Illustrative results under IFRS

Illustrative results under IFRS 2 June Bradford & Bingley plc

Illustrative results under IFRS Introduction Bradford & Bingley plc ( the Group ), along with other European listed entities, is required by regulators of the European Union ( EU ) to prepare consolidated financial statements for and subsequent years in accordance with International Financial Reporting Standards ( IFRS ), as endorsed by the EU. Consequently, the Group is preparing to use IFRS as its accounting basis. Previously, the Group has prepared its Financial Statements in accordance with UK Generally Accepted Accounting Principles ( UK GAAP ). The Group s results for the 6 months ending 30 June will be the first to be published on an IFRS basis. This document explains how the Group s previously reported UK GAAP financial performance and position are reported under IFRS. The Group s main financial statements have been restated including: - Income Statements for the periods ended 30 June and 31 December ; - Balance Sheets as at 1 January, 30 June, 31 December and 1 January ; - Statements of Recognised Income and Expense for the periods ended 30 June and 31 December ; - Statement of Changes in Equity for the periods ended 30 June and 31 December ; and - Selected notes to the financial statements. In addition, a reconciliation of the differences between UK GAAP and IFRS for each of the Income and Balance Sheet Statements is also included. The restated Financial Information included in this document is for the consolidated Group and will form the basis for the comparative information in any future results announcement. This document should be read in conjunction with the Group s interim and full year results for published on the 6 August and 22 February respectively. Most of the changes under IFRS are to be applied retrospectively from the start of and fully reflected in the restated Financial Statements for the accounting period. However, the standards that apply to financial instruments, IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement, are being implemented from 1 January. Therefore, the Financial Statements restated for IFRS to be included in the results will not be directly comparable with the accounting information. In order to assist readers to assess performance, illustrative Financial Information including most of the impacts of IAS 32 and IAS 39, as if they had been applicable to, have been included within this announcement and are proposed to be included in future announcements of results. Whilst any equivalent impacts of the fair value provisions of IAS 39 have been omitted from the results, a schedule setting out their impact on the Balance Sheet as at 1 January has also been provided. The fair value adjustments are not anticipated to have any material impact on earnings, capital or solvency. The remainder of this document comprises the following sections: SECTION A: Highlights and summary adjustments to the Financial Information. SECTION B: Restatement of Financial Information under IFRS applicable to ( ). The restatements for the 12 months ended 31 December and for the 6 months ended 30 June have been audited and reviewed respectively by KPMG Audit Plc, the Group s external auditors. Copies of KPMG s opinions on these restatements are included on pages 20 to 23. Bradford & Bingley plc Page 1

SECTION C: Illustrative restatement of Financial Information under IFRS applicable to, but excluding the fair value elements ( ). The plus the fair value elements will be used in due course by the Group in reporting its interim and annual results. SECTION D: Illustrative restatement of the Balance Sheet as at 1 January. APPENDIX: Presentational changes to UK GAAP results to transfer them to IFRS format. The information in this document has been prepared on the basis of the Group s expectation of the IFRS that will be applicable as at 31 December. Financial Information prepared by the Group in future periods may differ from the information set out in this document due to the ongoing development and implementation of IFRS. These differences may occur due to the ongoing completion of the relevant legislation surrounding the implementation of IFRS, in particular, IAS 32 and IAS 39. The information in this announcement does not comprise statutory accounts for the year ended 31 December within the meaning of Section 240 of the Companies Act 1985. Those accounts have been reported on by the Group s auditors. The report of the auditors was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. This document may contain forward-looking statements with respect to certain of the plans and current goals and expectations relating to the future financial conditions, business performance and results of the Bradford & Bingley Group. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of the Bradford & Bingley Group including, amongst other things, UK domestic and global economic and business conditions, market related risks such as fluctuation in interest rates and exchange rates, inflation, deflation, the impact of competition, changes in customer preferences, risks concerning borrower credit quality, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations within relevant industries, the policies and actions of regulatory authorities, the impact of tax or other legislation and other regulations in the jurisdictions in which the Bradford & Bingley Group and its affiliates operate. As a result, the Bradford & Bingley Group s actual future financial condition, business performance and results may differ materially from the plans, goals and expectations expressed or implied in these forward looking statements. Bradford & Bingley plc Page 2

Illustrative results under IFRS Contents Page Section A Illustrative results under IFRS 4 Highlights 4 Analysis of adjustments to the Financial Information 5 Section B Restatement of Financial Information under 10 Introduction 10 Basis of preparation 10 IFRS 1 exemptions 10 Accounting policies 11 Analysis of key impacts 11 Analysis of adjustments to the Financial Information 15 Opinions of the Group s Auditors, KPMG Audit Plc 20 Restated Financial Information 24 Section C Illustrative restatement of Financial Information 36 under Introduction 36 Basis of preparation 36 EU carve-out of IAS 39 and fair value accounting 36 IFRS 1 exemptions 36 Accounting policies 37 Analysis of key impacts 37 Analysis of adjustments to the Financial Information 39 Restated Financial Information 44 Section D Illustrative restatement of 1 January Balance Sheet under IFRS 56 Introduction 56 Basis of preparation 56 IFRS 1 exemptions 56 Accounting policies 56 Analysis of key impacts 57 Analysis of adjustments to the Balance Sheet as at 1 January 58 Appendix Presentational changes to UK GAAP results 59 Bradford & Bingley plc Page 3

