Directors' report

Chairman and Chief Executive's introduction - Capital and dividend

We initiated a share buy-back in July 2007 in a move to improve the structure of our capital by changing the proportions of equity and interest bearing tier 1 capital on our balance sheet. As market conditions deteriorated it made sense to suspend our buy-back programme until greater stability returns to the capital markets. We will continue to review the amount and structure of our capital in the context of our strategy to grow our lending and market conditions. Our tier 1 ratio is improved at 8.6% (2006: 7.6%).

The Board is pleased to propose a final dividend of 14.3 pence per share (2006: 13.4 pence) for payment on 2 May 2008 to shareholders on the register as at 25 March 2008. If approved, the full year dividend for 2007 will be 21.0 pence per share (2006: 20.0 pence), an increase of 5%, reflecting our underlying profit growth.