020 7756 5014

020 7756 6474

020 7756 5536

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Profit before tax of £1,231m, broadly in line with 2011. Profit after tax up 4% to £939m.

Operating income down 5%, impacted by the low interest rate environment and increased funding costs.

Strong cost management discipline with operating expenses down 9%, despite inflation and our ongoing business investment programme.

The total non-performing loan ratio was 2.17% whilst the mortgage NPL ratio was 1.74%.

Return on tangible book value of 9.1%.

Robust balance sheet with a Core Tier 1 capital ratio of 12.1%, after the £450m dividend declared in Q4 2012.

Gain from successful capital management exercise in Q3 2012, largely offset by additional provisions.

Over one million customers with 1|2|3 Current Accounts and 790,000 customers with 1|2|3 Credit Cards; 550,000 customers hold both products.

Current account balances up £3.8bn, an increase of 32%.

Over 240,000 new bank account switchers to Santander UK.

Successful cross tax year ISA campaign, with net inflows of £9.1bn.

Gross residential mortgage lending of £14.6bn, with £3.0bn of loans for first time buyers.

Continued investment in Corporate Banking, with 7 new regional Corporate Business Centres and 113 additional Relationship Managers.

First growth capital loans advanced under our Breakthrough programme; expected to create around 230 new jobs in the UK.

‘Bank of the Year 2012’ from The Banker and ‘UK Bank of the Year 2012’ from Euromoney.

Key financial highlights^a

Total operating income

of which significant items (see Appendix 2)

Operating expenses

Total operating provisions and charges

of which significant items (see Appendix 2)

Profit before tax

Profit after tax

Banking net interest margin (‘Banking NIM’)^b

Cost to income ratio^c

Return on tangible book value (‘RoTBV’)

Return on risk weighted assets (‘RoRWA’)

Balance sheet and capital highlights

Total customer assets

of which residential mortgages^d

of which Corporate Banking

including SMEs

Total customer deposits

Loan to deposit ratio^e

Mortgage non-performing loans (‘NPL’) ratio

Secured coverage ratio

Core Tier 1 capital ratio

Total capital ratio

FSA eligible liquid assets^f

Liquid asset coverage of short-term wholesale funding^g

Being a key UK retail and corporate banking market participant, with ambitious growth plans for corporate/SME lending;

Delivering consistent profitability, supported by our strong cost discipline and conservative risk management;

Maintaining a high quality, low risk portfolio;

Sustaining strong liquidity, funding and capital positions, comparing favourably to other major UK banks; and

Strengthening our commercial franchise into a full-service, diversified, customer-centred bank.

Delivering value to our primary banking customers

More balanced business mix and becoming SME bank of choice

Leading efficiency and customer service and satisfaction underpinned by IT systems

Income statement analysis

Net interest income

Non-interest income

Total operating income

Administrative expenses

Depreciation, amortisation and impairment

Total operating expenses excl. provisions and charges

Impairment losses on loans and advances

Provisions for other liabilities and charges

Total operating provisions and charges

Profit before tax

Taxation charge

Profit for the year

Income was down 5%, due to the impact of structural market conditions, primarily low interest rates and increased medium term funding (‘MTF’) costs, partially offset by the £705m CME gain noted previously.

Net interest income was lower than in 2011 due to the continued impact of structural market conditions and increased customer deposit funding costs. This resulted in a narrowing of the Banking NIM to 1.44%.

The impact of structural market conditions and the increased cost of retail deposits have been in part mitigated by higher new lending margins on mortgages and SME loans and increased standard variable rate (‘SVR’) mortgage balances.

Net interest income is expected to stabilise in 2013 as conditions improve, particularly in the second half of the year.

Excluding the £705m impact of the CME, non-interest income was lower than in 2011. This was largely due to lower personal current account overdraft fees.

There has been an uplift in fees and ancillary income from the increase in SME and other corporate lending.

Non-interest income, excluding the impact of the CME, is expected to be stable in 2013.

Costs were well controlled with administrative expenses broadly unchanged from 2011, despite inflation and the ongoing investment in our business.

Depreciation, amortisation and impairment costs fell by £201m, largely due to charges related to the impairment of intangible assets in 2011 which have not been repeated in 2012.

Investment programmes continued to support the business transformation and provide the underpinning for future efficiency improvements.

