Preliminary Results Announcement For the year ended 4 April 2007

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Highlights
Chief Executive's Review
Business review
Consolidated income statement
Consolidated balance sheet
Consolidated statement of recognised income and expense
Consolidated cash flow statement
Notes to the Preliminary Results Announcement
Additional information
Other information
Contacts

IFRS Underlying Results

These results have been prepared in line with International Financial Reporting Standards accounting policies ('IFRS'). Where appropriate, certain aspects of the results are presented to reflect management's view of the underlying results, to provide a clearer representation of the performance of the Group.

Profit before tax shown on a reported basis and an underlying basis are set out on page 10. Underlying profit before tax of £668.6 million equates to reported profit before tax of £652.0 million adjusted for the deduction of net gains of £0.9 million from derivatives and hedge accounting, the deduction of policyholder tax of £2.0 million and the add back of merger and other similar costs of £19.5 million.

HIGHLIGHTS

Nationwide Building Society today announced its results for the year ended 4 April 2007.

Financial performance

• underlying profit before tax up 24.0% to £668.6 million
• reported profit before tax of £652.0 million, an increase of 16.6% compared with 2006
• strong margin performance, with net interest income of £1,479.3 million, an increase of 19.8% compared with 2006
• underlying cost to income ratio improved to 56.6% (from 60.6% in 2006)
• total assets increased by 13.9% to £137.4 billion
• net residential lending up 77.8% to £11.2 billion, representing a market share of 10.1%
• net commercial lending up 88.9% to £3.4 billion

Member value

• an estimated £660 million benefit provided to members over the year through competitive interest rates and lower fees and charges.
• ongoing branch refurbishment programme, with 145 branches refurbished or re-sited in the year, and almost half of our retail network (more than 300 branches) improved since the programme began in 2004.
• nationwide appeared in best buy tables 1,847 times during the year, across all products.
• new products launched, including a limited edition 25 year Fixed Rate Mortgage, Regular Savings Account, Fixed Rate ISA and an improved Home Insurance product.

Strategic Developments

• planned merger with Portman Building Society overwhelmingly approved by Portman's members and expected to be effective, subject to FSA approval, from 28 August 2007.
• Graham Beale succeeded Philip Williamson as Chief Executive on 1 April 2007.
• strategic Distribution Agreement with Legal & General for the supply of life insurance, investment and pension products.

Graham Beale, Nationwide's chief executive, said: "It has been an extremely successful year. We have delivered substantial benefits to members and our profits are higher than ever before, up around 24% on last year. We achieved record underlying profit, before tax, of almost £670 million whilst continuing to reward members for their loyalty. In an exceptional year for Nationwide our lending performance has been particularly outstanding, with residential net lending up 77.8% and commercial net lending up 88.9%

"Member benefit, delivered through better interest rates and lower fees and charges, totalled an estimated £660 million. We have underlined our commitment to mutuality through a series of initiatives to return value to our members. These initiatives included a range of special deals giving greater value to many of our members, be they borrowers or savers, pensioners or children.

"During the year we have put in place measures to ensure we continue to provide consumers with a real alternative to the banks and with real value. The forthcoming merger with Portman, which will create a Society with total assets of well over £160 billion, will deliver significant strategic, operational and financial benefits. The benefits of scale will provide real opportunities to enhance our growth in core markets - we will not only be the second largest retail savings provider, but also the second largest mortgage lender in the UK.

"With no shareholders to worry about, we continue to focus on putting our members at the heart of everything we do. The profit that we make is used to invest in the business and future growth. We are in excellent shape and are extremely well placed to meet the challenges ahead."

OPERATING HIGHLIGHTS

Retail

• society prime mortgage gross lending of £26.9 billion, an increase of 40.1% compared with 2006, and net lending of £10.6 billion, an increase of 92.7% compared with 2006.
• very strong secured credit quality, with our share of mortgage accounts 3 months or more in arrears being 0.24%, compared to the industry average of 0.87% (CML March 2007).
• retail savings deposits growth of £5.9 billion, representing 8.1% of the UK market.
• number of current accounts now exceeds 4 million, an increase of 12.0% compared with April 2006.
• number of credit cards in issue now exceeds 1.4 million, an increase of 16.7% compared with April 2006.
• proportion of credit card accounts 30+ days in arrears is approximately 30% better than the average for the industry.
• proportion of personal loans 30+ days in arrears is approximately 25% better than the industry average.
• over 545,000 new general insurance covers written, assisted by our much improved Home Insurance product, an increase of 36.3% compared with 2006.
• over 71,000 life policies sold, up 9% on last year.

Non-retail

• record year for our commercial business, with gross lending of £7.4 billion, an increase of 34.5% compared with 2006, and net lending of £3.4 billion, an increase of 88.9% compared with 2006.
• the quality of the commercial book remains high with just 0.07% of accounts being 3+ months in arrears (2006 - 0.05%).
• UCB, our specialist lending subsidiary, delivered gross lending of £2.2 billion, an increase of 12.4% compared with 2006, and net lending of £0.6 billion, a small increase compared with 2006.
• UCB asset quality remains strong with the number of 3+ months arrears cases as a proportion of the book reducing by 9% in the year, from 516 to 493.

Balance Sheet

• total assets increased by 13.9% to £137.4 billion.
• strong capital position, with regulatory capital increasing by 14.0% to £8.0 billion, and solvency ratio remaining steady at 11.0%.
• excellent response from institutional investors to our funding and capital raising programmes, with further Covered Bond issues, and our latest issue of Permanent Interest Bearing Shares being six times oversubscribed.

Social Responsibility

Community - improving quality of life

• Nationwide is committed to supporting local communities throughout the UK. Not only is our commitment good for the community - research has shown that it's good for business, helping to attract and retain talented employees and loyal customers.
• Cats' Eyes for Kids - 11 million life saving reflectors have been distributed to UK primary school children. To date it is estimated that up to 12,000 child pedestrian casualties have been avoided.
• Nationwide Awards for Voluntary Endeavour - more than 13,000 groups and individuals recognised and rewarded for their work with communities.
• during the year we paid taxes in excess of £790 million on behalf of the Nationwide Group of companies, employees and members.

Environment - securing the future

• since 2005 we have purchased all of our electricity from renewable sources such as wind, new hydroelectric and biomass.
• to date, some 330,000 members have opted to forego paper statements, reducing both cost and our environmental impact.
• all of our marketing literature is printed with vegetable inks on recycled paper.

Charities - sharing our success

• the Society and Nationwide Foundation (our associated registered charity) work in partnership with a number of charitable organisations to deploy resources, funding and expertise where and when they are most needed. Donations to date from the Society to Nationwide Foundation exceed £26 million.
• over 14 years, corporate donations, employee fundraising and member donations have generated £4.3 million for Macmillan Cancer Support.
• building upon a successful 5 year partnership with Disability Sport Events, we announced a 7 year, £1 million package leading up to the Paralympics in 2012.

FINANCIAL SUMMARY

	2007 £m	2006 £m	Growth %
Financial Performance
Total income net of claims on insurance contracts	1,926.1	1,655.5	16.3%
Underlying profit before tax	668.6	539.4	24.0%
Reported profit before tax	652.0	559.2	16.6%
Profit after tax	463.6	397.2	16.7%
Balance Sheet
Total assets	137,378.5	120,586.0	13.9%
Loans and advances to customers	115,938.4	101,347.6	14.4%
Member savings balances	86,795.4	80,918.6	7.3%
Total regulatory capital	7,960.7	6,983.6	14.0%
Lending Volumes	£bn	£bn
Residential - gross	29.1	21.1	37.9%
Residential - net	11.2	6.3	77.8%
Commercial - gross	7.4	5.5	34.5%
Commercial - net	3.4	1.8	88.9%
Key Ratios	%	%
Cost to income ratio - underlying basis	56.6	60.6
Cost to income ratio - reported basis	57.6	59.9
Solvency ratio	11.0	11.0

CHIEF EXECUTIVE'S REVIEW

OVERVIEW

As a Building Society, our strategy is to maximise the value to our members. The value we generate is distributed in one of two ways. It accrues to members through the better deals we offer them compared with our competitors, or it is retained to strengthen our capital position and to allow us to invest in the business. Being a mutual organisation means that all of this value ultimately goes to our members, with no need to divert value to pay dividends to shareholders.

