their overall assessment of the total impairment provision.




11. Arrears and possessions on residential mortgages

Arrears and possessions are monitored for the B&B Group as a whole, and also split by type of product.

At30 June

201330 June

201231 December

2012Arrears 3 months and over

Number of cases No. 4,546 6,536 5,197Proportion of total cases % 1.66 2.26 1.85Asset value £m 654.9 967.6 760.7Proportion of book % 2.07 2.95 2.38Total value of payments overdue £m 19.0 29.8 23.1Proportion of total book % 0.06 0.09 0.07

PossessionsNumber of cases No. 600 528 717Proportion of total cases % 0.22 0.18 0.25Asset value £m 88.8 83.9 108.2Proportion of book % 0.28 0.26 0.34Total value of payments overdue £m 4.2 5.2 4.7Proportion of total book % 0.01 0.02 0.02New possessions No. 952 751 1,760

Total arrears 3 months and over andpossessionsNumber of cases No. 5,146 7,064 5,914Proportion of total cases % 1.88 2.44 2.10Asset value £m 743.7 1,051.5 869.0Proportion of book % 2.39 3.21 2.72Total value of payments overdue £m 23.2 35.0 27.8Proportion of total book % 0.07 0.11 0.09

In respect of all arrears (including those which are less than 3 months in arrears) together with possessions, the totalvalue of payments overdue was:Payments overdueTotal value of payments overdue £m 29.7 42.4 34.6Proportion of total book % 0.09 0.13 0.11

Loan impairment provisionAs % of residential balances % 1.87 2.04 1.96




11. Arrears and possessions on residential mortgages (continued)

Analysis of residential mortgages 3 months and over in arrears by product

At30 June

201330 June

201231 December

2012

Buy-to-let Number of cases No. 1,967 3,144 2,206 Proportion of total cases % 1.13 1.74 1.24 Asset value £m 276.2 462.4 319.3 Proportion of book % 1.36 2.19 1.54 Total value of payments overdue £m 7.9 14.7 10.2 Proportion of total book % 0.04 0.07 0.05

Self Cert Number of cases No. 1,353 1,774 1,563 Proportion of total cases % 3.18 4.00 3.60 Asset value £m 239.3 309.2 273.4 Proportion of book % 3.74 4.59 4.17 Total value of payments overdue £m 6.3 8.4 7.2 Proportion of total book % 0.10 0.12 0.11

Standard and other Number of cases No. 1,226 1,618 1,428 Proportion of total cases % 2.16 2.51 2.36 Asset value £m 139.4 196.0 168.1 Proportion of book % 3.12 4.06 3.61 Total value of payments overdue £m 4.8 6.7 5.7 Proportion of total book % 0.11 0.14 0.12

12. Debt securities in issueSecuritised

notesCovered

Bonds Other Total£m £m £m £m

At 1 January 2013 4,276.3 3,602.3 459.3 8,337.9Repayments (138.6) - (185.7) (324.3)Other movements 166.9 83.3 1.6 251.8At 30 June 2013 4,304.6 3,685.6 275.2 8,265.4

Securitised assets 10,176.4 8,825.8 - 19,002.2

Securitisednotes

CoveredBonds Other Total

£m £m £m £m

At 1 January 2012 4,823.7 3,990.3 691.5 9,505.5Repayments (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 notes

CoveredBonds Other Total

£m £m £m £m

At 1 January 2012 4,823.7 3,990.3 691.5 9,505.5Repayments (367.8) (190.3) (199.6) (757.7)Repurchase (83.9) - - (83.9)Other movements (95.7) (197.7) (32.6) (326.0)At 31 December 2012 4,276.3 3,602.3 459.3 8,337.9





12. Debt securities in issue (continued)

Other movements comprise exchange rate movements, accrued interest and hedge accounting adjustments.

The B&B Group issued debt securities to securitise loans and advances to customers through SPVs and Covered Bonds, andalso raised unsecured medium term funding, the amounts of which are shown above. Certain of these were subject to fairvalue hedge designation, and the carrying values of these instruments include unamortised adjustments in respect of thenotes that were hedged.

HM Treasury has provided guarantees with regards to certain wholesale borrowings; B&B pays a fee for these guarantees asshown in note 3.

Securitised assets represent loans to customers which have been used to securitise issued notes, including notes which areheld by other B&B companies.

13. Reserves

Reserves comprise the following:At 30 June

201330 June

201231 December

2012£m £m £m

Share premium reserve 198.9 198.9 198.9Capital redemption reserve 29.2 29.2 29.2Available-for-sale reserve 38.5 29.0 17.1Cash flow hedge reserve 59.0 107.1 93.1Total 325.6 364.2 338.3

14. Release of time-expired provision for unclaimed shares and dividends

Following demutualisation of Bradford & Bingley Building Society in 2000, a number of shares in B&B were unclaimed as theRegistered Holders could not be traced. In accordance with B&B's Articles of Association, these shares were sold in March2004 and the proceeds have been held by B&B for a further period of nine years to satisfy any claims received from theRegistered Holders who were originally entitled to the shares. During this period B&B has sought periodically to trace theRegistered Holders. The Registered Holders' entitlement to the proceeds of the sale of the unclaimed shares expired in March2013, and the remaining provision of £13.2m has, therefore, been released to retained earnings.

15. Capital structure

Capital resources - Bradford & Bingley plc (company only)At

30 June 2013

30 June2012

31 December2012

£m £m £m

Share capital and reserves 2,614.6 2,394.7 2,382.6Available-for-sale reserve adjustments (38.5) (28.9) (17.1)Cash flow hedge reserve adjustments (49.8) (76.0) (86.8)Net pension adjustment (11.4) (97.8) (103.3)Less: deductions (517.7) (524.5) (521.3)Tier 1 capital 1,997.2 1,667.5 1,654.1Capital instruments 79.9 82.5 83.6Total capital 2,077.1 1,750.0 1,737.7

In 2012, Tier 1 capital was adjusted to reflect future payments which B&B had committed to make to address thedeficit on the defined benefit pension scheme (30 June 2012: £97.8m; 31 December 2012: £103.3m). At 30 June2013, as permitted by FCA capital rules, Tier 1 capital has instead been adjusted to remove the balance sheetsurplus of £11.4bn.




16. Fair value disclosures

(a) Categories of financial assets and financial liabilities: carrying value compared to fair value

The following table summarises the carrying amounts and the fair values of financial assets and liabilities:

At 30 June 2013 Carrying value£m

Fair value£m

Financial assets:Balances with the Bank of England 1,091.0 1,091.0Cash at bank and in hand 2,082.5 2,082.5Investment securities 489.3 489.3Loans to customers 31,708.2 31,728.6Fair value adjustments on portfolio hedging 243.2 -Derivative financial instruments 1,963.1 1,963.1Other financial assets 36.9 36.9Total financial assets 37,614.2 37,391.4

Carrying value£m

Fair value£m

Financial liabilities:Amounts due to banks 1,208.2 1,208.2Statutory Debt and HM Treasury loans 24,795.2 24,795.2Derivative financial instruments 385.6 385.6Debt securities in issue 8,265.4 7,963.4Capital instruments 147.6 82.7Other financial liabilities 90.6 90.6Total financial liabilities 34,892.6 34,525.7

At 31 December 2012 Carrying value£m

Fair value£m

Financial assets:Balances with the Bank of England 841.3 841.3Cash at bank and in hand 2,252.0 2,252.0Investment securities 623.9 623.9Loans to customers 32,467.8 32,479.1Fair value adjustments on portfolio hedging 341.4 -Derivative financial instruments 1,800.3 1,800.3Other financial assets 56.7 56.7Total financial assets 38,383.4 38,053.3

Carrying value£m

Fair value£m

Financial liabilities:Amounts due to banks 1,221.2 1,221.2Statutory Debt and HM Treasury loans 25,424.2 25,424.2Derivative financial instruments 502.2 502.2Debt securities in issue 8,337.9 8,047.1Capital instruments 146.2 73.9Other financial liabilities 90.6 90.6Total financial liabilities 35,722.3 35,359.2

Note: the fair values above as at 31 December 2012 have not been restated to comply with IFRS 13. However, anydifferences between these fair values and IFRS 13-compliant fair values would not be material.

The only financial assets and liabilities which are carried at fair value on the Balance Sheet are investment securities andderivative financial assets and liabilities. The valuation techniques and inputs used to derive fair values at 30 June 2013 areas follows.




16. Fair value disclosures (continued)

(a) Categories of financial assets and financial liabilities: carrying value compared to fair value (continued)

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction betweenmarket participants at the measurement date. Where an active market is considered to exist, fair values are based on quotedprices or lead manager prices. For instruments which do not have active markets, fair value is calculated using present valuemodels, which take individual cash flows together with assumptions based on market conditions and credit spreads, and areconsistent with accepted economic methodologies for pricing financial instruments.

