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Results

25.07.2007

Northern Rock plc today issued its Interim Results for the six months ended 30 June 2007.

Highlights

• To download an Adobe Acrobat PDF version of this statement please click here.

Operating Performance

• Record H1 gross lending of £19.3 billion - an increase of 30.5%, with record H1 net lending of £10.7 billion - an increase of 47.3%
• Share of UK gross mortgage lending of 9.7% and net mortgage lending of 18.9%
• Total underlying assets of £113.0 billion - an increase of 28.3% from June 2006 underlying assets of £88.0 billion. Statutory assets of £113.5 billion, growth of 27.8%
• Credit quality remains robust. 0.47% of mortgage accounts 3 months or more in arrears (31 December 2006 - 0.42%) - around half of industry average

Profits

• Statutory profit before tax of £296.1 million up by 0.7% compared with H1 2006. Statutory profit attributable to equity shareholders of £188.2 million, up by 0.2%
• Underlying profit before tax, including gains on disposals, of £346.6 million up by 26.6% compared with H1 2006. Underlying profit attributable to equity shareholders of £223.7 million, up by 28.9%

Costs

• Statutory cost to income ratio increased to 29.3% (2006 full year - 27.3%). Underlying cost to income ratio improved to 26.6% (2006 full year - 28.4%)
• Cost to underlying asset ratio improved to 0.29% (2006 full year - 0.31%), 0.28% on a statutory basis (2006 -full year 0.30%)

Shareholder Value

• Statutory return on equity of 20.2% and underlying return on equity of 24.0%
• Statutory EPS of 45.5p (2006 first half - 45.1p) - an increase of 0.9%. Underlying EPS of 54.0p, an increase of 29.8%
• Dividend payout ratio to increase from 40% to 50%. Interim dividend per share of 14.2p (2006 interim - 10.9p) - an increase of 30.3%
• Basle II IRB Waiver approved by the FSA - future capital planning to include share buybacks

Social Responsibility

• The Northern Rock Foundation - supporting charitable causes - to receive £14.8 million.

Adam J Applegarth, Chief Executive, said:

“Operationally Northern Rock had a good first half in 2007. Mortgage lending has been particularly strong with a gross market share of 9.7% and a net market share of 18.9%, helped by improvements in retention of home moving customers, keeping customers coming to the end of their product deals and a strong mortgage market. Credit quality remains robust.

The outlook for the full year is being impacted by sharp increases in money market and swap rates seen in the first half. This has resulted in a negative impact on net interest income as mortgage pricing in the market generally has lagged behind increases in funding costs in the year to date. Action has been taken with changes in our swap transaction policies to minimise exposures in the future to significant changes in interest rates.

We are pleased to have achieved approval for use of our Basle II rating systems. This means that the benefits of Basle II enable us to increase our 2007 interim dividend by 30%. Going forward our dividend payout rate increases to 50% of underlying EPS from around 40%. Future capital planning, including the reduction of capital hungry assets, will allow us to return capital to shareholders through a share buyback programme.

The medium term outlook for the Company is very positive”

OPERATIONAL REVIEW

Introduction

Following the introduction of IFRS, the balance sheet and income statement are subject to a certain amount of volatility. This particularly arises from accounting for hedges which although economically effective are deemed under IFRS rules to be ineffective. In addition, volatility arises from fair value movements on derivatives taken out to minimise risk in respect of certain financial liabilities and instruments included in non shareholders' equity which themselves are not subject to fair value treatment. Where appropriate, such volatility is separately identified in the review of financial and operating results to enable underlying performance to be separately identified. Underlying total assets also exclude the fair value of derivative instruments due to volatility in such values.

As explained in note 2, the 2006 statutory Interim and Full Year Results have been restated to reflect changes in the presentation of certain hedge accounting adjustments. There is no impact on the 2006 underlying Interim or Full Year Results.

Overview

Strong lending volumes were achieved in the first half of 2007 resulting in underlying total assets of £113.0 billion, an increase of 28.3% compared with 30 June 2006.

Estimated gross residential lending market share at 9.7% for the first half of 2007, is ahead of the 8.7% share achieved in the second half of 2006. The estimated share of net residential lending was 18.9% compared with 14.5% in the second half of 2006. Both gross and net lending were supported by improved levels of retention of home moving customers and our continued strength of retaining customers at the end of their mortgage product. Redemption market share is estimated at 5.8%, remaining well below our estimated closing share of UK mortgage balances of 7.6%.

