2007 compared with 2006

Profit

Profit before tax was up 8%, from £9,186 million to £9,900 million. Profit before tax, purchased intangibles amortisation and integration s increased by 9% or £868 million, from £9,414 million to £10,282 million. The results of ABN AMRO are included from the date of acquisition, 17 October 2007.

Total income

The Group achieved strong growth in income during 2007. Total income was up 11% or £3,113 million to £31,115 million, notwithstanding the significant impact of the developments in global credit markets in the second half of 2007.

Net interest income increased by 20% to £12,668 million and represents 41% of total income (2006 – 38%). Average loans and advances to customers and average customer deposits both grew by 26%.

Non-interest income increased by £1,041 million to £18,447 million and represents 59% of total income (2006 – 62%).

Net interest margin

The Group's net interest margin at 2.34% was down from 2.47% in 2006.

Operating expenses

Operating expenses, excluding purchased intangibles amortisation and integration costs, increased by 15% to £14,053 million.

Cost:income ratio

The Group's cost:income ratio was 43.9% compared with 42.1% in 2006.

Net insurance claims

Bancassurance and general insurance claims, after reinsurance, increased by 4% to £4,652 million reflecting adverse weather conditions in the summer of 2007. Excluding the impact of the floods in the summer, net general insurance claims decreased by 7%.

Impairment losses

Impairment losses rose 13% to £2,128 million, compared with £1,878 million in 2006.

Risk elements in lending and potential problem loans represented 1.64% of gross loans and advances to customers excluding reverse repos at 31 December 2007 (2006 – 1.57%).

Provision coverage of risk elements in lending and potential problem loans was 56% (2006 – 62%).

Integration

Integration costs were £108 million compared with £134 million in 2006.

Taxation

The effective tax rate for 2007 was 20.7% (2006 – 29.3%). The headline rate is lower than the standard rate of UK corporation tax of 30% principally due to certain non-taxable capital gains and changes to deferred tax balances following the change in rate of corporation tax.

Earnings and dividends

Basic earnings per ordinary share increased by 18%, from 64.9p to 76.4p. Earnings per ordinary share adjusted for purchased intangibles amortisation and integration costs also increased by 18%, from 66.7p to 78.7p.

A final dividend of 23.1p per ordinary share is recommended, giving a total dividend for the year of 33.2p, an increase of 10%. If approved, the final dividend will be paid on 6 June 2008 to shareholders registered on 7 March 2008. The total dividend is covered 2.4 times by earnings before purchased intangibles amortisation and integration costs.

Balance sheet

Total assets were £1,900.5 billion at 31 December 2007. The acquisition of ABN AMRO in October 2007 increased assets by £774.2 billion, with the balance accounted for largely by growth in our lending to customers and in trading assets.

Lending to customers, excluding repurchase agreements and stock borrowing (“reverse repos”), increased in 2007 by 70% or £283.0 billion to £686.9 billion. Customer deposits, excluding repurchase agreements and stock lending (“repos”), grew by 71% or £227.2 billion to £547.5 billion.

Capital ratios at 31 December 2007 were 7.3% (Tier 1) and 11.2% (Total).

Bonus issue

In May 2007, the Group capitalised £1,576 million of its share premium account by way of a bonus issue of two new ordinary shares of 25p each for every one held.

Profitability

The adjusted after-tax return on ordinary shareholders' equity, which is based on profit attributable to ordinary shareholders before discontinued operations, purchased intangibles amortisation and integration costs, and average ordinary shareholders' equity, was 19.9% compared with 19.0% in 2006.