Directors' report

Business review - Our 2007 performance

Income statement reconciliation

The Statutory Income Statement and Balance Sheet are summarised in the Directors' Report in order to provide a simpler view of the financial statements, more closely aligned with the presentation used on a day-to-day basis by the Board and management of the Group. In the simplified financial statements, certain items are either grouped together or sub-divided from those presented in the statutory financial statements. Differences of presentation are explained in the diagrams below.

1. The sum of interest received on mortgages, loans and wholesale assets of the Group less the interest cost of funding these loans payable to retail depositors and wholesale investors.
2. Total fees and commissions earned on the sale of financial products, any net gains or losses on the sale of assets.
3. Changes in the value of instruments used to manage risk on our balance sheet and accounting volatility that can have a distorting effect on financial performance in single reporting periods.
4. Total expenditure of the Group on wages and salaries, property leases, other consumable items such as marketing and information technology, depreciation on assets and costs associated with other services purchased.
5. The amount provided in the year to cover the estimated cost of claims for mis-selling relating to the IFA business, which was closed in 2004.
6. The amount charged to allow for any reduction in the value of assets, for example, losses arising when customers fail to repay the interest and balance on their mortgages.
7. Impairment of SIVs and CDOs.
8. The loss on sale of the commercial property and housing association lending books.
9. The net earnings of the business, after satisfying all commitments but before any payment of taxation and the effects of 3, 5, 7 and 8 above.