(b) Valuation bases

Financial assets and liabilities carried at fair value are valued on the following bases;

At 30 June 2013 Level 1£m

Level 2£m

Level 3£m

Total£m

Financial assetsInvestment securities - available for sale 171.8 317.5 - 489.3Derivative financial instruments - 1,963.1 - 1,963.1Financial liabilitiesDerivative financial liabilities - (385.6) - (385.6)Net financial assets 171.8 1,895.0 - 2,066.8

Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities.Level 2: Inputs other than quoted prices that are observable for the asset or liability, whether directly (ie as price) or

indirectly (ie derived from the implications of prices).Level 3: Inputs for the asset or liability that are not based on observable market data, or have significant unobservable

inputs.

There were no transfers between Level 1 and Level 2 during the 6 months ended 30 June 2013.

Available-for sale investment securities which are categorised as Level 2 are those which are less frequently traded, andhence trade prices are not considered sufficient evidence of fair value. Fair value is estimated by the securities' leadmanagers by calculating discounted expected future cash flows, also taking into account recent trades, similar assets adjustedfor credit spreads, and where applicable the underlying performance of assets backing the securities.

Derivative financial instruments which are categorised as Level 2 are those which either:

(a) Have future cash flows which are on known dates and for which the cash flow amounts are known or calculable byreference to observable interest and foreign currency exchange rates; or

(b) Have future cash flows which are not pre-defined, but for which the fair value of the instrument has very low sensitivity tochanges in estimate of future cash flows.

In each case the fair value is calculated by discounting future cash flows using benchmark, observable market interest rates.

17. 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 thoseduring the year ended 31 December 2012. B&B repaid £625m of the WCF during the period (6 months to 30 June 2012:£700m; 12 months to 31 December 2012: £1,425m).




18. 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 potentialclaim by former individual shareholders who subscribed for additional shares in the £401m rights issue approved on 17 July2008. These former shareholders claim to have suffered loss through having been induced to subscribe for shares in therights issue by allegedly materially misleading and/or incomplete statements made in the associated prospectus dated 24 June2008 as revised and supplemented by the supplementary prospectus dated 11 July 2008. Should such a claim result inproceedings which are pursued through the courts and which succeed, the defendant directors and/or B&B could be liable indamages to certain former shareholders in B&B who subscribed for shares in the rights issue. In May 2009 B&B together withits legal advisors responded to the allegations raised. Nothing further was heard until 23 January 2012 when furthercorrespondence was received from the solicitors representing the former shareholders, to which B&B together with its legaladvisors responded. This correspondence contained no further allegations or details of the former shareholders’ potentialclaim. It is not possible at this stage to determine the outcome or timing of any conclusion to this matter. No provision hasbeen made in respect of these allegations.

19. Risks and uncertainties

The Directors are aware of the following material risks and uncertainties which may affect B&B during the period to 31 March2014: external economic factors including unemployment, house price movements, the extent and timing of changes ininterest rates, the rate of interest charged on the WCF and the rate of the Government guarantee fee. There may be otherrisks 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 riskmanagement and control were provided on pages 10-12 of B&B's 2012 Annual Report & Accounts.

20. Events after the reporting period

The Directors are of the opinion that there have been no significant events which have occurred since 30 June 2013 to thedate of this report that are likely to have a material effect on the B&B Group's financial position as disclosed in this InterimFinancial Report.




The financial information in this document is unaudited and does not constitute statutory accounts within the meaning ofsection 435 of the Companies Act 2006. The comparative figures for the financial year ended 31 December 2012 are not thestatutory accounts for that financial year for Bradford & Bingley plc. The 2012 statutory accounts of Bradford & Bingley plchave been reported on by that company's auditors and delivered to the Registrar of Companies. The report of the auditorswas unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis withoutqualifying their report, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. Thisdocument may contain forward-looking statements with respect to certain plans and current goals and expectations relatingto 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 thecontrol 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 actionsof 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 ofBradford & 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 adoptedby the European Union and that the management commentary and related notes includes a fair review of theinformation 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 thecondensed Financial Statements and a description of the principal risks and uncertainties for theremaining nine months of the financial period; and

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

The Directors of Bradford & Bingley plc at the date of this report are:

Richard PymKent AtkinsonRichard BanksMichael BuckleySue LangleyPhillip McLellandKeith MorganJim O'NeilLouise PattenJohn Tattersall

On behalf of the Board

Richard Banks Phillip McLellandChief Executive Officer Finance Director5 August 2013 5 August 2013

Bradford & Bingley plc, Registered Office: Croft Road, Crossflatts, Bingley, West Yorkshire BD16 2UA.Registered in England and Wales under company number 03938288.



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 InterimFinancial Report for the six months ended 30 June 2013, which comprise the Consolidated Income Statement,Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement ofChanges in Equity, Consolidated Cash Flow Statement and the related notes. We have read the other informationcontained in the Interim Financial Report and considered whether it contains any apparent misstatements ormaterial 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 areresponsible for preparing the Interim Financial Report in accordance with the Disclosure and Transparency Rulesof the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the Annual Financial Statements of the B&B Group are prepared in accordance with IFRSas adopted by the European Union. The condensed set of Financial Statements included in this Interim FinancialReport has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting',as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of Financial Statements in theInterim Financial Report based on our review. This report, including the conclusion, has been prepared for andonly for the company for the purpose of the Disclosure and Transparency Rules of the Financial ConductAuthority and for no other purpose. We do not, in producing this report, accept or assume responsibility for anyother purpose or to any other person to whom this report is shown or into whose hands it may come save whereexpressly 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 theAuditing Practices Board for use in the United Kingdom. A review of interim financial information consists ofmaking enquiries, primarily of persons responsible for financial and accounting matters, and applying analyticaland other review procedures. A review is substantially less in scope than an audit conducted in accordance withInternational Standards on Auditing (UK and Ireland), and consequently does not enable us to obtain assurancethat we would become aware of all significant matters that might be identified in an audit. Accordingly, we do notexpress an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set ofFinancial Statements in the Interim Financial Report for the six months ended 30 June 2013 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 as adopted by the European Unionand the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

PricewaterhouseCoopers LLPChartered AccountantsBristol5 August 2013

The maintenance and integrity of the Bradford & Bingley plc website is the responsibility of the Directors; the work carried out by the auditorsdoes not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may haveoccurred 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 otherjurisdictions.

Northern Rock (Asset Management) plc Interim Financial Report 30 June 2013

UKAR Interim Financial Report 30 June 2013 Section C - NRAM Page 45 of 75

Section CNorthern Rock (Asset Management) plc

Interim Financial Reportfor the 6 months ended 30 June 2013




Interim Financial Report for the 6 months ended 30 June 2013

KEY HIGHLIGHTS

Northern Rock (Asset Management) plc Repaid a further £721m in Government loans, reducing the total owed to the Government to £17.3bn. £312m paid to Government in the form of interest, fees and corporation tax. Mortgage accounts three or more months in arrears fell by 18% to 16,186 (H1 2012: 23,158; FY 2012:

19,667) from the year end. Underlying profit before tax of £386.5m, compared with £415.1m profit in H1 2012. Statutory profit before tax of £343.2m, compared with £305.3m profit in H1 2012.

Events since 30 June 2013: Announced the £400m sale of NRAM's standalone unsecured personal loan book, realising a profit on

disposal of £21m, which will generate a further repayment of the Government loan in the third quarter of 2013.

PERFORMANCE ON STRATEGIC PRIORITIES

1. Optimise the Balance Sheet

NRAM's Balance Sheet has reduced to £45.3bn in the last six months, a decrease of £3.3bn. NRAM has repaid£721m of Government funding in the first half of this year (H1 2012: £88m; FY 2012: £1,674m). A further £2.6bnof other funding has been repaid. These repayments have been funded largely from a 5% reduction in lendingbalances (£1.8bn since 31 December 2012). As a result, lending balances stand at £34.4bn at 30 June 2013 (H12012: £38.9bn; FY 2012: £36.3bn).

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 £312m (H1 2012: £140m; FY 2012: £372m). The Board considers the total of allthese cash flows paid to HM Treasury to be an important measure of NRAM meeting its objective in terms ofmaximising taxpayer value.

Events since 30 June 2013

In July 2013, after the close of the interim financial period and, therefore, not included in the June Balance Sheet,NRAM completed the £400m sale of its standalone unsecured personal loan book, realising a profit on disposal of£21m. The sale proceeds will be used to repay a further element of the NRAM Government loan in the thirdquarter of 2013.

2. Debt Management

The number of accounts in arrears for NRAM is lower than the 2012 year end as a direct consequence ofproactive arrears management coupled with the continued low interest rate environment.

The total number of mortgage cases three or more months in arrears, including those in possession, reduced by18% since the end of 2012 to 16,186 cases as at 30 June 2013 (H1 2012: 23,158; FY 2012: 19,667). The totalamount of arrears owed by residential customers has fallen by £19.0m to £132.1m during the six months to 30June 2013, a reduction of 13%.

Support for customers experiencing payment difficulties

NRAM has a total of around 388,000 customers: they have 292,000 mortgage accounts and 212,000 unsecuredpersonal loan accounts. The majority, 89%, of these mortgage loans continue to perform well but we do have asignificant number of customers who are finding it difficult to meet their repayments. In those cases, we workclosely with customers to offer a range of solutions to help them manage their circumstances. During the first halfof 2013, 31,300 arrangements were successfully completed and approximately 800 account modifications weremade (H1 2012: 1,600; FY 2012: 3,300) to assist customers with their repayments and continue their existingmortgage.