Section A - Illustrative results under IFRS Highlights Accounting under IFRS does not affect the fundamentals of managing a banking business but reflects a different basis of measurement and presentation of its performance in any one accounting period. The business, its cash flows and hedging policies are unaffected by what is, in the main, an issue of the timing of the recognition of income, costs, assets, liabilities and capital. Under UK GAAP operating profit before tax and exceptionals for was reported at 280.2m. Under IFRS restated operating profit before tax and items classified as exceptional under UK GAAP for is virtually unchanged at 280.4m. Earnings per share before items classified as exceptional under UK GAAP under IFRS is 32.5 pence per share, 1.5 pence per share greater than under UK GAAP. The net impact of IFRS on the Group s tier 1 solvency ratio is a small increase of 0.2% to 7.5%. The effects on profit ( PBT ) and earnings per share ( EPS ) are set out below: Impact of IFRS on profits and EPS For the 12 months ended 31 December PBT EPS P UK GAAP operating profit before tax 228.5 Items classified as exceptional administrative expenses under UK GAAP 51.7 280.2 31.0 Increase in other non-interest income recognised IAS 18 2.0 0.2 Increased charge for defined benefit pension schemes IAS 19 (3.8) (0.4) Increased charge for share based payments IFRS 2 (3.3) (0.4) Goodwill not amortised under IFRS IAS 36 8.5 1.4 After adjustments 283.6 31.8 Minority interest reclassified into interest margin IAS 32 (9.7) - Re-recognition of financial liabilities IAS 39 2.0 0.2 Increased interest margin from application of effective interest rate IAS 39 15.8 1.8 Increased bad debt provision IAS 39 (11.3) (1.3) After adjustments 280.4 32.5 Less items classified as exceptional administrative expenses under UK GAAP (51.7) profit before tax 228.7 Bradford & Bingley plc Section A Page 4

Analysis of adjustments to the Income Statement for the 12 months ended 31 December UK GAAP* adjustments 1 adjustments 2 Interest receivable and similar income 1,856.2 2.2 1,858.4 8.3 1,866.7 Interest expense and similar charges (1,410.0) - (1,410.0) (10.4) (1,420.4) Net interest income 446.2 2.2 448.4 (2.1) 446.3 Net fee and commission income 237.4 (0.2) 237.2 3.1 240.3 Gains less losses on sale of debt securities 10.0-10.0-10.0 Other operating income 13.0-13.0 2.0 15.0 Total operating income 706.6 2.0 708.6 3.0 711.6 Operating expenses: Administrative expenses (467.9) 3 (7.1) (475.0) 3 5.1 (469.9) 3 Depreciation and amortisation (22.5) 8.5 (14.0) - (14.0) Impairment losses on loans and advances 12.3-12.3 (11.3) 1.0 Operating profit before taxation 228.5 3.4 231.9 (3.2) 228.7 Taxation (66.5) 1.5 (65.0) (2.0) (67.0) Operating profit after taxation 162.0 4.9 166.9 (5.2) 161.7 Loss on sale of operations (120.1) (8.5) (128.6) - (128.6) Profit for the financial year 41.9 (3.6) 38.3 (5.2) 33.1 Minority interest (non-equity) (9.7) - (9.7) 9.7 - Profit attributable to equity shareholders 32.2 (3.6) 28.6 4.5 33.1 * UK GAAP as presented in IFRS format 1 Detailed analysis of the adjustments to reflect is provided in Section B 2 Detailed analysis of the adjustments to reflect is provided in Section C 3 Includes 51.7m expenses classified as exceptional under UK GAAP Bradford & Bingley plc Section A Page 5

Analysis of adjustments to the Balance Sheet as at 31 December Assets UK GAAP* adjustments 1 adjustments 2 Cash and balances at central banks 51.2-51.2-51.2 Treasury bills and other eligible bills 380.4-380.4-380.4 Loans and advances to banks 4,156.0-4,156.0-4,156.0 Loans and advances to customers 28,868.4-28,868.4 99.3 28,967.7 Debt securities 4,317.7-4,317.7-4,317.7 Deferred tax assets - 35.7 35.7 (16.1) 19.6 Other assets 48.4-48.4 (27.0) 21.4 Prepayments and accrued income 217.4 (49.5) 167.9 (18.3) 149.6 Property, plant and equipment 124.0 (29.1) 94.9-94.9 Intangible assets - 29.1 29.1-29.1 Total assets 38,163.5 (13.8) 38,149.7 37.9 38,187.6 Liabilities Deposits by banks 1,274.3-1,274.3-1,274.3 Customer accounts 18,954.1-18,954.1 9.3 18,963.4 Debt securities in issue 14,938.9-14,938.9 (3.0) 14,935.9 Other liabilities 271.3 (154.1) 117.2 (1.8) 115.4 Accruals and deferred income 190.0 5.8 195.8-195.8 Current tax liabilities - 68.2 68.2-68.2 Retirement benefit obligations - 84.6 84.6-84.6 Provisions 49.6 (1.3) 48.3-48.3 Subordinated liabilities 1,122.5-1,122.5 144.5 1,267.0 Total liabilities 36,800.7 3.2 36,803.9 149.0 36,952.9 Equity Capital and reserves attributable to equity holders: Share capital 158.5-158.5-158.5 Share premium reserve 3.9-3.9-3.9 Other reserves 25.0 3.8 28.8-28.8 Retained earnings 1,026.8 (20.8) 1,006.0 37.5 1,043.5 Total attributable equity 1,214.2 (17.0) 1,197.2 37.5 1,234.7 Minority interest (non-equity) 148.6-148.6 (148.6) - Total equity 1,362.8 (17.0) 1,345.8 (111.1) 1,234.7 Total equity and liabilities 38,163.5 (13.8) 38,149.7 37.9 38,187.6 * UK GAAP as presented in IFRS format 1 Detailed analysis of the adjustments to reflect is provided in Section B 2 Detailed analysis of the adjustments to reflect provided in Section C Bradford & Bingley plc Section A Page 6

Analysis of adjustments to the Income Statement for the 6 months ended 30 June UK GAAP* adjustments 1 adjustments 2 Interest receivable and similar income 847.2 1.1 848.3 0.3 848.6 Interest expense and similar charges (631.4) - (631.4) (5.7) (637.1) Net interest income 215.8 1.1 216.9 (5.4) 211.5 Net fee and commission income 141.4 (0.2) 141.2 1.5 142.7 Gains less losses on sale of debt securities 8.3-8.3-8.3 Other operating income 8.1-8.1 1.0 9.1 Total operating income 373.6 0.9 374.5 (2.9) 371.6 Operating expenses: Administrative expenses (226.8) (2.5) (229.3) 2.4 (226.9) Depreciation and amortisation (11.1) 5.0 (6.1) - (6.1) Impairment losses on loans and advances 4.3-4.3 (3.5) 0.8 Operating profit before taxation 140.0 3.4 143.4 (4.0) 139.4 Taxation (39.2) 0.4 (38.8) (0.4) (39.2) Operating profit after taxation 100.8 3.8 104.6 (4.4) 100.2 Minority interest (non-equity) (4.8) - (4.8) 4.8 - Profit attributable to equity shareholders 96.0 3.8 99.8 0.4 100.2 * UK GAAP as presented in IFRS format 1 Detailed analysis of the adjustments to reflect IFRS basis is provided in Section B 2 Detailed analysis of the adjustments to reflect is provided in Section C Bradford & Bingley plc Section A Page 7

