Amounts in accordance with UK GAAP

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Summary consolidated profit and loss account – UK GAAP	2004 £m	2003 £m
Net interest income	9,208	8,301
Non-interest income	13,546	10,980
Total income	22,754	19,281
Operating expenses excluding goodwill amortisation ⁽¹⁾	9,931	8,753
Goodwill amortisation	915	763
General insurance claims (net)	3,480	2,195
Profit before provisions	8,428	7,570
Provisions for bad and doubtful debts	1,428	1,461
Amounts written off fixed asset investments	83	33
Profit on ordinary activities before tax	6,917	6,076
Tax on profit on ordinary activities	2,155	1,888
Profit on ordinary activities after tax	4,762	4,188
Minority interests (including non-equity)	250	210
Preference dividends – non-equity	256	261
	4,256	3,717
Additional Value Shares dividend – non-equity	–	1,463
Profit attributable to ordinary shareholders	4,256	2,254

Note:

(1) Includes integration expenditure of £269 million in 2004 (2003 – £229 million).

Summary consolidated balance sheet – UK GAAP	2004 £m	2003 £m
Loans and advances to banks (net of provisions)	58,260	51,891
Loans and advances to customers (net of provisions)	345,469	252,531
Debt securities and equity shares	94,171	82,249
Intangible fixed assets	17,576	13,131
Other assets	67,991	54,626
Total assets	583,467	454,428

Called up share capital	822	769
Share premium account	12,964	8,175
Other reserves	10,856	11,307
Profit and loss account	7,223	5,847
Shareholders' funds	31,865	26,098
Minority interests	3,829	2,713
Subordinated liabilities	20,366	16,998
Total capital resources	56,060	45,809
Deposits by banks	99,081	67,323
Customer accounts	285,062	236,963
Debt securities in issue	58,960	41,016
Other liabilities	84,304	63,317
Total liabilities	583,467	454,428

The per share data in the table below have been restated for the effect of the bonus issue of ordinary shares in May 2007.

Other financial data based upon UK GAAP	2004	2003
Earnings per ordinary share – pence	46.0	25.6
Diluted earnings per ordinary share – pence ⁽¹⁾	45.6	25.4
Adjusted earnings per ordinary share – pence	57.5	52.4
Dividends per ordinary share – pence	19.3	16.8
Dividend payout ratio ⁽²⁾	35%	32%
Share price per ordinary share at period end – £	5.84	5.49
Market capitalisation at period end – £bn	55.6	48.8
Net asset value per ordinary share – £	2.87	2.61
Return on average total assets ⁽³⁾	0.82%	0.51%
Return on average equity shareholders' funds ⁽⁴⁾	16.0%	9.8%
Adjusted return on average equity shareholders' funds ⁽⁵⁾	20.1%	20.1%
Average shareholders' equity as a percentage of average total assets	5.7%	5.9%
Risk asset ratio
– Tier 1	7.0%	7.4%
– Total	11.7%	11.8%
Ratio of earnings to combined fixed charges and preference share dividends ⁽⁵⁾
– including interest on deposits	1.84	1.95
– excluding interest on deposits	7.09	7.08
Ratio of earnings to fixed charges only ⁽⁶⁾
– including interest on deposits	1.90	2.04
– excluding interest on deposits	9.26	9.73

(1) Convertible preference shares have not been included in the computation of diluted earnings per share as their effect was anti-dilutive.

(2) Dividend payout ratio represents the interim dividend paid and the current year final dividend proposed as a percentage of profit attributable to ordinary shareholders before integration costs, goodwill amortisation, and the AVS dividend in 2003, (net of tax).

(3) Return on average total assets represents profit attributable to ordinary shareholders as a percentage of average total assets.

(4) Return on average equity shareholders' funds represents profit attributable to ordinary shareholders expressed as a percentage of average equity shareholders' funds.

(5) Adjusted return on average equity shareholders' funds represents profit attributable to ordinary shareholders before integration costs, goodwill amortisation and the AVS dividend, in 2003 expressed as a percentage of average equity shareholders' funds.

(6) For this purpose, earnings consist of income before tax and minority interests, plus fixed charges less the unremitted income of associated undertakings (share of profits less dividends received). Fixed charges consist of total interest expense, including or excluding interest on deposits and debt securities in issue, as appropriate, and the proportion of rental expense deemed representative of the interest factor (one third of total rental expenses).

Analysis of loans and advances to customers

The following table analyses loans and advances to customers before provisions by geographical area and type of customer.