We also work with a range of non-fee charging debt advice agencies to help customers reorganise their financesand ensure, wherever possible, that they can continue as homeowners. Research conducted by YouGov and theMoney Advice Service shows that individuals who seek advice are twice as likely to have their debt becomemanageable within 12 months compared to those who do not. The number of NRAM customers referred to debtadvice agencies in the first half of 2013 was 2,264 (H1 2012: 2,231; FY 2012: 5,587).

Repossession proceedings for customers in arrears are always viewed as a last resort but regrettably, in somesituations, this is inevitable. During the first half, the number of accounts taken into possession reduced by 17%to 2,598 (H1 2012: 3,120). The stock of properties in possession at the end of June decreased from 1,488 at 31December 2012 to 1,423 (H1 2012: 1,947).

3. Customers and Conduct

It is a key objective for UKAR to work with customers to achieve the most appropriate outcome for their particularsituation. In addition to our reactive and proactive customer contact strategies for customers in financial difficulty,a further area of focus for UKAR is whether our interest only customers have plans in place to repay theirmortgage at the end of their term. During the first half of 2013, we have proactively written to or called a sampleof interest only customers, with mortgage terms of ten years or less remaining. This activity is designed to ensurecustomers are aware of the need to plan for the repayment of the loan at the end of its term and to encouragethem to share details of their plans so we can help ensure they are robust. We have had an excellent response tothe campaign so far.

Since the creation of UKAR we have been remediating a series of problems of process and procedure inheritedfrom the legacy NRAM business. The most significant of these have been the mis-selling of Payment ProtectionInsurance by Northern Rock. During the first half of 2013, levels of PPI claims have reduced and, at the presenttime, no further provision is required.

A further issue we have previously reported is in respect of non compliant Consumer Credit Act (CCA) loans.Following the discovery of this issue UKAR's Board commissioned an independent external review, by Deloitte, inorder to understand what went wrong in implementing the updated CCA regulations. Deloitte concluded that thedefects in CCA regulated loan letters and statements were created in 2008 before UKAR was established andwere not known by or escalated to senior management, or the Boards of NRAM or UKAR, prior to 2012. Deloitte'ssummary of their report was published on UKAR's website on 15 July 2013. UKAR’s Board has acceptedDeloitte’s recommendation to strengthen some controls.

In 2012 we provided £271m for remediating non-compliant CCA loans and we have now contacted and correctedthe accounts of 120,000 customers. During the course of our investigations we identified certain accounts sold byNorthern Rock prior to nationalisation which are subject to the same problem. Remediation of these accounts hasbeen the primary driver of incurring an additional £47m of remediation costs. In addition, there was a net releaseof £2m in respect of provisions for other remediation activities.

We continue to monitor all accounts to ensure the appropriate outcomes for customers. Should we find somethingwrong we will ensure the issues are corrected quickly and affected customers are remediated where required.

4. Reduce Costs

The Group has continued to focus on reducing costs. Ongoing administrative expenses for the period were lowerat £55.8m (H1 2012: £59.6m; FY 2012: £113.9m) with the ratio of costs to assets increasing marginally to 0.26%(H1 2012: 0.25%; FY 2012: 0.24%).

We completed the exit from our Gosforth site in Newcastle at the end of June 2013. This closure, as announcedpreviously, will allow us to concentrate on the operations in our remaining two sites in the North East and WestYorkshire which will improve efficiency and reduce costs. The premises in Gosforth and two other non-coreproperties were sold in 2012.

OTHER INFORMATION


Northern Rock was nationalised and taken into Government ownership in February 2008 and was thenrestructured into two legal entities with effect from 1 January 2010 - Northern Rock plc and Northern Rock (AssetManagement) plc. NRAM retained the majority of the pre-existing mortgage book and all pre-existing unsecuredloan accounts. NRAM is permanently closed to new lending, but continues to provide services to some 388,000existing borrowers, with 292,000 mortgage accounts and 212,000 unsecured loan accounts.



Key Performance Indicators ('KPIs')

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

Strategicpriorities

Financial measures 6 months to 30 June

2013

6 months to 30 June

2012


2012

Commentary

Total lending balances £bnSecured £bn

Unsecured £bnHeld for sale £bn

34.432.71.40.3

38.936.6

2.3-

36.334.41.9

-

Lending balances reduced by 5% during H1mainly due to £1.3bn of residentialredemptions. NRAM's standaloneunsecured personal loan book was sold inJuly 2013, and hence is shown at 30 June2013 as 'held for sale'. In 2012, unsecuredbalances include both the Together andstandalone unsecured loan books.


8.01.3

9.21.8

8.43.2

Redemptions are consistent with H2 2012but have fallen relative to H1 2012, whichwas impacted by an early repaymentcharge ('ERC') waiver.


0.717.3

0.119.6

1.718.1

NRAM repaid £721m of the GovernmentLoan in H1, in addition to £2.8bn of otherfunding maturities.

Optimise theBalance

Sheet

Total cash payments to HM Treasury £bn 1.03 0.23 2.05 Total cash paid to HM Treasury during theperiod. This includes principal and interestrepayments, guarantee fees and tax paid.The main driver of the increase year on yearis higher principal repayments on theGovernment loan.

Residential arrears balance : totalresidential mortgage balance %

Residential payments overdue £m0.41

132.10.48

172.70.44

151.1

The first of these measures what proportionof the book is non-performing, related to thetotal balance of all residential mortgages,and the second the value of customers’missed payments. The reduction in bothKPIs is a reflection of improving arrearsperformance.

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


Number of residential arrears 3 monthsand over and possessions cases

7.235.54

16,186

8.967.17

23,158

8.186.44

19,667

The reduction in arrears reflects both theimprovement in collections performance andthe continuing benefit to mortgagecustomers of lower interest rates.


Impairment provisions;Residential secured £m

Cover %Unsecured £m

Cover %:Commercial £m

Cover %

722.02.17

249.1 15.05

33.3 13.88

854.72.30

483.317.5154.4

17.52

773.52.22

403.817.56

49.718.07

The level of the residential impairmentBalance Sheet provision reduced by£51.5m from 31 December 2012 and thelevel of cover decreased from 2.22% to2.17%.

Reducecosts


Ratio of costs to average interest-earningassets


55.855.8

0.260.26

59.659.6

0.250.25

149.6113.9

0.320.24

Ongoing administrative expenses were£3.8m (6%) lower than H1 2012. As thebalance sheet has continued to decreasethis has resulted in a small increase in costasset ratios.

* 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 theunderlying profit of the business, which excludes non-recurring costs, particularly those associated with the integration withB&B, and certain gains such as the repurchase of own liabilities. Also excluded are movements in fair value and hedgeineffectiveness 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 the NRAM Groupis provided in the table below.

Summary Income Statement

6 months to30 June

2013

6 months to 30 June

2012


2012£m £m £m

Net interest income 542.6 584.3 1,161.7Underlying net non-interest income* (10.2) 28.5 11.2Underlying net operating income 532.4 612.8 1,172.9Ongoing administrative expenses (55.8) (59.6) (113.9)Impairment on loans to customers (84.7) (127.1) (179.3)Net impairment on investment securities (5.4) (11.0) (3.7)Underlying profit before taxation 386.5 415.1 876.0Unrealised fair value movements on financial instruments 7.3 (31.1) (36.2)Hedge ineffectiveness (5.6) (13.7) (19.0)Other net administrative expenses - - (35.7)Provision for customer redress (45.0) (65.0) (407.0)Gain on repurchase of own liabilities - - 115.9Statutory profit before taxation 343.2 305.3 494.0

* Underlying net non-interest income includes net fee and commission income, net gains on financial instruments designated at fair value, net realised gainsless losses on investment securities and other operating income.

Summary Balance Sheet

At30 June

201330 June

201231 December

2012£m £m £m

Loans to customers:- Residential mortgages 32,516.1 36,353.1 34,145.0- Commercial and other secured loans 206.7 256.1 225.4- Unsecured lending 1,405.7 2,276.9 1,895.4- Held for sale 312.1 - -

Wholesale assets 6,357.4 7,823.4 8,192.8Fair value adjustments on portfolio hedging 120.4 174.8 152.5Derivative financial instruments 4,284.2 4,242.7 3,919.8Other assets 89.3 116.4 79.2Total assets 45,291.9 51,243.4 48,610.1

HM Treasury loans 17,340.8 19,650.6 18,063.1Wholesale funding 24,309.5 28,163.5 26,991.3Derivative financial instruments 236.2 302.9 281.5Other liabilities 394.8 389.5 363.9Capital instruments 62.0 219.2 213.0Equity 2,948.6 2,517.7 2,697.3Total equity and liabilities 45,291.9 51,243.4 48,610.1



Northern Rock (Asset Management) plc Condensed Financial Statements

Consolidated Income Statement

6 months to30 June

2013

6 months to30 June

2012


2012

Note £m £m £m

Interest receivable and similar income 3 764.3 872.6 1,709.5Interest expense and similar charges 3 (221.7) (288.3) (547.8)Net interest income 3 542.6 584.3 1,161.7

Fee and commission income 5.9 9.4 15.0Fee and commission expense (6.0) (6.2) (12.3)Net fee and commission income (0.1) 3.2 2.7