Analysis of adjustments to the Balance Sheet as at 30 June Assets UK GAAP* adjustments 1 adjustments 2 Cash and balances at central banks 44.1-44.1-44.1 Treasury bills and other eligible bills 123.9-123.9-123.9 Loans and advances to banks 3,701.9-3,701.9-3,701.9 Loans and advances to customers 27,871.0-27,871.0 103.6 27,974.6 Debt securities 3,462.9-3,462.9-3,462.9 Deferred tax assets - 47.8 47.8 (14.3) 33.5 Other assets 158.4 (12.8) 145.6 (31.7) 113.9 Prepayments and accrued income 222.0 (53.2) 168.8 (22.9) 145.9 Property, plant and equipment 142.9 (24.8) 118.1-118.1 Intangible assets 111.0 29.8 140.8-140.8 Total assets 35,838.1 (13.2) 35,824.9 34.7 35,859.6 Liabilities Deposits by banks 2,509.5-2,509.5-2,509.5 Customer accounts 17,233.0-17,233.0 10.1 17,243.1 Debt securities in issue 12,990.9-12,990.9 (2.4) 12,988.5 Other liabilities 291.8 (155.4) 136.4 (2.4) 134.0 Accruals and deferred income 193.5 2.1 195.6-195.6 Current tax liabilities - 103.7 103.7-103.7 Retirement benefit obligations - 81.5 81.5-81.5 Provisions 0.9-0.9-0.9 Subordinated liabilities 1,122.2-1,122.2 144.6 1,266.8 Total liabilities 34,341.8 31.9 34,373.7 149.9 34,523.6 Equity Capital and reserves attributable to equity holders: Share capital 158.5-158.5-158.5 Share premium reserve 3.9-3.9-3.9 Other reserves 25.0 2.3 27.3-27.3 Retained earnings 1,160.3 (47.4) 1,112.9 33.4 1,146.3 Total attributable equity 1,347.7 (45.1) 1,302.6 33.4 1,336.0 Minority interest (non-equity) 148.6-148.6 (148.6) - Total equity 1,496.3 (45.1) 1,451.2 (115.2) 1,336.0 Total equity and liabilities 35,838.1 (13.2) 35,824.9 34.7 35,859.6 * UK GAAP as presented in IFRS format 1 Detailed analysis of the adjustments to reflect is provided in Section B 2 Detailed analysis of the adjustments to reflect is provided in Section C Bradford & Bingley plc Section A Page 8

Analysis of adjustments to the Balance Sheet as at 1 January Assets UK GAAP* adjustments 1 adjustments 2 Cash and balances at central banks 43.7-43.7-43.7 Treasury bills and other eligible bills 132.6-132.6-132.6 Loans and advances to banks 2,773.3-2,773.3-2,773.3 Loans and advances to customers 25,854.6-25,854.6 94.4 25,949.0 Debt securities 3,884.9-3,884.9-3,884.9 Deferred tax assets - 47.5 47.5 (14.1) 33.4 Other assets 75.2 (13.5) 61.7 (25.1) 36.6 Prepayments and accrued income 175.3 (48.0) 127.3 (21.7) 105.6 Property, plant and equipment 138.9 (12.7) 126.2-126.2 Intangible assets 116.1 12.7 128.8-128.8 Total assets 33,194.6 (14.0) 33,180.6 33.5 33,214.1 Liabilities Deposits by banks 1,708.8-1,708.8-1,708.8 Customer accounts 17,170.5-17,170.5 11.4 17,181.9 Debt securities in issue 11,359.2-11,359.2 (3.5) 11,355.7 Other liabilities 266.7 (173.9) 92.8 (3.7) 89.1 Accruals and deferred income 148.0 7.3 155.3-155.3 Current tax liabilities - 91.1 91.1-91.1 Retirement benefit obligations - 79.7 79.7-79.7 Provisions 3.3-3.3-3.3 Subordinated liabilities 1,121.9-1,121.9 144.9 1,266.8 Total liabilities 31,778.4 4.2 31,782.6 149.1 31,931.7 Equity Capital and reserves attributable to equity holders: Share capital 158.5-158.5-158.5 Share premium reserve 3.9-3.9-3.9 Other reserves 12.0 1.1 13.1-13.1 Retained earnings 1,093.2 (19.3) 1,073.9 33.0 1,106.9 Total attributable equity 1,267.6 (18.2) 1,249.4 33.0 1,282.4 Minority interest (non-equity) 148.6-148.6 (148.6) - Total equity 1,416.2 (18.2) 1,398.0 (115.6) 1,282.4 Total equity and liabilities 33,194.6 (14.0) 33,180.6 33.5 33,214.1 * UK GAAP as presented in IFRS format 1 Detailed analysis of the adjustments to reflect is provided in Section B 2 Detailed analysis of the adjustments to reflect is provided in Section C Bradford & Bingley plc Section A Page 9