	UK GAAP
	2004 £m	2003 £m
UK
Central and local government	1,866	1,217
Manufacturing	6,292	6,384
Construction	5,024	3,960
Finance	25,157	18,948
Service industries and business activities	30,850	29,290
Agriculture, forestry and fishing	2,480	2,562
Property	26,445	19,670
Individuals – home mortgages	57,529	48,117
– other	27,863	25,526
Finance leases and instalment credit	13,083	11,703
Total domestic	196,589	167,377
Overseas residents	44,053	27,168
Total UK offices	240,642	194,545

Overseas
US	74,045	40,373
Rest of the World	35,004	21,535
Total overseas offices	109,049	61,908
Loans and advances to customers – gross	349,691	256,453
Provisions for bad and doubtful debts	(4,222)	(3,922)
Loans and advances to customers – net	345,469	252,531

Fixed rate	100,729	81,918
Variable rate	248,962	174,535
Loans and advances to customers – gross	349,691	256,453

Cross border exposures

The table below sets out the Group's cross border outstandings in excess of 0.75% of Group total assets (including acceptances), which totalled £583.8 billion at 31 December 2004 (2003 – £455.0 billion). None of these countries has experienced repayment difficulties that have required refinancing of outstanding debt.

	UK GAAP
	2004 £m	2003 £m
United States	28,795	14,618
Germany	14,050	15,073
France	9,604	7,524
Netherlands	8,871	6,830
Cayman Islands	7,258	6,666
Spain	5,249	3,421
Japan	4,610	4,141

Provisions for bad and doubtful debts

The following table shows the elements of provisions for bad and doubtful debts under UK GAAP.

	UK GAAP
	2004 £m	2003 £m
Provisions at the beginning of the year
Domestic	2,452	2,581
Foreign	1,477	1,346
	3,929	3,927
Currency translation and other adjustments
Domestic	(8)	(2)
Foreign	(90)	(60)
	(98)	(62)
Acquisitions of businesses
Domestic	2	–
Foreign	288	50
	290	50
Amounts written-off
Domestic	(920)	(1,097)
Foreign	(548)	(422)
	(1,468)	(1,519)
Recoveries of amounts written-off in previous years
Domestic	88	38
Foreign	59	34
	147	72
Charged to profit and loss account
Domestic	986	932
Foreign	442	529
	1,428	1,461
Provisions at the end of the year ⁽¹⁾
Domestic	2,600	2,452
Foreign	1,628	1,477
	4,228	3,929
Gross loans and advances to customers
Domestic	196,589	167,377
Foreign	153,102	89,076
	349,691	256,453
Closing customer provisions as a % of gross loans and advances to customers ⁽²⁾
Domestic	1.32%	1.46%
Foreign	1.06%	1.65%
Total	1.21%	1.53%
Customer charge against profit as a % of gross loans and advances to customers
Domestic	0.50%	0.56%
Foreign	0.29%	0.59%
Total	0.41%	0.57%

Notes:

(1) Includes closing provisions against loans and advances to banks of £6 million in 2004 (2003 – £7 million).

(2) Closing customer provisions exclude closing provisions against loans and advances to banks.

The following table shows additional information with respect to the provisions for bad and doubtful debts under UK GAAP.

	UK GAAP
	2004 £m	2003 £m
Loans and advances to customers (gross)	349,691	256,453
Provisions at end of year:
Specific provisions – customers	3,648	3,356
– banks	6	7
General provision	574	566
	4,228	3,929
Customer provision at end of year as % of loans and advances to customers at end of year:
Specific provisions	1.04%	1.31%
General provision	0.17%	0.22%
	1.21%	1.53%

Average loans and advances to customers (gross)	298,150	245,798

As a % of average loans and advances to customers during the year:
Total customer provisions charged to profit and loss	0.48%	0.59%

Amounts written-off (net of recoveries) – customers	0.44%	0.59%

Analysis of closing provisions for bad and doubtful debts

The following table analyses customer provisions for bad and doubtful debts by geographical area and type of domestic customer.