This year, we have generated a record underlying profit before tax of £668.6 million, an increase of 24.0% on last year. This has allowed us to strengthen our financial position, and push ahead with investment in our product and service offerings. We delivered an estimated £660 million to members this year through competitive interest rates and lower fees and charges, which continues to demonstrate our commitment to giving our members a better deal. Increased efficiency led to our underlying cost to income ratio improving from 60.6% to 56.6%.

RETAIL

Mortgages and Savings

Borrower demand has been strong throughout the year. We increased Society prime mortgage gross advances by 40.1% to £26.9 billion and net lending by 92.7% to £10.6 billion. In March we launched an innovative 25 year fixed rate mortgage with a borrower option to redeem the mortgage after ten years with no early redemption penalty. This product proved to be very attractive and sold out within five weeks. We also rewarded existing loyal members by offering a substantial discount against the application fee for all mortgage products.

Our growth in savings balances of £5.9 billion represented 8.1% of the market. We introduced a new regular savings product in January 2007 designed to offer a flexible and fair approach to regular savings. Unlike others, Nationwide's regular savings account does not penalise savers for missed payments or withdrawals by closing the account. In direct response to feedback from members, we reduced the qualifying age for our very popular Monthly Income account from 65 to 60.

Consumer Lending

We have seen strong growth in our current accounts and credit cards. We opened around 580,000 new current accounts and issued over 200,000 credit cards during the year. Our market share of new current accounts is estimated at 9.4%. We believe our current account is one of the best available, with highly competitive interest rates, and our no charge policy for overseas card transactions continues to set us apart from the competition and helps attract new customers. We have adopted a cautious approach to unsecured lending, focusing on credit quality. Our credit performance remains better than the industry, with arrears on personal loans 25% better than our peer group average and our arrears on credit cards 30% better. However, like other lenders, we have increased our impairment provisions to reflect a more difficult credit environment.

There has been much debate about bank charges and free banking. We offer an excellent current account which is free for day-to-day use and we remain committed to giving our members access to free banking.

Insurance

Last summer we launched a new home insurance policy with enhanced cover provided as standard. The new policy includes some modern features such as cover for MP3 players and music downloads. There was good news for parents purchasing single trip travel insurance when we widened the cover to include up to four children at no additional cost. As a result of these innovations and our continued competitive pricing, total policies sold increased by 36.3% to around 545,000.

Building on the successful re-launch of the protection products, our life assurance and investment products also performed well, with Nationwide Life selling over 71,000 life policies during the year, a 9% increase on last year.

NON - RETAIL

Commercial Lending

Nationwide Commercial is one of the UK's leading commercial property lenders. It has been another record breaking year for the business which has seen its loan book grow by 23% to £17.9 billion. Gross advances for the year were £7.4 billion, up 34.5% on last year, and net advances were £3.4 billion, up 88.9% on last year. This has been achieved whilst maintaining credit quality across all loan portfolios. Just 0.07% of commercial accounts are 3 or more months in arrears (2006 - 0.05%).

The business funds major acquisitions and re-financing of income generating property for commercial property investors, and supports Private Finance Initiative (PFI) and Public Private Partnership (PPP) projects. It is the UK's number one lender to social housing providers and in 2007 became the first lender to commit over £8.5 billion to the sector. The year also saw an increase in Nationwide Commercial's European lending as property investors expanded their activities, particularly in Germany. This lending is carefully managed to ensure its quality matches that of the rest of the Commercial book.

UCB

UCB is our specialist lending subsidiary providing loans primarily to self-employed borrowers and private landlords. Gross lending increased by 12.4% to £2.2 billion with the emphasis on the 'buy-to-let' market. Over the year the proportion of accounts more than 3 months in arrears reduced to below 1% and the bad debt charge fell by 17%, in contrast to industry trends.

Our plans for specialist lending include a controlled expansion of the product range to include mortgage products for borrowers with an impaired credit history. The first products from this new range were launched in March of this year.

STRATEGY

Planned merger with Portman

The merger between Nationwide and Portman was overwhelmingly approved by Portman members at their AGM on 23 April 2007, and subject to FSA approval is expected to be effective from 28 August 2007. It will be the biggest ever building society merger, creating an enlarged Society with total assets of over £160 billion. The merger will deliver significant strategic, operational and financial benefits to the enlarged Society.

First and foremost, we will continue to operate as a mutual building society, owned by and run for the benefit of our members. If we are to compete successfully with the retail banks we will need to achieve comparable economies of scale. The merger will make us the second largest mortgage lender in the UK and reinforce our current position as the second largest savings provider in the UK.

We remain committed to a comprehensive branch structure and it is intended that every location that is currently served by a Nationwide or a Portman branch or agency will continue to be served by a Nationwide branch or agency after the merger.

Legal & General

In February we announced that together with Legal & General we are entering into a new strategic distribution agreement for the supply of life insurance, investment and pension products. Under the terms of the agreement, Legal & General will purchase our wholly owned subsidiaries Nationwide Life and Nationwide Unit Trust Managers, and we will sell Legal & General products via our 2,000 strong team of advisers and consultants. This arrangement will provide an excellent opportunity for our members to choose from a broader range of competitively priced products from one of the UK's top financial services companies and enjoy an enhanced service.

Our People

I would like to thank our employees for their contribution to our success. They go to great lengths to deliver an excellent service and are the biggest advocates of Nationwide. Our internal employee satisfaction index is amongst the highest in our peer group and externally we were placed 9th in The Sunday Times 20 Best Big Companies to Work For survey.

BALANCE SHEET

We continue to grow our balance sheet in a controlled way, to provide us with the financial strength necessary to support our objectives. The balance sheet grew by 13.9% to £137.4 billion, with regulatory capital increasing by 14.0% to £8.0 billion, resulting in a strong solvency ratio of 11.0%. Credit quality remains excellent, with only 0.24% of residential mortgage accounts being 3 months or more in arrears, compared to the industry average of 0.87%.

To support this balance sheet growth we have supplemented our retail funding with an increase in wholesale funding. This increase included further Covered Bond issues during the year, raising €6 billion. Our level of wholesale funding continues to be low compared to organisations of comparable size, giving us flexibility for additional funding in the future.

In the year we raised additional capital in the form of a subordinated debt issue of €300 million, and an issue of £350 million Permanent Interest Bearing Shares (PIBS). The PIBS issue was six times over subscribed, a testament to the strength of the Nationwide brand with our institutional investor base. We also introduced an innovative flexible structure for the PIBS to allow us to reduce the capital base as the benefits of Basel II emerge over time.

OUTLOOK

We expect the economy in the UK to remain stable and provide good opportunities for growth across the Group. The economic drivers are sound and we expect UK growth to remain robust. Rising interest rates have started to have an impact, but we still expect the housing market to remain strong. Demand from buy-to-let investors has supported housing demand. Continuing issues of under-supply of housing, especially in the South East of England, will continue to be a supportive factor and will counteract some of the slowing effect of increasing interest rates. Our forecast for house price growth is 5% to 8% in 2007 reflecting a cooling in the second half of the year as increased interest rates filter through.

In conclusion we remain committed to delivering our mutual agenda; providing fair and competitively priced products on a consistent basis. We have created considerable momentum as the UK's largest mutual building society and intend to continue to grow and deliver more value to our current and future members.

Graham Beale
Chief Executive
16 May 2007

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BUSINESS REVIEW

PROFIT BEFORE TAX

Profit before tax shown on a reported basis and on an underlying basis is set out as follows:

2007	As reported £m	Derivatives and hedge accounting £m	Policyholder tax £m	Merger and other costs(*) £m	Underlying £m
Net interest income	1,479.3	-	-	-	1,479.3
Other income net of claims on insurance contracts	445.9	-	(2.0)	-	443.9
Gains from derivatives and hedge accounting	0.9	(0.9)	-	-	-
Total income net of claims on insurance contracts	1,926.1	(0.9)	(2.0)	-	1,923.2
Administrative expenses	984.5	-	-	(14.1)	970.4
Depreciation and amortisation	124.4	-	-	(5.4)	119.0
Impairment losses on loans and advances to customers	133.6	-	-	-	133.6
Provisions for liabilities and charges	36.5	-	-	-	36.5
Impairment gains on investment securities	(4.9)	-	-	-	(4.9)
Profit before tax	652.0	(0.9)	(2.0)	19.5	668.6

2006	As reported £m	Derivatives and hedge accounting £m	Policyholder tax £m	Merger and other costs(*) £m	Underlying £m
Net interest income	1,234.3	-	-	-	1,234.3
Other income net of claims on insurance contracts	410.3	-	(8.9)	-	401.4
Gains from derivatives and hedge accounting	10.9	(10.9)	-	-	-
Total income net of claims on insurance contracts	1,655.5	(10.9)	(8.9)	-	1,635.7
Administrative expenses	873.7	-	-	-	873.7
Depreciation and amortisation	117.5	-	-	-	117.5
Impairment losses on loans and advances to customers	76.6	-	-	-	76.6
Provisions for liabilities and charges	32.1	-	-	-	32.1
Impairment gains on investment securities	(3.6)	-	-	-	(3.6)
Profit before tax	559.2	(10.9)	(8.9)	-	539.4

(*) Merger and other costs include £10.8 million merger costs and £8.7 million of costs and asset write-downs relating to the disposal of Nationwide's life, investment and pensions subsidiaries.