Section B - Restatement of Financial Information under Introduction This section presents the Group s results restated on the basis which the Group will use in due course in preparing comparative information for inclusion in its interim and annual results ( ). It is prepared in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards and other relevant standards expected to apply as at 31 December. The Financial Information for the 12 months ended 31 December and the Balance Sheet as at 1 January has been audited by the Group s auditors. The information for the 6 months ended 30 June has been reviewed by the Group s auditors. Their audit and review opinions are set out on pages 20 to 23. The Board acknowledges its responsibility for the preparation of the preliminary IFRS Financial Information which has been prepared in accordance with the IFRS and Interpretations expected to be effective, and the policies expected to be adopted, when the Board prepares the Company s first set of annual IFRS Financial Statements for the year to 31 December. Basis of preparation The Group is required to prepare its consolidated Financial Statements in compliance with the IFRS and Interpretations which will be effective and endorsed by the European Union ( EU ) as at 31 December. The Group has therefore used the standards which had been issued by the International Accounting Standards Board ( IASB ) as at 1 January, including the amendments to IAS 19 Employee Benefits issued on 16 December and including interpretations issued by the Standing Interpretations Committee ( SICs ) and by the International Financial Reporting Interpretations Committee ( IFRICs ). However, as permitted by IFRS 1, the information in Section B has not been prepared in accordance with IAS 32 and IAS 39, the standards which deal with accounting for financial instruments, as the Group will apply those standards with effect from 1 January. Instead, in this section, financial instruments (including mortgage loans and retail deposits) are accounted for under UK GAAP. The preliminary IFRS Financial Information is based on the UK GAAP Financial Statements approved by the Board on 21 February. In accordance with IFRS 1, there have been no adjustments to the estimates made at the time of the preparation of the UK GAAP Financial Statements. The possibility exists that this preliminary IFRS Financial Information may require adjustment before its inclusion in the final IFRS Financial Statements for the year ending 31 December because of subsequent revisions or changes to the Standards, or guidance and consensus on the application or interpretation of IFRS. IFRS 1 exemptions IFRS 1 sets out the procedures that the Group must follow when it adopts IFRS for the first time as the basis for preparing its consolidated Financial Statements. The Group is required to establish its IFRS accounting policies as at 31 December and, in general, apply them retrospectively to determine the IFRS opening balance sheet at its date of transition, 1 January. IFRS provides a number of optional exceptions to this general principle. The most significant of these are set out below, together with a description in each case of the exception adopted by the Group. Bradford & Bingley plc Section B Page 10

a. Business combinations that occurred before the opening IFRS balance sheet date (IFRS 3 Business Combinations ) The Group has elected not to apply IFRS 3 retrospectively to business combinations that took place before the date of transition. As a result, in the 1 January opening Balance Sheet, goodwill arising from past business combinations ( 116.1m) remains as stated under UK GAAP as at that date. b. Share-based payment (IFRS 2 Share-based Payment ) The Group has elected to apply IFRS 2 only to share-based payment transactions granted after 7 November 2002 and not vested at 1 January. c. Application of IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement IFRS 1 allows IAS 32 and IAS 39 to be applied with effect from 1 January, without retrospective restatement of. The Group has taken advantage of this exception and in this section financial instruments (including mortgage loans and retail deposits) have been accounted for under UK GAAP. d. De-recognition of financial liabilities (IAS 39 Financial Instruments: Recognition and Measurement ) Under IAS 39, a financial liability which was de-recognised from the Balance Sheet prior to 1 January cannot be reinstated to the Balance Sheet other than as a result of a new event occurring on or after 1 January. On first time adoption of IFRS, the Group is allowed to choose an earlier cut-off date, and the Group has chosen to use 1 January 1999 as the cut-off. Therefore, all financial liabilities which were de-recognised on or after 1 January 1999 and which should be carried on the Balance Sheet under IFRS will be reinstated to the Balance Sheet as at 1 January. Accounting policies The Group s accounting policies have been revised to comply with IFRS. The key changes to policies and their impacts on the Group s financial statements are described in the Basis of preparation and in the Analysis of key impacts. Analysis of key impacts The analysis below sets out the most significant adjustments arising from the transition to IFRS. 1) IAS 1 Presentation of Financial Statements The Group s Financial Information has been presented in accordance with IAS 1 Presentation of Financial Statements. The presentational differences between the UK GAAP Profit and Loss Account and Balance Sheet and the IFRS Income Statement and Balance Sheet are shown in the Appendix to this document. Bradford & Bingley plc Section B Page 11

2) Scope of consolidation The consolidated Financial Statements incorporate the Financial Statements of the Company and entities (including special purpose entities) controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The Group has securitised various residential mortgage loans, generally by sale to special purpose entities which in turn issue securities to investors. The special purpose entities have been consolidated into the Group accounts if they are, in substance, controlled by the Group. This consolidation is in accordance with SIC-12 Consolidation Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements. Under UK GAAP, the Group s policy was that certain securitisation vehicles were not consolidated into the Group accounts line by line, but presented using linked presentation in accordance with Financial Reporting Standard 5 Reporting the Substance of Transactions. Their net profit before tax was included within other operating income, their mortgages were shown as loans and advances to customers subject to non-recourse funding and their funding liabilities were shown as a deduction from mortgages described as non-recourse funding. Under IFRS, the funding is included within liabilities, and the net profit is split between the relevant income and expense lines, principally net interest income, administrative expenses and impairment losses on loans and advances. This presentational change is required by IAS 39 only from 1 January, but is provided in this document in order to show and information on a consistent basis. 3) IAS 19 Employee Benefits The Group has decided to adopt the amendment to IAS 19 Employee Benefits issued by the IASB on 16 December which allows actuarial gains and losses to be recognised in equity. The net deficit on Group pension schemes is carried in full in the Group s Balance Sheet. The Group s opening IFRS Balance Sheet at 1 January reflects the net scheme deficit of 79.7m. The transitional adjustment of 80.3m to opening reserves (net of a 34.4m deferred tax asset) comprises the reversal of the prepayment in relation to UK GAAP accounting under Statement of Standard Accounting Practice 24 Accounting for Pension Costs and the recognition of the net deficits of the Group s defined benefit schemes. The incremental charges arising from the adoption of IAS 19 on the Group s Income Statement are as follows: 6 months ended 30 June 12 months ended 31 December Defined benefit schemes 1.8 3.8 A related tax credit of 0.6 and 1.2m was recognised for the 6 months ended 30 June and the 12 months ended 31 December respectively. In addition an actuarial loss of 1.4m less related tax credit of 0.4m was taken directly to reserves for the 12 months ended 31 December (30 June impact was nil). 4) IFRS 2 Share-based Payment Where equity instruments are granted to employees as part of their remuneration, a charge is recorded in the Income Statement with a corresponding increase in equity. The charge is based on the fair value of instruments at the date of the grant and is spread over the vesting period. The Group will therefore recognise a charge in respect of its employee and performance share schemes. As permitted by IFRS 1, this expense has been charged only on options which were granted after 7 November 2002 and which had not vested at 1 January. Bradford & Bingley plc Section B Page 12

