TIDM94WP
RNS Number : 3007M
Lloyds Bank PLC
27 July 2017
Lloyds Bank plc
Half-Year Management Report
For the half-year to 30 June 2017
Member of the Lloyds Banking Group
FORWARD LOOKING STATEMENTS
This document contains certain forward looking statements with
respect to the business, strategy and plans of Lloyds Bank Group
and its current goals and expectations relating to its future
financial condition and performance. Statements that are not
historical facts, including statements about Lloyds Bank Group's or
its directors' and/or management's beliefs and expectations, are
forward looking statements. By their nature, forward looking
statements involve risk and uncertainty because they relate to
events and depend upon circumstances that will or may occur in the
future. Factors that could cause actual business, strategy, plans
and/or results (including but not limited to the payment of
dividends) to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in such forward
looking statements made by the Lloyds Bank Group or on its behalf
include, but are not limited to: general economic and business
conditions in the UK and internationally; market related trends and
developments; fluctuations in interest rates (including low or
negative rates), exchange rates, stock markets and currencies; the
ability to access sufficient sources of capital, liquidity and
funding when required; changes to the Lloyds Bank Group's or Lloyds
Banking Group plc's credit ratings; the ability to derive cost
savings and other benefits including, but without limitation as a
result of any acquisitions, disposals and other strategic
transactions; changing customer behaviour including consumer
spending, saving and borrowing habits; changes to borrower or
counterparty credit quality; instability in the global financial
markets, including Eurozone instability, instability as a result of
the exit by the UK from the European Union (EU) and the potential
for other countries to exit the EU or the Eurozone and the impact
of any sovereign credit rating downgrade or other sovereign
financial issues; technological changes and risks to the security
of IT and operational infrastructure, systems, data and information
resulting from increased threat of cyber and other attacks;
natural, pandemic and other disasters, adverse weather and similar
contingencies outside the Lloyds Bank Group's or Lloyds Banking
Group plc's control; inadequate or failed internal or external
processes or systems; acts of war, other acts of hostility,
terrorist acts and responses to those acts, geopolitical, pandemic
or other such events; changes in laws, regulations, accounting
standards or taxation, including as a result of the exit by the UK
from the EU, or a further possible referendum on Scottish
independence; changes to regulatory capital or liquidity
requirements and similar contingencies outside the Lloyds Bank
Group's or Lloyds Banking Group plc's control; the policies,
decisions and actions of governmental or regulatory authorities or
courts in the UK, the EU, the US or elsewhere including the
implementation and interpretation of key legislation and
regulation; the ability to attract and retain senior management and
other employees; actions or omissions by the Lloyds Bank Group's
directors, management or employees including industrial action;
changes to the Lloyds Bank Group's post-retirement defined benefit
scheme obligations; the extent of any future impairment charges or
write-downs caused by, but not limited to, depressed asset
valuations, market disruptions and illiquid markets; the value and
effectiveness of any credit protection purchased by the Lloyds Bank
Group; the inability to hedge certain risks economically; the
adequacy of loss reserves; the actions of competitors, including
non-bank financial services, lending companies and digital
innovators and disruptive technologies; and exposure to regulatory
or competition scrutiny, legal, regulatory or competition
proceedings, investigations or complaints. Please refer to the
latest Annual Report on Form 20-F filed by Lloyds Banking Group plc
with the US Securities and Exchange Commission for a discussion of
certain factors together with examples of forward looking
statements. Except as required by any applicable law or regulation,
the forward looking statements contained in this document are made
as of today's date, and Lloyds Bank Group expressly disclaims any
obligation or undertaking to release publicly any updates or
revisions to any forward looking statements. The information,
statements and opinions contained in this document do not
constitute a public offer under any applicable law or an offer to
sell any securities or financial instruments or any advice or
recommendation with respect to such securities or financial
instruments.
CONTENTS
Page
Financial review 1
Principal risks and uncertainties 7
Condensed consolidated half-year financial
statements (unaudited)
Consolidated income statement 8
Consolidated statement of comprehensive income 9
Consolidated balance sheet 10
Consolidated statement of changes in equity 12
Consolidated cash flow statement 15
Notes 17
Statement of directors' responsibilities 48
Independent review report 49
Contacts 51
FINANCIAL REVIEW
Principal activities
Lloyds Bank plc (the Bank) and its subsidiaries (together, the
Group) provide a wide range of banking and financial services in
the UK and overseas.
The Group's revenue is earned through interest and fees on a
broad range of financial services products including current and
savings accounts, personal loans, credit cards and mortgages within
the retail market; loans and capital market products to commercial,
corporate and asset finance customers; life, pensions and
investment products; general insurance; and private banking and
asset management.
Review of results
As a result of the requirements of the ring-fencing regulations,
the Bank expects to sell its subsidiary, Scottish Widows Group
Limited, to its ultimate holding company within the next 12 months.
This is only an internal reorganisation within the Lloyds Banking
Group, but due to the significance of the Scottish Widows entities
they have been classified as discontinued operations for the
purposes of the Bank's consolidated statutory reporting.
Continuing operations
During the half-year to 30 June 2017, the Group recorded a
profit before tax from its continuing operations of GBP2,579
million compared with a profit before tax in the half-year to 30
June 2016 of GBP905 million. The results have been affected by a
number of one-off items. In the half-year to 30 June 2016 the Group
had incurred a loss of GBP993 million on transactions related to
Lloyds Banking Group's tender offers and redemptions in respect of
its Enhanced Capital Notes which completed in March 2016 and a loss
of GBP1,026 million which arose pursuant to a restructuring of the
Bank's capital instruments in June 2016. In the half-year to 30
June the Group has incurred conduct charges of GBP1,211 million
compared to GBP460 million in the half year to 30 June 2016.
Excluding these items from both periods, the Group recorded a
profit before tax of GBP3,790 million in the half-year to 30 June
2017, an increase of GBP463 million, or 14 per cent, from GBP3,384
million in the half-year to 30 June 2016.
Total income increased by GBP2,269 million, or 35 per cent, to
GBP8,730 million in the half-year to 30 June 2017 compared with
GBP6,461 million in the half-year to 30 June 2016, comprising a
GBP1,791 million increase in other income and a GBP478 million
increase in net interest income.
Net interest income was GBP5,941 million in the half-year to 30
June 2017; an increase of GBP478 million compared to GBP5,463
million in the half-year to 30 June 2016. Average interest-earning
assets fell but the net interest margin improved driven by lower
deposit and wholesale funding costs which have more than offset
reduced lending rates.
Other income was GBP1,791 million higher at GBP2,789 million in
the half-year to 30 June 2017 compared to GBP998 million in the
half-year to 30 June 2016. Net fee and commission income was GBP5
million or 1 per cent, lower at GBP941 million compared to GBP946
million in the half-year to 30 June 2016. Net trading income
increased by GBP143 million, or 30 per cent, to GBP615 million in
the half-year to 30 June 2017 compared to GBP472 million in the
half-year to 30 June 2016. Other operating income was GBP1,653
million higher at GBP1,233 million in the half-year to 30 June 2017
compared to a deficit of GBP420 million in the half-year to 30 June
2016. Other operating income in the half-year to 30 June 2016
included the losses on capital transactions totalling GBP2,019
million detailed above but this impact is partly offset by a GBP258
million reduction in gains on sale of available-for-sale financial
assets. Losses of GBP15 million on liability management actions in
the half-year to 30 June 2017 compared to gains of GBP147 million
in the half-year to 30 June 2016.
Financial review (continued)
Operating expenses increased by GBP754 million, or 15 per cent
to GBP5,948 million in the half-year to 30 June 2017 compared with
GBP5,194 million in the half-year to 30 June 2016. A provision of
GBP1,211 million was made in respect of conduct issues in the
half-year to 30 June 2017 compared to a charge of GBP403 million in
the same period in 2016. The charge in 2017 includes GBP700 million
in respect of PPI, reflecting current claim levels, which remain
above the Group's previous provision assumption; the additional
provision will now cover claims of around 9,000 per week through to
the end of August 2019. Other conduct provisions of GBP511 million
cover a number of items including packaged bank accounts and
arrears handling. Following a review of the Group's arrears
handling activities, the Group has put in place a number of actions
to improve further its handling of customers in these areas and the
Group is reimbursing mortgage arrears fees. The Group is also
currently undertaking a review of the HBOS Reading fraud and is in
the process of paying compensation to the victims of the fraud for
economic losses, ex-gratia payments and awards for distress and
inconvenience. A provision of GBP100 million was taken and reflects
the estimated compensation costs for HBOS Reading.
Excluding all conduct charges from both years, operating
expenses were GBP54 million, or 1 per cent, lower at GBP4,737
million in the half-year to 30 June 2017 compared to GBP4,791
million in the half-year to 30 June 2016. Staff costs were GBP114
million, or 5 per cent, lower at GBP2,258 million in the half-year
to 30 June 2017 compared with GBP2,372 million in the half-year to
30 June 2016; annual pay rises have been offset by the impact of
headcount reductions resulting from the Group's rationalisation
programmes and there has been a reduction in severance costs.
Premises and equipment costs were GBP49 million or 14 per cent,
higher at GBP388 million in the half-year to 30 June 2017 compared
with GBP339 million in the half-year to 30 June 2016, in part due
to lower profits on sale of tangible assets. Other expenses were
GBP44 million, or 5 per cent, higher at GBP1,000 million in the
half-year to 30 June 2017 compared to GBP956 million in the
half-year to 30 June 2016. Depreciation and amortisation costs were
GBP33 million, or 3 per cent, lower at GBP1,091 million in the
half-year to 30 June 2017 compared to GBP1,124 million in the
half-year to 30 June 2016, as higher depreciation on operating
lease assets due to increased balances has been offset by reduced
charges on intangible assets following certain intangibles related
to the acquisition of HBOS in 2009 becoming fully amortised.
Impairment losses decreased by GBP159 million, or 44 per cent,
to GBP203 million in the half-year to 30 June 2017 compared with
GBP362 million in the half-year to 30 June 2016. Impairment losses
in respect of loans and advances to customers were GBP29 million,
or 13 per cent, lower at GBP200 million in the half-year to 30 June
2017 compared with GBP229 million in the half-year to 30 June 2016;
this reflects continuing benign economic conditions and the Group's
conservative approach to risk. There was a charge of GBP6 million
in the half-year to 30 June 2017, compared to GBP146 million in the
half-year to 30 June 2016, in respect of the impairment of
available-for-sale financial assets;
In the half-year to 30 June 2017, the Group recorded a tax
charge of GBP858 million compared to a charge of GBP241 million in
the half-year to 30 June 2016, an effective tax rate of 33 per
cent, compared to the standard UK corporation tax rate of 19.25 per
cent, principally as a result of the banking surcharge and
restrictions on the deductibility of conduct provisions.
Discontinued operations
During the half-year to 30 June 2017, the Group recorded a
profit before tax from discontinued operations of GBP389 million
compared with a profit before tax in the half-year to 30 June 2016
of GBP98 million.
Total income decreased by GBP1,901 million, or 18 per cent, to
GBP8,852 million in the half-year to 30 June 2017 compared with
GBP10,753 million in the half-year to 30 June 2016, comprising a
GBP1,706 million decrease in other income and a GBP195 million
decrease in net interest income.
Net interest income was an expense of GBP676 million in the
half-year to 30 June 2017; a decrease of GBP195 million compared to
an expense of GBP481 million in the half-year to 30 June 2016.
There was an increase of GBP221 million in the half-year to 30 June
2017 in the amounts payable to unit holders in those Open-Ended
Investment Companies (OEICs) included in the consolidated results
of the Group, reflecting improved levels of investment returns on
the assets held by the OEICs. After adjusting for these amounts
payable to unitholders, net interest income was GBP26 million
higher.
Financial review (continued)
Other income was GBP1,706 million lower at GBP9,528 million in
the half-year to 30 June 2017 compared to GBP11,234 million in the
half-year to 30 June 2016. Net fee and commission income was GBP32
million or 3 per cent, improved at a deficit of GBP93 million
compared to a deficit of GBP125 million in the half-year to 30 June
2016. Net trading income decreased by GBP1,574 million, or 23 per
cent, to GBP5,223 million in the half-year to 30 June 2017 compared
to GBP6,797 million in the half-year to 30 June 2016; with reduced
gains on debt securities, partly following the disposal of
high-yielding bonds, more than offsetting increased equity income
in line with market performance. Insurance premium income was
GBP113 million, or 3 per cent, lower at GBP4,099 million in the
half-year to 30 June 2017 compared with GBP4,212 million in the
same period in 2016; there was a decrease of GBP55 million in life
insurance premiums and a decrease of GBP58 million in general
insurance premiums following the run-down of closed products. Other
operating income was GBP51 million lower at GBP299 million in the
half-year to 30 June 2017 compared to GBP350 million in the
half-year to 30 June 2016.