PERFORMANCE BY BUSINESS STREAM

Nationwide operates three main business streams as follows:

• Personal Financial Services
  Mortgages, savings, banking, consumer lending, general insurance, life insurance and investment business.
• Commercial
  Commercial lending and Treasury income generation activities.
• Group
  Treasury group operations, capital and items classified as being non-attributable to our core business areas.

The contribution to underlying profit before tax from each of these business streams is set out in the table below.

	Contribution before tax
	2007 Underlying £m	2006 Underlying £m	Growth %
Personal Financial Services	324.1	270.9	19.6%
Commercial	224.8	194.2	15.8%
Group	119.7	74.3	61.1%
Total	668.6	539.4	24.0%

From 2007/08, Nationwide will reclassify its business streams, with all customer facing activities classed as either Retail or Non-Retail. The Retail business stream will be the same as the Personal Financial Services stream described above, except for the specialist lending activity which is carried out by UCB. This specialist lending, plus commercial lending, will comprise the Non-Retail stream.

PERSONAL FINANCIAL SERVICES (PFS)

	2007 Underlying £m	2006 Underlying £m	Growth %
Net interest income	1,102.1	921.3	19.6%
Other income	386.7	351.8	9.9%
Total income	1,488.8	1,273.1	16.9%
Expenses	994.8	896.2	11.0%
Impairment and other provisions	169.9	106.0	60.3%
Contribution from PFS	324.1	270.9	19.6%

The underlying contribution from the PFS business stream increased by 19.6% to £324.1 million which represents just under half of the Group's total contribution. All of the pricing benefit given to our members is delivered through this business stream. The total number of PFS sales remains strong with performance in non-mortgage and savings sales matching that achieved last year despite lower personal loan sales, reflecting our cautious approach in this market.

Expenses increased by 11.0% reflecting growth in volumes, particularly in high transaction products such as our current account and credit card. Unsecured loan impairment losses increased to £133.1 million (2006 - £73.7 million) as a result of significant growth in the book in previous years and a worsening credit environment which led to an increase in delinquency. Secured loan impairment charges are minimal for the current and previous year.

Arrears across all products remain significantly better than industry averages. A provision of £36.5 million has been raised for the cost of various customer claims (2006 - £32.1 million).

Lending

Loans and advances to customers total £115.9 billion of which £98.1 billion, (85%) relates to retail lending activity.

The composition of our PFS lending continues to be low risk. At 4 April 2007, 94% of our PFS lending was residential mortgages, 3% was buy-to-let mortgages, 2% was unsecured personal loans with the balance of 1% lending on overdrafts and credit cards. This mix has not changed significantly from last year and is not expected to change significantly going forward.

Residential mortgages

The UK housing and mortgage markets performed strongly in 2006/07. House prices increased by 9.5% in the year to March boosted by stronger GDP growth, buoyant demand from the buy-to-let sector and continued problems with the slow response of housing supply. Interest rates increased three times during the financial year but the housing market took longer to respond than in earlier cycles. Total gross lending was 16% higher than in 2005/06.

In contrast, UK remortgage activity was relatively flat, with the total value of lending 6% higher than last year, supported by continued equity withdrawal on the back of debt consolidation. Total net lending was robust and ended the year 20% higher than 2005/06. The buy-to-let sector continues to contribute strongly to market growth, accounting for 9% of outstanding balances at the end of December 2006.

Our commitment to competitively priced mortgage deals and service standards have delivered a very strong gross lending performance for the Group during 2007 at £29.1 billion (2006 - £21.1 billion). Our share of the gross new lending market rose from 7.0% in 2006 to 8.3% in 2007. In addition, we continued to be highly successful in retaining borrowers and this has made a significant contribution to net lending this year. Our 7.6% market share of principal repaid in the Group was below our mortgage par share of 8.9%. As a result, net lending was £11.2 billion (2006 - £6.3 billion) which represents a market share of 10.1%.

This excellent performance was partly driven by our policy of charging between 0.5% - 0.75% less interest on our standard variable rate mortgage compared with our major competitors, as well as having competitively priced fixed and tracker products available to both new and existing borrowers on the same terms. In addition, good service and an active policy of customer contact enabled us to retain borrowers with maturing fixed rate and tracker rate mortgage products.

The quality of our residential mortgage book continues to be excellent, with very low levels of arrears and a minimal impairment charge arising. The average loan to value (LTV) ratio of the Group's retail loan portfolio is estimated as 39%, with the LTV of new residential mortgage lending being 58%.

During 2007 we successfully launched our Intermediary website to complement the existing mortgage trading exchange. The launch has been very well received by our introducer partners and led to a record surge of business during January.

Following a successful 12 month pilot, our legal service for homebuyers was launched across our entire retail network. This has delivered more value to our members who take out a mortgage with Nationwide and move home within England, Wales & Northern Ireland.

Nationwide is proud to participate in the government's Open Market HomeBuy Scheme launched in October assisting key workers to buy their own property. This, along with the launch of our 25 year fixed rate mortgage, demonstrates our commitment to delivering innovative products that offer good value, long term security and flexibility for a changing competitive environment. We achieved this whilst maintaining a low appetite for risk and strong asset quality.

Looking forward, we expect slower house price growth in 2007/08, but we expect a generally favourable outlook for gross lending given the expectation of a fairly positive macro economy. Remortgage lending is expected to recover next year, driven largely by higher levels of deal maturities. UK gross lending is expected to be fairly similar to 2006/07 and net lending is expected to increase slightly to £115 billion.

Current accounts

The Society's current account, FlexAccount, is a pivotal product in developing and retaining lasting customer relationships. We remain committed to giving our members access to free banking, and the product offers a highly competitive banking proposition to both existing and potential customers in offering a competitive rate of interest of up to 4.25% on credit balances and a market leading authorised overdraft rate of 7.75%. In addition, our no charge policy for overseas card transactions sets us apart from the competition and helps attract new customers. Around 48% of FlexAccount customers now regularly use our internet banking service, and just under 3 million members are registered to use this service.

The total number of Nationwide current accounts has grown by around 440,000 (2006 - 500,000) to just under 4.1 million. Our market share of new accounts is estimated at 9.4% (based on CACI's Current Account and Savings Database). Credit quality remains strong, with the percentage of delinquent balances as a proportion of the overdrawn book falling to 13.9% (2006 - 14.0%).

Credit cards

The Society continues to differentiate its credit card from others in the UK by not charging for international use and by our positive order of payments, in that we allocate payments to clear the most expensive debt first. We continue to provide first class customer service for our members, and were winners of the Best Achievement in Customer Service at The Credit Card Awards 2007.

Whilst the UK credit card market as a whole has seen a fall of 5% in gross lending in 2007 compared to the previous year we continue to see growth, primarily driven by year on year increases in merchant spend. We have recently refreshed our introductory offer to maintain our competitive position with an interest free balance transfer proposition (subject to a handling fee).

Despite industry levels of new credit card volumes being at their lowest point for five years (based on GfK's Financial Research Survey, January 2002 - 2007) we have opened 204,000 accounts this financial year (2006 - 252,000). This brings our total cards in issue to 1,426,000 (2006 - 1,222,000) and balances outstanding on credit cards at the end of the year end were £726 million (2006 - £670 million).

Our overall delinquent balances as a percentage of outstanding balances remained largely stable during the year and are approximately 30% better than the industry benchmark. As with others in the industry, there has been an increase in the impairment charge, largely driven by book growth in previous years.