Net gains on financial instruments designated at fair value 5 - 17.5 17.5Net realised gains less losses on investment securities (10.3) 1.2 (16.3)Unrealised fair value movements on financial instruments 6 7.3 (31.1) (36.2)Hedge ineffectiveness 6 (5.6) (13.7) (19.0)Provision for customer redress 14 (45.0) (65.0) (407.0)Other operating income 0.2 6.6 7.3Non-interest income 4 (53.5) (81.3) (451.0)

Net operating income 489.1 503.0 710.7

Administrative expenses:- Ongoing 7 (55.8) (59.6) (113.9)- Other net expenses 7 - - (35.7)

Impairment on loans to customers 10 (84.7) (127.1) (179.3)Net impairment on investment securities (5.4) (11.0) (3.7)Gain on repurchase of own liabilities - - 115.9Profit before taxation 343.2 305.3 494.0

Taxation 8 (80.0) (68.5) (82.7)


The NRAM Group's business and operations comprise one single activity, principally within the United Kingdom, and it has onlyone operating segment for the purposes of IFRS 8 'Operating Segments'. The results above arise from continuing activities, andare 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 tax6 months to 30 June 2013 £m £m £m



Items that may be reclassified subsequently to profit or loss:Available-for-sale instruments:- Net gains recognised in available-for-sale reserve during the period 31.1 (7.2) 23.9- Amounts transferred from available-for-sale reserve and recognised inprofit during the period

(7.0) 1.6 (5.4)

Cash flow hedges:- Net gains recognised in cash flow hedge reserve during the period 798.1 (303.2) 494.9- Amounts transferred from cash flow hedge reserve and recognised inprofit during the period

(831.0) 315.7 (515.3)

(8.8) 6.9 (1.9)Items that will not be reclassified subsequently to profit or loss:Actuarial losses on retirement benefit obligations (13.0) 3.0 (10.0)

(13.0) 3.0 (10.0)

Total other comprehensive income (21.8) 9.9 (11.9)Total comprehensive income for the financial period 321.4 (70.1) 251.3

Gross of tax Tax Net of tax6 months to 30 June 2012 £m £m £m



Items that may be reclassified subsequently to profit or loss: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 inprofit 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 inprofit during the period

745.2 (355.2) 390.0

89.1 (32.7) 56.4Items that will not be reclassified subsequently to profit or loss:Actuarial gains on retirement benefit obligations 0.2 0.6 0.8

0.2 0.6 0.8





Consolidated Statement of Comprehensive Income (continued)

Gross of tax Tax Net of tax12 months to 31 December 2012 £m £m £m

Profit for the financial year 494.0 (82.7) 411.3


Items that may be reclassified subsequently to profit or loss:Available-for-sale instruments:- Net gains recognised in available-for-sale reserve during the year 66.9 (16.4) 50.5- Amounts transferred from available-for-sale reserve and recognised inprofit during the year

0.5 (0.1) 0.4

Cash flow hedges:- Net losses recognised in cash flow hedge reserve during the year (901.4) 492.2 (409.2)- Amounts transferred from cash flow hedge reserve and recognised inprofit during the year

965.5 (527.2) 438.3


(22.9) 5.3 (17.6)

Total other comprehensive income 108.6 (46.2) 62.4Total comprehensive income for the financial year 602.6 (128.9) 473.7




Consolidated Balance Sheet

At Note 30 June 2013 30 June 2012 31 December 2012£m £m £m

Assets

Balances with the Bank of England 4,050.0 4,611.1 4,758.5Cash at bank and in hand 1,061.7 1,361.7 1,877.1Investment securities 1,245.7 1,850.6 1,557.2Loans to customers 9 34,128.5 38,886.1 36,265.8Assets classified as held for sale: loans to customers 21 312.1 - -Fair value adjustments on portfolio hedging 9 120.4 174.8 152.5Derivative financial instruments 4,284.2 4,242.7 3,919.8Other assets 19.4 37.0 31.2Retirement benefit assets 65.4 65.4 43.0Property, plant and equipment 3.6 12.8 3.9Intangible assets 0.9 1.2 1.1Total assets 45,291.9 51,243.4 48,610.1

Liabilities

Amounts due to banks 2,871.6 2,821.9 3,573.7HM Treasury loans 17,340.8 19,650.6 18,063.1Derivative financial instruments 236.2 302.9 281.5Debt securities in issue 13 21,437.9 25,341.6 23,417.6Other liabilities 86.7 91.9 117.3Current tax liabilities 102.7 116.3 45.9Deferred tax liabilities 8 33.4 41.8 45.9Provisions 14 172.0 139.5 154.8Capital instruments 62.0 219.2 213.0Total liabilities 42,343.3 48,725.7 45,912.8

Equity

Issued capital and reserves attributable to equity holder of theparent:- Share capital 124.0 124.0 124.0- Reserves 15 491.8 470.1 493.7- Retained earnings 2,208.0 1,798.8 1,954.8


Non-shareholders' funds 124.8 124.8 124.8

Total equity 2,948.6 2,517.7 2,697.3





Consolidated Statement of Changes in Equity

Sharecapital

Sharepremium

reserve

Capitalredemption

reserveOther

reservesRetainedearnings


reserves

Non-share-

holders'funds

Totalequity6 months to

30 June 2013 £m £m £m £m £m £m £m £m

At 1 January 2013 124.0 403.2 7.3 83.2 1,954.8 2,572.5 124.8 2,697.3

Other comprehensive income:- Net movement in available-

for-sale reserve- - - 24.1 - 24.1 - 24.1

- Net movement in cash flowhedge reserve

- - - (32.9) - (32.9) - (32.9)

- Actuarial losses - - - - (13.0) (13.0) - (13.0)- Tax effects of the above - - - 6.9 3.0 9.9 - 9.9Total other comprehensiveincome

- - - (1.9) (10.0) (11.9) - (11.9)

Profit for the financial period - - - - 263.2 263.2 - 263.2Total comprehensive income - - - (1.9) 253.2 251.3 - 251.3At 30 June 2013 124.0 403.2 7.3 81.3 2,208.0 2,823.8 124.8 2,948.6

Sharecapital

Sharepremium

reserve

Capitalredemption

reserveOther



reserves

Non -share-

holders'funds


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


for-sale reserve- - - 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 comprehensiveincome

- - - 56.4 0.8 57.2 - 57.2

Profit for the financial period - - - - 236.8 236.8 - 236.8

Total comprehensive income - - - 56.4 237.6 294.0 - 294.0

Gain on repurchase of equity - - - - 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




Consolidated Statement of Changes in Equity (continued)

Sharecapital

Sharepremium

reserve

Capitalredemption

reserveOther



reserves

Non-share-

holders'funds


31 December 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


for-sale reserve- - - 67.4 - 67.4 - 67.4


- - - 64.1 - 64.1 - 64.1

- Actuarial losses - - - - (22.9) (22.9) - (22.9)- Tax effects of the above - - - (51.5) 5.3 (46.2) - (46.2)Total other comprehensiveincome

- - - 80.0 (17.6) 62.4 - 62.4

Profit for the financial year - - - - 411.3 411.3 - 411.3Total comprehensive income - - - 80.0 393.7 473.7 - 473.7Gain on repurchase of equity - - - - 0.2 0.2 (0.9) (0.7)At 31 December 2012 124.0 403.2 7.3 83.2 1,954.8 2,572.5 124.8 2,697.3




Consolidated Cash Flow Statement6 months to

30 June2013

6 months to30 June

2012


2012£m £m £m

Cash flows from operating activitiesProfit before taxation for the financial period 343.2 305.3 494.0Adjustments to reconcile profit to cash flows generated from/(used in)operating activities:- Provision for customer redress 45.0 65.0 407.0- Depreciation and amortisation 0.4 1.0 9.9- Net loss on sale of property, plant and equipment - 0.2 0.4- Impairment on loans to customers 84.7 127.1 179.3- Net impairment on investment securities 5.4 11.0 3.7- Gain on repurchase of own liabilities - - (115.9)- Income taxes paid (25.7) (61.0) (153.5)- Fair value adjustments on financial instruments (38.9) (22.4) (84.4)- Other non-cash movements 677.9 (476.1) (634.9)Cash flows generated from/(used in) operating activities beforechanges in operating assets and liabilities 1,092.0 (49.9) 105.6Net (increase)/decrease in operating assets:- Cash at bank 6.0 - -- Loans to customers 1,739.7 2,200.0 4,072.1- Sale of loans to customers - - 465.0- Derivative financial instruments receivable (364.4) 808.4 1,131.3- Other assets 12.3 (0.1) 9.1Net increase/(decrease) in operating liabilities:- Amounts due to banks (702.6) (859.7) (107.6)- Derivative financial instruments payable (45.3) (84.6) (106.0)- Debt securities in issue (2,566.8) (2,737.9) (4,005.2)- Other liabilities (86.0) (3.5) 60.5- Provisions (38.8) (92.8) (189.5)Net cash (used in)/generated from operating activities (953.9) (820.1) 1,435.3

Cash flows from investing activities- Proceeds from sale of property, plant and equipment and investmentproperty - 38.0 40.7

- Purchase of investment securities - (27.5) (74.3)- Proceeds from sale and redemption of investment securities 306.8 233.4 597.7Net cash from investing activities 306.8 243.9 564.1

Cash flows used in financing activities- Repayment of HM Treasury loans (871.5) (87.5) (1,673.8)- Repurchase of own liabilities and equity - (0.8) (338.2)Net cash used in financing activities (871.5) (88.3) (2,012.0)

Net decrease in cash and cash equivalents (1,518.6) (664.5) (12.6)Cash and cash equivalents at beginning of period 6,628.5 6,641.1 6,641.1

Cash and cash equivalents at end of period 5,109.9 5,976.6 6,628.5

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

- Balances with the Bank of England 4,048.3 4,609.2 4,756.5- Cash at bank and in hand 1,061.6 1,356.4 1,871.0- Investment securities - 11.0 1.0Total 5,109.9 5,976.6 6,628.5



Notes to the Financial Information

1. Reporting entity

Northern Rock (Asset Management) plc ('NRAM') is a public limited company incorporated and domiciled in the UnitedKingdom.