Our programme of disposal of capital inefficient assets commenced with the sale of commercial secured loans with a net book value of £833 million. This, together with lower levels of net lending of personal unsecured loans, means that our balance sheet has an improved risk profile with residential mortgage lending representing 91% of all outstanding loans (31 December 2006 - 90%).

Underlying profit before tax grew by 26.6% and underlying profit attributable to shareholders of £223.7 million grew by 28.9% compared with the first half of last year, partly reflecting the timing of gains on disposals. Growth in 2007 full year underlying profit attributable to all shareholders is anticipated to be in line with mean consensus, around 15%, reflecting the full year effect of increases in interest rates and competitive pressures for new mortgage lending as lenders delayed passing on increased rates to borrowers.

Lending

During the first half of 2007 Northern Rock again achieved record levels of total lending. Total gross lending was £19,326 million, an increase of 30.5% (2006 first half - £14,807 million), with total net lending (before disposals) of £10,714 million, an increase of 47.3% (2006 first half - £7,276 million). Prospects for the remainder of 2007 are good, with a pipeline of £6,197 million (30 June 2006 - £5,482 million) including a residential lending pipeline of £5,698 million (30 June 2006 - £4,955 million).

The commencement of the disposal of our commercial loan portfolio and lower unsecured net lending has resulted in a lower risk balance sheet. At 30 June 2007, 91% of our loans to customers were residential secured loans (31 December 2006 - 90%), 1% commercial secured loans (31 December 2006 - 2%) and 8% within our personal unsecured portfolios (31 December 2006 - 8%). With further asset disposals planned there will be ongoing improvement in the risk profile of our balance sheet.

An analysis of lending by portfolio is set out in the following table:

Note: Net flows represent net cashflows excluding fair value adjustments and excluding asset disposals. Closing balances are stated including fair value adjustments.

Residential – UK market

The UK residential lending market continued to be strong in the first half of 2007 with an estimated increase in gross lending of 11%. Increases in interest rates though are showing signs of affecting consumer confidence and volumes of housing transactions. This effect is, however, more than offset by growth in values of mortgage lending from housing transactions, reflecting house price appreciation of recent years, and in addition, remortgage activity as customers protect budgets against higher costs of borrowing. We expect gross lending to be ahead of levels seen in 2006 of £345 billion at around £370 billion providing strong support to our lending volumes. We also expect to see house price inflation continue to slow in the second half of 2007 to end the year in line with increases in earnings.

Residential – Northern Rock performance

We achieved gross residential lending including buy to let of £17,434 million (2006 first half - £12,711 million) and net residential lending of £10,069 million (2006 first half - £6,351 million), representing increases of 37% and 59% respectively. The following table sets out our market share statistics since 2004:

The table above shows the continued success at growing gross market share and containing levels of redemptions through our customer retention process and fair and transparent policy of allowing existing customers, subject to their contractual terms, to transfer their loan to products available to new borrowers. 80% of our customers by value remain with us 3 months after the maturity of their product. Our approach to customer retention, which is unique amongst the major volume mortgage lenders, means that we do not need to significantly grow our gross lending volumes from new customers to achieve our asset growth targets.

Our gross lending has benefited from improvements in our retention of home moving customers in the past 6 months. We expect this to continue to increase as we make improvements to our processes, including an e-commerce option which will assist intermediaries. Lending to returning home movers now represents over 15% of new lending.

In the first half of 2007, 89% of our gross residential lending continued to be originated via the indirect market (2006 full year - 89%) reflecting the importance of mortgage clubs and networks to our distribution strategy. Of this indirect business 91% was transacted via our e-commerce platform compared with 74% for all of 2006.

The profile of our new lending has remained low risk despite the strong growth in volumes. Lending to first time buyers reduced to 20% (2006 full year - 24%) resulting in 80% (2006 full year - 76%) of new customers having a proven payment track record. The average Loan to Value ratio (“LTV”) of lending in the first half of 2007 remained unchanged at 78%, with the proportion of loans at or below 90% LTV improving to 81% (2006 full year - 78%). The average LTV of our mortgage book is now 59% (31 December 2006 - 60%) and over 70% of balances are below 80% LTV which continues to provide strong cover in the event of default. Only 4.1% of our lending in the first half was in respect of loans over £1.0 million. New lending continued to be geographically spread across the UK in line with the demographics of the population.