Insurance claims expense was GBP2,134 million lower at GBP7,976
million in the half-year to 30 June 2017 compared to GBP10,110
million in the half-year to 30 June 2016. The insurance claims
expense in respect of life and pensions business was GBP2,118
million lower at GBP7,805 million in the half-year to 30 June 2017
compared to GBP9,923 million in the half-year to 30 June 2016; this
decrease was matched by a similar reduction in net trading income,
reflecting the relative performance of policyholder investments.
Insurance claims in respect of general insurance business were
GBP16 million or 9 per cent, lower at GBP171 million in the
half-year to 30 June 2017 compared to GBP187 million in the same
period in 2016.
Operating expenses decreased by GBP58 million, or 11 per cent to
GBP487 million in the half-year to 30 June 2017 compared with
GBP545 million in the half-year to 30 June 2016.
Balance sheet and capital
Total assets were GBP2,479 million lower at GBP828,448 million
at 30 June 2017 compared to GBP830,927 million at 31 December 2016.
Cash and balances at central banks were GBP3,039 million, or 6 per
cent, higher at GBP50,491 million at 30 June 2017 compared to
GBP47,452 million at 31 December 2016 as the Group takes advantage
of opportunities for the placing of surplus funds. Loans and
advances to customers were GBP6,534 million, or 1 per cent, higher
at GBP457,816 million at 30 June 2017 compared to GBP451,282
million at 31 December 2016; a GBP3,106 million increase in reverse
repurchase agreement balances together with the addition of
GBP7,878 million of lending in MBNA, the impact of the
reacquisition of a portfolio of mortgages from TSB and growth in
Consumer Finance and SME lending have more than offset reductions
in the larger corporate sector, as the Group focuses on optimising
capital and returns, and in closed mortgage books.
Total liabilities were GBP2,545 million lower at GBP778,131
million at 30 June 2017 compared to GBP780,676 million at 31
December 2016. Deposits from banks were GBP8,251 million, or 53 per
cent, higher at GBP23,941 million at 30 June 2017 compared to
GBP15,690 million at 31 December 2016 as a result of the use of
repurchase agreements as a favourable form of funding. Customer
deposits were GBP2,157 million higher at GBP417,617 million
compared to GBP415,460 million at 31 December 2016 as a GBP1,499
million reduction in repurchase agreement balances and reductions
in non-relationship deposit balances were more than offset by
strong inflows from Commercial clients. Debt securities in issue
were GBP8,363 million, or 11 per cent, lower at GBP66,370 million
at 30 June 2017 compared to GBP74,733 million at 31 December 2016
following maturities of some tranches of securitisation notes and
covered bonds.
Total equity was GBP66 million higher at GBP50,317 million at 30
June 2017 compared to GBP50,251 million at 31 December 2016 as the
profit for the period has been offset by negative movements in the
Group's cash flow hedging reserve and dividends paid.
Financial review (continued)
The Group's common equity tier 1 capital ratio remained at 15.1
per cent, reflecting a combination of profit generation, the
receipt of the dividend paid by the Insurance business in February
2017 and a reduction in the deferred tax asset deducted from
capital, offset by the accrual for foreseeable dividends in respect
of the first half of 2017, movements in the defined benefit pension
schemes, an increase in the deduction for goodwill and other
intangible assets following the acquisition of MBNA and an increase
in risk-weighted assets. The tier 1 capital ratio reduced to 17.5
per cent (31 December 2016: 17.7 per cent) primarily reflecting the
annual reduction in the transitional limit applied to grandfathered
AT1 capital instruments and the increase in risk-weighted assets,
largely offset by the increase in common equity tier 1 capital. The
total capital ratio reduced to 20.9 per cent (31 December 2016:
21.2 per cent), largely reflecting amortisation and foreign
exchange movements on tier 2 instruments and the overall increase
in risk-weighted assets partly offset by the transitioning of
grandfathered AT1 instruments to tier 2.
Risk-weighted assets increased by GBP2,420 million, or 1 per
cent, to GBP218,603 million at 30 June 2017, compared to GBP216,183
million at 31 December 2016, largely reflecting the acquisition of
MBNA and targeted growth in key customer segments, partly offset
through active portfolio management, disposals and other
movements.
Financial review (continued)
Capital ratios
At At
30 June 31 Dec
Capital resources (transitional) 2017 2016
GBPm GBPm
Common equity tier 1
Shareholders' equity per balance
sheet 46,317 46,289
Adjustment to retained earnings for
foreseeable dividends (1,080) (1,568)
Deconsolidation adjustments(1) 1,095 911
Adjustment for own credit 119 87
Cash flow hedging reserve (1,839) (2,224)
Other adjustments (40) (90)
44,572 43,405
Less: deductions from common equity
tier 1
Goodwill and other intangible assets (2,651) (1,623)
Prudent valuation adjustment (636) (630)
Excess of expected losses over impairment
provisions and value adjustments (551) (602)
Removal of defined benefit pension
surplus (320) (267)
Securitisation deductions (198) (217)
Significant investments(1) (3,946) (3,986)
Deferred tax assets (3,286) (3,536)
-------- -------
Common equity tier 1 capital 32,984 32,544
-------- -------
Additional tier 1
Additional tier 1 instruments 6,583 7,061
Less: deductions from tier 1
Significant investments(1) (1,262) (1,329)
Total tier 1 capital 38,305 38,276
-------- -------
Tier 2
Tier 2 instruments 8,445 8,920
Eligible provisions 255 186
Less: deductions from tier 2
Significant investments(1) (1,371) (1,571)
-------- -------
Total tier 2 capital 7,329 7,535
-------- -------
Total capital resources 45,634 45,811
-------- -------
Risk-weighted assets 218,603 216,183
Common equity tier 1 capital ratio 15.1% 15.1%
Tier 1 capital ratio 17.5% 17.7%
Total capital ratio 20.9% 21.2%
(1) For regulatory capital purposes the Group's Insurance
business is deconsolidated and replaced by the
amount of the Group's investment in the business.
A part of this amount is deducted from capital
(shown as 'significant investments' in the table
above) and the remaining amount is risk-weighted,
forming part of threshold risk-weighted assets.
Financial review (continued)
At At
30 June 31 Dec
2017 2016
GBPm GBPm
Risk-weighted assets
Foundation Internal Ratings Based
(IRB) Approach 61,115 64,907
Retail IRB Approach 65,331 64,970
Other IRB Approach 18,360 17,788
-------- -------
IRB Approach 144,806 147,665
Standardised Approach 24,794 18,956
Credit risk 169,600 166,621
-------- -------
Counterparty credit risk 7,188 8,419
Contributions to the default fund
of a central counterparty 419 340
Credit valuation adjustment risk 735 864
Operational risk 26,222 25,292
Market risk 2,930 3,147
-------- -------
Underlying risk-weighted assets 207,094 204,683
Threshold risk-weighted assets 11,509 11,500
-------- -------
Transitional risk-weighted assets 218,603 216,183
-------- -------
Principal risks and uncertainties
The most significant risks faced by the Group which could impact
the success of delivering against the Group's long-term strategic
objectives and through which global macro-economic, regulatory
developments and market liquidity dynamics could manifest, are
detailed below. Except where noted, there has been no significant
change to the description of these risks or key mitigating actions
disclosed in the Group's 2016 Annual Report and Accounts, with any
quantitative disclosures updated herein.
Credit risk - The risk that customers and/or other
counterparties whom the Group has either lent money to or entered
into a financial contract with, or other counterparties with whom
the Group has contracted, fail to meet their financial obligations,
resulting in loss to the Group. Adverse changes in the economic and
market environment the Group operates in or the credit quality
and/or behaviour of the Group's customers and counterparties could
reduce the value of the Group's assets and potentially increase the
Group's write downs and allowances for impairment losses, adversely
impacting profitability.
Conduct risk - Conduct risk can arise from the failure to design
products and services to ensure they are aligned to customer needs
and to design and execute sales processes to ensure products and
services are offered only to those customers who need and will
benefit from them. Additionally, the failure to provide ongoing
support and service to customers and to recognise and respond to
customer complaints, providing appropriate rectification in a
timely manner. Conduct risk can result from the failure to ensure
that colleagues behave in line with conduct, regulatory and ethical
standards. Additionally, market conduct risks exist where actions
taken can disrupt the fair and effective operation of a market in
which the Group is active.
Market risk - The risk that the Group's capital or earnings
profile is affected by adverse market rates, in particular interest
rates and credit spreads in the Banking business, equity and credit
spreads in the Insurance business, and credit spreads in the
Group's Defined Benefit Pension Schemes.
Operational risk - The Group faces significant operational
risks, such as risk of cyber and terrorism, which may result in
financial loss, disruption of services to customers, and damage to
its reputation. These include the availability, resilience and
security of the Group's core IT systems and the potential for
failings in the Group's customer processes.
Capital risk - The risk that the Group has a sub-optimal
quantity or quality of capital or that capital is inefficiently
deployed across the Group.
Funding and liquidity risk - The risk that the Group has
insufficient financial resources to meet its commitments as they
fall due, or can only secure them at excessive cost.
Regulatory and legal risk - The risks of changing legislation,
regulation (including regulatory changes such as the Second Payment
Services Directive and Open Banking), policies, voluntary codes of
practice and their interpretation in the markets in which the Group
operates can have a significant impact on the Group's operations,
business prospects, structure, costs and/or capital requirements
and ability to enforce contractual obligations.
Governance risk - Against a background of increased regulatory
focus on governance and risk management, the most significant
challenges arise from the requirement to improve the resolvability
of the Group and to ring-fence core UK financial services and
activities from January 2019, and from the further development of
the Senior Managers and Certification Regime.
People risk - Key people risks include the risk that the Group
fails to maintain organisational skills, capability, resilience and
capacity levels in response to increasing volumes of
organisational, political and external market change.
Insurance risk - Key insurance risks within the Insurance
business are longevity, persistency and property insurance.
Longevity risk is expected to increase as the Group's presence in
the bulk annuity market increases. Longevity is also the key
insurance risk in the Group's Defined Benefit Pension Schemes.