The statutory cost to income ratio was 45% and included the income from the CME. The cost to income ratio excluding the income from the CME was 53%, higher than in 2011 due to the decline in income.

In 2013, we expect to see some improvement in the cost to income ratio from the underlying 53% of 2012. We will continue to aggressively manage business as usual costs, whilst maintaining our investment programme.

Impairment losses on loans and advances in 2012 included a £335m credit provision for the non-core corporate and legacy portfolios made in the third quarter (detailed in Appendix 2).

Excluding this credit provision other impairment losses on loans and advances increased to £674m from £565m in 2011. This provision, and the increase in our overall NPL coverage ratio, reflected a prudent view of the uncertain economic environment.

Provisions for other liabilities and charges fell to £439m in 2012 from £917m in 2011. Included in 2012 was a net provision for conduct remediation of £232m, relating to retail products and to interest rate derivatives sold to corporates. In addition there was a £55m provision for costs arising from the termination of the acquisition of the RBS businesses. In 2011 Santander UK made a customer remediation provision relating principally to PPI of £751m. No additional provision relating to PPI was required in 2012.

In accordance with International Financial Reporting Standards, certain regulatory costs relating to the Financial Services Compensation Scheme (‘FSCS’) and the Bank Levy, are not accrued over the year but are only recognised in the final quarter of the year. These costs are reported in provisions for other liabilities and charges and amounted to £98m in 2012 versus £156m in 2011, the reduction being largely due to a lower provision for FSCS charges.

At a meeting on 21 November 2012, the interim Financial Policy Committee (‘FPC’) noted that UK banks had in the past underestimated the cost of redress especially for the mis-selling of PPI.

The FPC also identified that the growing scale and scope of conduct issues faced by banks could lead to considerable costs in the future and that a realistic assessment of future conduct redress was needed.

The range of conduct issues increased during 2012 and the scale of future redress and litigation is difficult to assess. However, we believe the amounts already provided by Santander UK and referred to above are adequate.

The taxation charge was £66m lower than 2011, primarily due to the impact of the continued reduction in the main rate of corporation tax on profits.

Summary balance sheet analysis^a

Assets

Retail Banking

Corporate Banking

UK Banking

Corporate Centre

Customer assets

Other assets

Total assets

Liabilities

Retail Banking

Corporate Banking

UK Banking

Corporate Centre

Customer liabilities

MTF^b

Other liabilities and equity

Total liabilities and equity

Ratios

Loan to deposit ratio

Customer deposits and MTF to customer loans^c

Lending and deposit flows

Customer net lending

Retail Banking

Corporate Banking

UK Banking

Corporate Centre

Total

Customer net deposit flows

Retail Banking

Corporate Banking

UK Banking

Corporate Centre

Total

Customer assets were £10.4bn lower than at 31 December 2011. Managed reductions across the retail and non-core corporate and legacy portfolios were partially offset by increases in SME lending. Interest only mortgages were reduced by £6.2bn.

Customer liabilities of £148.6bn were £0.6bn lower than at 31 December 2011. There was an improvement to the quality of the deposits base from a strong inflow of retail deposits (predominantly current accounts and ISAs) with a customer relationship and away from less relationship-driven and more rate-sensitive money.

The loan to deposit ratio of 130% was six percentage points better than at 31 December 2011.

We expect the loan to deposit ratio to increase slightly in 2013 as we continue to focus on the quality rather than the quantity of our deposit base.

Capital and liquidity highlights

Risk Weighted Assets

Core Tier 1 capital

Total capital

Core Tier 1 capital ratio

Total capital ratio

FSA eligible liquid assets

Total liquid assets^a

Liquid asset coverage of short-term wholesale funding

Total liquid assets rose to £75.9bn in 2012, with FSA eligible liquid assets of £36.9bn up from £28.0bn at 31 December 2011.

Both total and FSA eligible liquid assets significantly exceeded short-term wholesale funding requirements, and the FSA eligible liquid assets amounted to 152% of total short-term wholesale funding.

FSA eligible liquid asset balances were actively reduced in the fourth quarter of 2012. We expect to continue this approach in 2013, while maintaining a conservative liquidity position in line with our current liquidity risk assessment and regulatory guidance.

Core Tier 1 capital ratio of 12.1%, after the £450m dividend declared in Q4 2012.