The financial information in this Interim Financial Report consolidates NRAM and its subsidiaries (including special purposevehicles ('SPVs')), together referred to as the NRAM Group. NRAM's Consolidated Financial Statements for the year ended31 December 2012 are included in NRAM's 2012 Annual Report & Accounts available on NRAM's website www.nram.co.uk.

As explained in NRAM's 2012 Annual Report & Accounts, NRAM's accounting reference date has been changed from 31December to 31 March. NRAM's next Annual Report & Accounts will cover the 15 months to 31 March 2014. Prior to that anInterim Financial Report will be published for the period to 30 September 2013.

On 10 April 2013 NRAM moved its registered office to that of its parent UKAR.

2. Basis of preparation

This Interim Financial Report has been prepared on a going concern basis. At the date of approval of this Interim FinancialReport, NRAM is reliant on the financing facilities and also upon the guarantee arrangements provided to NRAM by HMTreasury. Withdrawal of the financing facilities or the guarantee arrangements would have a significant impact on NRAM'soperations and its ability to continue as a going concern, in which case adjustments may have to be made to reduce thecarrying value of assets to recoverable amounts and to provide for further liabilities that might arise. At the date of approval ofthis Interim Financial Report, HM Treasury has confirmed its intentions to continue to provide funding until at least 1 November2014.

In preparing this Interim Financial Report, including the 2012 comparative financial information where applicable, the NRAMGroup has adopted for the first time the following statements:

- IFRS 13 ‘Fair Value Measurement’. This statement is mandatory for 2013 financial statements, with 2012 comparativeinformation. This standard sets out principles for how to measure the fair value of financial assets and liabilities. It does notchange which items are carried at fair value. IFRS 13 has not had any material impact on the NRAM Group's fair values.IFRS 13 also requires that Interim Financial Reports from 2013 should include some additional fair value disclosures; theseare included in note 17.

- The June 2011 amendments to IAS 1 ‘Presentation of Financial Statements’ relating to ‘Presentation of Items of OtherComprehensive Income’. This statement is mandatory for 2013 financial statements, with 2012 comparative information.As a result, the NRAM Group's Statement of Comprehensive Income now shows which elements of other comprehensiveincome may be reclassified subsequently to profit or loss.

- The June 2011 amendments to IAS 19 ‘Employee Benefits’. This statement is mandatory for 2013 financial statements, with2012 comparative information. This was applied in calculating the 2013 cost of the defined benefit pension scheme, and inthe calculation of defined benefit scheme assets and obligations as at 30 June 2013.

- The Annual Improvements to IFRSs 2009-2011 Cycle, issued in May 2012. These changes are mandatory for 2013 financialstatements, with 2012 comparative information. These changes had no material impact on the NRAM Group.

There have been no other material changes to the accounting policies previously applied by the NRAM Group in preparing,and detailed in, its Annual Report & Accounts for the year ended 31 December 2012, which were prepared in accordance withIFRS as adopted by the European Union.

The Directors consider that the NRAM Group's accounting policies are the most appropriate to its circumstances, have beenconsistently applied in dealing with items which are considered material, and are supported by reasonable and prudentestimates and judgements.

The preparation of this Interim Financial Report requires the use of estimates and assumptions that affect the reported valuesof assets and liabilities at the Balance Sheet date and the reported amounts of revenues and expenses during the reportingperiod. Although these estimates are based on management's best knowledge of the amount, event or actions, actual resultsultimately 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 December2012.




3. Net interest income6 months to

30 June2013

6 months to 30 June

2012


2012£m £m £m

Interest receivable and similar incomeOn secured loans 711.2 786.6 1,541.4On other lending 31.0 55.3 111.2On investment securities and deposits 22.1 30.7 56.9Total interest receivable and similar income 764.3 872.6 1,709.5

Interest expense and similar chargesOn amounts due to banks and HM Treasury (137.4) (103.7) (250.1)On debt securities and other (84.3) (184.6) (297.7)Total interest expense and similar charges (221.7) (288.3) (547.8)Net interest income 542.6 584.3 1,161.7

Average balancesInterest-earning assets ('IEA') 43,171 48,465 47,280Financed by:- Interest-bearing funding 39,925 45,605 44,262- Interest-free funding* 3,246 2,860 3,018

Average rates % % %- Gross yield on IEA 3.57 3.62 3.62- Cost of interest-bearing funding (1.12) (1.27) (1.24)

Interest spread 2.45 2.35 2.38Contribution of interest-free funding* 0.08 0.07 0.08Net interest margin on average IEA 2.53 2.42 2.46


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




4. Net non-interest income

6 months to30 June

2013

6 months to30 June

2012


2012£m £m £m

Total net fee and commission income (0.1) 3.2 2.7Net gains on financial instruments designated at fair value - 17.5 17.5Net realised gains less losses on investment securities (10.3) 1.2 (16.3)Other operating income 0.2 6.6 7.3Underlying net non-interest income (10.2) 28.5 11.2

Unrealised fair value movements on financial instruments 7.3 (31.1) (36.2)Hedge ineffectiveness (5.6) (13.7) (19.0)Provision for customer redress (45.0) (65.0) (407.0)Statutory net non-interest income (53.5) (81.3) (451.0)

5. Net gains on financial instruments designated at fair value

The gains of £17.5m in 2012 arose on the disposal of assets which had previously been held at a fair value of £nil on theBalance Sheet.

6. Unrealised fair value movements on financial instruments and hedge ineffectiveness

6 months to30 June

2013

6 months to 30 June

2012


2012£m £m £m

Net (loss)/gain in fair value:- translation losses on underlying instruments (171.6) (179.8) (291.9)- fair value movements on derivatives which are economic hedges but

are not in hedge accounting relationships 178.9 148.7 255.7Unrealised fair value movements 7.3 (31.1) (36.2)

Net gains on fair value hedging instruments 35.2 63.2 83.8Net (losses)/gains on fair value hedged items attributable to hedged risk (37.3) 20.9 (82.8)Ineffectiveness on cash flow hedges (3.5) (97.8) (20.0)Net hedge ineffectiveness losses (5.6) (13.7) (19.0)

Total 1.7 (44.8) (55.2)




7. Administrative expenses

NRAM had no employees during the periods presented, as services were provided to NRAM by employees of B&B. Employeecosts recharged by B&B are included within total staff costs and these employees are included in the table below.

The monthly average number of persons recharged by B&B during the period was as follows:

6 months to30 June

2013Number

6 months to30 June

2012Number


2012Number

Average headcount:Full time 940 1,072 1,017Part time 285 358 342Total providing services to NRAM 1,225 1,430 1,359Total average full time equivalent providing services toNRAM

1,126 1,295 1,234

The number of persons recharged by B&B at the end of the period was as follows:

At

30 June2013

Number

30 June2012

Number

31 December2012

NumberFull time 848 1,062 839Part time 236 345 319Total providing services to NRAM 1,084 1,407 1,158Total full time equivalent headcount providing services toNRAM

1,005 1,281 1,046

The full time equivalent is based on the average hours worked by employees in the period.

Staff numbers include Executive but not Non-Executive Directors. In addition to the permanent staff above, NRAM employeda full-time equivalent of 33 temporary staff and specialist contractors at 30 June 2013 (30 June 2012: 112; 31 December 2012:155).

6 months to30 June

2013

6 months to 30 June

2012


2012£m £m £m

NRAM's costs of recharged B&B employees were as follows:Wages and salaries 17.0 20.6 37.0Social security costs 1.6 1.5 3.6Defined benefit pension costs (1.1) (0.2) (0.3)Defined contribution pension costs 0.6 0.9 2.0Total staff costs 18.1 22.8 42.3IT costs 16.2 19.3 30.1Outsourced and professional services 5.5 5.3 12.1Depreciation and amortisation 4.5 4.2 7.9Other administrative expenses 11.5 8.0 21.5Ongoing administrative expenses 55.8 59.6 113.9

Other net administrative expenses:- Transformation costs* - - 27.4- Accelerated depreciation - - 8.3Total other net administrative expenses - - 35.7Total 55.8 59.6 149.6

* Transformation costs relate to the separation of NRAM from Northern Rock plc and the NRAM Group's integration into UKAR.