Our lifestyle products comprise our “together” family of products, Lifetime and residential buy to let mortgages. The “together” products combine a secured and unsecured loan at one interest rate and one monthly payment, with the majority arranged on a fixed rate basis. Our Lifetime range is aimed at homeowners aged 60 and over, who wish to utilise equity in their homes to enhance their lifestyle. An analysis of lifestyle lending is set out in the following table:

Of our traditional price-led mortgage products, fixed rate mortgages remained the most popular with 44.1% (2006 full year - 32.4%) of total new lending accounted for by short term fixed products up to two years, and 16.8% (2006 full year - 22.5%) by longer term fixes normally up to a maximum of seven years. The demand for shorter term fixed rates increased in the first half as the prospects for rising short term interest rates increased and customers benefited from delays in upward pricing of new mortgage products.

Unsecured

Our personal unsecured credit portfolios comprise the unsecured element of “together” lending and standalone unsecured loans not linked to a residential mortgage. An analysis of lending volumes on the separate elements of our unsecured portfolios is shown in the following table:

Standalone gross lending was at a similar level to that achieved in the second half of 2006 with net lending lower as the portfolio matures and redemptions and repayments increase.

Volumes of “together” unsecured lending have also remained at levels similar to the last two half year periods. At 30 June 2007 our unsecured lending balances were £7,829 million (31 December 2006 - £7,277 million) of which 42.6% (31 December 2006 - 42.0%) represented “together” unsecured advances.

Commercial

Under Basle II, commercial lending is not capital efficient for Northern Rock. Consequently we have decided to exit this market for our own balance sheet purposes but will originate and on-sell commercial loans to Lehman Commercial Mortgage Conduit Limited. On 22 June 2007 we completed the sale of commercial loans with a net book value of £833 million and have agreed to sell up to a further £730 million of such loans in the second half.

Arrears and Possessions

The arrears position of each of our personal lending portfolios based upon accounts three months or more in arrears is set out in the following table:

Note: CML Residential Average Arrears shown at 31 December 2006 and 30 June 2006. Data at 30 June 2007 not yet available. Source: Council of Mortgage Lenders.

As interest rates rise, it is inevitable that arrears will face upward pressure, particularly for those customers on variable rates. Customers on fixed rates are protected from rate rises until the end of the fixed term, when they potentially face an increase in rate as they switch product, although product developments including higher fees to offset higher rates are beneficial to customers' affordability needs. In recognition of tightening credit conditions, during 2006 and 2007 we increased our scorecard acceptance cut offs resulting in improved quality of new lending across our portfolios compared with that of earlier years.

Our residential arrears continue to be around half the industry average as reported at 31 December 2006, the latest available data. Although our three month plus arrears increased in the first half, early arrears i.e. under 3 months fell from the level that existed at both 31 December 2006 and 30 June 2006. The “together” secured three months plus arrears increased to 0.90% (31 December 2005 - 0.84%) but remain around the industry average for secured residential loans. The three months plus arrears figure for our standard loan portfolio increased to 0.33% (31 December 2006 - 0.28%) at around a third of the industry average for mortgage loans. Residential buy to let arrears on the same basis were 0.58% (31 December 2006 - 0.52%) bringing the arrears to just below the buy to let industry average at 31 December 2006 as the book matures.

At 30 June 2007, properties in possession were 1,314 representing 0.17% of all accounts compared with 662 (0.09%) at the end of 2006. New possession cases in the first half of 2007 amounted to 1,536 in line with our policy of active management where it is clear the borrower is unwilling to maintain payments and where we have higher risk.

Standalone personal unsecured loan arrears remain significantly better than industry average and only marginally ahead of those seen over the last 12 months, reflecting our policy of attracting high quality lending and use of our bespoke scorecard to avoid lower quality lending. We continue to monitor and adjust our scorecard ratings in response to tighter conditions in the unsecured market and in particular customer over indebtedness. Arrears on “together” unsecured loans are the same as at 30 June 2006 and remain better than standalone unsecured loans.

Funding

Northern Rock has four distinct funding arms enabling it to attract funds from a wide range of customers and counterparties on a global basis. Flows of new funding and closing balances are shown in the following table:

Note: Net flows represent net cashflows excluding fair value adjustments. Closing balances are stated including fair value adjustments.