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
(UNAUDITED)
CONSOLIDATED INCOME STATEMENT
Half-year Half-year
to 30 to 30
June June
2017 2016
Note GBP million GBP million
Interest and similar income 7,778 8,471
Interest and similar expense (1,837) (3,008)
----------- -----------
Net interest income 5,941 5,463
----------- -----------
Fee and commission income 1,428 1,420
Fee and commission expense (487) (474)
----------- -----------
Net fee and commission income 941 946
Net trading income 615 472
Other operating income 1,233 (420)
----------- -----------
Other income 2,789 998
----------- -----------
Total income 8,730 6,461
----------- -----------
Regulatory provisions (1,211) (403)
Other operating expenses (4,737) (4,791)
----------- -----------
Total operating expenses 3 (5,948) (5,194)
----------- -----------
Trading surplus 2,782 1,267
Impairment 4 (203) (362)
Profit before tax - continuing
operations 2,579 905
Taxation 5 (858) (241)
----------- -----------
Profit after tax - continuing
operations 1,721 664
Profit after tax - discontinued
operations 9 331 86
----------- -----------
Profit for the period 2,052 750
----------- -----------
Profit attributable to ordinary
shareholders 1,864 686
Profit attributable to other equity
shareholders(1) 137 1
----------- -----------
Profit attributable to equity
holders 2,001 687
Profit attributable to non-controlling
interests 51 63
Profit for the period 2,052 750
----------- -----------
(1) The profit after tax attributable to other equity
holders of GBP137 million (half-year to 30 June
2016: GBP1 million) is offset in reserves by a
tax credit attributable to ordinary shareholders
of GBP37 million (half-year to 30 June 2016: GBPnil).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Half-year Half-year
to 30 to 30
June June
2017 2016
GBP million GBP million
Profit for the period 2,052 750
Other comprehensive income:
Items that will not subsequently
be reclassified to profit or loss:
Post-retirement defined benefit scheme
remeasurements:
----------- -----------
Remeasurements before taxation (124) (267)
Taxation 32 40
----------- -----------
(92) (227)
Gains and losses attributable to
own credit risk
----------- -----------
Gains and (losses) before taxation (44) -
Taxation 12 -
----------- -----------
(32) -
Items that may subsequently be reclassified
to profit or loss:
Movements in revaluation reserve
in respect of available-for-sale
financial assets:
----------- -----------
Change in fair value 455 184
Income statement transfers in respect
of disposals (315) (574)
Income statement transfers in respect
of impairment 6 146
Taxation (48) 152
----------- -----------
98 (92)
Movement in cash flow hedging reserve:
----------- -----------
Effective portion of changes in fair
value (212) 2,968
Net income statement transfers (313) (223)
Taxation 140 (735)
----------- -----------
(385) 2,010
Currency translation differences
(tax: nil) (7) (20)
----------- -----------
Other comprehensive income for the
period, net of tax (418) 1,671
----------- -----------
Total comprehensive income for the
period 1,634 2,421
----------- -----------
Total comprehensive income attributable
to ordinary shareholders arising
from continuing operations 1,103 2,454
Total comprehensive income attributable
to ordinary shareholders arising
from discontinued operations 343 (97)
----------- -----------
Total comprehensive income attributable
to ordinary shareholders 1,446 2,357
Total comprehensive income attributable
to other equity holders 137 1
----------- -----------
Total comprehensive income attributable
to equity holders 1,583 2,358
Total comprehensive income attributable
to non-controlling interests 51 63
Total comprehensive income for the
period 1,634 2,421
----------- -----------
CONSOLIDATED BALANCE SHEET
At At
30 June 31 Dec
2017 2016
Note GBP million GBP million
Assets
Cash and balances at central banks 50,491 47,452
Items in course of collection
from banks 855 706
Trading and other financial assets
at fair value through profit or
loss 6 48,946 51,198
Derivative financial instruments 28,332 33,859
Loans and receivables:
----------- -----------
Loans and advances to banks 6,274 5,583
Loans and advances to customers 7 457,816 451,282
Debt securities 3,841 3,397
Due from fellow Lloyds Banking
Group undertakings 6,760 5,624
----------- -----------
474,691 465,886
Available-for-sale financial assets 51,803 56,524
Goodwill 463 180
Other intangible assets 2,380 1,520
Property, plant and equipment 9,468 9,294
Current tax recoverable 46 28
Deferred tax assets 3,316 3,603
Retirement benefit assets 11 406 342
Assets of held-for-sale disposal
group 9 152,269 158,194
Other assets 4,982 2,141
----------- -----------
Total assets 828,448 830,927
----------- -----------
CONSOLIDATED BALANCE SHEET (continued)
At At
30 June 31 Dec
2017 2016
Note GBP million GBP million
Equity and liabilities
Liabilities
Deposits from banks 23,941 15,690
Customer deposits 417,617 415,460
Due to fellow Lloyds Banking Group
undertakings 9,967 5,444
Items in course of transmission
to banks 944 548
Trading and other financial liabilities
at fair value through profit or
loss 55,671 54,504
Derivative financial instruments 27,949 33,896
Notes in circulation 1,317 1,402
Debt securities in issue 10 66,370 74,733
Liabilities of held-for-sale disposal
group 9 144,931 150,938
Other liabilities 6,065 4,732
Retirement benefit obligations 11 782 692
Current tax liabilities 1,036 446
Other provisions 6,018 4,933
Subordinated liabilities 15,523 17,258
----------- -----------
Total liabilities 778,131 780,676
Equity
----------- -----------
Share capital 1,574 1,574
Share premium account 600 -
Other reserves 8,190 8,484
Retained profits 35,953 36,231
----------- -----------
Shareholders' equity 46,317 46,289
Other equity instruments 3,217 3,217
----------- -----------
Total equity excluding non-controlling
interests 49,534 49,506
Non-controlling interests 783 745
----------- -----------
Total equity 50,317 50,251
----------- -----------
Total equity and liabilities 828,448 830,927
----------- -----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity
shareholders
Share
capital Other Non-
and Other Retained equity controlling
premium reserves profits Total instruments interests Total
GBP GBP GBP GBP GBP
million million million million GBP million GBP million million
Balance at
1 January
2017 1,574 8,484 36,231 46,289 3,217 745 50,251
Comprehensive
income
Profit for
the period - - 2,001 2,001 - 51 2,052
Other comprehensive
income
-------- --------- -------- -------- ------------ ------------ --------
Post-retirement
defined benefit
scheme remeasurements,
net of tax - - (92) (92) - - (92)
Movements
in revaluation
reserve in
respect of
available-for-sale
financial
assets, net
of tax - 98 - 98 - - 98
Gains and
losses attributable
to own credit
risk, net
of tax - - (32) (32) - - (32)
Movements
in cash flow
hedging reserve,
net of tax - (385) - (385) - - (385)
Currency translation
differences
(tax: nil) (7) - (7) - - (7)
-------- --------- -------- -------- ------------ ------------ --------
Total other
comprehensive
income - (294) (124) (418) - - (418)
-------- --------- -------- -------- ------------ ------------ --------
Total comprehensive
income - (294) 1,877 1,583 - 51 1,634
-------- --------- -------- -------- ------------ ------------ --------
Transactions
with owners
-------- --------- -------- -------- ------------ ------------ --------
Dividends
(note 16) - - (1,600) (1,600) - (10) (1,610)
Distributions
on other equity
instruments,
net of tax - - (100) (100) - - (100)
Redemption
of preference
shares 600 - (600) - - - -
Capital contributions
received - - 219 219 - - 219
Return of
capital contributions - - (74) (74) - - (74)
Changes in
non-controlling
interests - - - - - (3) (3)
-------- --------- -------- -------- ------------ ------------ --------
Total transactions
with owners 600 - (2,155) (1,555) - (13) (1,568)
-------- --------- -------- -------- ------------ ------------ --------
Balance at
30 June 2017 2,174 8,190 35,953 46,317 3,217 783 50,317
-------- --------- -------- -------- ------------ ------------ --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)
Attributable to equity
shareholders
Share
capital Other Non-
and Other Retained equity controlling
premium reserves profits Total instruments interests Total
GBP GBP GBP GBP GBP GBP GBP
million million million million million million million
Balance at 1
January 2016 37,107 5,987 3,868 46,962 - 391 47,353
Comprehensive
income
Profit for the
period - - 687 687 - 63 750
Other comprehensive
income
-------- --------- -------- -------- ------------ ------------ --------
Post-retirement
defined benefit
scheme remeasurements,
net of tax - - (227) (227) - - (227)
Movements in
revaluation
reserve in respect
of available-for-sale
financial assets,
net of tax - (92) - (92) - - (92)
Movements in
cash flow hedging
reserve, net
of tax - 2,010 - 2,010 - - 2,010
Currency translation
differences
(tax: nil) - (20) - (20) - - (20)
-------- --------- -------- -------- ------------ ------------ --------
Total other
comprehensive
income - 1,898 (227) 1,671 - - 1,671
-------- --------- -------- -------- ------------ ------------ --------
Total comprehensive
income - 1,898 460 2,358 - 63 2,421
-------- --------- -------- -------- ------------ ------------ --------
Transactions
with owners
-------- --------- -------- -------- ------------ ------------ --------
Dividends - - (2,430) (2,430) - (2) (2,432)
Distributions
on other equity
instruments,
net of tax - - (1) (1) - - (1)
Redemption of
preference shares 1,840 - (1,840) - - - -
Capital contributions
received - - 143 143 - - 143
Return of capital
contributions - - (405) (405) - - (405)
Issue of Additional
Tier 1 securities - - - - 3,217 - 3,217
Changes in
non-controlling
interests - - - - - (20) (20)
-------- --------- -------- -------- ------------ ------------ --------
Total transactions
with owners 1,840 - (4,533) (2,693) 3,217 (22) 502
-------- --------- -------- -------- ------------ ------------ --------
Balance at 30
June 2016 38,947 7,885 (205) 46,627 3,217 432 50,276
-------- --------- -------- -------- ------------ ------------ --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)
Attributable to equity
shareholders
Share
capital Other Non-
and Other Retained equity controlling
premium reserves profits Total instruments interests Total
GBP GBP GBP GBP GBP GBP GBP
million million million million million million million
Balance at 1
July 2016 38,947 7,885 (205) 46,627 3,217 432 50,276
Comprehensive
income
(Loss) profit
for the period - - 415 415 - 38 453
Other comprehensive
income
-------- --------- -------- -------- ------------ ------------ --------
Post-retirement
defined benefit
scheme remeasurements,
net of tax - - (801) (801) - - (801)
Movements in
revaluation
reserve in respect
of available-for-sale
financial assets,
net of tax - 1,289 - 1,289 - - 1,289
Movements in
cash flow hedging
reserve, net
of tax - (701) - (701) - - (701)
Currency translation
differences,
net of tax - 11 - 11 - - 11
-------- --------- -------- -------- ------------ ------------ --------
Total other
comprehensive
income - 599 (801) (202) - - (202)
-------- --------- -------- -------- ------------ ------------ --------
Total comprehensive
income - 599 (386) 213 - 38 251
-------- --------- -------- -------- ------------ ------------ --------
Transactions
with owners
-------- --------- -------- -------- ------------ ------------ --------
Dividends - - (610) (610) - (27) (637)
Distributions
on other equity
instruments - - (85) (85) - - (85)
Capital restructuring (37,373) - 37,373 - - - -
Capital contribution
received - - 180 180 - - 180
Return of capital
contributions - - (36) (36) - - (36)
Other changes
in non-controlling
interests - - - - - 302 302
-------- --------- -------- -------- ------------ ------------ --------
Total transactions
with owners (37,373) - 36,822 (551) - 275 (276)
-------- --------- -------- -------- ------------ ------------ --------
Balance as at
31 December
2016 1,574 8,484 36,231 46,289 3,217 745 50,251
-------- --------- -------- -------- ------------ ------------ --------
CONSOLIDATED CASH FLOW STATEMENT
Half-year Half-year
to 30 to 30
June June
2017 2016
GBP million GBP million
Profit before tax 2,968 1,003
Adjustments for:
Change in operating assets (16,790) (10,042)
Change in operating liabilities 617 33,262
Non-cash and other items 8,559 7,202
Tax received (38) 105
----------- -----------
Net cash provided by (used in) operating
activities (4,684) 31,530
Cash flows from investing activities
Purchase of financial assets (1,847) (3,441)
Proceeds from sale and maturity of
financial assets 5,276 2,729
Purchase of fixed assets (1,960) (1,820)
Proceeds from sale of fixed assets 763 909
Acquisition of businesses, net of
cash acquired (1,909) (6)
Disposal of businesses, net of cash
disposed 26 5
----------- -----------
Net cash used in investing activities 349 (1,624)
Cash flows from financing activities
----------- -----------
Dividends paid to ordinary shareholders (1,600) (2,430)
Distributions on other equity instruments (137) (1)
Dividends paid to non-controlling
interests (10) (2)
Return of capital contribution (74) (405)
Issue of Additional Tier 1 securities - 3,217
Interest paid on subordinated liabilities (655) (1,262)
Proceeds from issue of subordinated
liabilities - 2,753
Repayment of subordinated liabilities (1,236) (12,407)
Repayments to parent company - (4,585)
Change in non-controlling interests (3) (5)
Net cash used in financing activities (3,715) (15,127)
Effects of exchange rate changes
on cash and cash equivalents - 15
----------- -----------
Change in cash and cash equivalents (8,050) 14,794
Cash and cash equivalents at beginning
of period 62,908 71,953
----------- -----------
Cash and cash equivalents at end
of period 54,858 86,747
----------- -----------
Cash and cash equivalents comprise cash and balances at central
banks (excluding mandatory deposits) and amounts due from banks
with a maturity of less than three months. Included within cash and
cash equivalents at 30 June 2017 is GBP2,579 million (30 June 2016:
GBP12,613 million; 31 December 2016: GBP14,477 million) held within
the Group's life funds, which is not immediately available for use
in the business.
CONSOLIDATED CASH FLOW STATEMENT (continued)
Discontinued operations
The impact of the Group's discontinued operations on the above
cash flow statement is as follows:
Half-year Half-year
to 30 to 30
June June
2017 2016
GBP million GBP million
Net cash provided by operating activities (11,466) (696)
Net cash from investing activities 224 347
Net cash used in financing activities (655) (657)
----------- -----------
Change in cash and cash equivalents (11,897) (1,006)
----------- -----------
NOTES
Page
1 Accounting policies, presentation and estimates 18
2 Segmental analysis 19
3 Operating expenses 22
4 Impairment 22
5 Taxation 23
6 Trading and other financial assets at fair 24
value through profit or loss
7 Loans and advances to customers 24
8 Acquisition of MBNA 25
9 Disposal group 26
10 Debt securities in issue 28
11 Post-retirement defined benefit schemes 29
12 Provisions for liabilities and charges 30
13 Contingent liabilities and commitments 32
14 Fair values of financial assets and liabilities 35
15 Related party transactions 43
16 Dividends on ordinary shares 43
17 Future accounting developments 44
18 Ultimate parent undertaking 47
19 Other information 47
1. Accounting policies, presentation and estimates
These condensed consolidated half-year financial statements as
at and for the period to 30 June 2017 have been prepared in
accordance with the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority (FCA) and with International
Accounting Standard 34 (IAS 34), Interim Financial Reporting as
adopted by the European Union and comprise the results of Lloyds
Bank plc (the Bank) together with its subsidiaries (the Group).