8. Taxation

Taxation appropriately reflects changes in tax rates which had been substantively enacted by 30 June 2013.

The tax charge for the period included overseas tax of £nil (2012: £nil). The tax charge for the 6 months to 30 June 2013 hasbeen calculated using the expected effective tax rate for the 15 months to 31 March 2014, ie 23.2% (year ended 31 December2012: 24.5%). Deferred taxation appropriately reflects a change to the standard rate of UK corporation tax to 23% with effectfrom 1 April 2013. The announced further rate reductions to 20% with effect from 1 April 2015, which were substantivelyenacted on 17 July 2013, would have the maximum potential impact of reducing NRAM's deferred tax liabilities byapproximately £5.1m.

No deferred tax assets were unrecognised at 30 June 2013 (30 June 2012: £16.8m; 31 December 2012: £nil), relating todeductible differences of £nil (30 June 2012: £69.9m; 31 December 2012: £nil).

9. Loans to customers

Residential mortgages include all of the NRAM Group’s buy-to-let loans. Commercial loans comprise loans secured oncommercial properties. The Together product, previously offered by NRAM, combines a secured and unsecured loan all atone interest rate and with flexible payments. Outstanding secured balances in respect of this product are included within totalresidential mortgages while outstanding unsecured balances are included within unsecured loans.

All of the NRAM Group's loans to customers are to UK customers.

Balances include accounting adjustments in respect of provisioning requirements.

Loans to customers include loans amounting to £25,423.7m (30 June 2012: £28,792.8m; 31 December 2012: £26,933.3m)which have been sold to bankruptcy remote SPVs whereby substantially all of the risks and rewards of the portfolio areretained by NRAM. Accordingly, all of these loans are retained on NRAM's Balance Sheet. Further details are provided innote 13.

Fair value adjustments on portfolio hedging amounting to £120.4m (30 June 2012: £174.8m; 31 December 2012: £152.5m)relate to fair value adjustments to loans to customers in relation to interest rate risk as a result of their inclusion in a fair valueportfolio hedge relationship.

Loans to customers comprise the following product types:

Balances Redemptions Balances Redemptions

At 30 June 2013£m %

6 months to30 June 2013

£mAt 30 June 2012

£m %

6 months to 30June 2012

£mResidential mortgagesBuy-to-let 3,698.7 11 (106.2) 4,138.2 11 (97.9)Together 12,633.3 39 (450.8) 13,693.0 38 (449.5)Standard and other 16,184.1 50 (784.0) 18,521.9 51 (1,211.7)Total residential mortgages 32,516.1 100 (1,341.0) 36,353.1 100 (1,759.1)

Residential loans 32,516.1 95 (1,341.0) 36,353.1 93 (1,759.1)Commercial loans 206.7 1 (19.1) 256.1 1 (8.9)Total secured loans 32,722.8 96 (1,360.1) 36,609.2 94 (1,768.0)Unsecured loans 1,405.7 4 (29.6) 2,276.9 6 (123.0)Total 34,128.5 100 (1,389.7) 38,886.1 100 (1,891.0)




9. Loans to customers (continued)

Redemptions comprise full redemptions and voluntary partial redemptions, but exclude overpayments and regular monthlypayments. On 23 July 2012 NRAM announced the sale of £465m of loans to customers, at par, secured on residentialproperty, to Virgin Money. These sold loans are excluded from the 2012 redemptions disclosed in the above table. Asdetailed in note 21, in July 2013 NRAM completed the sale of its standalone unsecured personal loan book. These loans havebeen classified as held for sale and hence are excluded from the balances at 30 June 2013.

10. Impairment on loans to customers

Allowances for credit losses against loans and advances to customers have been made as follows:


On residential mortgages

£m

On commercialloans

£m

On unsecured loans

£mTotal

£m

At 1 January 2013 773.5 49.7 403.8 1,227.0Movements during the period:- Write-offs (112.8) (14.9) (44.6) (172.3)- Loan impairment charge 61.3 (1.5) 38.2 98.0- Assets moved to held for sale - - (148.3) (148.3)Net movements during the period (51.5) (16.4) (154.7) (222.6)At 30 June 2013 722.0 33.3 249.1 1,004.4The Income Statement charge comprises:- Loan impairment charge 61.3 (1.5) 38.2 98.0- Recoveries net of costs (7.4) (1.0) (4.9) (13.3)Total Income Statement charge 53.9 (2.5) 33.3 84.7



£m

On commercialloans

£m

On unsecured loans

£mTotal

£m

At 1 January 2012 926.4 49.9 501.6 1,477.9Movements during the period:- Write-offs (150.6) (2.0) (72.1) (224.7)- Loan impairment charge 78.9 6.5 53.8 139.2Net movements during the period (71.7) 4.5 (18.3) (85.5)At 30 June 2012 854.7 54.4 483.3 1,392.4The 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

Balances RedemptionsAt 31 December

2012£m %

12 months to 31December 2012

£mResidential mortgagesBuy-to-let 3,849.1 11 (197.1)Together 13,185.8 39 (884.9)Standard and other 17,110.1 50 (2,139.8)Total residential mortgages 34,145.0 100 (3,221.8)

Residential loans 34,145.0 94 (3,221.8)Commercial loans 225.4 1 (24.9)Total secured loans 34,370.4 95 (3,246.7)Unsecured loans 1,895.4 5 (231.9)Total 36,265.8 100 (3,478.6)




10. Impairment on loans to customers (continued)

12 months to 31 December 2012


£m

On commercialloans

£m

On unsecured loans

£mTotal

£m

At 1 January 2012 926.4 49.9 501.6 1,477.9Movements during the year:- Write-offs (283.0) (14.9) (155.4) (453.3)- Loan impairment charge 130.1 14.7 57.6 202.4Net movements during the year (152.9) (0.2) (97.8) (250.9)At 31 December 2012 773.5 49.7 403.8 1,227.0The Income Statement charge comprises:- Loan impairment charge 130.1 14.7 57.6 202.4- Recoveries net of costs (7.6) (0.2) (15.3) (23.1)Total Income Statement charge 122.5 14.5 42.3 179.3

In the Balance Sheet the carrying values of loans to customers are presented net of these impairment allowances.

11. Credit quality of loans to customers

In respect of loans to residential customers, the NRAM Group holds collateral in the form of mortgages over residentialproperties. The fair value of this collateral was as follows:

At

30 June2013

£m

30 June2012

£m

31 December2012


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

At

30 June2013

£m

30 June2012

£m

31 December2012


The impaired balances above include £144.9m (30 June 2012: £170.7m; 31 December 2012: £189.2m) of assets inpossession, 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 priceinflation or deflation up to the Balance Sheet date.

The indexed loan to value ('LTV') of residential loan balances, weighted by loan balance, falls into the following ranges:

The average indexed loan to value based on a simple average is 73.9% (30 June 2012: 72.5%; 31 December 2012: 75.3%)and on a weighted average is 90.0% (30 June 2012: 92.1%; 31 December 2012: 91.7%).

At

30 June2013

%

30 June2012

%

31 December2012

%To 50% 6.5 6.4 6.350% to 75% 12.9 11.4 11.675% to 100% 46.2 42.4 43.1Over 100% 34.4 39.8 39.0Total 100.0 100.0 100.0





At 30 June 2013 Residentialmortgages

Commercialloans

Unsecuredloans Total

£m £m £m £m

Neither past due nor impaired 28,735.1 186.0 1,331.2 30,252.3Past due but not impaired:- less than 3 months 2,132.3 1.6 141.4 2,275.3- 3 to 6 months 965.1 - 47.4 1,012.5- over 6 months 674.1 - 99.3 773.4Impaired 731.5 52.4 35.5 819.4

33,238.1 240.0 1,654.8 35,132.9Impairment allowances (722.0) (33.3) (249.1) (1,004.4)Loans to customers net of impairment allowances 32,516.1 206.7 1,405.7 34,128.5

Impairment allowances:- individual 129.6 33.3 50.4 213.3- collective 592.4 - 198.7 791.1Total impairment allowances 722.0 33.3 249.1 1,004.4

At 30 June 2012Residentialmortgages

Commercialloans


£m £m £m £m

Neither past due nor impaired 31,228.5 222.2 2,084.4 33,535.1Past 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 to customers net of impairment allowances 36,353.1 256.1 2,276.9 38,886.1Impairment 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

At 31 December 2012 Residentialmortgages

Commercialloans


£m £m £m £m

Neither past due nor impaired 29,785.3 201.1 1,724.8 31,711.2Past due but not impaired:- less than 3 months 2,305.7 0.5 160.5 2,466.7- 3 to 6 months 1,149.0 - 49.3 1,198.3- over 6 months 871.4 - 136.6 1,008.0Impaired 807.1 73.5 228.0 1,108.6

34,918.5 275.1 2,299.2 37,492.8Impairment allowances (773.5) (49.7) (403.8) (1,227.0)Loans to customers net of impairment allowances 34,145.0 225.4 1,895.4 36,265.8

Impairment allowances:- individual 95.1 49.7 131.9 276.7- collective 678.4 - 271.9 950.3Total impairment allowances 773.5 49.7 403.8 1,227.0

The balances at 30 June 2013 in the above table exclude unsecured loans classified as held for sale.