Personal loans

Personal Loans are offered through Nationwide Trust Limited, a wholly owned subsidiary of the Society. Loans are sold through the branch network, over the telephone and via the internet. We adopted a cautious approach to unsecured lending in the year, focusing on credit quality. Gross unsecured lending for 2007 decreased by 29% to £922 million (2006 - £1.3 billion).

Strong asset quality is demonstrated by the value of accounts 30+ days in arrears, which at 6.1% is approximately 25% better than the average for the industry of 8.1% (based on data as at February 2007 - Finance & Leasing Association). Provision cover has been increased to reflect a deterioration in delinquency during the year, arising from challenging market conditions.

The business has now increased its focus on the quality of lending. A prudent approach is taken to lending decisions and credit acceptance criteria have been tightened during the year. Approximately three out of every five unsecured personal loan applications are declined, with over three quarters of new loans being to existing members or customers of the Group.

Savings and investments

Overall savings balances in the UK market grew by 11% over the last year, returning to trend after weaker growth of only 8% in 2006. Estimates of market net receipts show annual growth significantly higher than that witnessed in 2006. Higher levels of equity withdrawal, enabled by strong house price growth, are likely to have contributed to this. In contrast the cash ISA market was weaker than last year, down 9% at £12 billion. This is likely to have been caused by healthier stock market performance which also encouraged further growth in equity ISAs with net flows 26% higher than last year.

The Group's total retail member deposits as at 4 April 2007 amounted to £86.8 billion (2006 - £80.9 billion) and represent our primary source of funding. Despite a fiercely competitive savings market, we achieved an 8.1% (2006 - 12.8%) share of the overall increase in UK retail savings, representing £5.9 billion (2006 - £8.3 billion). The largest increases were in our e-Savings and Individual Savings Account (ISA) products. As a result, we have consolidated our position as the second largest savings provider in the UK.

During the year several important product launches were made, most notably the Fixed Rate ISA in December 2006, which has captured balances of £650 million in the first 3 months of operation. In addition Regular Savings, the new flexible, instant access card based account was launched in January 2007, backed by a guarantee to track the Bank of England base rate until 1 January 2010. The total number of accounts opened since its launch was nearly 62,000.

A further product innovation in March 2007 saw the Monthly Income 65+ (MI 65+) product re-branded as MI 60+, broadening its appeal to a wider segment of the savings market (over 60's). This product has continued to perform strongly, attracting nearly £1.7 billion in the year (51,000 accounts).

The Society, through its wholly owned subsidiary Nationwide Unit Trust Managers Limited (NUTM), currently writes a range of investment contracts including unit trusts and ISAs. At 4 April 2007 our range of unit trust investment products held by our customers had a market value of over £2.7 billion (2006 - £2.5 billion). On 7 February 2007 the Society announced its intention to sell both NUTM and Nationwide Life Limited (NL) and enter into a distribution agreement with Legal & General. Further details are provided in the section on Life Assurance and Investments.

General insurance

During the year over 545,000 (2006 - 400,000) new general insurance covers were sold, an increase of 36.3% on last year. The primary general insurance products offered by the Group are buildings and contents insurance, payment protection policies, motor insurance and travel insurance. Sales of general insurance products are often linked to, and therefore can be largely dependent upon, other product sales such as mortgages, personal loans and credit cards.

The increase in the number of general insurance covers sold in the year reflects the successful launch of a new Home Insurance product combined with two new add-on products (Legal Assistance and Home Emergency) in July 2006. The initial launch was supported by a multi-media marketing campaign and a variety of customer propositions have continued since launch to sustain the positive momentum.

The re-entry into the over 65 annual travel insurance market (Europe only) and our 'Kids go Free' travel campaign were great successes and feedback from members has been complimentary.

We have continued to use leading insurers as third-party underwriters and the commission and profit share we receive is an important source of non-interest income. Both commission income and profit share are slightly up on 2006, although profit share on the Home Insurance scheme was impacted by the less benign weather conditions this year and the consequent increase in insurance claims.

Life assurance and investments

The Society, through its wholly owned subsidiary, Nationwide Life Limited, currently writes a range of investment and protection products. These include two types of insurance product: term life assurance and critical illness cover. Over 71,000 life policies were sold during the year (2006 - 65,000 policies). NL also provides pension contracts and guaranteed equity bonds.

On 7 February 2007 the Society announced its intention to sell both NL and NUTM and enter into a distribution agreement with Legal & General. The sale is conditional on the consent of the Financial Services Authority to the change of control of the companies and other customary conditions. The new arrangement will provide an excellent opportunity for Society customers to choose from a broader range of competitively priced products and enjoy an enhanced service. The plans include expanding the range by introducing an Ethical Investment Fund and new family life insurance policies.

Pricing benefit

The estimated pricing benefit is calculated by comparing the price of each of our products (including interest rates, fees and charges) with the equivalent products offered by our main competitors. During the year we generated an estimated £660 million in the form of pricing benefit to our members by offering better rates and by charging lower fees and charges than our competitors. This demonstrates our continued intention to distribute significant value to our members whilst ensuring that sufficient profit is retained in the business for its future growth and development.

Distribution channels

We are committed to allowing our customers to do business with us when and how they wish. We are continuing the £300 million, six year investment programme announced in 2004 to develop a modern business and to ensure that our branch, telephones, internet and other access channels are maintained at the high standards expected by our members. This programme continues to progress very well with a number of technology investments having already been successfully deployed and over 300 branches and 115 agencies refurbished or re-sited since its inception. The additional space created is equivalent to that from an extra 100 branches. We have continued our investment in UK call centres and have added 125 jobs into our facility in Wakefield.

We have made a commitment that all of our call centres will remain in the UK. In addition to the investment in physical infrastructure we are also progressing well with our investment in customer facing branch employees with an extra 100 people being deployed to strengthen our sales and service proposition. The Portman Building Society branches will be incorporated into our network during 2008. Following the merger, it is anticipated that the combined Society will have a network of around 900 branches and agencies.

COMMERCIAL

	2007 Underlying £m	2006 Underlying £m	Growth %
Net interest income	216.8	199.6	8.6%
Other income	45.2	37.3	21.2%
Total income	262.0	236.9	10.6%
Expenses	41.9	43.6	(3.9)%
Impairment and other provisions	(4.7)	(0.9)	422.2%
Contribution from Commercial	224.8	194.2	15.8%

The underlying contribution from the commercial business stream increased by 15.8% to a record £224.8 million. Commercial is an important contributor to the Group's total return, representing approximately 33% of the Group's profit from only 16.7% of the Group's total assets. Despite a very competitive market, we achieved record levels of gross lending in the year while preserving the high quality of the book. Underlying contribution from investment assets held by Treasury was £40.4 million (2006 - £29.8 million), an increase of 35.6%. The contribution from at.home nationwide limited (at.home) was £10.5 million (2006 - £13.1 million), a decrease of 19.8% on the previous year. This is due to the disposal of the majority of at.home's property portfolio in the current financial year.

Commercial lending

Commercial Division, which undertakes lending in respect of commercial property, social housing providers and Private Finance Initiatives, has had another outstanding year:

• gross commercial lending in the year totalled £7.4 billion (2006 - £5.5 billion).
• net lending reached £3.4 billion (2006 - £1.8 billion).
• balances outstanding have risen to £17.9 billion (2006 - £14.5 billion).

Commercial lending is a significant part of our business accounting for 15.4% of total Group loan assets. The commercial portfolio at 4 April 2007 comprised loans in respect of commercial property (64%), social housing (31%) and Private Finance Initiatives (5%).

Commercial property loans are fully secured against properties supported by strong cash flows and tenant covenants. Loans to social housing providers, largely Registered Social Landlords (RSL's), are secured on residential portfolios. Loans advanced under Private Finance Initiatives are secured on cash flows from Government backed contracts.

The commercial portfolio is well diversified by industry type and geographic location. In terms of counterparty concentration, the largest single borrower represents only 1.7% of the total commercial book. Asset quality is high as evidenced by just 84 accounts being 3 or more months in arrears (2006 - 69 accounts).

We remain the lender with the largest value of funding commitments to the social housing sector. There have been several re-financings and increases in borrowing as social housing providers merge in response to government initiatives to increase both efficiency and output from their public subsidies. Our lending during the year included some significant facilities to new customers and the acquisition of a £320 million RSL loan book from the Derbyshire Building Society.