Retail

Retail funding comprised a net inflow of funds of £1,734 million including interest credited of £355 million, again demonstrating the strength and diversity of our retail franchise. In February, we opened an on line savings bank in Denmark and in the first half successfully attracted £255 million of new funds. This supplements our other off-shore retail operations with balances in our Ireland based operation of £1,608 million (31 December 2006 - £1,520 million) and £1,913 million (31 December 2006 - £2,094 million) in our Guernsey based vehicle . New on shore funds were primarily attracted through our on line savings accounts.

Non-Retail

Our non-retail funding provides a balanced mixture of short and medium term funding with continued diversification of our global investor base. In the first half we raised a net £2.5 billion of non-retail funds including £2.0 billion medium term wholesale funds from the US and Europe .  This included US$2.0 billion senior debt issued to domestic US investors and €1.0 billion raised from a benchmark senior debt issue targeted at European investors.

Securitisation

Funding through securitisation remains an integral part of Northern Rock's funding strategy.  During the first half of 2007 two residential mortgage issues were completed raising £10.7 billion though our Granite programme. Diversification of our investor base continued with 73% of the securitised bonds being issued in US dollars or euros, and a small amount (2%) in Canadian dollars.  The characteristics of the mortgages securitised, in terms of product type, LTV and geographic distribution remain similar to those of our non-securitised mortgages. At 30 June 2007, securitised notes amounted to £45.7 billion (31 December 2006 - £40.2 billion) which represented 43.6% (31 December 2006 - 43.1%) of our total funding portfolios.

Covered Bonds

In the first half of 2007 we further increased the size of the Covered Bond programme to €30 billion and completed 3 further issues raising £2.2 billion.  The bonds were issued in a range of maturities from 5 to 10 years and included a small privately placed sterling bond (£250 million) and our inaugural US dollar issue of $1.5 billion (£754 million equivalent), continuing the process of further diversification of our investor base.  

Assets

A reconciliation of total assets on a statutory and underlying basis (excluding fair value adjustments) is set out in the following table:

On a statutory basis, total assets are 12.4% higher than at the end of 2006 and 27.8% higher than 12 months ago. On an underlying basis, growth in total assets was 12.5% and 28.3% respectively.

Total Income and Net Interest Income

The following tables show net interest income and total income on a statutory and underlying basis (see notes 4 and 5). The underlying basis excludes volatile hedge ineffectiveness as we consider that our hedging is economically effective and that movements in fair value on individual hedges and underlying instruments will offset over time and do not form part of operational performance. Details are also provided of gains on disposals included in underlying results.

On a statutory basis, total income in the first half of 2007 amounted to £520.1 million representing an increase of 6.6% over total income in the first half of 2006. On this basis the ratio of total income to mean total assets at 0.97% in the first half compares with the 2006 full year and half year ratios of 1.11% and 1.14%. Total income as a proportion of mean risk weighted assets at 5.79% compares with the 2006 full year and half year ratios of 3.56% and 3.65%.

On an underlying basis, total income, including gains on disposals, amounted to £573.1 million, in the first half of 2007 representing an increase of 22.7% over underlying total income in the first half of 2006. On this basis, the ratio of total income to underlying mean total assets at 1.07% in the first half compares with the 2006 full year and half year ratios of 1.08% and 1.10%. Total underlying income as a proportion of mean risk weighted assets at 6.38% compares with the 2006 full year and half year ratios of 3.42% and 3.49%.

Since 30 June 2006, the interest rate environment has deteriorated with five 25bps increases in Bank Base Rate and increases in money market and swap rates. During 2007 Bank Base Rate and 3 month LIBOR have both increased by around 75bps and 2 year swap rates by 85bps. In such an environment lenders have been slow to reflect increases in funding costs in new mortgage pricing with a dampening impact on mortgage spreads. This trend has continued throughout the first half, although there are signs of more normal pricing patterns returning to the market as lenders re-price upwards. The rapid increase in swap rates has also resulted in a negative drag on our net interest income as fixed rate interest swaps were transacted as mortgage lending completed. Our approach to transacting such swaps has now been revised to minimise the risk of timing mis-match. Although these effects will also flow through into 2008, given the success of our ability to retain customers, future income will benefit as the loans re-price in 2009 and beyond.