We estimate our Core Tier 1 ratio would have decreased by c. 100 basis points on a full Basel III basis.

£14bn of MTF was raised across a mix of sources and geographies in 2012.

Short-term funding requirements have been reduced as part of the process of strengthening the balance sheet, reflecting our prudent liquidity profile.

In January 2013 we issued a Euro 1bn, 5-year senior unsecured note that was well received by the market.

Credit performance

Mortgages

NPL % of assets value

PIPs % of assets volume

NPL coverage

New business LTV

Stock LTV indexed

CML - mortgages only^a

NPL % of assets volume

PIPs % of assets

Corporate Banking^b

NPL % of assets value

NPL coverage

Total Santander UK

NPL % of assets value

NPL coverage^c

Following regulatory developments, changes were made to our collections and recovery policies and to the classification of NPL. Whilst these changes reflect a more conservative approach to the assessment of NPL we do not anticipate a corresponding increase in write-offs as a result. In 2012, mortgage write-offs fell to £87m, from £103m in 2011.

The calculation of the NPL ratio was also adversely affected by the impact of the managed reduction of the mortgage portfolio over the year, which decreased to £156.6bn from £166.2bn.

Excluding these changes, NPL remained broadly stable over the year.

The Corporate Banking NPL ratio increased to 4.26% at end 2012. This largely arose from the performance of a small number of older vintage loans which were acquired with Alliance & Leicester.

Lending criteria were tightened on a range of higher loan to value (‘LTV’) and interest only mortgages in early 2012 which limited gross mortgage lending. In particular, we introduced a 50% LTV cap on new interest only mortgages and there was £6.2bn reduction in total interest only mortgages.

Mortgage NPL coverage remained unchanged at 20%.

The stock of properties in possession (‘PIPs’) at 31 December 2012 reduced to 924, and at 0.06% of the book remained below the industry average.

The unsecured retail portfolios performed well, with improved credit quality seen in unsecured personal loans (‘UPL’) and the cards business and benefits feeding through from the growth of the 1|2|3 World products.

Santander UK remained firmly focused on the UK with c. 99% of customer assets UK-related and c. 85% of customer assets consisting of prime UK residential mortgages.

Our total balance sheet remains UK focused, with a minimal net exposure after collateral to eurozone periphery^a countries only amounting to c. 0.4% of total assets.

There was an unprecedented level of credit rating actions across the global banking industry in 2012, mostly in the first half. Santander UK, in common with its UK peers, faced credit rating downgrades from Standard & Poor’s, Moody’s and Fitch.

The credit ratings for Santander UK were reviewed and affirmed by all of its rating agencies in the course of the fourth quarter of 2012.

The credit ratings^b for Santander UK at 31 December 2012 were:

Santander UK maintains a robust balance sheet and remains well placed to deal with the impact of any possible future downgrades to its credit ratings.

Retail Banking income was lower than in 2011, due to higher wholesale funding costs and the increased cost of retail deposits. Lower mortgage lending balances also affected income, although these pressures were partly offset by an increased proportion of standard variable rate mortgages and higher new business lending margins.

Non-interest income fell, affected by changes to the fee charging structure of bank accounts and lower fees from unsecured lending and mortgages driven by reduced customer volumes.

Retail Banking analysis

Business volumes

Mortgage gross lending^a

Mortgage net lending^a

UPL gross lending

Retail deposit flows

Investments annual premium income

Total customer assets

of which residential retail mortgages

of which UPLs

Total customer liabilities

of which bank account deposits

Bank accounts opened (000s)^b

Credit cards opened (000s)

Market share^c

Mortgage gross lending

Mortgage stock

Bank account stock

Residential mortgage gross lending of £14.6bn was equivalent to a market share of 10.2%.

Mortgage loans decreased by £9.6bn following the tightening of lending criteria on higher loan to value and interest only mortgages.

A 50% LTV cap placed on new interest only mortgages limited the amount of lending in 2012 and as a result interest only mortgage balances fell £6.2bn in the year.

The proportion of new business originated through the branch and telephone channels grew as we further focused our appetite on loans with an associated customer relationship and an improved risk profile.

Further managed reductions in the mortgage stock and a lower market share are expected in the future, although this reduction is likely to be smaller than in 2012. We will continue to lend at favourable margins with a good risk profile.