	Closing provision £m	% of loans to total loans %	Closing provision £m	% of loans to total loans %
	UK GAAP
	2004		2003
Domestic
Central and local government	–	0.5	–	0.5
Manufacturing	127	1.8	156	2.5
Construction	71	1.4	56	1.5
Finance	54	7.2	34	7.4
Service industries and business activities	516	8.8	599	11.4
Agriculture, forestry and fishing	23	0.7	20	1.0
Property	64	7.6	58	7.7
Individuals – home mortgages	32	16.5	35	18.8
– other	1,318	8.0	1,003	9.9
Finance leases and instalment credit	122	3.7	136	4.6
Total domestic	2,327	56.2	2,097	65.3
Foreign	1,321	43.8	1,259	34.7
Specific provisions	3,648	100.0	3,356	100.0
General provision	574		566
Total provisions	4,222		3,922

Analysis of write-offs

The following table analyses amounts written-off by geographical area and type of domestic customer.

	UK GAAP
	2004 £m	2003 £m
Domestic
Manufacturing	55	99
Construction	12	22
Finance	19	54
Service industries and business activities	163	393
Agriculture, forestry and fishing	9	4
Property	33	6
Individuals – home mortgages	4	2
– others	535	357
Finance leases and instalment credit	90	160
Total domestic	920	1,097
Foreign	548	422
Total write-offs	1,468	1,519

Analysis of recoveries

The following table analyses recoveries of amounts written-off by geographical area and type of domestic customer.

	UK GAAP
	2004 £m	2003 £m
Domestic
Manufacturing	1	–
Finance	2	–
Service industries and business activities	1	3
Individuals – home mortgages	1	–
– others	81	26
Finance leases and instalment credit	2	9
Total domestic	88	38
Foreign	59	34
Total recoveries	147	72

Risk elements in lending and potential problem loans

The Group's loan control and review procedures do not include the classification of loans as non-accrual, accruing past due, restructured and potential problem loans, as defined by the SEC in the US. The following table shows the estimated amount of loans that would be reported using the SEC's classifications. The figures incorporate estimates and are stated before deducting the value of security held or related provisions.

	UK GAAP
	2004 £m	2003 £m
Loans accounted for on a non-accrual basis ⁽³⁾:
Domestic	3,705	3,221
Foreign	1,075	1,211
Total	4,780	4,432
Accruing loans which are contractually overdue 90 days or more as to principal or interest ⁽⁴⁾:
Domestic	646	561
Foreign	79	81
Total	725	642
Loans not included above which are classified as 'troubled debt restructurings' by the SEC:
Domestic	14	53
Foreign	10	30
Total	24	83
Total risk elements in lending	5,529	5,157

Potential problem loans ⁽⁵⁾
Domestic	173	492
Foreign	107	99
Total potential problem loans	280	591

Closing provisions for bad and doubtful debts as a % of total risk elements in lending	76%	76%
Closing provisions for bad and doubtful debts as a % of total risk elements in lending and potential problem loans	73%	68%
Risk elements in lending as a % of gross loans and advances to customers excluding reverse repos	1.86%	2.22%

Notes:

(1) For the analysis above, 'Domestic' consists of the UK domestic transactions of the Group. 'Foreign' comprises the Group's transactions conducted through offices outside the UK and through those offices in the UK specifically organised to service international banking transactions.

(2) The classification of a loan as non-accrual, past due 90 days or troubled debt restructuring does not necessarily indicate that the principal of the loan is uncollectable in whole or in part. Collection depends in each case on the individual circumstances of the loan, including the adequacy of any collateral securing the loan and therefore classification of a loan as non-accrual, past due 90 days or troubled debt restructuring does not always require that a provision be made against such a loan. In accordance with the Group's provisioning policy for bad and doubtful debts, it is considered that adequate provisions for the above risk elements in lending have been made.

(3) The Group's UK banking subsidiary undertakings account for loans on a non-accrual basis from the point in time at which the collectability of interest is in significant doubt. Certain subsidiary undertakings of the Group, principally Citizens, generally account for loans on a non-accrual basis when interest or principal is past due 90 days.

(4) Overdrafts generally have no fixed repayment schedule and consequently are not included in this category.

(5) Loans that are current as to the payment of principal and interest but in respect of which management has serious doubts about the ability of the borrower to comply with contractual repayment terms. Substantial security is held in respect of these loans and appropriate provisions have already been made in accordance with the Group's provisioning policy for bad and doubtful debts.

	UK GAAP
	2004 £m	2003 £m
Gross income not recognised but which would have been recognised under the original terms of non-accrual and restructured loans
Domestic	237	237
Foreign	58	55
	295	292
Interest on non-accrual and restructured loans included in net interest income
Domestic	58	60
Foreign	7	3
	65	63

Annual Report and Accounts 2007