The incremental charges arising from the adoption of IFRS 2 on the Group s Income Statement are as follows: 6 months ended 30 June 12 months ended 31 December Administrative expenses 0.7 3.3 Deferred tax is provided based upon the expected future tax deductions relating to share-based payment transactions, and is recognised over the vesting period of the schemes concerned. The additional deferred tax credit in respect of these share based payment transactions was 0.1m for the 6 months ended 30 June and 0.9m for the 12 months ended 31 December. 5) IAS 18 Revenue IAS 18 requires that income from the sale of certain investment and protection products, which the Group generally receives over a four-year period, be discounted and spread and the interest element of the income be accounted for. This has the impact of reducing debtor balances by 2.8m in the opening balance sheet, reducing provisions against these balances by 0.4m and deferring income of 8.2m. Opening reserves are reduced by 7.4m after taking account of the related tax asset of 3.2m. Income before tax in the 6 months ended 30 June and in the 12 months ended 31 December is increased by 0.9m and 2.0m respectively. 6) IAS 10 Events After the Balance Sheet Date IAS 10 requires that dividends declared after the Balance Sheet date should not be recognised as a liability at that date as the dividend does not represent a present obligation. Under UK GAAP, the year end Balance Sheet includes an accrual for the proposed final dividend. The final dividend of 68.4m approved at the Group s Annual General Meeting in April in relation to the 12 months ended 31 December 2003 has been reversed in the opening IFRS Balance Sheet and recognised in the Balance Sheet as at 30 June. An adjustment to the interim dividend declared in August ( 36.0m) has also been made to the Balance Sheet as at 30 June. Similarly the final dividend of 71.0m approved in April in relation to the 12 months ended 31 December has been reversed, and will be recognised in the Balance Sheet as at 30 June. 7) IAS 36 Impairment of Assets IAS 36 requires that goodwill is not amortised. Instead it is subject to an annual impairment review. As the Group has elected not to apply IFRS 3 retrospectively to business combinations prior to 1 January, the UK GAAP goodwill balance at 31 December 2003 ( 116.1m) has been included in the opening IFRS consolidated Balance Sheet and it is no longer amortised. The credits arising from the adoption of IAS 36 on the Group s Income Statement in respect of goodwill amortisation are as follows: 6 months ended 30 June 12 months ended 31 December Goodwill amortisation 5.0 8.5 Bradford & Bingley plc Section B Page 13

8) IAS 12 Income Taxes The scope of IAS 12 is wider than the corresponding UK GAAP standards and requires deferred tax to be provided on all temporary differences rather than just timing differences. As a result, the Group s opening Balance Sheet at 1 January includes an additional deferred tax liability of 0.8m in respect of a rolled-over capital gain. IAS 12 also requires that deferred tax be provided in respect of the Group s liabilities under its post employment benefit arrangements and on other employee benefits such as share and share option schemes. The tax impact of these and other IFRS adjustments is quantified in the relevant section of this release. 9) IAS 1 Presentation of Financial Statements IAS 1 requires tax and deferred tax balances to be shown on the face of the Balance Sheet. 10) IAS 38 Intangible Assets Under UK GAAP, all capitalised computer software is included within tangible fixed assets on the Balance Sheet. Under IFRS, only computer software that is integral to a related item of hardware should be included as property, plant and equipment. All other computer software should be recorded as an intangible asset. Accordingly, a reclassification has been made in the Balance Sheet as at 1 January of 12.7m from property, plant and equipment to intangible assets. Bradford & Bingley plc Section B Page 14

Analysis of adjustments to the Income Statement for the 12 months ended 31 December UK GAAP* Employee benefits Sharebased payment Revenue Events after the Balance Sheet date Impairment of assets Income taxes Presentation of Financial Statements Intangible assets adjustments IFRS Basis Interest receivable and 1,856.2 - - 2.2 - - - - - 2.2 1,858.4 similar income Interest expense and similar (1,410.0) - - - - - - - - - (1,410.0) charges Net interest income 446.2 - - 2.2 - - - - - 2.2 448.4 Net fee and commission 237.4 - - (0.2) - - - - - (0.2) 237.2 income Gains less losses on sale of 10.0 - - - - - - - - - 10.0 debt securities Other operating income 13.0 - - - - - - - - - 13.0 Total operating income 706.6 - - 2.0 - - - - - 2.0 708.6 Operating expenses: Administrative expenses (467.9) 1 (3.8) (3.3) - - - - - - (7.1) (475.0) 1 Depreciation and (22.5) - - - - 8.5 - - - 8.5 (14.0) amortisation Impairment losses on loans 12.3 - - - - - - - - - 12.3 and advances Operating profit before 228.5 (3.8) (3.3) 2.0-8.5 - - - 3.4 231.9 taxation Taxation (66.5) 1.2 0.9 (0.7) - - 0.1 - - 1.5 (65.0) Operating profit after 162.0 (2.6) (2.4) 1.3-8.5 0.1 - - 4.9 166.9 taxation Loss on sale of operations (120.1) - - - - (8.5) - - - (8.5) (128.6) Profit for the financial 41.9 (2.6) (2.4) 1.3 - - 0.1 - - (3.6) 38.3 year Minority interest (non-equity) (9.7) - - - - - - - - - (9.7) Profit attributable to equity shareholders 32.2 (2.6) (2.4) 1.3 - - 0.1 - - (3.6) 28.6 * UK GAAP as presented in IFRS format 1 Includes 51.7m expenses classified as exceptional under UK GAAP Bradford & Bingley plc Section B Page 15