They do not include all of the information required for full annual
financial statements and should be read in conjunction with the
Group's consolidated financial statements as at and for the year
ended 31 December 2016 which were prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union. Copies of the 2016 Annual Report and Accounts
are available on the Lloyds Banking Group's website and are
available upon request from Investor Relations, Lloyds Banking
Group plc, 25 Gresham Street, London EC2V 7HN.
The directors consider that it is appropriate to continue to
adopt the going concern basis in preparing the condensed
consolidated half-year financial statements. In reaching this
assessment, the directors have considered projections for the
Group's capital and funding position.
Except as noted below, the accounting policies are consistent
with those applied by the Group in its 2016 Annual Report and
Accounts.
With effect from 1 January 2017 the Group has elected to early
adopt the provision in IFRS 9 for gains and losses attributable to
changes in own credit risk on financial liabilities designated at
fair value through profit or loss to be presented in other
comprehensive income. The impact has been to increase profit after
tax and reduce other comprehensive income by GBP32 million in the
six months to 30 June 2017; there is no impact on total liabilities
or shareholders' equity. Comparatives have not been restated.
Future accounting developments
Details of those IFRS pronouncements which will be relevant to
the Group but which will not be effective at 31 December 2017 and
which have not been applied in preparing these condensed
consolidated half-year financial statements are set out in note
17.
Critical accounting estimates and judgements
The preparation of the Group's financial statements requires
management to make judgements, estimates and assumptions that
impact the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Due to the
inherent uncertainty in making estimates, actual results reported
in future periods may include amounts which differ from those
estimates. Estimates, judgements and assumptions are continually
evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances. There have been no significant
changes in the basis upon which estimates have been determined,
compared to that applied at 31 December 2016.
2. Segmental analysis
The Group provides a wide range of banking and financial
services in the UK and in certain locations overseas. The Group
Executive Committee (GEC) of the Lloyds Banking Group has been
determined to be the chief operating decision maker for the Group.
Following the transfer of HBOS to the Group on 1 January 2010, all
of the trading activities of the Lloyds Banking Group are carried
out within the Group and, as a result, the chief operating decision
maker reviews the Group's performance by considering that of the
Lloyds Banking Group; this has remained the case throughout 2016
and 2017. Since the chief operating decision maker's review
includes the Lloyds Banking Group's insurance operations, the
Scottish Widows group is not treated as a discontinued operation
for the Bank's segmental reporting process.
The segmental results and comparatives are presented on an
underlying basis, the basis reviewed by the chief operating
decision maker. The effects of the redemption of the Group's
Enhanced Capital Notes, asset sales, volatile items, the insurance
grossing adjustment, liability management, restructuring costs,
conduct provisions, the amortisation of purchased intangible assets
and the unwind of acquisition-related fair value adjustments are
excluded in arriving at underlying profit.
The Group's activities are organised into four financial
reporting segments: Retail; Commercial Banking; Consumer Finance
and Insurance. There has been no change to the descriptions of
these segments as provided in note 4 to the Group's financial
statements for the year ended 31 December 2016.
There has been no change to the Group's segmental accounting for
internal segment services or derivatives entered into by units for
risk management purposes since 31 December 2016.
Other Total
income, income,
net net Profit
Net of of (loss) Inter-
Half-year to 30 June interest insurance insurance before External segment
2017 income claims claims tax revenue revenue
GBPm GBPm GBPm GBPm GBPm GBPm
Underlying basis
Retail 3,337 477 3,814 1,598 4,177 (363)
Commercial Banking 1,425 1,100 2,525 1,437 1,703 822
Consumer Finance 1,041 755 1,796 759 2,082 (286)
Insurance (50) 872 822 408 1,036 (214)
Other 172 144 316 290 275 41
Group 5,925 3,348 9,273 4,492 9,273 -
-------- --------
Reconciling items:
Insurance grossing
adjustment (608) 660 52 -
Market volatility
and asset sales(1) 20 96 116 136
Amortisation of purchased
intangibles - - - (38)
Restructuring costs(2) - - - (321)
Fair value unwind
and other items (135) (7) (142) (135)
Payment protection
insurance provision - - - (1,050)
Other conduct provisions - - - (540)
Removal of impact
of other entities
in the Lloyds Banking
Group(3) 63 (3) 60 424
--------- ---------- ---------- -------
Group - statutory 5,265 4,094 9,359 2,968
--------- ---------- ---------- -------
Continuing operations 5,941 2,789 8,730 2,579
Discontinued operations (676) 1,552 876 389
Adjustments - (247) (247) -
--------- ---------- ---------- -------
Group - statutory 5,265 4,094 9,359 2,968
--------- ---------- ---------- -------
(1) Comprises (i) gains on disposals of assets which
are not part of normal business operations (GBP6
million); (ii) the net effect of banking volatility
and net derivative valuation adjustments (losses
of GBP20 million); (iii) volatility relating to
the insurance business (gains of GBP165 million);
and (iv) the results of liability management exercises
(losses of GBP15 million).
(2) Comprises severance related costs relating to the
Simplification programme, the costs of implementing
regulatory reform and
ring-fencing, the rationalisation of the non-branch
property portfolio and the integration of MBNA.
(3) This reflects the inclusion in the results reviewed
by the chief operating decision maker of the Bank's
fellow subsidiary undertakings and its parent undertaking,
Lloyds Banking Group plc.
2. Segmental analysis (continued)
Other Total
income, income,
net net Profit
Net of of (loss) Inter-
Half-year to interest insurance insurance before External segment
30 June 2016 income claims claims tax revenue revenue
GBPm GBPm GBPm GBPm GBPm GBPm
Underlying basis
Retail 3,296 558 3,854 1,548 4,333 (479)
Commercial Banking 1,306 982 2,288 1,236 2,137 151
Consumer Finance 994 658 1,652 690 1,942 (290)
Insurance (80) 921 841 446 300 541
Other 266 (26) 240 241 163 77
Group 5,782 3,093 8,875 4,161 8,875 -
-------- --------
Reconciling items:
Insurance grossing
adjustment (423) 519 96 -
Enhanced Capital
Notes(1) - (790) (790) (790)
Market volatility
and asset sales(2) 20 252 272 128
Amortisation
of purchased
intangibles - - - (168)
Restructuring
costs(3) - - - (307)
Fair value unwind (154) 36 (118) (110)
Other conduct
provisions - (15) (15) (460)
Removal of impact
of other entities
in the Lloyds
Banking Group(4) (243) (1,218) (1,461) (1,451)
--------- -------
Group - statutory 4,982 1,877 6,859 1,003
--------- ---------- ---------- -------
Continuing operations 5,463 998 6,461 905
Discontinued
operations (481) 1,124 643 98
Adjustments - (245) (245) -
--------- ---------- ---------- -------
Group - statutory 4,982 1,877 6,859 1,003
--------- ---------- ---------- -------
(1) The loss relating to the ECNs was GBP790 million,
representing the write-off of the embedded derivative
and the premium paid on redemption of the remaining
notes.
(2) Comprises (i) gains on disposals of assets which
are not part of normal business operations (GBP335
million); (ii) the net effect of banking volatility
and net derivative valuation adjustments (gain
of GBP19 million); (iii) volatility relating to
the insurance business (losses of GBP372 million);
and (iv) the results of liability management exercises
(gains of GBP146 million).
(3) Principally comprises the severance costs related
to phase II of the Simplification programme.
(4) This reflects the inclusion in the results reviewed
by the chief operating decision maker of the Bank's
fellow subsidiary undertakings and its parent undertaking,
Lloyds Banking Group plc.
2. Segmental analysis (continued)
At At
30 June 31 Dec
Segment external assets 2017 2016
GBPm GBPm
Retail 297,958 300,085
Commercial Banking 181,962 188,296
Consumer Finance 52,540 40,992
Insurance 149,287 153,936
Other 133,172 134,484
Total Group 814,919 817,793
-------- --------
Lloyds Bank Group statutory 828,448 830,927
Impact of other entities in the Lloyds
Banking Group (13,529) (13,134)
-------- --------
Segment external assets as above 814,919 817,793
-------- --------
Segment customer deposits
Retail 269,405 271,005
Commercial Banking 138,764 132,628
Consumer Finance 7,134 7,920
Other 2,314 3,907
Total Group and Lloyds Bank Group
statutory 417,617 415,460
-------- --------
Segment external liabilities
Retail 272,870 275,006
Commercial Banking 226,383 221,395
Consumer Finance 11,028 12,494
Insurance 142,529 146,836
Other 113,763 113,247
Total Group 766,573 768,978
-------- --------
Lloyds Bank Group statutory 778,131 780,676
Impact of other entities in the Lloyds
Banking Group (11,558) (11,698)
-------- --------
Segment external liabilities as above 766,573 768,978
-------- --------
3. Operating expenses
Half-year Half-year
to 30 to 30
June June
2017 2016
GBPm GBPm
Administrative expenses:
Staff costs 2,258 2,372
Premises and equipment 388 339
Other expenses 1,000 956
--------- ---------
3,646 3,667
Depreciation and amortisation 1,091 1,124
Total operating expenses, excluding
regulatory provisions 4,737 4,791
Regulatory provisions:
--------- ---------
Payment protection insurance provision
(note 12) 700 -
Other regulatory provisions(1) (note
12) 511 403
--------- ---------
1,211 403
Total operating expenses 5,948 5,194
--------- ---------
(1) In addition, regulatory provisions of GBP15 million
in the half-year to 30 June 2016 were charged against
income.
4. Impairment
Half-year Half-year
to 30 to 30
June June
2017 2016
GBPm GBPm
Impairment losses on loans and receivables:
--------- ---------
Loans and advances to customers 200 229
Debt securities classified as loans
and receivables (4) -
--------- ---------
Impairment losses on loans and receivables 196 229
Impairment of available-for-sale
financial assets 6 146
Other credit risk provisions 1 (13)
Total impairment charged to the income
statement 203 362
--------- ---------
5. Taxation
In accordance with IAS 34, the Group's income tax expense for
the half-year to 30 June 2017 is based on the best estimate of the
weighted-average annual income tax rate expected for the full
financial year. The tax effects of one-off items are not included
in the weighted-average annual income tax rate, but are recognised
in the relevant period.
An explanation of the relationship between tax expense and
accounting profit is set out below:
Half-year Half-year
to 30 to 30
June June
2017 2016
GBPm GBPm
Profit before tax from continuing operations 2,579 905
--------- ---------
Tax thereon at UK corporation tax rate of 19.25 per cent
(2016: 20 per cent) (496) (181)
Impact of bank surcharge (231) (59)
Impact of changes in UK corporation tax rates (42) (3)
Disallowed items(1) (199) (110)
Non-taxable items 32 73
Overseas tax rate differences (1) (6)
Gains exempted 69 8
Tax losses not previously recognised 9 49
Adjustments in respect of previous periods (3) (4)
Effect of results in joint ventures and associates 1 -
Other items 3 (8)
--------- ---------
Tax charge on profit from continuing operations (858) (241)
--------- ---------
(1) The Finance (No.2) Act 2015 introduced restrictions
on the tax deductibility of provisions for conduct
charges arising on or after 8 July 2015. This has
resulted in tax of GBP172 million (half-year to
30 June 2016: GBP81 million).
6. Trading and other financial assets at fair value through profit or loss
At At
30 June 31 Dec
2017 2016
GBPm GBPm
Trading assets 43,632 45,824
Other financial assets at fair value
through profit or loss:
-------- -------
Treasury and other bills 19 20
Debt securities 4,607 4,768
Equity shares 688 586
-------- -------
5,314 5,374
-------- -------
Total trading and other financial
assets at fair value through profit
or loss 48,946 51,198
-------- -------
7. Loans and advances to customers
At At
30 June 31 Dec
2017 2016
GBPm GBPm
Agriculture, forestry and fishing 7,109 6,860
Energy and water supply 1,543 2,320
Manufacturing 7,529 7,285
Construction 4,405 4,535
Transport, distribution and hotels 12,262 13,320
Postal and communications 2,537 2,564
Property companies 28,620 29,243
Financial, business and other services 46,724 46,077
Personal:
Mortgages 305,162 306,484
Other 28,969 20,761
Lease financing 2,403 2,628
Hire purchase 12,778 11,617
-------- -------
460,041 453,694
Allowance for impairment losses on
loans and advances to customers (2,225) (2,412)
-------- -------
Total loans and advances to customers 457,816 451,282
-------- -------
Loans and advances to customers include advances securitised
under the Group's securitisation and covered bond programmes (see
note 10).