Retail deposit net inflows of £5.8bn were a result of the successful cross tax year ISA campaign and a material growth in current accounts.

ISA net inflows were £9.1bn in 2012, a result of a strong campaign which attracted a good proportion of term deposits.

Current account balances increased by £3.8bn, a 32% rise compared to 31 December 2011, as a result of the success of the 1|2|3 Current Account.

Bank accounts opened increased 7% to 895,000, primarily due to the new 1|2|3 Current Account launched in March 2012.

The managed reduction of short-term and rate-sensitive deposits in 2012 is expected to continue in 2013 as we focus on building profitable long-term banking relationships.

The achievement of the 1|2|3 World proposition is evident in the take-up of the proposition – 240,000 customers switched their bank account to Santander UK in 2012 and more than 1.3m customers now hold 1|2|3 Current Accounts or 1|2|3 Credit Cards.

At the heart of the 1|2|3 World is our fee paying primary current account which forms the basis of our customer driven model and is the basis for closer customer relationships.

550,000 customers hold both a 1|2|3 Current Account and 1|2|3 Credit Card, a new transactional primary customer base, driving increased deposits and higher average credit card spend.

1|2|3 World extended with links to Santander UK mortgages, insurance, UPLs and deposits.

We continue to focus on placing the customer experience at the heart of what we do, and our progress has been reflected in Santander UK making the largest improvement in overall customer satisfaction versus competitors in 2012, as measured by the GfK Financial Research Survey (‘FRS’)^a.

Improvement is also evident in our internal monthly customer satisfaction survey, which shows the positive impact of our investment in recruitment and training development in the branch and contact centre network. The industry has also recognised our efforts with Santander UK awarded the 2012 Moneywise award for ‘Most Improved Service’.

The latest information from the Financial Ombudsman Service (’FOS’), published in August 2012, showed that the total number of complaints referred to FOS fell in the first half of 2012. Santander UK was the only high street bank in the UK to see a fall in total complaints compared to the previous six month period and was the bank with the lowest uphold rate.

Banking complaints reported to the FOS fell by 32% in the first half of the year, though PPI complaints did increase in common with the rest of the market. Santander UK had the lowest number of PPI complaints to the FOS and also the lowest uphold rate.

Overall complaints reported to the FSA increased by 28% in the first half of 2012. Some contributory factors were the industry-wide growth in PPI complaints and the impact of our decision to enhance security for our customers’ accounts in response to increased fraud attacks following the introduction of the Faster Payments initiative.

In December 2012 the Business Banking portfolio was transferred from Corporate Banking to Retail Banking, to better reflect the management of these business customers with a turnover of under £250,000. The balances being transferred amounted to £4.0bn of customer liabilities and £0.1bn of customer assets.

Prior periods have adjusted to reflect these changes.

The Business Banking portfolio consists of a range of loans and current accounts, reserve accounts, time deposits and term bonds. Business customers who hold these products are serviced primarily through the branch network by local business managers.

In the last year, 111 extra local business managers were recruited to support our award-winning service to business customers.

In December 2012, we announced that ahead of the implementation of the Retail Distribution Review (‘RDR’) we were re-evaluating the investment advice service offered to our customers.

As part of this ongoing review, additional adviser training and support was identified to meet the new standards. We have begun an intensive bespoke training programme for our advisors and no investment advice will be offered to our clients until this has been completed.

We have maintained a limited advice service for customers with maturing deposits.

Corporate Banking revenues were ahead of 2011, underpinned by continued strong growth in SME lending.

Income benefitted from higher margins on new lending which improved underlying interest margins, and SME lending and deposits volume growth, combined with higher fee related income.

Corporate Banking

Customer balances

Total customer assets

Total customer liabilities

Corporate SME (included above)

SME customer assets

Corporate Banking continued to support UK businesses and has been a consistent lender in recent years while other banks have scaled back their lending. Over the last four years our lending to SMEs has grown by an average of 25% per annum.

Despite muted demand for corporate lending in 2012, SME balances were up 18% with £3.4bn of new facilities made available in the year.

Customer liabilities increased by £0.7bn in 2012, despite the impact of credit rating downgrades in the year and the decision to reduce short-term and price-sensitive balances.