'Impaired' loans are those which are 12 months or more in arrears, in possession or held for sale with an LPA receiver, andothers 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 orimpaired other than due to renegotiation; these were loans where arrears were capitalised during the previous 12 months.These loans amounted to £2.8m for the 12 months to 30 June 2013 (£58.5m for the 12 months to 30 June 2012; £23.9m forthe 12 months to 31 December 2012). A loan is eligible for capitalisation of arrears only once the borrower has complied withstringent terms for a set period.

The NRAM Group also offers other forbearance methods to borrowers, subject to compliance with loan terms, the aim of thesebeing to assist the borrower to reduce the level of arrears. Management have taken into consideration the forbearance optionsin applying loan default probabilities and in their overall assessment of the total impairment provision.

12. Arrears and possessions on residential mortgages and unsecured loans

Arrears and possessions are monitored for the NRAM Group as a whole, and also split by type of product.

At 30 June 2013 30 June 2012 31 December 2012


Arrears 3 months and over

Number of cases No. 14,763 9,251 21,211 32,987 18,179 31,140Proportion of total cases % 5.05 7.21 6.57 13.22 5.95 13.67Asset value £m 2,147.5 165.2 3,001.8 445.2 2,580.3 410.1Proportion of book % 6.60 11.75 8.26 19.55 7.56 21.64Total value of payments overdue £m 92.7 18.2 123.2 89.8 109.2 96.9Proportion of total book % 0.28 1.29 0.34 3.94 0.32 5.11

PossessionsNumber of cases No. 1,423 - 1,947 - 1,488 -Proportion of total cases % 0.49 - 0.60 - 0.49 -Asset value £m 204.5 - 257.0 - 212.3 -Proportion of book % 0.63 - 0.70 - 0.62 -Total value of payments overdue £m 15.3 - 19.7 - 16.1 -Proportion of total book % 0.05 - 0.05 - 0.05 -New possessions No. 2,598 - 3,120 - 5,566 -

Total arrears 3 months andover and possessionsNumber of cases No. 16,186 9,251 23,158 32,987 19,667 31,140Proportion of total cases % 5.54 7.21 7.17 13.22 6.44 13.67Asset value £m 2,352.0 165.2 3,258.8 445.2 2,792.6 410.1Proportion of book % 7.23 11.75 8.96 19.55 8.18 21.64Total value of payments overdue £m 108.0 18.2 142.9 89.8 125.3 96.9Proportion of total book % 0.33 1.29 0.39 3.94 0.37 5.11

In respect of all arrears (including those which are less than 3 months in arrears) together with possessions, the total value ofpayments overdue was:Payments overdueTotal value of payments overdue £m 132.1 19.5 172.7 92.3 151.1 99.0Proportion of total book % 0.41 1.39 0.48 4.05 0.44 5.22

Loan impairment provisionAs % of total balances % 2.17 15.05 2.30 17.51 2.22 17.56




12. 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

At30 June 2013 30 June 2012 31 December 2012


Buy-to-letNumber of cases No. 939 - 1,372 - 1,184 -Proportion of total cases % 3.50 - 4.62 - 4.30 -Asset value £m 188.7 - 234.8 - 208.6 -Proportion of book % 5.10 - 5.67 - 5.42 -Total value of payments overdue £m 9.6 - 10.5 - 9.5 -Proportion of total book % 0.26 - 0.25 - 0.25 -

TogetherNumber of cases No. 6,741 9,521 9,686 14,708 8,422 13,541Proportion of total cases % 5.38 7.21 7.21 10.58 6.49 10.18Asset value £m 771.6 165.2 1,099.3 252.3 958.2 228.4Proportion of book % 6.11 11.75 8.03 14.21 7.27 15.21Total value of payments overdue £m 32.3 18.2 45.5 23.4 40.0 22.9Proportion of total book % 0.26 1.29 0.33 1.32 0.30 1.52

Standard and otherNumber of cases No. 7,083 - 10,153 18,279 8,573 17,599Proportion of total cases % 5.05 - 6.39 16.54 5.79 18.57Asset value £m 1,187.2 - 1,667.7 192.9 1,413.5 181.7Proportion of book % 7.34 - 9.00 38.49 8.26 46.21Total value of payments overdue £m 50.8 - 67.2 66.4 59.6 74.0Proportion of total book % 0.31 - 0.36 13.25 0.35 18.82

The balances at 30 June 2013 in the above tables exclude unsecured loans classified as held for sale.

13. Debt securities in issueSecuritised

notesCovered

Bonds Other Total£m £m £m £m

At 1 January 2013 15,483.7 7,481.1 452.8 23,417.6Repayments (1,092.5) (1,382.8) (91.5) (2,566.8)Other movements 649.9 (81.4) 18.6 587.1At 30 June 2013 15,041.1 6,016.9 379.9 21,437.9


Securitisednotes

Covered Bonds Other Total

£m £m £m £mAt 1 January 2012 19,208.8 8,105.7 1,390.5 28,705.0Repayments (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


Securitisednotes

Covered Bonds Other Total

£m £m £m £mAt 1 January 2012 19,208.8 8,105.7 1,390.5 28,705.0Repayments (2,832.8) (250.0) (922.4) (4,005.2)Repurchase (453.8) - - (453.8)Other movements (438.5) (374.6) (15.3) (828.4)At 31 December 2012 15,483.7 7,481.1 452.8 23,417.6





13. Debt securities in issue (continued)

Other movements comprise exchange rate movements, accrued interest and hedge accounting adjustments.

The NRAM Group 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 were subject to fairvalue hedge designation, and the carrying values of these instruments include unamortised adjustments in respect of thenotes that were hedged.

HM Treasury has provided guarantees with regard to certain wholesale borrowings; NRAM pays a fee for these guaranteescurrently 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 cashdeposits of SPV companies held with third parties.

14. Provisions

Provisions include £82.6m (30 June 2012: £nil; 31 December 2012: £42.2m) in respect of Consumer Credit Act ('CCA') non-compliance. This provision was increased by £47.0m during the period, following further analysis of the level of potentialexposure. In addition, there was a net release of £2.0m in respect of provisions for other remediation activities.

Provisions also include £83.5m (30 June 2012: £129.9m; 31 December 2012: £104.6m) in respect of potential claims fromcustomers regarding Payment Protection Insurance ('PPI') and other customer redress.

15. Reserves

Reserves comprise the following:

At 30 June2013

30 June2012

31 December2012

£m £m £mShare premium reserve 403.2 403.2 403.2Capital redemption reserve 7.3 7.3 7.3Available-for-sale reserve (55.2) (92.9) (73.8)Cash flow hedge reserve 136.5 152.5 157.0Total 491.8 470.1 493.7

16. Capital structure

Capital resources - Northern Rock (Asset Management) plc(company only)At

30 June2013

30 June2012

31 December2012

£m £m £m

Share capital and reserves 2,746.7 2,281.4 2,515.1Available-for-sale reserve adjustments 55.2 92.7 73.7Cash flow hedge reserve adjustments (150.5) (141.7) (192.2)Net pension adjustment (65.4) (65.4) (43.0)Reserve capital instruments 101.4 101.4 101.4Tier one notes 41.5 42.3 41.9Less: deductions (0.9) (1.2) (1.1)Tier 1 capital 2,728.0 2,309.5 2,495.8Subordinated notes 23.4 23.4 23.4Subordinated liabilities - 150.7 150.7Total capital 2,751.4 2,483.6 2,669.9




17. Fair value disclosures

(a) Categories of financial assets and financial liabilities: carrying value compared to fair value

The following table summarises the carrying amounts and the fair values of financial assets and liabilities:

At 30 June 2013 Carrying value£m

Fair value£m

Financial assets:Balances with the Bank of England 4,050.0 4,050.0Cash at bank and in hand 1,061.7 1,061.7Investment securities 1,245.7 1,228.7Loans to customers 34,440.6 34,499.9Fair value adjustments on portfolio hedging 120.4 -Derivative financial instruments 4,284.2 4,284.2Other financial assets 18.9 18.9Total financial assets 45,221.5 45,143.4

Carrying value£m

Fair value£m

Financial liabilities:Amounts due to banks 2,871.6 2,871.6HM Treasury loans 17,340.8 17,340.8Derivative financial instruments 236.2 236.2Debt securities in issue 21,437.9 20,363.7Capital instruments 62.0 37.0Other financial liabilities 56.0 56.0Total financial liabilities 42,004.5 40,905.3

At 31 December 2012 Carrying value£m

Fair value£m

Financial assets:Balances with the Bank of England 4,758.5 4,758.5Cash at bank and in hand 1,877.1 1,877.1Investment securities 1,557.2 1,465.7Loans to customers 36,265.8 36,317.6Fair value adjustments on portfolio hedging 152.5 -Derivative financial instruments 3,919.8 3,919.8Other financial assets 28.0 28.0Total financial assets 48,558.9 48,366.7

Carrying value£m

Fair value£m

Financial liabilities:Amounts due to banks 3,573.7 3,573.7HM Treasury loans 18,063.1 18,063.1Derivative financial instruments 281.5 281.5Debt securities in issue 23,417.6 22,095.4Capital instruments 213.0 189.1Other financial liabilities 86.1 86.1Total financial liabilities 45,635.0 44,288.9

Note: the fair values above as at 31 December 2012 have not been restated to comply with IFRS 13. However, anydifferences between these fair values and IFRS 13-compliant fair values would not be material.