Analysis of adjustments to the Balance Sheet as at 31 December Assets UK GAAP* Employee benefits Sharebased payment Revenue Events after the Balance Sheet date Impairment of assets Income taxes Presentation of Financial Statements Intangible assets Adjustments Cash and balances at 51.2 - - - - - - - - - 51.2 central banks Treasury bills and other 380.4 - - - - - - - - - 380.4 eligible bills Loans and advances to 4,156.0 - - - - - - - - - 4,156.0 banks Loans and advances to 28,868.4 - - - - - - - - - 28,868.4 customers Debt securities 4,317.7 - - - - - - - - - 4,317.7 Deferred tax assets - 36.0 1.7 - - - (0.7) (1.3) - 35.7 35.7 Other assets 48.4 - - - - - - - - - 48.4 Prepayments and 217.4 (46.9) - (2.6) - - - - - (49.5) 167.9 accrued income Property, plant and 124.0 - - - - - - - (29.1) (29.1) 94.9 equipment Intangible assets - - - - - - - - 29.1 29.1 29.1 Total assets 38,163.5 (10.9) 1.7 (2.6) - - (0.7) (1.3) - (13.8) 38,149.7 Liabilities Deposits by banks 1,274.3 - - - - - - - - - 1,274.3 Customer accounts 18,954.1 - - - - - - - - - 18,954.1 Debt securities in issue 14,938.9 - - - - - - - - - 14,938.9 Other liabilities 271.3 (11.6) (0.8) (0.5) (71.0) - - (70.2) - (154.1) 117.2 Accruals and deferred 190.0 - (0.8) 6.6 - - - - - 5.8 195.8 income Current tax liabilities - - 0.6 (2.6) - - - 70.2-68.2 68.2 Retirement benefit - 84.6 - - - - - - - 84.6 84.6 obligations Provisions 49.6 - - - - - - (1.3) - (1.3) 48.3 Subordinated liabilities 1,122.5 - - - - - - - - - 1,122.5 Total liabilities 36,800.7 73.0 (1.0) 3.5 (71.0) - - (1.3) - 3.2 36,803.9 Equity Capital and reserves attributable to equity holders: Share capital 158.5 - - - - - - - - - 158.5 Share premium 3.9 - - - - - - - - - 3.9 reserve Other reserves 25.0-3.8 - - - - - - 3.8 28.8 Retained earnings 1,026.8 (83.9) (1.1) (6.1) 71.0 - (0.7) - - (20.8) 1,006.0 Total attributable 1,214.2 (83.9) 2.7 (6.1) 71.0 - (0.7) - - (17.0) 1,197.2 equity Minority interest (nonequity) 148.6 - - - - - - - - - 148.6 Total equity 1,362.8 (83.9) 2.7 (6.1) 71.0 - (0.7) - - (17.0) 1,345.8 Total equity and liabilities * UK GAAP as presented in IFRS format 38,163.5 (10.9) 1.7 (2.6) - - (0.7) (1.3) - (13.8) 38,149.7 Bradford & Bingley plc Section B Page 16

Analysis of the adjustments to the Income Statement for the 6 months ended 30 June UK GAAP* Employee benefits Sharebased payment Revenue Events after the Balance Sheet date Impairment of assets Income taxes Presentation of Financial Statements Intangible assets adjustments Interest receivable and 847.2 - - 1.1 - - - - - 1.1 848.3 similar income Interest expense and similar (631.4) - - - - - - - - - (631.4) charges Net interest income 215.8 - - 1.1 - - - - - 1.1 216.9 Net fee and commission 141.4 - - (0.2) - - - - - (0.2) 141.2 income Gains less losses on sale of 8.3 - - - - - - - - - 8.3 debt securities Other operating income 8.1 - - - - - - - - - 8.1 Total operating income 373.6 - - 0.9 - - - - - 0.9 374.5 Operating expenses: Administrative expenses (226.8) (1.8) (0.7) - - - - - - (2.5) (229.3) Depreciation and (11.1) - - - - 5.0 - - - 5.0 (6.1) amortisation Impairment losses on loans 4.3 - - - - - - - - - 4.3 and advances Operating profit before 140.0 (1.8) (0.7) 0.9-5.0 - - - 3.4 143.4 taxation Taxation (39.2) 0.6 0.1 (0.3) - - - - - 0.4 (38.8) Operating profit after 100.8 (1.2) (0.6) 0.6-5.0 - - - 3.8 104.6 taxation Minority interest (non-equity) (4.8) - - - - - - - - - (4.8) Profit attributable to equity shareholders 96.0 (1.2) (0.6) 0.6-5.0 - - - 3.8 99.8 * UK GAAP as presented in IFRS format Bradford & Bingley plc Section B Page 17

Analysis of adjustments to the Balance Sheet as at 30 June UK GAAP* Employee benefits Sharebased payment Revenue Events after the Balance Sheet date Impairment of assets Income taxes Presentation of Financial Statements Intangible assets adjustments Assets Cash and balances at 44.1 - - - - - - - - - 44.1 central banks Treasury bills and other 123.9 - - - - - - - - - 123.9 eligible bills Loans and advances to 3,701.9 - - - - - - - - - 3,701.9 banks Loans and advances to 27,871.0 - - - - - - - - - 27,871.0 customers Debt securities 3,462.9 - - - - - - - - - 3,462.9 Deferred tax assets - 35.0 0.8 - - - (0.8) 12.8-47.8 47.8 Other assets 158.4 - - - - - - (12.8) - (12.8) 145.6 Prepayments and 222.0 (46.0) - (7.2) - - - - - (53.2) 168.8 accrued income Property, plant and 142.9 - - - - - - - (24.8) (24.8) 118.1 equipment Intangible assets 111.0 - - - - 5.0 - - 24.8 29.8 140.8 Total assets 35,838.1 (11.0) 0.8 (7.2) - 5.0 (0.8) - - (13.2) 35,824.9 Liabilities Deposits by banks 2,509.5 - - - - - - - - - 2,509.5 Customer accounts 17,233.0 - - - - - - - - - 17,233.0 Debt securities in issue 12,990.9 - - - - - - - - - 12,990.9 Other liabilities 291.8 (11.0) (2.2) (0.5) (36.0) - - (105.7) - (155.4) 136.4 Accruals and deferred 193.5 - (0.9) 3.0 - - - - - 2.1 195.6 income Current tax liabilities - - 0.9 (2.9) - - - 105.7-103.7 103.7 Retirement benefit - 81.5 - - - - - - - 81.5 81.5 obligations Provisions 0.9 - - - - - - - - - 0.9 Subordinated liabilities 1,122.2 - - - - - - - - - 1,122.2 Total liabilities 34,341.8 70.5 (2.2) (0.4) (36.0) - - - - 31.9 34,373.7 Equity Capital and reserves attributable to equity holders: Share capital 158.5 - - - - - - - - - 158.5 Share premium 3.9 - - - - - - - - - 3.9 reserve Other reserves 25.0-2.3 - - - - - - 2.3 27.3 Retained earnings 1,160.3 (81.5) 0.7 (6.8) 36.0 5.0 (0.8) - - (47.4) 1,112.9 Total attributable 1,347.7 (81.5) 3.0 (6.8) 36.0 5.0 (0.8) - - (45.1) 1,302.6 equity Minority interest (nonequity) 148.6 - - - - - - - - - 148.6 Total equity 1,496.3 (81.5) 3.0 (6.8) 36.0 5.0 (0.8) - - (45.1) 1,451.2 Total equity and liabilities 35,838.1 (11.0) 0.8 (7.2) - 5.0 (0.8) - - (13.2) 35,824.9 * UK GAAP as presented in IFRS format Bradford & Bingley plc Section B Page 18