8. Acquisition of MBNA
On 1 June 2017, following the receipt of competition and
regulatory approval, the Group acquired 100 per cent of the
ordinary share capital of MBNA Limited (MBNA), which together with
its subsidiaries undertakes a UK consumer credit card business,
from FIA Jersey Holdings Limited, a wholly-owned subsidiary of Bank
of America. The total fair value of the purchase consideration was
GBP2,016 million, settled in cash.
The table below sets out the fair value of the identifiable
assets and liabilities acquired. The initial accounting for the
acquisition has been determined provisionally because of its
complexity and the limited time available between the acquisition
date and the preparation of these condensed consolidated interim
financial statements.
Book value Provisional Fair value
as at 1 June fair value as at 1 June
2017 adjustments 2017
GBPm GBPm GBPm
Assets
Loans and advances to customers 7,466 345 7,811
Available-for-sale financial assets 16 - 16
Other intangible assets - 702 702
Other assets 217 345 562
------------ ----------- ------------
Total assets 7,699 1,392 9,091
------------ ----------- ------------
Liabilities
Deposits from banks(1) 6,431 - 6,431
Other liabilities 115 184 299
Other provisions 233 395 628
------------ ----------- ------------
Total liabilities 6,779 579 7,358
------------ ----------- ------------
Provisional fair value of net assets acquired 920 813 1,733
------------ -----------
Goodwill arising on acquisition 283
------------
Total consideration 2,016
------------
(1) Upon acquisition, the funding of MBNA was assumed
by Lloyds Bank plc.
The post-acquisition profit before tax of MBNA covering the
period from 1 June 2017 to 30 June 2017, which is included in the
Group statutory consolidated income statement for the half-year to
30 June 2017, is GBP18 million.
Had the acquisition date of MBNA been 1 January 2017, the
Group's consolidated total income from continuing operations would
have been GBP329 million higher at GBP9,059 million and the Group's
consolidated profit before tax from continuing operations would
have been GBP112 million higher at GBP2,691 million.
9. Disposal group
At 31 December 2016, the Group classified the assets and
liabilities of the Scottish Widows Group as a held-for-sale
disposal group on the basis that a sale of its operations to its
ultimate holding company, Lloyds Banking Group plc, was expected to
occur within 12 months. As a result of external factors, the Group
currently expects this sale to complete in the first half of 2018.
Accordingly, the assets and liabilities of the Scottish Widows
Group continue to be classified as a held-for-sale disposal group
at 30 June 2017 and are shown separately on the face of the balance
sheet.
The Group has not recognised any impairment relating to disposal
groups classified as held-for-sale during the half-year to 30 June
2017.
These operations have been classified as discontinued operations
and the profit after tax from these activities reported as a single
line on the Group's income statement.
In order to fairly reflect the results and financial position of
the Group's continuing operations and its discontinued operations,
transactions that the continuing operations have with the
discontinued operations are reported on the relevant line in the
Group's income statement or balance sheet, with the matching
transaction similarly reported in the discontinued operations
income statement or balance sheet within the Group's disposal
group. All such transactions fully eliminate within the Group's
statutory consolidation and there is no net impact on profit before
tax or equity.
Income statement
The results of the discontinued operations are as follows:
Half-year Half-year
to to
30 June 30 June
2017 2016
GBPm GBPm
Interest and similar income 117 103
Interest and similar expense (793) (584)
--------- ---------
Net interest income (676) (481)
--------- ---------
Fee and commission income 210 222
Fee and commission expense (303) (347)
--------- ---------
Net fee and commission income (93) (125)
Net trading income 5,223 6,797
Insurance premium income 4,099 4,212
Other operating income 299 350
--------- ---------
Other income 9,528 11,234
--------- ---------
Total income 8,852 10,753
Insurance claims (7,976) (10,110)
--------- ---------
Total income, net of insurance claims 876 643
Operating expenses (487) (545)
--------- ---------
Profit before tax 389 98
Taxation (58) (12)
--------- ---------
Profit after tax from discontinued
operations 331 86
--------- ---------
9. Disposal group (continued)
Balance sheet
The asset and liabilities of the disposal group are comprised as
follows:
As at As at
30 June 31 Dec
2017 2016
GBPm GBPm
Assets
Trading and other financial assets
at fair value through profit or loss 122,688 109,687
Derivative financial instruments 2,944 3,800
Loans and receivables:
-------- -------
Loans and advances to banks 2,591 21,319
Due from fellow Lloyds Banking Group
undertakings 1,797 2,015
-------- -------
4,388 23,334
Goodwill 1,836 1,836
Value of in-force business 5,153 5,042
Other intangible assets 156 161
Property, plant and equipment 3,522 3,678
Other assets 11,582 10,656
-------- -------
Total assets of disposal group 152,269 158,194
-------- -------
Liabilities
Deposits from banks 938 695
Due to fellow Lloyds Banking Group
undertakings 2,358 2,386
Derivative financial instruments 2,701 3,008
Debt securities in issue 1,795 1,746
Liabilities arising from insurance
contracts and participating investment
contracts 101,339 94,409
Liabilities arising from non-participating
investment contracts 15,652 20,112
Other liabilities 16,456 24,767
Retirement benefit obligations 123 130
Current tax liabilities 95 97
Deferred tax liabilities 905 935
Other provisions 288 285
Subordinated liabilities 2,281 2,368
-------- -------
Total liabilities of disposal group 144,931 150,938
-------- -------
Cumulative other comprehensive income relating to discontinued
operations at 30 June 2017 was a deficit of GBP172 million (31
December 2016: a deficit of GBP184 million).
10. Debt securities in issue
At At
30 June 31 Dec
2017 2016
GBPm GBPm
Medium-term notes issued 20,477 24,867
Covered bonds 25,937 30,521
Certificates of deposit 10,994 8,127
Securitisation notes 5,182 7,937
Commercial paper 3,780 3,281
Total debt securities in issue 66,370 74,733
-------- -------
The notes issued by the Group's securitisation and covered bond
programmes are held by external parties and by subsidiaries of the
Group.
Securitisation programmes
At 30 June 2017, external parties held GBP5,182 million (31
December 2016: GBP7,937 million) and the Group's subsidiaries held
GBP25,167 million (31 December 2016: GBP25,751 million) of total
securitisation notes in issue of GBP30,349 million (31 December
2016: GBP33,688 million). The notes are secured on loans and
advances to customers and debt securities classified as loans and
receivables amounting to GBP49,284 million (31 December 2016:
GBP52,184 million), the majority of which have been sold by
subsidiary companies to bankruptcy remote structured entities. The
structured entities are consolidated fully and all of these loans
are retained on the Group's balance sheet.
Covered bond programmes
At 30 June 2017, external parties held GBP25,937 million (31
December 2016: GBP30,521 million) and the Group's subsidiaries held
GBP700 million (31 December 2016: GBP700 million) of total covered
bonds in issue of GBP26,637 million (31 December 2016: GBP31,221
million). The bonds are secured on certain loans and advances to
customers amounting to GBP33,170 million (31 December 2016:
GBP35,968 million) that have been assigned to bankruptcy remote
limited liability partnerships. These loans are retained on the
Group's balance sheet.
Cash deposits of GBP5,065 million (31 December 2016: GBP9,018
million) which support the debt securities issued by the structured
entities, the term advances related to covered bonds and other
legal obligations are held by the Group.
11. Post-retirement defined benefit schemes
The Group's post-retirement defined benefit scheme obligations
are comprised as follows:
At At
30 June 31 Dec
2017 2016
GBPm GBPm
Defined benefit pension schemes:
Fair value of scheme assets 43,522 44,249
Present value of funded obligations (43,662) (44,363)
-------- --------
Net pension scheme liability (140) (114)
Other post-retirement schemes (236) (236)
-------- --------
Net retirement benefit liability (376) (350)
-------- --------
Recognised on the balance sheet as:
Retirement benefit assets 406 342
Retirement benefit obligations (782) (692)
----- -----
Net retirement benefit liability (376) (350)
----- -----
The movement in the Group's net post-retirement defined benefit
scheme liability during the period was as follows:
GBPm
Liability at 1 January 2017 (350)
Income statement charge (168)
Employer contributions 281
Remeasurement (139)
-----
Liability at 30 June 2017 (376)
-----
The principal assumptions used in the valuations of the defined
benefit pension scheme were as follows:
At At
30 June 31 Dec
2017 2016
% %
Discount rate 2.71 2.76
Rate of inflation:
Retail Prices Index 3.18 3.23
Consumer Price Index 2.13 2.18
Rate of salary increases 0.00 0.00
Weighted-average rate of increase
for pensions in payment 2.69 2.72
12. Provisions for liabilities and charges
Payment protection insurance (excluding MBNA)
The Group increased the provision for PPI costs by a further
GBP700 million in the half-year to 30 June 2017, bringing the total
amount provided to GBP18,046 million.
The charge in the half-year to 30 June 2017 is largely driven by
a potentially higher total volume of complaints and associated
operating costs due to higher reactive complaint volumes received
over the past three quarters, which have averaged approximately
9,000 per week.
At 30 June 2017 a provision of GBP2,642 million remained
unutilised relating to complaints and associated administration
costs. The provision is consistent with total expected reactive
complaint volumes of 5.3 million (including complaints falling
under the Plevin rules and guidance) with approximately 1.2 million
still expected to be received and is equivalent to approximately
9,000 complaints per week through to August 2019. Total cash
payments were GBP660 million during the half-year to 30 June
2017.
Sensitivities
The Group estimates that it has sold approximately 16 million
PPI policies since 2000. These include policies that were not
mis-sold and those that have been successfully claimed upon. Since
the commencement of the PPI redress programme in 2011 the Group
estimates that it has contacted, settled or provided for
approximately 52 per cent of the policies sold since 2000.
The total amount provided for PPI represents the Group's best
estimate of the likely future cost. However a number of risks and
uncertainties remain in particular with respect to future volumes.
The cost could differ from the Group's estimates and the
assumptions underpinning them, and could result in a further
provision being required. There is significant uncertainty around
the impact of the regulatory changes, FCA media campaign and Claims
Management Companies and customer activity.
Key metrics and sensitivities are highlighted in the table
below:
Sensitivities
(exclude claims where Actuals Anticipated
no PPI policy was held) to date future(2) Sensitivity(2,3)
------------------------------- --------- ------------ -----------------
Customer initiated complaints
since origination (m)(1) 4.1 1.2 0.1 = GBP215m
Administrative expenses 1 case
(GBPm) 3,350 525 = GBP450
(1) Sensitivity includes complaint handling costs.
(2) Anticipated future and sensitivities are impacted
by a proportion of complaints and re-complaints
falling under the Plevin rules and guidance in
light of the FCA Policy Statement PS 17/3.
(3) Average redress and uphold rates remain stable.
Payment protection insurance (MBNA)
With regard to MBNA, as announced in December 2016, the Group's
exposure is capped at GBP240 million through an indemnity received
from Bank of America.
12. Provisions for liabilities and charges (continued)
Other provisions for legal actions and regulatory matters
Packaged bank accounts
In the half-year to 30 June 2017 the Group has provided an
additional GBP95 million in respect of complaints relating to
alleged mis-selling of packaged bank accounts raising the total
amount provided to GBP600 million. As at 30 June 2017, GBP182
million of the provision remained unutilised. The total amount
provided represents the Group's best estimate of the likely future
cost, however a number of risks and uncertainties remain in
particular with respect to future volumes.
Arrears handling related activities
The Group has provided an additional GBP155 million in the
half-year to 30 June 2017 (bringing the total provision to GBP552
million), for the costs of identifying and rectifying certain
arrears management fees and activities. Following a review of the
Group's arrears handling activities, the Group has put in place a
number of actions to improve further its handling of customers in
these areas and the Group is reimbursing mortgage arrears fees to
around 590,000 customers. As at 30 June 2017, the unutilised
provision was GBP518 million.