We added 7 regional Corporate Business Centres to our network in 2012 to support the development of closer relationships with our SME customers. The recruitment of 113 Relationship Managers in the last year increased our coverage and the scalability of our proposition while maintaining our award-winning service to business customers.

Our innovative Breakthrough programme was launched in December 2011 to support small companies in their development. So far, more than 800 SMEs have been involved in Breakthrough events. We have completed the first growth capital loans and the investments agreed to date gave the SMEs the ability to expand to create more than 230 jobs in the UK.

Following our participation in the Bank of England’s Funding for Lending (‘FLS’) scheme Santander UK launched a number of specific new SME funding initiatives in late 2012. This facilitated a reduction in rates across a range of our SME lending products. Our new initiatives are directed at improving SMEs’ access to cash flow by way of faster payments to suppliers, up to £500m of asset and invoice finance in 2013 and a new fleet management and vehicle programme.

We expanded our ancillary business to new and existing large corporate customers. Our debt capital market platform played a prominent role in securing Sterling and Euro bond issuances and we further developed our supply-chain finance service, an area we expect to grow further in 2013.

Fixed Income covers sales and trading activity for fixed income products, including foreign exchange products.

Equity covers mainly equity derivatives activities, including the manufacture of structured products sold to both Santander UK and other financial institutions that sell or distribute them on to their customers.

Capital Markets include the origination and distribution of debt securities.

ALM has responsibility for the bank’s capital and funding and is responsible for managing the Group’s balance sheet composition, structural market risk and strategic liquidity risk management.

This also includes covered bond and securitisation programmes, Santander UK’s banking products and the structural exposure to interest rates.

In 2012, MTF issuance of c. £14bn was raised across a number of sources, including senior unsecured, asset-backed securities and covered bonds, and across a diverse range of currencies.

Issuance was significantly reduced from the heightened levels of 2010 and 2011. The cost of new funding in the market reduced over the year, although most noticeably towards the end of 2012 and into 2013.

High liquid asset balances were maintained during 2012, in response to regulatory requirements and uncertainty around credit rating agency actions and the market environment. However, with changes in the guidance from regulators and more clarity in the environment, in the final quarter of 2012 we were able to better align customer balances and liquidity with our business requirements.

The customer assets held within the non-core corporate and legacy portfolios totalled £11.0bn at end 2012, down from £11.9bn at end 2011.

These assets are typically medium to long-term arrangements primarily written via agents or intermediaries with little opportunity for growth through any development of the customer relationship. The terms of these loans are unfavourable in the current funding environment and offer little prospect for renegotiation.

Our strategy is to reduce, restructure and optimise these assets and as such the balances are expected to gradually decrease over time.

Non-core customer deposits are financial intermediary or institutional deposits which are managed centrally for liquidity purposes, most of which were previously managed within Corporate Banking or Markets.

The Treasury asset portfolio which was acquired from Alliance & Leicester is also being run down.

Year ended

31 Dec. 2012

Net interest income

Non-interest income

Total operating income

Administrative expenses

Depreciation, amortisation and impairment

Total operating expenses excluding provisions and charges

Impairment losses on loans and advances

Provisions for other liabilities and charges

Total operating provisions and charges

Profit before tax

Taxation charge

Profit for the year

Core Tier 1 capital ratio (%)

Total capital ratio (%)

Risk weighted assets (£bn)

Capital Management Exercise (‘CME’)

Non-core corporate and legacy portfolios

Conduct remediation

Acquisition of The Royal Bank of Scotland businesses

Assets

Cash and balances at central banks

Trading assets

Derivative financial instruments

Financial assets designated at fair value

Loans and advances to banks

Loans and advances to customers

Available-for-sale securities

Loans and receivables securities

Macro hedge of interest rate risk

Property, plant and equipment

Retirement benefit assets

Tax, intangibles and other assets

Total assets

Liabilities

Deposits by banks

Deposits by customers

Derivative financial instruments

Trading liabilities

Financial liabilities designated at fair value

Debt securities in issue

Subordinated liabilities

Other liabilities

Provisions

Current tax liabilities

Retirement benefit obligations

Total liabilities

Equity

Shareholders’ equity

Total equity

Total liabilities and equity

Income statement analysis

Net interest income

Non-interest income

Total operating income

Administrative expenses

Depreciation, amortisation and impairment