Analysis of adjustments to the Balance Sheet as at 1 January Assets UK GAAP* Employee benefits Sharebased payment Revenue Events after the Balance Sheet date Impairment of assets Income taxes Presentation of Financial Statements Intangible assets adjustments Cash and balances at 43.7 - - - - - - - - - 43.7 central banks Treasury bills and other 132.6 - - - - - - - - - 132.6 eligible bills Loans and advances to 2,773.3 - - - - - - - - - 2,773.3 banks Loans and advances to 25,854.6 - - - - - - - - - 25,854.6 customers Debt securities 3,884.9 - - - - - - - - - 3,884.9 Deferred tax assets - 34.4 0.4 - - - (0.8) 13.5-47.5 47.5 Other assets 75.2 - - - - - - (13.5) - (13.5) 61.7 Prepayments and 175.3 (45.2) - (2.8) - - - - - (48.0) 127.3 accrued income Property, plant and 138.9 - - - - - - - (12.7) (12.7) 126.2 equipment Intangible assets 116.1 - - - - - - - 12.7 12.7 128.8 Total assets 33,194.6 (10.8) 0.4 (2.8) - - (0.8) - - (14.0) 33,180.6 Liabilities Deposits by banks 1,708.8 - - - - - - - - - 1,708.8 Customer accounts 17,170.5 - - - - - - - - - 17,170.5 Debt securities in issue 11,359.2 - - - - - - - - - 11,359.2 Other liabilities 266.7 (10.2) (1.4) (0.4) (68.4) - - (93.5) - (173.9) 92.8 Accruals and deferred 148.0 - (0.9) 8.2 - - - - - 7.3 155.3 income Current tax liabilities - - 0.8 (3.2) - - - 93.5-91.1 91.1 Retirement benefit - 79.7 - - - - - - - 79.7 79.7 obligations Provisions 3.3 - - - - - - - - - 3.3 Subordinated liabilities 1,121.9 - - - - - - - - - 1,121.9 Total liabilities 31,778.4 69.5 (1.5) 4.6 (68.4) - - - - 4.2 31,782.6 Equity Capital and reserves attributable to equity holders: Share capital 158.5 - - - - - - - - - 158.5 Share premium 3.9 - - - - - - - - - 3.9 reserve Other reserves 12.0-1.1 - - - - - - 1.1 13.1 Retained earnings 1,093.2 (80.3) 0.8 (7.4) 68.4 - (0.8) - - (19.3) 1,073.9 Total attributable 1,267.6 (80.3) 1.9 (7.4) 68.4 - (0.8) - - (18.2) 1,249.4 equity Minority interest (nonequity) 148.6 - - - - - - - - - 148.6 Total equity 1,416.2 (80.3) 1.9 (7.4) 68.4 - (0.8) - - (18.2) 1,398.0 Total equity and liabilities * UK GAAP as presented in IFRS format 33,194.6 (10.8) 0.4 (2.8) - - (0.8) - - (14.0) 33,180.6 Bradford & Bingley plc Section B Page 19

Opinions of the Group s Auditors, KPMG Audit Plc Special Purpose Audit Report of KPMG Audit Plc to Bradford & Bingley plc ( the Company ) on its preliminary opening International Financial Reporting Standards ("IFRS") balance sheet as at 1 January and on its Preliminary IFRS Financial Information for the year ended 31 December In accordance with the terms of our engagement letter dated 10 May, we have audited the accompanying preliminary opening consolidated IFRS balance sheet of the Company as at 1 January ( the opening balance sheet ) as set out on page 19 and the accompanying consolidated preliminary IFRS balance sheet of the Company as at 31 December, and the related consolidated statements of income and changes in equity for the year then ended ("the preliminary IFRS financial information") set out on pages 25 to 28. Respective responsibilities of directors and KPMG Audit Plc As described on page 10, the directors of the Company have accepted responsibility for the preparation of the opening balance sheet and the preliminary IFRS financial information which have been prepared as part of the Company's conversion to IFRS. Our responsibilities, as independent auditors, are established in the United Kingdom by the Auditing Practices Board, our profession's ethical guidance and the terms of our engagement. Under the terms of engagement we are required to report to you our opinion as to whether the opening balance sheet and the preliminary IFRS financial information have been properly prepared, in all material respects, in accordance with the basis of preparation of the opening balance sheet and the preliminary IFRS financial information as set out on page 10. We also report to you if, in our opinion, we have not received all the information and explanations we require for our audit. We read the other information accompanying the opening balance sheet and the preliminary IFRS financial information and consider whether it is consistent with the opening balance sheet and the preliminary IFRS financial information. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the opening balance sheet and the preliminary IFRS financial information. Our report has been prepared for the Company solely in connection with the Company s conversion to IFRS. Our report was designed to meet the agreed requirements of the Company determined by the Company's needs at the time. It should not therefore be regarded as suitable to be used or relied on by any party wishing to acquire rights against us other than the Company for any purpose or in any context. Any party other than the Company who obtains access to our report or a copy and chooses to rely on our report (or any part of it) will do so at its own risk. To the fullest extent permitted by law, KPMG Audit Plc will accept no responsibility or liability in respect of our report to any other party. Basis of audit opinion We conducted our audit having regard to Auditing Standards issued by the UK Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the opening balance sheet and the preliminary IFRS financial information. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the opening balance sheet and the preliminary IFRS financial information, and of whether the accounting policies are appropriate to the Group's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the opening balance sheet and the preliminary IFRS financial information are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the opening balance sheet and the preliminary IFRS financial information. Bradford & Bingley plc Section B Page 20