As the majority of our funding is priced by reference to money market rates, increases in LIBOR have also had a negative impact on net interest spread, although this impact has to some extent been offset by realised gains on swaps which were in overhedged positions and have been closed out in the period for example where the underlying loans have redeemed early. On an underlying basis, these net realised gains or losses represent the total gain or loss on the closed out derivative since its origination whilst not in a hedge accounting relationship. On a statutory basis these gains and losses are accounted for on a fair value basis in “Fair value movements of future cashflows on derivatives not in hedge accounting relationships” within “Net trading income” in the current period and for prior periods within “Net hedge ineffectiveness”, both of which are excluded when stating underlying total income. Since this element of net trading income (and of net hedge ineffectiveness in prior periods) is excluded from underlying income, these gains and losses would never be reflected in underlying income, thus creating a permanent difference between statutory and underlying results, unless such gains and losses are included within underlying income in the period in which they are realised (see note 3).

In 2007, available for sale (AFS) gains were realised in the first half whereas in 2006 they arose in the second half of the year. This income line can include realisations on interest earning instruments which see gains when interest rates fall, or in the case of 2006 and 2007 gains on the maturity of investment funds.

As a consequence of the above factors underlying interest spread in the first half of 2007 fell to 68bps compared with 77bps and 75bps for the 2006 full year and half year respectively. For the 2007 full year it is currently anticipated that spreads will be slightly above 60bps.

Other income primarily comprises insurance commission generated on sales of third party products such as building and contents cover and payment protection insurance together with administration fees not included within interest margin. Although commission income grew in line with lending, other administration fees were lower than in the first half of last year due to lower levels of mortgage maturities.

Costs

Total operating expenses amounted to £152.4 million representing an increase of 12.9% over the £135.0 million in the first half of 2006. The increase of 12.9% compares with an increase in underlying assets of 28.3% over the 12 months and a rise in underlying total income of 22.7%. This resulted in a cost to underlying asset ratio of 0.29% (30 June 2006 - 0.32%) and cost to underlying income ratio of 26.6% (30 June 2006 - 28.9%).

For the full year we also expect underlying cost ratios to be below those for the 2006 full year.

Social Responsibility - The Northern Rock Foundation

Northern Rock donates 5% of pre tax profit to The Northern Rock Foundation under a deed of covenant. Such donations are used to support community and charitable causes mainly in the North East of England and Cumbria . The covenant from 2007 first half profits amounts to £14.8 million (2006 first half - £14.7 million), resulting in donations of approximately £190 million since its inception in 1997 as an integral part of Northern Rock's conversion to a plc.

Loan Loss Impairment

The charge for loan loss impairment amounted to £56.8 million for the first half (2006 first half - £44.5 million) representing 0.12% of mean advances to customers (2006 first half - 0.12%).

Loan loss impairment provisions and coverage are set out in the following table:

The combination of high quality lending, low interest rates, low early arrears and continued strong average LTV of the portfolio have continued to contain the levels of loan loss impairment provisions required for residential mortgages. Write offs in the first half amounted to £8 million representing only 0.01% of outstanding residential mortgage balances.

The impairment charge for unsecured loans amounted to £55.9 million in the first half of 2007 compared with £33.5 million in the same period in 2006. Of the charge in 2007 almost 60% is derived from personal bankruptcies and IVAs many of which showed no signs of distress before defaulting. The slight reduction in impairment provision cover against the unsecured portfolios is consistent with an improvement in the quality of recent lending and the maturing of the portfolios.

We do not expect to see a higher impairment charge in the second half than in the first half of 2007, although the actual charge will be determined by the levels of personal bankruptcies and IVAs. Despite seeing IVAs slow in the last six months and the growth in personal bankruptcies plateau in the last three months, we will continue to manage credit risk carefully and continually improve our collection activity and underwriting policies.

Taxation

The effective tax rate for the first half was 29.7% (30 June 2006 - 29.2%). We anticipate that with a reduced corporation tax rate of 28% taking effect from 1 April 2008, the ongoing effective tax rate will trend towards 28.0% in the medium term.

Profits and EPS

Details of profit before tax, profit attributable to shareholders and earnings per share on statutory and underlying bases are set out in the following tables:

The reconciliation of statutory and underlying results is set out in note 3 of the Interim Results (pages 26 to 28).