Treasury investment assets

Treasury holds certain assets in order to generate income for the Group. The underlying contribution from Treasury investment assets was £40.4 million (2006 - £29.8 million), an increase of 35.6%. Treasury investment assets comprise the asset backed, corporate bond and equity portfolios. The primary reason for the increase on last year was a large dividend from the equity portfolio.

at.home nationwide limited

at.home conducted the Society's residential letting operations. The subsidiary represented a non strategic activity and it was decided to dispose of the business. The disposal of the majority of at.home's property portfolio was completed in July 2006.

GROUP

	2007 Underlying £m	2006 Underlying £m	Growth %
Net interest income	160.4	113.4	41.4%
Other income	12.0	12.3	(2.4)%
Total income	172.4	125.7	37.2%
Expenses	52.7	51.4	2.5%
Contribution from Group	119.7	74.3	61.1%

Contribution from the Group business stream includes the contribution derived from capital held for regulatory purposes, in excess of that allocated to other business streams on the basis of an economic capital assessment, together with other elements of contribution that cannot be allocated directly to business streams. It also includes contribution from the Group's treasury operations, excluding the contribution from assets held solely for investment purposes, the latter being included in the contribution from the Commercial business stream.

The increase in net interest income allocated to the Group business stream is primarily due to the increase in net interest margin, caused by wider LIBOR to base rate spreads.

Liquid balances

Liquid balances totalled £17.5 billion at 4 April 2007 (2006 - £14.7 billion) representing a prudential liquidity ratio of 10.4% (2006 - 10.0%). 97% of our Treasury investment portfolio comprised assets which are rated single A or better. We continue to have no exposure to emerging markets and minimal exposure to non investment grade debt.

Wholesale funding

At 4 April 2007, wholesale balances stood at £38.5 billion (2006 - £29.2 billion) representing a funding ratio of 28.4% (2006 - 26.6%). This is one of the lowest levels of wholesale funding of organisations of comparable size and provides significant headroom for additional funding in the future in addition to our retail deposit taking activities.

Over the course of the year, we have increased the overall duration of the Treasury funded programme from 2.0 to 2.3 years whilst at the same time reducing the average cost of funding by between 2 and 3 basis points.

During the year our long term funding focused on extending our covered bond presence. We issued €2 billion in November 2006 which was followed with a dual tranche offering in February 2007. The deal offered both €2 billion five and €2 billion fifteen year bonds, making history as the largest ever order book for a UK covered bond and the largest issue of its kind from a British issuer.

Additionally we issued two capital transactions. In December 2006 we issued €300 million of subordinated debt which was followed in January 2007 with an innovative Permanent Interest Bearing Share (PIBS) issue of £350 million. The latter achieved the tightest ever pricing for such an issue and was six times oversubscribed, further evidence of the continuing demand and interest in the Nationwide name from professional investors.

Our short and long term credit ratings from the major rating agencies have remained stable during the year, with the exception of the Moody's long term rating which was upgraded from Aa3 to Aa2. The ratings are as follows:

	Short term	Long term
Fitch Ratings	F1+	AA-
Moody's	P-1	Aa2
S&P	A-1	A+

PERFORMANCE BY INCOME STATEMENT CATEGORY

Profit

A Summary Income Statement on an underlying basis is as follows:

	2007 Underlying £m	2006 Underlying £m	Growth %
Net interest income	1,479.3	1,234.3	19.8%
Other income	443.9	401.4	10.6%
Total income	1,923.2	1,635.7	17.6%
Expenses	1,089.4	991.2	9.9%
Impairment and other provisions	165.2	105.1	57.2%
Profit before tax	668.6	539.4	24.0%

The Group has seen a strong growth in underlying profit before tax of 24.0%, to £668.6 million compared with 2006 results. Reported profit before tax was a record £652.0 million, up 16.6% on 2006 (see consolidated income statement on page 22). The increase in profit was consistent with our strategy of retaining sufficient profit to allow continued investment in the business and to support its future growth.

Net interest income

Net interest income is earned on a combination of our PFS and Commercial products together with interest income from activity within Treasury.

Net interest income increased by 19.8% to £1,479.3 million compared with last year. The net interest margin for the year also increased to 1.15%, 9 basis points higher than last year, due to effective margin management and wider LIBOR to base rate spreads in the rising interest rate environment. The Society's LIBOR denominated net asset exposure has averaged approximately £28 billion over the year. Through this exposure we have benefited from LIBOR being an average of 24 basis points higher than base rate over the course of the year. This differential contributed around 7 basis points to the Group's net interest margin, compared with last year where an average LIBOR to base rate differential of 9 basis points contributed approximately 2 basis points to the net interest margin.

Other income

Other income continues to primarily comprise income earned from the sale and manufacture of insurance products together with administration fees not included within interest margin. During the year underlying other income increased by 10.6% to £443.9 million, reflecting the general growth in the business. Credit card default fees were reviewed in June 2006 following the industry-wide Office of Fair Trading review.

Expenses

Total underlying expenses amounted to £1,089.4 million representing an increase of 9.9% over 2006. This increase compares favourably with an increase in total assets of 13.9% over the year and a rise in underlying total income of 17.6%. As a result, our underlying cost to income ratio improved to 56.6% (2006 - 60.6%).

Impairment losses on loans and advances

	2007 £m	2006 £m	Growth %
Secured lending	0.5	2.9	(82.8)%
Unsecured lending	133.1	73.7	80.6%
Customer redress	36.5	32.1	13.7%
Treasury investments	(4.9)	(3.6)	36.1%
	165.2	105.1	57.2%

The excellent asset quality of our mortgage book has again resulted in a minimal impairment charge arising from secured lending.

The increase in the unsecured lending impairment charge has arisen from higher levels of write offs and delinquent accounts. This reflects the difficult market conditions being experienced by the industry and asset growth in previous years.

The charge for customer redress relates to various customer claims.

Following an improvement in the credit quality of a particular treasury investment security an impairment gain has been recognised resulting in a £4.9 million credit from treasury investments.

Taxation

The effective rate of tax was 28.9% (2006 - 29.0%) compared with the standard rate of corporation tax of 30%. The lower rate arises principally because of the reduction in the level of provisions held against uncertain tax positions, partially offset by additional tax costs in repatriating to the UK the profits of an offshore business which ceased to trade in the year.

We estimate that the Group's effective tax rate going forward will be around the standard UK statutory rate.

Derivatives and hedge accounting

All derivatives entered into by Nationwide are recorded on the balance sheet at fair value with any fair value movements being taken to the income statement. Derivatives are only used to limit the extent to which the Group will be affected by changes in interest rates, exchange rates or other indices which affect fair values or cash flows. Derivatives are therefore used exclusively to hedge risk exposures and are not used for speculative purposes.

The fair value accounting volatility pre-tax gain of £0.9m (2006 - £10.9m pre-tax gain) represents the net fair value gain on derivative instruments that are matching risk exposure on an economic basis. Some accounting volatility arises on these items due to accounting ineffectiveness of designated hedges, or because hedge accounting has not been adopted or is not achievable on certain items. The gain is primarily due to timing differences in income recognition between the derivative instruments and the hedged assets and liabilities. The impact can be volatile, but will trend to zero over time and has been excluded in reporting the Group's underlying performance.

CAPITAL STRUCTURE

Regulatory capital stood at £8.0 billion (2006 - £7.0 billion) with the Group's total solvency ratio remaining strong at 11.0% (2006 - 11.0%). The Tier 1 solvency ratio stood at 8.7% (2006 - 8.8%). Both ratios remain well in excess of the minimum established by the Society's Regulator.

	2007 £m	2006 £m
Tier 1
General reserve	5,295.8	4,825.6
Permanent interest bearing shares (note i)	1,045.4	700.0
Pension fund deficit add back (note ii)	106.0	126.0
Intangible assets	(106.1)	(80.5)
Deductions from Tier 1 capital (note iii)	(20.2)	-
	6,320.9	5,571.1
Tier 2
Revaluation reserve	128.2	117.0
Subordinated debt (note i)	1,617.0	1,484.0
Collective impairment allowance	184.0	145.2
Deductions from Tier 2 capital (note iii)	(20.2)	-
	1,909.0	1,746.2
Deductions	(269.2)	(333.7)
Total capital	7,960.7	6,983.6
Risk weighted assets (£ billion)	72.5	63.6
Tier 1 ratio (%)	8.7	8.8
Total capital (%)	11.0	11.0
Tier 2 to Tier 1 ratio (%)	30.3	31.3

Notes

(i) For 2007, permanent interest bearing shares and subordinated debt include any fair value adjustments arising from micro hedging and adjustments for unamortised premiums and discounts that are included in the consolidated balance sheet. For 2006, these adjustments are excluded. This change in treatment reflects a change in the calculation of regulatory capital effective from 1 January 2007, as part of the migration to Basel II.