HBOS Reading - customer review
The Group has commenced a review into a number of customer cases
from the former HBOS Impaired Assets Office based in Reading. This
review follows the conclusion of a criminal trial in which a number
of individuals, including two former HBOS employees, were convicted
of conspiracy to corrupt, fraudulent trading and associated money
laundering offences which occurred prior to the acquisition of HBOS
by the Lloyds Banking Group in 2009. The review is ongoing, the
Group has provided GBP100 million in the half-year to 30 June 2017
and is in the process of paying compensation to the victims of the
fraud for economic losses, ex-gratia payments and awards for
distress and inconvenience.
Other legal actions and regulatory matters
In the course of its business, the Group is engaged in
discussions with the PRA, FCA and other UK and overseas regulators
and other governmental authorities on a range of matters. The Group
also receives complaints and claims from customers in connection
with its past conduct and, where significant, provisions are held
against the costs expected to be incurred as a result of the
conclusions reached. In the half-year to 30 June 2017, the Group
charged an additional GBP161 million in respect of matters across
all divisions. At 30 June 2017, the Group held unutilised
provisions totalling GBP495 million for these other legal actions
and regulatory matters.
13. Contingent liabilities and commitments
Interchange fees
With respect to multi-lateral interchange fees (MIFs), the Group
is not directly involved in the ongoing investigations and
litigation (as described below) which involve card schemes such as
Visa and MasterCard. However, the Group is a member of Visa and
MasterCard and other card schemes.
-- The European Commission continues to pursue certain
competition investigations into MasterCard and Visa probing,
amongst other things, MIFs paid in respect of cards issued outside
the EEA;
-- Litigation continues in the English Courts against both Visa
and MasterCard. This litigation has been brought by several
retailers who are seeking damages for allegedly 'overpaid' MIFs.
From publicly available information, it is understood these damages
claims are running to different timescales with respect to the
litigation process. It is also possible that new claims may be
issued.
-- Any ultimate impact on the Group of the above investigations
and the litigation against Visa and MasterCard remains uncertain at
this time.
Visa Inc completed its acquisition of Visa Europe on 21 June
2016. The Group's share of the sale proceeds comprised cash
consideration of approximately GBP330 million (of which
approximately GBP300 million was received on completion of the sale
and GBP30 million is deferred for three years) and preferred stock,
which the Group measures at fair value. The preferred stock is
convertible into Class A Common Stock of Visa Inc or its equivalent
upon the occurrence of certain events. As part of this transaction,
the Group and certain other UK banks also entered into a Loss
Sharing Agreement (LSA) with Visa Inc, which clarifies the
allocation of liabilities between the parties should the litigation
referred to above result in Visa Inc being liable for damages
payable by Visa Europe. The maximum amount of liability to which
the Group may be subject under the LSA is capped at the cash
consideration which was received by the Group at completion. Visa
Inc may also have recourse to a general indemnity, previously in
place under Visa Europe's Operating Regulations, for damages claims
concerning inter or intra-regional MIF setting activities.
LIBOR and other trading rates
In July 2014, the Group announced that it had reached
settlements totalling GBP217 million (at 30 June 2014 exchange
rates) to resolve with UK and US federal authorities legacy issues
regarding the manipulation several years ago of Group companies'
submissions to the British Bankers' Association (BBA) London
Interbank Offered Rate (LIBOR) and Sterling Repo Rate. The Group
continues to cooperate with various other government and regulatory
authorities, including the Serious Fraud Office, the Swiss
Competition Commission, and a number of US State Attorneys General,
in conjunction with their investigations into submissions made by
panel members to the bodies that set LIBOR and various other
interbank offered rates.
Certain Group companies, together with other panel banks, have
also been named as defendants in private lawsuits, including
purported class action suits, in the US in connection with their
roles as panel banks contributing to the setting of US Dollar,
Japanese Yen and Sterling LIBOR and the Australian BBSW Reference
Rate. The lawsuits, which contain broadly similar allegations,
allege violations of the Sherman Antitrust Act, the Racketeer
Influenced and Corrupt Organizations Act and the Commodity Exchange
Act, as well as various state statutes and common law doctrines.
Certain of the plaintiffs' claims, including those in connection
with USD and JPY LIBOR, have been dismissed by the US Federal Court
for Southern District of New York. Appeals remain possible.
Certain Group companies are also named as defendants in UK based
claims raising LIBOR manipulation allegations.
It is currently not possible to predict the scope and ultimate
outcome on the Group of the various outstanding regulatory
investigations not encompassed by the settlements, any private
lawsuits or any related challenges to the interpretation or
validity of any of the Group's contractual arrangements, including
their timing and scale.
13. Contingent liabilities and commitments (continued)
UK shareholder litigation
In August 2014, the Lloyds Banking Group and a number of former
directors were named as defendants in a claim filed in the English
High Court by a number of claimants who held shares in Lloyds TSB
Group plc (LTSB) prior to the acquisition of HBOS plc, alleging
breaches of duties in relation to information provided to
shareholders in connection with the acquisition and the
recapitalisation of LTSB. It is currently not possible to determine
the ultimate impact on the Lloyds Banking Group (if any), but the
Lloyds Banking Group intends to defend the claim vigorously.
Financial Services Compensation Scheme
Following the default of a number of deposit takers in 2008, the
Financial Services Compensation Scheme (FSCS) borrowed funds from
HM Treasury to meet the compensation costs for customers of those
firms. In June 2017, the FSCS announced that following the sale of
certain Bradford & Bingley mortgage assets, the principal
balance outstanding on these loans was GBP4,678 million (31
December 2016: GBP15,655 million). Although it is anticipated that
the substantial majority of this loan will be repaid from funds the
FSCS receives from asset sales, surplus cash flow or other
recoveries in relation to the assets of the firms that defaulted,
any shortfall will be funded by deposit-taking participants,
including the Group, of the FSCS. The amount of future levies
payable by the Group depends on a number of factors, principally,
the amounts recovered by the FSCS from asset sales.
Tax authorities
The Lloyds Banking Group has an open matter in relation to a
claim for group relief of losses incurred in its former Irish
banking subsidiary, which ceased trading on 31 December 2010. In
2013 HMRC informed the Lloyds Banking Group that their
interpretation of the UK rules which allow the offset of such
losses denies the claim. If HMRC's position is found to be correct
management estimate that this would result in an increase in the
Group's current tax liabilities of approximately GBP550 million and
a reduction in the Group's deferred tax asset of approximately
GBP350 million. The Lloyds Banking Group does not agree with HMRC's
position and, having taken appropriate advice, does not consider
that this is a case where additional tax will ultimately fall due.
There are a number of other open matters on which the Group is in
discussion with HMRC (including the tax treatment of certain costs
arising from the divestment of TSB Banking Group plc), none of
which is expected to have a material impact on the financial
position of the Group.
Residential mortgage repossessions
In August 2014, the Northern Ireland High Court handed down
judgment in favour of the borrowers in relation to three
residential mortgage test cases concerning certain aspects of the
Group's practice with respect to the recalculation of contractual
monthly instalments of customers in arrears. The FCA is actively
engaged with the industry in relation to these considerations and
has recently published Guidance on the treatment of customers with
mortgage payment shortfalls. The Guidance covers remediation for
mortgage customers who may have been affected by the way firms
calculate these customers' monthly mortgage instalments. The Group
is now determining its detailed approach to implementation of the
Guidance and will contact affected customers next year.
Update following the Financial Conduct Authority's publication
of Policy Statement 17/3
On 2 August 2016, the Financial Conduct Authority (FCA)
published a further consultation paper (CP16/20: Rules and guidance
on payment protection insurance complaints: feedback on CP15/39 and
further consultation), following on from the original consultation
published in November 2015.
On 2 March 2017 the FCA confirmed that the deadline by which
consumers would need to make their PPI complaints would be 29
August 2019, and new rules with respect to the UK Supreme Court's
decision in Plevin v Paragon Personal Finance Limited [2014] UKSC
61 would come into force on 29 August 2017.
13. Contingent liabilities and commitments (continued)
On 31 May 2017 an application for judicial review of Policy
Statement 17/3 was filed in the High Court of England and Wales,
which subject to the Court's determination may have an impact on
the implementation of the FCA's rules and guidance in Policy
Statement 17/3.
Mortgage arrears handling activities
On 26 May 2016, the Group was informed that an enforcement team
at the FCA had commenced an investigation in connection with the
Group's mortgage arrears handling activities. This investigation is
ongoing and it is currently not possible to make a reliable
assessment of the liability, if any, that may result from the
investigation.
Other legal actions and regulatory matters
In addition, during the ordinary course of business the Group is
subject to other complaints and threatened or actual legal
proceedings (including class or group action claims) brought by or
on behalf of current or former employees, customers, investors or
other third parties, as well as legal and regulatory reviews,
challenges, investigations and enforcement actions, both in the UK
and overseas. All such material matters are periodically
reassessed, with the assistance of external professional advisers
where appropriate, to determine the likelihood of the Group
incurring a liability. In those instances where it is concluded
that it is more likely than not that a payment will be made, a
provision is established to management's best estimate of the
amount required at the relevant balance sheet date. In some cases
it will not be possible to form a view, for example because the
facts are unclear or because further time is needed properly to
assess the merits of the case, and no provisions are held in
relation to such matters. In these circumstances, specific
disclosure in relation to a contingent liability will be made where
material. However the Group does not currently expect the final
outcome of any such case to have a material adverse effect on its
financial position, operations or cash flows.
Contingent liabilities and commitments arising from the banking
business
At At
30 June 31 Dec
2017 2016
GBPm GBPm
Contingent liabilities
Acceptances and endorsements 29 21
Other:
-------- -------
Other items serving as direct credit
substitutes 600 779
Performance bonds and other transaction-related
contingencies 2,227 2,237
-------- -------
2,827 3,016
-------- -------
Total contingent liabilities 2,856 3,037
-------- -------
Commitments
Documentary credits and other short-term
trade-related transactions 1 -
Forward asset purchases and forward
deposits placed 365 648
Undrawn formal standby facilities,
credit lines and other commitments
to lend:
Less than 1 year original maturity:
-------- -------
Mortgage offers made 12,014 10,749
Other commitments 84,432 62,697
-------- -------
96,446 73,446
1 year or over original maturity 36,838 40,074
-------- -------
Total commitments 133,650 114,168
-------- -------
Of the amounts shown above in respect of undrawn formal standby
facilities, credit lines and other commitments to lend, GBP61,921
million (31 December 2016: GBP63,203 million) was irrevocable.
14. Fair values of financial assets and liabilities
The valuations of financial instruments have been classified
into three levels according to the quality and reliability of
information used to determine those fair values. Note 48 to the
Group's 2016 financial statements describes the definitions of the
three levels in the fair value hierarchy.
Valuation control framework
Key elements of the valuation control framework, which covers
processes for all levels in the fair value hierarchy including
level 3 portfolios, include model validation (incorporating
pre-trade and post-trade testing), product implementation review
and independent price verification. Formal committees meet
quarterly to discuss and approve valuations in more judgemental
areas.
Transfers into and out of level 3 portfolios
Transfers out of level 3 portfolios arise when inputs that could
have a significant impact on the instrument's valuation become
market observable; conversely, transfers into the portfolios arise
when consistent sources of data cease to be available.
Valuation methodology
For level 2 and level 3 portfolios, there is no significant
change to what was disclosed in the Group's 2016 Annual Report and
Accounts in respect of the valuation methodology (techniques and
inputs) applied to such portfolios.
The table below summarises the carrying values of financial
assets and liabilities presented on the Group's balance sheet. The
fair values presented in the table are at a specific date and may
be significantly different from the amounts which will actually be
paid or received on the maturity or settlement date.
31 December
30 June 2017 2016
----------------- -----------------
Carrying Fair Carrying Fair
value value value value
GBPm GBPm GBPm GBPm
Financial assets
Trading and other financial
assets at fair value
through profit or loss 48,946 48,946 51,198 51,198
Derivative financial
instruments 28,332 28,332 33,859 33,859
Loans and receivables:
-------- ------- -------- -------
Loans and advances to
banks 6,274 6,261 5,583 5,553
Loans and advances to
customers 457,816 457,938 451,282 451,117
Debt securities 3,841 3,774 3,397 3,303
Due from fellow Lloyds
Banking Group undertakings 6,760 6,760 5,624 5,624
-------- ------- -------- -------
474,691 474,733 465,886 465,597
Available-for-sale financial
instruments 51,803 51,803 56,524 56,524
Financial liabilities
Deposits from banks 23,941 23,917 15,690 15,679
Customer deposits 417,617 418,050 415,460 416,490
Due to fellow Lloyds
Banking Group undertakings 9,967 9,967 5,444 5,444
Trading and other financial
liabilities at fair
value through profit
or loss 55,671 55,671 54,504 54,504
Derivative financial
instruments 27,949 27,949 33,896 33,896
Debt securities in issue 66,370 69,333 74,733 77,198
Subordinated liabilities 15,523 18,149 17,258 19,280
14. Fair values of financial assets and liabilities (continued)
The carrying amount of the following financial instruments is a
reasonable approximation of fair value: cash and balances at
central banks, items in the course of collection from banks, items
in course of transmission to banks and notes in circulation.