Emphasis of matters Without qualifying our opinion, we draw your attention to the following matters: Opinion The basis of preparation explains why the accompanying opening balance sheet and the preliminary IFRS financial information may require adjustment before, in respect of the opening balance sheet, its use in the preparation of the accompanying preliminary IFRS financial information, and in respect of the preliminary IFRS financial information as comparative information in the IFRS financial statements for the year to 31 December when the Company prepares its first IFRS financial statements. In respect of the opening balance sheet, under IFRS only a complete set of consolidated financial statements comprising a balance sheet, income statement, statement of changes in equity and cash flow statement, together with comparative financial information and explanatory notes, can achieve a fair presentation of the Company's financial position, results of operations and cash flows in accordance with IFRS. The opening balance sheet does not include the comparative financial information for the prior period. As described in the basis of preparation to the preliminary IFRS financial information, as part of its conversion to IFRS, the Company has prepared the preliminary IFRS financial information for the year ended 31 December to establish the financial position and results of operations of the Company necessary to provide the comparative financial information expected to be included in the Company's first complete set of IFRS financial statements as at 31 December. The preliminary IFRS financial information does not include comparative financial information for the prior period. As explained in the basis of preparation, in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards, no adjustments have been made for any changes in estimates made at the time of approval of the UK Generally Accepted Accounting Practices financial statements on which the opening balance sheet and the preliminary IFRS financial information are based, as required by IFRS 1. As permitted by IFRS 1, IFRS 4 Insurance Contracts, IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement have not yet been applied and there has been no related restatement of the 1 January or 31 December balance sheet. Any adjustments that arise from the application of those standards will be shown as an equity movement on 1 January. In our opinion, the accompanying opening balance sheet as at 1 January and the preliminary IFRS financial information for the year ended 31 December have been properly prepared, in all material respects, in accordance with the basis set out in the basis of preparation, which describes how IFRS have been applied under IFRS 1, including the assumptions made by the directors of the Company about the standards and interpretations expected to be effective, and the policies expected to be adopted, when they prepare the first complete set of IFRS consolidated financial statements of the Company as at 31 December. KPMG Audit Plc Chartered Accountants Leeds 1 June Bradford & Bingley plc Section B Page 21

Special Purpose Review Report of KPMG Audit Plc to Bradford & Bingley plc ( the Company ) on its Preliminary International Financial Reporting Standards ( IFRS ) Interim Financial Information for the 6 months ended 30 June In accordance with the terms of our engagement letter dated 10 May, we have reviewed the accompanying consolidated preliminary IFRS balance sheet of the Company as at 30 June and the related consolidated statements of income and changes in equity for the six month period then ended ( the preliminary IFRS interim financial information ) set out on pages 26 to 28. Respective responsibilities of directors and KPMG Audit Plc As described on page 10, the directors of the Company have accepted responsibility for the preparation of the preliminary IFRS interim financial information which has been prepared as part of the Company s conversion to IFRS. Our responsibilities under the terms of engagement are to report to you our review conclusion as to whether we are aware of any material modifications that should be made to the preliminary IFRS interim financial information which has been prepared, in all material respects, in accordance with the basis of preparation of the preliminary IFRS interim financial information as set out on page 10. Our report has been prepared for the Company solely in connection with the Company s conversion to IFRS. Our report was designed to meet the agreed requirements of the Company determined by the Company s needs at the time. Our report should not therefore be regarded as suitable to be used or relied on by any party wishing to acquire rights against us other than the Company for any purpose or in any context. Any party other than the Company who chooses to rely on our report (or any part of it) will do so at its own risk. To the fullest extent permitted by law, KPMG Audit Plc will accept no responsibility or liability in respect of our report to any other party. Basis of review conclusion We conducted our review having regard to Bulletin 1999/4: Review of interim financial information issued by the UK Auditing Practices Board. A review consists principally of making enquiries of management and applying analytical procedures to the preliminary IFRS interim financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the preliminary IFRS interim financial information. Emphasis of matters Without qualifying our review conclusion, we draw your attention to the following matters: The basis of preparation of the preliminary IFRS interim financial information explains why the accompanying preliminary IFRS interim financial information may require adjustment before its inclusion as comparative information in the Company s interim report for the six month period ending 30 June when the Company prepares its first interim report applying IFRS. As described in the basis of preparation to the preliminary IFRS interim financial information, as part of its conversion to IFRS, the Company has prepared the preliminary IFRS interim financial information for the six month period ended 30 June to establish the financial position and results of operations of the Company necessary to provide the comparative financial information expected to be included in the Company s first interim report for the six month period ending 30 June. The preliminary IFRS interim financial information does not itself include comparative financial information for the prior period. As explained in the basis of preparation, in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards, no adjustments have been made for any changes in estimates made at the time of approval of the previous UK Generally Accepted Accounting Practices interim report for the six month period ended 30 June on which the preliminary IFRS interim financial information is based. As permitted by IFRS 1, the following standards IFRS 4 Insurance Contracts, IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement have not yet been applied, and there has been no related restatement of the 30 June balance sheet. Any adjustments that arise from the application of those standards will be shown as an equity movement on 1 January. Bradford & Bingley plc Section B Page 22