The only financial assets and liabilities which are carried at fair value on the Balance Sheet are investment securities andderivative financial assets and liabilities. The valuation techniques and inputs used to derive fair values at 30 June 2013 areas follows.




17. Fair value disclosures (continued)

(a) Categories of financial assets and financial liabilities: carrying value compared to fair value (continued)

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction betweenmarket participants at the measurement date. Where an active market is considered to exist, fair values are based on quotedprices or lead manager prices. For instruments which do not have active markets, fair value is calculated using present valuemodels, which take individual cash flows together with assumptions based on market conditions and credit spreads, and areconsistent with accepted economic methodologies for pricing financial instruments.

(b) Valuation bases

Financial assets and liabilities carried at fair value are valued on the following bases:

At 30 June 2013 Level 1£m

Level 2£m

Level 3£m

Total£m

Financial assetsInvestment securities - available for sale - 59.6 - 59.6Derivative financial instruments - 4,284.2 - 4,284.2Financial liabilitiesDerivative financial liabilities - (236.2) - (236.2)Net financial assets - 4,107.6 - 4,107.6

Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities.Level 2: Inputs other than quoted prices that are observable for the asset or liability, whether directly (ie as price) or

indirectly (ie derived from the implications of prices).Level 3: Inputs for the asset or liability that are not based on observable market data, or have significant unobservable

inputs.

There were no transfers between Level 1 and Level 2 during the 6 months ended 30 June 2013.

Available-for sale investment securities which are categorised as Level 2 are those which are less frequently traded, andhence trade prices are not considered sufficient evidence of fair value. Fair value is estimated by the securities' leadmanagers by calculating discounted expected future cash flows, also taking into account recent trades, similar assets adjustedfor credit spreads, and where applicable the underlying performance of assets backing the securities.

Derivative financial instruments which are categorised as Level 2 are those which either:

(a) Have future cash flows which are on known dates and for which the cash flow amounts are known or calculable byreference to observable interest and foreign currency exchange rates; or

(b) Have future cash flows which are not pre-defined, but for which the fair value of the instrument has very low sensitivity tochanges in estimate of future cash flows.

In each case the fair value is calculated by discounting future cash flows using benchmark, observable market interest rates.

18. 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 tothose during the year ended 31 December 2012. NRAM repaid £721m of the HM Treasury loan during the period (6 monthsto 30 June 2012: £88m; 12 months to 31 December 2012: £1,674m), and repaid in full the HM Treasury PIK interest of£150.9m (2012: £nil).




19. Contingent liabilities

The CCA regulates certain classes of mortgages and loans, including the unsecured element of the Together mortgageproduct. As detailed in the NRAM Group's 2012 Annual Report & Accounts, NRAM did not comply with the requirements ofthe CCA in respect of some documentation provided to certain customers with CCA-regulated loans and therefore made aprovision during 2012 for NRAM's best estimate of the cost of providing remediation to those customers. During the period,the provision was increased by a further £47.0m following further analysis of the level of potential exposure. If any customerswere to make a formal legal claim against NRAM in respect of other loans, NRAM would incur costs in defending its position,and should any such claim result in proceedings which are pursued through the courts and which succeed, NRAM could beliable for remediation to those claimant customers and potentially other customers with the same circumstances. No formallegal claims have been received from any customers in respect of loans which are not CCA-regulated and no provision hasbeen made.

As described in the NRAM Group's 2012 Annual Report & Accounts, on 23 July 2012 NRAM announced the sale of £465m ofloans to customers, at par, secured on residential property, to Virgin Money. Under the terms of the sale, NRAM providedcertain warranties. Any claim under the warranties must be made by 28 March 2014. NRAM's maximum liability under thesewarranties is limited to £35m.

20. Risks and uncertainties

The Directors are aware of the following material risks and uncertainties which may affect NRAM during the period to 31March 2014: external economic factors including unemployment, house price movements, the extent and timing of changes ininterest rates, and the rate of interest charged on the HM Treasury loan. There may be other risks that are not listed abovethat the Directors are not aware of or that the Directors do not consider material. The business, financial condition or results ofoperations of NRAM could be adversely affected by any of these risks. Further discussion of risk management and controlwere provided on pages 11-13 of NRAM's 2012 Annual Report & Accounts.

21. Events after the reporting period

In July 2013 the NRAM Group completed the £400m sale of its standalone unsecured personal loan book, realising a profit onsale of £21m. Under the terms of the sale, NRAM provided certain warranties. Any claim under the warranties must be madeby 31 March 2015. NRAM's maximum liability under these warranties is limited to £35m. On the Balance Sheet, these loanshave been classified as held for sale.




The financial information in this document is unaudited and does not constitute statutory accounts within the meaning ofsection 435 of the Companies Act 2006. The comparative figures for the financial year ended 31 December 2012 are notthe statutory accounts for that financial year for Northern Rock (Asset Management) plc. The 2012 statutory accounts ofNorthern Rock (Asset Management) plc have been reported on by that company's auditors and delivered to the Registrarof Companies. The report of the auditors was unqualified, did not include a reference to any matters to which the auditorsdrew 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 andcurrent goals and expectations relating to the future financial conditions, business performance and results of NorthernRock (Asset Management) plc. By their nature, all forward-looking statements involve risk and uncertainty because theyrelate 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 fluctuationin interest rates and exchange rates, inflation, deflation, the impact of competition, changes in customer preferences, risksconcerning borrower credit quality, delays in implementing proposals, the timing, impact and other uncertainties of futureacquisitions or other combinations within relevant industries, the policies and actions of regulatory authorities, the impact oftax or other legislation and other regulations in the jurisdictions in which Northern Rock (Asset Management) plc and itsaffiliates 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 theseforward-looking statements.



Statement of Directors' Responsibilities

The Directors confirm that this Interim Financial Report has been prepared in accordance with IAS 34 as adoptedby the European Union and that the management commentary and related notes includes a fair review of theinformation 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 thecondensed Financial Statements and a description of the principal risks and uncertainties for theremaining nine months of the financial period; and

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

The Directors of Northern Rock (Asset Management) plc at the date of this report are:

Richard PymKent AtkinsonRichard BanksMichael BuckleySue LangleyPhillip McLellandKeith MorganJim O'NeilLouise PattenJohn Tattersall

On behalf of the Board

Richard Banks Phillip McLellandChief Executive Officer Finance Director5 August 2013 5 August 2013

Northern Rock (Asset Management) plc, Registered Office: Croft Road, Crossflatts, Bingley, West Yorkshire BD16 2UA.Registered in England and Wales under company number 03273685.



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 InterimFinancial Report for the six months ended 30 June 2013, which comprise the Consolidated Income Statement,Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement ofChanges in Equity, Consolidated Cash Flow Statement and the related notes. We have read the other informationcontained in the Interim Financial Report and considered whether it contains any apparent misstatements ormaterial 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 areresponsible for preparing the Interim Financial Report in accordance with the Disclosure and Transparency Rulesof the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the Annual Financial Statements of the NRAM Group are prepared in accordance withIFRS as adopted by the European Union. The condensed set of Financial Statements included in this InterimFinancial Report has been prepared in accordance with International Accounting Standard 34 'Interim FinancialReporting' as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of Financial Statements in theInterim Financial Report based on our review. This report, including the conclusion, has been prepared for andonly for the company for the purpose of the Disclosure and Transparency Rules of the Financial ConductAuthority and for no other purpose. We do not, in producing this report, accept or assume responsibility for anyother purpose or to any other person to whom this report is shown or into whose hands it may come save whereexpressly 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 theAuditing Practices Board for use in the United Kingdom. A review of interim financial information consists ofmaking enquiries, primarily of persons responsible for financial and accounting matters, and applying analyticaland other review procedures. A review is substantially less in scope than an audit conducted in accordance withInternational Standards on Auditing (UK and Ireland), and consequently does not enable us to obtain assurancethat we would become aware of all significant matters that might be identified in an audit. Accordingly, we do notexpress an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set ofFinancial Statements in the Interim Financial Report for the six months ended 30 June 2013 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 as adopted by the European Unionand the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

PricewaterhouseCoopers LLPChartered AccountantsBristol5 August 2013

The maintenance and integrity of the Northern Rock (Asset Management) plc website is the responsibility of the Directors; the work carried outby the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes thatmay 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 otherjurisdictions.


Page 74 of 75

Contact informationThe 2013 Interim Financial Reports for B&B and NRAM are available on the websites at www.bbg.co.uk andwww.nram.co.uk within the Corporate Information sections.

Contacts

BrunswickJonathan Glass / Nick CosgroveTel: +44 20 7404 5959Email: [email protected]

Investor relations contacts

Neil VanhamTel: +44 1274 806341Email: [email protected]

UK Asset Resolution Limited - Registered Office: Croft Road, Crossflatts, Bingley, West Yorkshire BD16 2UA.Registered in England and Wales under company number 07301961. www.ukar.co.uk

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