The Group manages valuation adjustments for its derivative
exposures on a net basis; the Group determines their fair values on
the basis of their net exposures. In all other cases, fair values
of financial assets and liabilities measured at fair value are
determined on the basis of their gross exposures.
The following tables provide an analysis of the financial assets
and liabilities of the Group that are carried at fair value in the
Group's consolidated balance sheet, grouped into levels 1 to 3
based on the degree to which the fair value is observable.
Financial assets
Level Level Level
1 2 3 Total
GBPm GBPm GBPm GBPm
At 30 June 2017
Trading and other financial
assets at fair value
through profit or
loss:
Loans and advances
to customers - 28,445 - 28,445
Loans and advances
to banks - 1,446 - 1,446
Debt securities 13,358 3,412 1,578 18,348
Equity shares 6 - 682 688
Treasury and other
bills 19 - - 19
------ ------ ----- -------
Total trading and other
financial assets at
fair value through
profit or loss 13,383 33,303 2,260 48,946
------ ------ ----- -------
Available-for-sale
financial assets:
Debt securities 44,717 5,865 114 50,696
Equity shares 527 34 546 1,107
Total available-for-sale
financial assets 45,244 5,899 660 51,803
------ ------ ----- -------
Derivative financial
instruments 1 27,219 1,112 28,332
------ ------ ----- -------
Total financial assets
carried at fair value 58,628 66,421 4,032 129,081
------ ------ ----- -------
At 31 December 2016
Trading and other financial
assets at fair value
through profit or
loss:
Loans and advances
to customers - 31,050 - 31,050
Loans and advances
to banks - 2,606 - 2,606
Debt securities 12,117 3,074 1,745 16,936
Equity shares 26 - 560 586
Treasury and other
bills 20 - - 20
------ ------ ----- -------
Total trading and other
financial assets at
fair value through
profit or loss 12,163 36,730 2,305 51,198
------ ------ ----- -------
Available-for-sale
financial assets:
Debt securities 48,649 6,529 133 55,311
Equity shares 435 17 761 1,213
Total available-for-sale
financial assets 49,084 6,546 894 56,524
------ ------ ----- -------
Derivative financial
instruments 2 32,458 1,399 33,859
------ ------ ----- -------
Total financial assets
carried at fair value 61,249 75,734 4,598 141,581
------ ------ ----- -------
14. Fair values of financial assets and liabilities (continued)
Level Level Level
1 2 3 Total
GBPm GBPm GBPm GBPm
At 30 June 2017 - disposal
group
Trading and other financial
assets at fair value
through profit or loss:
Debt securities 12,403 27,918 544 40,865
Equity shares 80,878 31 914 81,823
Total trading and other
financial assets at
fair value through
profit or loss 93,281 27,949 1,458 122,688
------ ------ ----- -------
Derivative financial
instruments 123 2,821 - 2,944
------ ------ ----- -------
Total financial assets
carried at fair value 93,404 30,770 1,458 125,632
------ ------ ----- -------
At 31 December 2016
- disposal group
Trading and other financial
assets at fair value
through profit or loss:
Debt securities 12,958 28,603 549 42,110
Equity shares 66,588 37 952 67,577
Total trading and other
financial assets at
fair value through
profit or loss 79,546 28,640 1,501 109,687
------ ------ ----- -------
Derivative financial
instruments 267 3,533 - 3,800
------ ------ ----- -------
Total financial assets
carried at fair value 79,813 32,173 1,501 113,487
------ ------ ----- -------
Financial liabilities
Level Level Level
1 2 3 Total
GBPm GBPm GBPm GBPm
At 30 June 2017
Trading and other financial
liabilities at fair
value
through profit or
loss:
Liabilities held at
fair value through
profit or loss - 8,223 - 8,223
Trading liabilities 2,375 45,073 - 47,448
----- ------ ----- ------
Total trading and other
financial liabilities
at fair value through
profit or loss 2,375 53,296 - 55,671
----- ------ ----- ------
Derivative financial
instruments 2 27,187 760 27,949
----- ------ ----- ------
Total financial liabilities
carried at fair value 2,377 80,483 760 83,620
----- ------ ----- ------
At 31 December 2016
Trading and other financial
liabilities at fair
value
through profit or
loss:
Liabilities held at
fair value through
profit or loss - 9,423 2 9,425
Trading liabilities 2,417 42,662 - 45,079
----- ------ ----- ------
Total trading and other
financial liabilities
at fair value through
profit or loss 2,417 52,085 2 54,504
----- ------ ----- ------
Derivative financial
instruments 3 32,933 960 33,896
----- ------ ----- ------
Total financial liabilities
carried at fair value 2,420 85,018 962 88,400
----- ------ ----- ------
Financial guarantees are recognised at fair value on initial
recognition and are classified as level 3; the balance is not
material.
Level Level Level
1 2 3 Total
GBPm GBPm GBPm GBPm
At 30 June 2017 - disposal
group
Total financial liabilities
carried at fair value
- derivative financial
instruments 358 2,343 - 2,701
----- ----- ----- -----
At 31 December 2016
- disposal group
Total financial liabilities
carried at fair value
- derivative financial
instruments 355 2,653 - 3,008
----- ----- ----- -----
14. Fair values of financial assets and liabilities (continued)
Movements in level 3 portfolio
The tables below analyse movements in the level 3 financial
assets portfolio.
Trading
and other
financial Total
assets financial
at fair assets
value Available- carried
through for-sale at
profit financial Derivative fair
or loss assets assets value
GBPm GBPm GBPm GBPm
At 1 January 2017 2,305 894 1,399 4,598
Exchange and other adjustments (3) (15) 18 -
Losses recognised in
the income statement
within other income (42) - (226) (268)
Losses recognised in
other comprehensive
income within the revaluation
reserve in respect of
available-for-sale financial
assets - (199) - (199)
Purchases 263 24 5 292
Sales (244) (23) (40) (307)
Transfers into the level
3 portfolio - - - -
Transfers out of the
level 3 portfolio (19) (21) (44) (84)
---------- ---------- ---------- ----------
At 30 June 2017 2,260 660 1,112 4,032
---------- ---------- ---------- ----------
Gains (losses) recognised
in the income statement
within other income
relating to those assets
held at 30 June 2017 185 - (227) (42)
Trading
and other
financial Total
assets financial
at fair assets
value Available- carried
through for-sale at
profit financial Derivative fair
or loss assets assets value
GBPm GBPm GBPm GBPm
At 1 January 2016 5,116 684 924 6,724
Exchange and other adjustments 6 1 61 68
Gains recognised in
the income statement
within other income 317 - 547 864
Gains recognised in
other comprehensive
income within the revaluation
reserve in respect of
available-for-sale financial
assets - 248 - 248
Purchases 335 204 6 545
Sales (2,031) (494) (35) (2,560)
Transfers into the level
3 portfolio 187 136 45 368
Transfers out of the
level 3 portfolio (159) - (3) (162)
---------- ---------- ---------- ----------
At 30 June 2016 3,771 779 1,545 6,095
---------- ---------- ---------- ----------
Gains recognised in
the income statement
within other income
relating to those assets
held at 30 June 2016 373 - 635 1,008
14. Fair values of financial assets and liabilities (continued)
Trading
and
other
financial
assets
at fair
value
through
profit
Disposal group or loss
GBPm
At 1 January 2017 1,501
Exchange and other adjustments (1)
Gains recognised in the income statement
within other income 53
Purchases 40
Sales (87)
Transfers into the level 3 portfolio 56
Transfers out of the level 3 portfolio (104)
----------
At 30 June 2017 1,458
----------
Gains recognised in the income statement
within other income
relating to those assets held at 30 June
2017 49
The tables below analyse movements in the level 3 financial
liabilities portfolio.
Trading
and
other
financial Total
liabilities financial
at fair liabilities
value carried
through at
profit Derivative fair
or loss liabilities value
GBPm GBPm GBPm
At 1 January 2017 2 960 962
Exchange and other adjustments - 14 14
Gains recognised in the income
statement within other income (2) (207) (209)
Additions - 19 19
Redemptions - (26) (26)
------------ ------------ ------------
At 30 June 2017 - 760 760
------------ ------------ ------------
Gains recognised in the income
statement within other income
relating to those liabilities
held at 30 June 2017 - (209) (209)
Trading
and
other
financial Total
liabilities financial
at fair liabilities
value carried
through at
profit Derivative fair
or loss liabilities value
GBPm GBPm GBPm
At 1 January 2016 1 723 724
Exchange and other adjustments - 43 43
Losses recognised in the income
statement within other income 1 606 607
Additions - 10 10
Redemptions - (52) (52)
------------ ------------ ------------
At 30 June 2016 2 1,330 1,332
------------ ------------ ------------
Losses recognised in the income
statement within other income
relating to those liabilities
held at 30 June 2016 1 592 593
14. Fair values of financial assets and liabilities (continued)
The tables below set out the effects of reasonably possible
alternative assumptions for categories of level 3 financial assets
and financial liabilities which have an aggregated carrying value
greater than GBP500 million.
At 30 June 2017
---------------------------------------
Effect of reasonably
possible alternative
assumptions(1)
-----------------------------
Significant
Valuation unobservable Carrying Favourable Unfavourable
technique(s) inputs Range(2) value changes changes
GBPm GBPm GBPm
Trading and other financial assets
at fair value through profit
or loss:
Equity
and venture
capital Market Earnings
investments approach multiple 0.9/18.0 2,136 69 (69)
Other 124
------------------------------------------------------ -------- --------
2,260
--------
Available for sale
financial assets 660 52 (52)
Derivative financial
assets:
Option Interest
Interest pricing rate
rate derivatives model volatility 0%/136% 1,112 11 (4)
------------------ -------------- ------------------ -------- --------
1,112
--------
Financial assets carried
at fair value 4,032
--------
Trading and other financial liabilities
at fair value through profit
or loss - - -
Derivative financial
liabilities:
Option
Interest pricing Interest
rate derivatives model rate volatility 0%/136% 760 - -
------------------ -------------- ------------------ -------- --------
760
--------
Financial liabilities carried
at fair value 760
--------
(1) Where the exposure to an unobservable input is
managed on a net basis, only the net impact is
shown in the table.
(2) The range represents the highest and lowest inputs
used in the level 3 valuations.
14. Fair values of financial assets and liabilities (continued)
At 31 December 2016
---------------------------------------
Effect of reasonably
possible alternative
assumptions(1)
-----------------------------
Significant
Valuation unobservable Carrying Favourable Unfavourable
technique(s) inputs Range(2) value changes changes
GBPm GBPm GBPm
Trading and other financial assets
at fair value through profit
or loss:
Equity
and venture
capital Market Earnings
investments approach multiple 0.9/10.0 2,163 63 (68)
Other 142
------------------------------------------------------ -------- --------
2,305
--------
Available for sale
financial assets 894 48 (53)
Derivative financial
assets:
Option
Interest pricing Interest
rate derivatives model rate volatility 0%/115% 1,399 (3) (19)
------------------ -------------- ------------------ -------- --------
1,399
--------
Financial assets carried
at fair value 4,598
--------
Trading and other financial liabilities
at fair value through profit
or loss 2 - -
Derivative financial
liabilities:
Option
Interest pricing Interest
rate derivatives model rate volatility 0%/115% 960 - -
------------------ -------------- ------------------ -------- --------
960
--------
Financial liabilities carried
at fair value 962
--------
(1) Where the exposure to an unobservable input is
managed on a net basis, only the net impact is
shown in the table.
(2) The range represents the highest and lowest inputs
used in the level 3 valuations.