(ii) The regulatory capital rules allow the pension fund deficit to be added back to regulatory capital and a deduction taken instead for an estimate of the additional contributions to be made in the next 5 years, less associated deferred tax.

(iii) For 2007, certain deductions from capital are required to be allocated, 50% to Tier 1 and 50% to Tier 2 capital, whereas in 2006 they were deducted from total capital. As in note (i), this change in treatment is part of the migration to Basel II.

In the year we raised additional capital in the form of a subordinated debt issue of €300 million and an issue of £350 million Permanent Interest Bearing Shares (PIBS). These issues support the strong growth of the business achieved during the year and our future plans. The PIBS incorporated an innovative flexible structure to allow us to reduce the capital base as the benefits of Basel II emerge over time. The planned sale of Nationwide Life Limited will also allow us to release the £269.2 million deduction from capital shown above.

BASEL

Nationwide has applied for a waiver to use an Internal Ratings Based (IRB) approach under the Capital Requirement Directive. A decision on the application is anticipated from the FSA later this year. Given the nature of our portfolios, we would expect to benefit from a reduction in our minimum capital requirements under Pillar 1. We are in discussion with the FSA regarding our overall assessment under Pillar 2.

PENSION FUND (RETIREMENT BENEFIT OBLIGATIONS)

The majority of Group employees are members of the Nationwide Pension Fund (the Fund). The Group operates both Final Salary and Career Average Revalued Earnings (CARE) defined benefit arrangements.

The valuation of the Fund at 4 April 2007 resulted in a deficit of £163.0 million (2006 - £283.6 million) using the methodology set out in IAS 19. Our total retirement benefit liability under IAS 19, including other schemes, is £172.4 million (2006 - £294.2 million). We have been actively managing our retirement benefit liability and have taken a number of steps to contain and reduce the deficit over time:

• final salary arrangements closed to new members since December 2001.
• employee contributions (final salary arrangements) increased from 5% to 7%.
• special contributions of £150 million paid in the period 2005/06 - 2006/07.
• the Fund's Trustees have worked closely with their advisors to optimise the investment strategy for the Fund's assets.

We will continue to review our options to manage the Fund in a timely and responsible way. A full triennial valuation of the Fund as at 31 March 2007 is to be undertaken. The results will not be available until later in 2007, after which a plan will be agreed with the Trustees to manage the ongoing funding of the scheme.

Mark Rennison
Group Finance Director
16 May 2007

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CONSOLIDATED INCOME STATEMENT
For the year ended 4 April 2007

		2007 £m	2006 £m
Interest receivable and similar income	3	6,890.9	5,799.9
Interest expense and similar charges	4	5,411.6	4,565.6
Net interest income		1,479.3	1,234.3
Fees and commissions income		335.4	309.3
Fees and commissions expense		(3.6)	(2.9)
Premiums on insurance contracts and fair value gains on insurance assets	5	224.9	278.9
Income from investments		23.1	7.9
Other operating income		36.0	25.5
Gains from derivatives and hedge accounting		0.9	10.9
Total income		2,096.0	1,863.9
Insurance claims and change in liabilities		169.9	208.4
Total income net of claims on insurance contracts		1,926.1	1,655.5
Administrative expenses	6	984.5	873.7
Depreciation and amortisation		124.4	117.5
Impairment losses on loans and advances to customers	7	133.6	76.6
Provisions for liabilities and charges	8	36.5	32.1
Impairment gains on investment securities		(4.9)	(3.6)
Profit before tax		652.0	559.2
Taxation		188.4	162.0
Profit after tax		463.6	397.2

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CONSOLIDATED BALANCE SHEET
At 4 April 2007

	Note	2007 £m	2006 £m
ASSETS
Cash and balances with the Bank of England		364.0	368.6
Loans and advances to banks		1,490.1	1,364.0
Investment securities - available for sale		15,600.6	13,007.7
Derivative financial instruments		1,071.6	674.2
Insurance and other financial assets at fair value		-	1,918.2
Fair value adjustment for portfolio hedged risk		(619.5)	(52.2)
Loans and advances to customers	10	115,938.4	101,347.6
Investments in equity shares		36.7	22.0
Value in force of life insurance contract business		-	125.4
Intangible fixed assets		106.1	80.5
Property, plant and equipment		663.7	648.0
Investment properties		15.1	279.1
Accrued income and expenses prepaid		76.3	283.7
Deferred tax assets		77.2	110.0
Other assets		161.6	409.2
Assets classified as held for sale	9	2,396.6	-
Total assets		137,378.5	120,586.0
LIABILITIES
Shares		86,795.4	80,918.6
Deposits from banks		3,288.7	2,697.4
Other deposits		3,406.7	3,161.4
Due to customers		2,926.1	2,608.3
Debt securities in issue		28,871.7	20,767.6
Fair value adjustment for portfolio hedged risk		(30.2)	53.9
Derivative financial instruments		703.2	714.7
Insurance contract liabilities		-	1,190.5
Other liabilities		515.8	404.9
Provisions for liabilities and charges	8	50.3	40.3
Accruals and deferred income		367.0	230.1
Subordinated liabilities	11	1,617.0	1,446.3
Subscribed capital	11	1,045.4	741.2
Current tax liabilities		93.2	174.3
Retirement benefit obligations		172.2	294.2
Liabilities directly associated with assets classified as held for sale	9	2,090.7	-
Total liabilities		131,914.1	115,554.6
General reserve	12	5,295.8	4,825.6
Revaluation reserve	13	128.2	117.0
Available for sale reserve	14	40.4	88.8
Total equity & liabilities		137,378.5	120,586.0

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CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the year ended 4 April 2007

	Notes	2007 £m	2006 £m
Available for sale investments - net fair value (loss)/gain	14	(69.0)	55.3
Property revaluation	13	21.4	24.1
Actuarial gain/(loss) on retirement benefit obligations		1.6	(6.1)
Taxation on items through reserves		15.4	(23.4)
Net income recognised directly in reserves		(30.6)	49.9
Net profit for year		463.6	397.2
Total recognised income and expense for the year		433.0	447.1
Impacts arising from changes in accounting policies
Adoption of IFRS 4 and IAS 39		-	33.3
Tax on adoption of IFRS 4 and IAS 39		-	(12.6)
Adoption of IFRS 4 and IAS 39		-	20.7

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CONSOLIDATED CASH FLOW STATEMENT
For the year ended 4 April 2007

	Note	2007 £m	2006 £m
Cash flows from operating activities
Profit before tax		652.0	559.2
Adjustments for:
Non-cash items included in profit before tax	15	272.6	133.1
Changes in operating assets	15	(13,664.1)	(10,110.1)
Changes operating liabilities	15	15,724.3	8,519.8
Interest paid on subordinated liabilities		(68.2)	(54.8)
Interest paid on subscribed capital		(44.9)	(46.8)
Taxation		(178.3)	(149.5)
Cash flow from operating activities		2,693.4	(1,149.1)
Cash flows from investing activities
Purchase of investment securities		(10,983.8)	(9,989.9)
Sale and maturity of investment securities		9,268.7	10,286.5
Purchase of property, plant and equipment		(111.2)	(76.9)
Sale of property, plant and equipment		21.7	1.9
Purchase of investment properties		(5.4)	(23.1)
Sale of investment properties		286.6	5.0
Purchase of intangible fixed assets		(58.6)	(77.6)
Cash flow from investing activities		(1,582.0)	125.9
Cash flows from financing activities
Issue of subordinated liabilities		201.8	-
Issue of subordinated capital		347.3	-
Cash flows from financing activities		549.1	-
Net increase/(decrease) in cash		1,660.5	(1023.2)
Cash and cash equivalents at start of year		3,962.1	4,985.3
Cash and cash equivalents at end of year	15	5,622.6	3,962.1

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NOTES TO THE PRELIMINARY RESULTS ANNOUNCEMENT

1 Reporting period

These results have been prepared as at 4 April 2007 and show the financial performance for the year from, and including, 5 April 2006 to this date.