Statutory profit before tax of £296.1 million for the six months ended 30 June 2007 represents an increase of 0.7% over the equivalent statutory figure for 2006. Statutory profit attributable to equity shareholders for the first half of 2007 was £188.2 million, an increase of 0.2% over the 2006 statutory figure for the same period.

Compared with the 2006 first half underlying results, the underlying 2007 profit before tax of £346.6 million represents an increase of 26.6%, with underlying attributable profit rising by 28.9% to £223.7 million.

Return on equity for the first half of 2007 was 20.2% on a statutory basis and 24.0% on an underlying basis compared with 23.3% in the first half of 2006 on a statutory basis and 21.5% on an underlying basis.

Capital Management and Basle 2

On 29 June 2007, we received notification of approval by the FSA of our Basle II waiver application. Our regulatory capital requirements, comprising both Pillar I and Pillar II, are therefore calculated under Basle II with effect from that date.

We have adopted the Retail Internal Ratings Based (IRB) approach for our residential and personal unsecured loans, the Foundation IRB approach for our treasury portfolios and the Standardised approach for commercial loans and operational risk.

The implementation of Basle II results in our Pillar I risk weighted assets at 30 June 2007 falling from around £33.9 billion under Basle I to £18.9 billion under Basle II, a reduction of some 44%. The risk weighting for our residential mortgages reduces to mid-teens %, treasury assets to around half of Basle I requirements, also around mid teens %, reflecting the low risk nature of these portfolios and personal unsecured loans to slightly below Basle I requirements.

Under Pillar II, the Group is required to hold capital to cover risks other than credit and operational risk and for risks not wholly captured under Pillar I. Overall, Pillar II capital is expected to amount to around 40% of our total capital requirements, including the effect of transitional adjustments that place a floor on capital requirements in the first three years of implementation. This floor is calculated as 8% of Basle I risk weighted assets less collective provisions, multiplied by 95% in 2007, 90% in 2008 and 80% in 2009.

We continue to treat securitised assets as “off balance sheet” for regulatory capital purposes, resulting in deductions from both Tier 1 and Tier 2 capital for the first loss piece retained by Northern Rock. Deductions are also equally made from Tier 1 and Tier 2 capital in respect of the excess of expected losses over provisions, whereas under Basle I Tier 2 capital benefited from the add back of collective provisions.

The introduction of Basle II, together with the planned disposal of capital inefficient assets and continued capital management such as the Whinstone programme results in an anticipated regulatory capital surplus over the next 3 to 4 years. This surplus will enable the reduction of previously planned subordinated debt issues and permit capital repatriation of up to £300 to £400 million over this period. Such repatriation will follow the release of capital as a result of asset disposals and will ensure that available capital is sufficient to support existing rating agency credit ratings and maintain an appropriate mix of Tier 1 and Tier 2 capital.

During the first half of 2007 we issued $650 million (£328 million equivalent) of Upper Tier 2 subordinated debt.

Dividends

The introduction of Basle II, which requires less capital to support new lending, also enables a review of the Company's dividend policy. It is proposed that for 2007 and beyond, dividends will be maintained at a payout ratio of around 50%. The interim dividend therefore increases by 30.3% to 14.2p (2006 - 10.9p) payable on 26 October 2007 to shareholders on the register on 28 September 2007.

Outlook

The core Northern Rock strategy of growth in our residential lending business continues. Spreads will be squeezed in 2007 as a result of the interest rate environment together with our decision to continue to lend as swap rates rose. This will also affect spreads in 2008, but even so we continue to expect good revenue growth from our core business.

Our strategic target for growth in underlying profit attributable to equity shareholders is 20% + / - 5%. The drag through impact of 2007 into 2008 means at this very early stage we expect to be at the bottom of this range for 2008, broadly in line with current mean consensus. The final outcome will be affected by how the interest rate and credit risk environments emerge and the prospects for the mortgage market. Further guidance will be provided at the year end.

In conjunction with the introduction of Basle II, we are adjusting our business model to improve our capital efficiency, reduce risk on the balance sheet and reduce loan impairment volatility. At the same time we are leveraging our distribution and servicing ability to broaden our income streams.

We are the most cost efficient lender in our sector and we remain positive on our outlook for the medium term.

© Northern Rock plc. 2008