2 Basis of preparation

The 2007 preliminary results have been prepared in line with International Financial Reporting Standards accounting policies ('IFRS') as adopted by the European Union and in effect for the year ending 4 April 2007. The accounting polices adopted for use in the preparation of this Preliminary Results Announcement and which will be used in preparing the Annual Report and Accounts for the year ending 4 April 2007 were included in the 'Annual Report & Accounts 2006' document. Copies of this document are available at www.nationwide.co.uk/about_nationwide/results_and_accounts/default.htm.

3 Interest receivable and similar income

	2007 £m	2006 £m
On loans fully secured on residential property	5,029.7	4,481.8
On other loans	879.8	743.6
On investment securities	703.3	548.4
On other liquid assets	132.4	64.8
Other interest receivable	1.4	1.1
Net income/(expense) on financial instruments hedging assets	33.2	(127.8)
Expected return on pension assets	111.1	88.0
	6,890.9	5,799.9

4.Interest expense and similar charges

	2007 £m	2006 £m
On shares	3,489.9	3,126.0
On subscribed capital	51.0	47.1
On deposits and other borrowings
- Subordinated liabilities	68.8	64.8
- Other	488.3	379.8
Debt securities in issue	1,155.5	830.0
Foreign exchange differences	2.6	2.3
Net expense on financial instruments hedging liabilities	64.0	35.6
Pension interest cost	92.1	80.0
	5,411.6	4,565.6

5 Premiums on insurance contracts and fair value gains on insurance assets

	2007 £m	2006 £m
Net insurance premiums receivable	163.6	146.9
Fair value gains on insurance assets	61.3	132.0
	2,249.9	278.9

Under IFRS, tax on policyholder investment returns is required to be included in the Group's tax charge rather than being offset against the related income, as it is in the actual distributions made to policyholders. The impact is, therefore, to either increase or decrease profit before tax with a corresponding change in the tax charge. Fair value gains on insurance assets therefore include a gain of £2.0 million (2006 - gain of £8.9 million) on policyholder assets which are offset by tax charges

6 Administrative expenses

	Year ended 4 April 2007 £m	Year ended 4 April 2006 £m
Employee costs
- Wages and salaries	385.8	348.7
- Social security costs	29.1	29.6
- Pension costs - defined benefit plans	94.2	81.1
	509.1	459.4
Other administrative expenses	475.4	414.3
	984.5	873.7

7 Impairment provisions on loans and advances

	2007 £m	2006 £m
Impairment charge for the year
Loans fully secured on residential property:	0.2	0.9
Loans fully secured on land:	0.3	2.0
Other loans:	133.1	76.6
Total	133.6	76.6
Impairment provision at the end of the period
Loans fully secured on residential property:	30.4	31.9
Loans fully secured on land:	30.6	32.8
Other loans:	142.8	91.9
Total	203.8	156.6

These provisions have been deducted from the appropriate asset values in the balance sheet.

8 Provisions for liabilities and charges

	2007 £m	2006 £m
At 5 April 2006	40.3	49.0
Provisions utilised	(26.5)	(40.8)
Charge for the year	36.5	32.1
At 4 April 2007	50.3	40.3

The charge for the year relates to various customer claims. It is expected that the liability will predominantly crystallise over the next 12 - 24 months.

9 Assets classified as held for sale and associated liabilities

On 7 February 2007 the Group announced the proposed sale of its life, investment and pensions subsidiaries, Nationwide Life Limited and Nationwide Unit Trust Managers Limited to Legal & General. Consequently, the assets and liabilities of these undertakings are disclosed separately as required by IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations).

The proceeds of disposal are expected to exceed the carrying value of the related net assets and, accordingly, no losses have been recognised on the classification of these operations as discontinuing.

The major assets and liabilities of these undertakings are as follows:

Balance Sheet	2007 £m	2006 £m
ASSETS
Loans and advances to banks	198.8	-
Insurance assets at fair value	1,909.6	-
Other assets	288.2	-
Total assets held for sale	2,396.6	-
LIABILITIES
Deposits from banks	875.0	-
Insurance contract liabilities	1,178.0	-
Other liabilities	37.7	-
Total liabilities directly associated with assets classified as held for sale	2,090.7	-

10 Loans and advances to customers

	2007 £m	2006 £m
Loans fully secured on residential property	101,883.3	89,587.4
Loans fully secured on land	10,072.2	8,050.2
Other loans	4,084.1	3,592.3
	116,039.6	101,229.9
Fair value adjustment for micro hedged risk	(101.2)	117.7
	115,938.4	101,347.6

Loans fully secured on land include £524.2 million (2006 - £578.7 million) of loans which are fully secured on residential property but are classified as 'loans fully secured on land' in accordance with the Building Societies Act 1997.

	2007 £m	2006 £m
Residential mortgages	88,794.6	78,256.4
Commercial	17,854.9	14,535.4
UCB self-certified lending	3,817.0	4,298.6
UCB buy to let	2,741.8	1,660.2
Unsecured personal lending	2,030.6	1,740.6
Credit card	746.1	670.1
Overdrawn current accounts	258.4	225.2
	116,243.4	101,386.5
Impairment provisions	(203.8)	(156.6)
Fair value adjustment for micro hedged risk	(101.2)	117.7
	115,938.4	101,347.6

11 Subordinated liabilities and subscribed capital

	2007 £m	2006 £m
Subordinated liabilities
Subordinated notes	1,622.1	1,484.0
Fair value adjustment for micro hedged risk	2.2	(30.7)
Unamortised premiums and issue costs	(7.3)	(7.0)
	1,617.0	1,446.3
Subscribed capital
Permanent interest bearing shares	1,050.0	700.0
Fair value adjustment for micro hedged risk	5.9	49.4
Unamortised premiums and issue costs	(10.5)	(8.2)
	1,045.4	741.2

11 Subordinated liabilities and subscribed capital (continued)

All of the Society's subordinated notes and permanent interest bearing shares (PIBS) are unsecured. The Society may, with the prior consent of the FSA, redeem some of the subordinated notes early. The PIBS are repayable, after various specified dates, at the option of the Society with the prior consent of the FSA.

€300 million of subordinated floating rate loan notes were issued on 21 December 2006. These 10 year notes are callable by Nationwide after the fifth anniversary or on coupon dates thereafter. In the event that the notes are not redeemed after the fifth anniversary the initial margin of 0.22% over Euribor will increase to 0.72%.

£350 million of PIBS were issued on 30 January 2007. These 6.024% PIBS are repayable, at the option of Nationwide, in whole in February 2013 or at any interest coupon date thereafter. If the PIBS are not repaid on their first call date then the interest rate is reset at a margin of 50bps over 3 month LIBOR. If the PIBS have not been repaid after 6 February 2018, the interest rate is reset at a margin of 150bps over 3 month LIBOR.

The subordinated notes rank pari passu with each other and behind claims against the Society of all depositors, creditors and investing members. The PIBS rank pari passu with each other and behind claims of the subordinated notes. The claims of the PIBS holders in a winding-up or dissolution of the Society would be restricted to the principal amount of the PIBS together with the interest accrued.

12 General reserve

Movements in general reserve were as follows:	2007 £m	2006 £m
At 4 April 2005		4,406.6
Adoption of IFRS 4 and IFRS 39		(27.9)
At 5 April 2006	4,825.6	4,432.7
Profit for the year	463.6	397.2
Actuarial gain/(loss) on retirement benefit obligations	1.6	(6.1)
Taxation on actuarial gain/(loss) on retirement benefit obligations	(0.4)	1.8
Transfer from the revaluation reserve	5.4	4,406.6
At 4 April 2007	5,295.8	4,825.6

During the period an impairment gain of £4.9 million (2006 - gain of £3.6 million) has been recognised in the income statement as a result of an improvement in the credit quality of available for sale investment securities. As a consequence, on a cumulative basis, an impairment loss of £5.6 million (2006 - £10.5 million) has been charged to the general reserve.

 

13 Revaluation reserve

Movements in the revaluation reserve were as follows:	2007 £m	2006 £m
At 5 April 2006	117.0	103.0
Revaluation increase on land and buildings	21.4	24.1
(Increase) in deferred tax liability on revaluation of land and buildings	(4.8)	(10.1)
Transfer to the general reserve	(5.4)	-
At 4 April 2007	128.2	117.0

 

14 Available for sale reserve

Movements in the available for sale reserve were as follows:	2007 £m	2006 £m
At 4 April 2005		-
Adoption of IAS 39		48.6
At 5 April 2005	88.8	48.6
Net (losses)/gains from changes in fair value	(73.2)	59.8
Amounts transferred to income statement on disposal and impairment	4.2	(4.5)
Decrease/(Increase) in tax liability	(20.6)	(15.1)
At 4 April 2007	40.4	88.8

15 Notes to the cash flow statement

	2007 £m	2006 £m
Non-cash items included in profit before tax
Net increase/(decrease) in impairment provisions	47.3	(70.8)
Impairment (gains)/losses on investment securities	(4.9)	(3.6)
Depreciation and amortisation	124.4	117.5
(Profit) on sale of land and buildings	(10.5)	(1.6)
Interest on subordinated liabilities	68.8	64.8
Interest on subscribed capital	51.0	47.1
(Gain) on the revaluation of property plant and equipment	(0.9)	(3.5)
(Gain)/loss on revaluation of investment properties	(1.7)	(5.9)
(Gains) from derivatives and hedge accounting	(0.9)	(10.9)
	272.6	133.1
Changes in operating assets *
Loans and advances to banks	(10.4)	(21.5)
Investment securities	468.2	(409.0)
Derivative financial instruments and fair value adjustment for portfolio hedged risk	389.7	(595.7)
Other financial instruments at fair value	159.8	(463.5)
Loans and advances to customers	(14,857.0)	(8,437.2)
Other operating assets	185.6	(183.2)
	(13,664.1)	(10,110.1)
Changes in operating liabilities *
Shares	5,876.8	8,324.5
Deposits from banks, customers and other	1,966.8	954.4
Derivative financial liabilities and fair value adjustment for portfolio hedged risk	(96.6)	609.5
Debt securities in issue	8,104.1	(1,610.0)
Insurance contract liabilities	38.2	58.4
Retirement benefit obligations	(120.2)	(57.4)
Other operating liabilities	(45.8)	240.4
	15,724.3	8,519.8

NOTES TO THE PRELIMINARY RESULTS ANNOUNCEMENT

15 Notes to the cash flow statement (continued)

* The 'Changes in operating assets' categories of 'Loans and advances to banks', 'Other financial assets at fair value' and 'Other operating assets' include movements in assets classified as 'Assets classified as held for sale' on the balance sheet.

The 'Changes in operating liabilities' categories of 'Deposits from banks, customers and others', 'Insurance contracts liabilities' and 'Other operating liabilities' include movements in liabilities classified as 'Liabilities directly associated with assets classified as held for sale' on the balance sheet.

	2007 £m	2006 £m
Cash and cash equivalents
Cash and balances with the Bank of England	364.0	368.6
Loans and advances to other banks repayable in 3 months or less **	1,779.2	1,460.0
Investment securities with a maturity period of 3 months or less	3,479.4	2,133.5
	5,622.6	3,962.1

**The loans and advances to other banks repayable in 3 months or less include amounts classified as 'Other financial assets at fair value' and amounts classified as 'Assets classified as held for sale' on the balance sheet.

The group is required to maintain balances with the Bank of England which, at 4 April 2007, amounted to £152.1 million (2006 - £138.8 million). These balances are included within loans and advances to banks on the balance sheet and are not included in the cash and cash equivalents in the cash flow statement as they are not liquid in nature.

16 Segmental reporting

2007	Personal Financial Services £m	Commercial £m	Group £m	Total £m
Net interest income	1,244.5	973.3	(738.5)	1,479.3
Transfers between segments in respect of funding	(142.4)	(756.5)	898.9	-
	1,102.1	216.8	160.4	1,479.3
Other income	388.7	45.2	12.0	445.9
Total revenue	1,490.8	262.0	172.4	1,925.2
Expenses (note i)	1,164.7	37.2	72.2	1,274.1
Segment results (note ii)	326.1	224.8	100.2	651.1
Gains from derivatives and hedge accounting				0.9
Profit before tax				652.0
Taxation				188.4
Profit after tax				463.6

2006	Personal Financial Services £m	Commercial £m	Group £m	Total £m
Net interest income	1,116.0	898.3	(780.0)	1,234.3
Transfers between segments in respect of funding	(194.7)	(698.7)	893.4	-
	921.3	199.6	113.4	1,234.3
Other income	360.7	37.3	12.3	410.3
Expenses (note i)	(1,002.2)	(42.7)	(51.4)	(1,096.3)
Segment results (note ii)	279.8	194.2	74.3	548.3
Gains from derivatives and hedge accounting				10.9
Profit before tax				559.2
Taxation				162.0
Profit after tax				397.2

Notes

(i) Expenses includes impairment losses on loans and advances to customers, provisions for liabilities and charges and impairment gains on investments but excludes gains from derivatives and hedge accounting.
(ii) The Personal Financial Services segment differs from the corresponding underlying result in the Business Review (see page 11) as the latter excludes the tax attributable to policyholder earnings. The Group segment differs from the corresponding underlying result in the Business Review (see page 17) as the latter excludes costs relating to the planned merger and the disposal of Nationwide's life, investment and pensions subsidiaries.

The Group operates predominantly in the UK and the Isle of Man and accordingly no geographical analysis has been presented.

ADDITIONAL INFORMATION

a) Personal Financial Services (PFS) loan portfolio

The average loan to value ('LTV') ratio of the Group's PFS loan portfolio is estimated at 39% (4 April 2006 - 39%) whilst the average LTV of new residential mortgage lending was 58% (4 April 2006 - 55%). Further LTV information on the Group's PFS loan portfolio is set out as follows:

2006	2007 %	2006 %
Loan to value analysis:
Total book
<70%	87	88
70% - 80%	7	6
80% - 90%	5	5
>90%	1	1
Average loan to value of stock (indexed)	39	39
Average loan to value of new business	58	55
New business profile:
First time buyers	19	15
Home movers	31	25
Remortgagers	46	57
Buy to let	4	3

b) PFS and commercial loan payment due status

The table below provides further information on PFS loans and advances by payment due status:

	2007		2006
	£bn	%	£bn	%
Not impaired:
Neither past due nor impaired	96.6	98	85.2	98
Past due up to 3 months but not impaired	1.4	2	1.4	2
Impaired:
Past due 3 to 6 months	0.2	-	0.2	-
Past due 6 to 12 months	0.1	-	0.1	-
Past due over 12 months (£37.1 million)	-	-	-	-
Possessions* (£13.5 million)	-	-	-	-
	98.3	100	86.9	100

* Against possession cases, £13.0 million of collateral is held.

Loans in the analyses above which are less then 3 months past due have collective impairment allowances set aside to cover credit losses on loans which are in the early stages of arrears.

b) PFS and commercial loan payment due status (continued)

The table below provides further information on commercial loans by payments due status:

	2007		2006
	£bn	%	£bn	%
Not impaired:
Neither past due nor impaired	17.2	97	14.1	97
Past due up to 3 months but not impaired	0.6	3	0.4	3
Impaired:
Past due 3 to 6 months (£30.5 million)	-	-	-	-
Past due 6 to 12 months (£50.2 million)	0.1	-	-	-
Past due over 12 months (£17.9 million)	-	-	-	-
	17.9	100	14.5	100

Loans in the analyses above which are less than 3 months past due have collective impairment allowances set aside to cover credit losses on loans which are in the early stages of arrears.

OTHER INFORMATION

The financial information set out in this announcement which was approved by the Board on 16 May 2007, does not constitute accounts within the meaning of section 73 of the Building Societies Act 1986.

The Annual Accounts for the year ended 4 April 2006 have been filed with the Financial Services Authority and Registry of Friendly Societies in England and Wales. The Auditors' Report on these Annual Accounts was unqualified. The Annual Accounts for the year ended 4 April 2007 will be lodged with the Financial Services Authority and the Registry of Friendly Societies following publication.

This announcement will also be available on the Nationwide Building Society website, www.nationwide.co.uk, from 17 May 2007.

CONTACTS

Alan Oliver
07850 810745 (mobile)
alanm.oliver@nationwide.co.uk

Steve Cowdry
01793 657112
07850 810746 (mobile)
steve.cowdry@nationwide.co.uk

Rosemary Callender
07770 634531 (mobile)
rosemary.callender@nationwide.co.uk

These materials are not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering to be made in the United States will be made by the means of a prospectus that may be obtained from the Society and will contain detailed information about the Society and management as well as financial statements.

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