14. Fair values of financial assets and liabilities (continued)
Disposal group
At 30 June 2017
---------------------------------------
Effect of reasonably
possible alternative
assumptions(1)
-----------------------------
Significant
Valuation unobservable Carrying Favourable Unfavourable
technique(s) inputs Range(2) value changes changes
GBPm GBPm GBPm
Trading and other financial assets
at fair value through profit
or loss:
Unlisted
equities
and debt Underlying
securities, asset/net
property asset value
partnerships (incl.
in the property
life funds prices)(3) n/a n/a 1,458 - (84)
-------------- -------------- --------------- ----------
Financial assets carried
at fair value 1,458
--------
At 31 December 2016
---------------------------------------
Effect of reasonably
possible alternative
assumptions(1)
-----------------------------
Significant
Valuation unobservable Carrying Favourable Unfavourable
technique(s) inputs Range(2) value changes changes
GBPm GBPm GBPm
Trading and other financial assets
at fair value through profit
or loss:
Unlisted
equities
and debt Underlying
securities, asset/net
property asset value
partnerships (incl.
in the property
life funds prices)(3) n/a n/a 1,501 - (32)
-------------- -------------- --------------- ----------
Financial assets carried
at fair value 1,501
--------
(1) Where the exposure to an unobservable input is
managed on a net basis, only the net impact is
shown in the table.
(2) The range represents the highest and lowest inputs
used in the level 3 valuations.
(3) Underlying asset/net asset values represent fair
value.
Unobservable inputs
Significant unobservable inputs affecting the valuation of debt
securities, unlisted equity investments and derivatives are
unchanged from those described in the Group's 2016 financial
statements.
Reasonably possible alternative assumptions
Valuation techniques applied to many of the Group's level 3
instruments often involve the use of two or more inputs whose
relationship is interdependent. The calculation of the effect of
reasonably possible alternative assumptions included in the table
above reflects such relationships and are unchanged from those
described in the Group's 2016 financial statements.
15. Related party transactions
Balances and transactions with fellow Lloyds Banking Group
undertakings
The Bank and its subsidiaries have balances due to and from the
Bank's parent company, Lloyds Banking Group plc, and fellow Group
undertakings. These are included on the balance sheet as
follows:
At At
30 June 31 Dec
2017 2016
GBPm GBPm
Assets
Loans and receivables: Due from fellow
Lloyds Banking Group undertakings 6,760 5,624
Derivative financial instruments 350 195
Trading and other financial assets
at fair value through profit or loss 1,985 1,911
Liabilities
Due to fellow Lloyds Banking Group
undertakings 9,967 5,444
Derivative financial instruments 1,235 1,787
Debt securities in issue 187 818
Subordinated liabilities 3,032 3,815
During the half-year to 30 June 2017 the Group earned GBP26
million (half-year to 30 June 2016: GBP59 million) of interest
income and incurred GBP119 million (half-year to 30 June 2016:
GBP443 million) of interest expense on balances and transactions
with Lloyds Banking Group plc and fellow Group undertakings.
Other related party transactions
Other related party transactions for the half-year to 30 June
2017 are similar in nature to those for the year ended 31 December
2016.
16. Dividends on ordinary shares
The Bank paid a dividend of GBP1,600 million on 11 May 2017; the
Bank paid dividends of GBP2,430 million on 12 May 2016 and a
further GBP610 million on 23 September 2016.
17. Future accounting developments
The following pronouncements are not applicable for the year
ending 31 December 2017 and have not been applied in preparing
these interim financial statements. Save as disclosed below, the
impact of these accounting changes is still being assessed by the
Group and reliable estimates cannot be made at this stage.
With the exception of IFRS 9 'Financial Instruments', and IFRS
15 'Revenue from Contracts with Customers', as at 26 July 2017
these pronouncements are awaiting EU endorsement.
IFRS 9 Financial Instruments
IFRS 9 replaces IAS 39 'Financial Instruments: Recognition and
Measurement' and is effective for annual periods beginning on or
after 1 January 2018.
The Group has an established IFRS 9 programme to ensure a high
quality implementation in compliance with the standard and
additional regulatory guidance that has been issued. The programme
involves Finance and Risk functions across the Group with
Divisional and Group steering committees providing oversight. The
key responsibilities of the programme include defining IFRS 9
methodology and accounting policy, development of Expected Credit
Loss ('ECL') models, identifying and implementing data and system
requirements, and establishing an appropriate operating model and
governance framework.
The programme is progressing in line with delivery plans and is
currently completing credit risk model development and embedding
the IFRS 9 operating model into the business. All core models are
expected to be operational by September 2017 and outputs will be
reviewed and validated ahead of implementation.
Classification and measurement
IFRS 9 requires financial assets to be classified into one of
three measurement categories, fair value through profit or loss,
fair value through other comprehensive income or amortised cost.
Financial assets will be measured at amortised cost if they are
held within a business model the objective of which is to hold
financial assets in order to collect contractual cash flows, and
their contractual cash flows represent solely payments of principal
and interest. Financial assets will be measured at fair value
through other comprehensive income if they are held within a
business model the objective of which is achieved by both
collecting contractual cash flows and selling financial assets and
their contractual cash flows represent solely payments of principal
and interest. Financial assets not meeting either of these two
business models; and all equity instruments (unless designated at
inception to fair value through other comprehensive income); and
all derivatives are measured at fair value through profit or loss.
An entity may, at initial recognition, designate a financial asset
as measured at fair value through profit or loss if doing so
eliminates or significantly reduces an accounting mismatch.
The Group has undertaken an assessment of the classification and
measurement of financial assets and, whilst certain portfolios will
need to be reclassified, including from amortised cost to fair
value through profit or loss, the overall impact on the Group is
not expected to be significant.
IFRS 9 retains most of the existing requirements for financial
liabilities. However, for financial liabilities designated at fair
value through profit or loss, gains or losses attributable to
changes in own credit risk may be presented in other comprehensive
income. The Group has elected to early adopt this presentation of
gains and losses on financial liabilities from 1 January 2017.
17. Future accounting developments (continued)
Impairment
The IFRS 9 impairment model will be applicable to all financial
assets at amortised cost, debt instruments measured at fair value
through other comprehensive income, lease receivables, loan
commitments and financial guarantees not measured at fair value
through profit or loss.
IFRS 9 replaces the existing 'incurred loss' impairment approach
with an expected credit loss model, resulting in earlier
recognition of credit losses compared with IAS 39. Expected credit
losses are the unbiased probability weighted average credit losses
determined by evaluating a range of possible outcomes and future
economic conditions.
The ECL model has three stages. Entities are required to
recognise a 12 month expected loss allowance on initial recognition
(stage 1) and a lifetime expected loss allowance when there has
been a significant increase in credit risk since initial
recognition (stage 2). Stage 3 requires objective evidence that an
asset is credit-impaired, which is similar to the guidance on
incurred losses in IAS 39.
IFRS 9 requires the use of more forward looking information
including reasonable and supportable forecasts of future economic
conditions. The need to consider a range of economic scenarios and
how they could impact the loss allowance is a subjective feature of
the IFRS 9 ECL model. The Group has developed the capability to
model a number of economic scenarios and capture the impact on
credit losses to ensure the overall ECL reflects an appropriate
distribution of economic outcomes.
For all material portfolios, IFRS 9 ECL calculation will
leverage the systems, data and methodology used to calculate
regulatory 'expected losses'. The definition of default for IFRS 9
purposes will be aligned to the Basel definition of default to
ensure consistency across the Group. IFRS 9 models will use three
key input parameters for the computation of expected loss, being
probability of default ('PD'), loss given default ('LGD') and
exposure at default ('EAD'). However, given the conservatism
inherent in the regulatory expected losses calculation and some
differences in the period over which risk parameters are measured,
some adjustments to these components have been made to ensure
compliance with IFRS 9.
The new impairment requirements will result in an increase in
the Group's balance sheet provisions for credit losses and may have
a negative impact on the Group's regulatory capital position. The
extent of any increase in provisions will depend upon a number of
factors including the composition of the Group's lending portfolios
and forecast economic conditions at the date of implementation. It
is not possible to conclude on the capital impact as the
interaction with IFRS 9 and the capital rules, including possible
transitional arrangements, is still being finalised.
Whilst the Group is still running and testing the new credit
risk models, it is not possible to provide a reliable estimate of
the increase in impairment provisions on 1 January 2018. The
ongoing impact on the financial results will only become clearer
after running the IFRS 9 models over a period of time and under
different economic environments, however, it could result in
impairment charges being more volatile when compared to the current
IAS 39 impairment model, due to the forward looking nature of
expected credit losses.
Hedge accounting
The hedge accounting requirements of IFRS 9 are more closely
aligned with risk management practices and follow a more
principle-based approach than IAS 39. The standard does not address
macro hedge accounting, which is being considered in a separate
IASB project. There is an option to retain the existing IAS 39
hedge accounting requirements until the IASB completes its project
on macro hedging. The Group expects to continue applying IAS 39
hedge accounting in accordance with this accounting policy
choice.
17. Future accounting developments (continued)
IFRS 15 Revenue from Contracts with Customers
IFRS 15 replaces IAS 18 'Revenue' and IAS 11 'Construction
Contracts' and is effective for annual periods beginning on or
after 1 January 2018.
The core principle of IFRS 15 is that revenue reflects the
transfer of goods or services to customers in an amount that
reflects the consideration to which an entity expects to be
entitled. The recognition of such revenue is in accordance with
five steps to: identify the contract; identify the performance
obligations; determine the transaction price; allocate the
transaction price to the performance obligations; and recognise
revenue when the performance obligations are satisfied.
Revenue relating to financial instruments, leases and insurance
contracts are out of scope, however, the Group does recognise fee
income that is within scope, for example on added value accounts,
interchange and service fees, certain mortgage fees, factoring and
commitment fees. A substantial proportion of the current revenue
recognition policy for fee and commission income is not expected to
change. The standard is therefore not expected to have a
significant impact on the Group's profitability.
Upon transition, any adjustments can be recognised either
retrospectively to each prior reporting period presented, or
retrospectively with the cumulative effect of initially applying
the standard recognised at the date of initial application as an
adjustment to the opening balance retained earnings. The Group
anticipates adopting the second approach to transition.
IFRS 16 Leases
IFRS 16 replaces IAS 17 'Leases' and is effective for annual
periods beginning on or after 1 January 2019.
IFRS 16 requires lessees to recognise a right of use asset and a
liability for future payments arising from a lease contract.
Lessees will recognise a finance charge on the liability and a
depreciation charge on the asset which could affect the timing of
the recognition of expenses on leased assets. This change will
mainly impact the properties that the Group currently accounts for
as operating leases. Finance systems will need to be changed to
reflect the new accounting rules and disclosures. Lessor accounting
requirements remain aligned to the current approach under IAS
17.
IFRS 17 Insurance Contracts
IFRS 17 replaces IFRS 4 'Insurance Contracts' and is effective
for annual periods beginning on or after 1 January 2021.
IFRS 17 requires insurance contracts and participating
investment contracts to be measured on the balance sheet as the
total of the fulfilment cash flows and the contractual service
margin. Changes to estimates of future cash flows from one
reporting date to another are recognised either as an amount in
profit or loss or as an adjustment to the expected profit for
providing insurance coverage, depending on the type of change and
the reason for it. The effects of some changes in discount rates
can either be recognised in profit or loss or in other
comprehensive income as an accounting policy choice. The risk
adjustment is released to profit and loss as an insurer's risk
reduces. Profits which are currently recognised through a Value in
Force asset, will no longer be recognised at inception of an
insurance contract. Instead, the expected profit for providing
insurance coverage is recognised in profit or loss over time as the
insurance coverage is provided.
The standard will have a significant impact on the accounting
for the insurance and participating investment contracts issued by
the Insurance Division.
Minor amendments to other accounting standards
The IASB has issued a number of minor amendments to IFRSs
effective 1 January 2018 (including IFRS 2 'Share-based Payment'
and IAS 40 'Investment Property') and IFRIC 23 'Uncertainty over
Income Tax Treatments' effective 1 January 2019. These revised
requirements are not expected to have a significant impact on the
Group.
18. Ultimate parent undertaking
The Bank's ultimate parent undertaking and controlling party is
Lloyds Banking Group plc which is incorporated in Scotland. Lloyds
Banking Group plc has published consolidated accounts for the year
to 31 December 2016 and copies may be obtained from Investor
Relations, Lloyds Banking Group, 25 Gresham Street, London EC2V 7HN
and available for download from www.lloydsbankinggroup.com.
19. Other information
The financial information in these condensed consolidated
half-year financial statements does not constitute statutory
accounts within the meaning of section 434 of the Companies Act
2006. Statutory accounts for the year ended 31 December 2016 have
been delivered to the Registrar of Companies. The auditors' report
on those accounts was unqualified, did not include an emphasis of
matter paragraph and did not include a statement under section 498
of the Companies Act 2006.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors listed below (being all the directors of Lloyds
Bank plc) confirm that to the best of their knowledge these
condensed consolidated half-year financial statements have been
prepared in accordance with International Accounting Standard 34,
Interim Financial Reporting, as adopted by the European Union, and
that the half-year management report herein includes a fair review
of the information required by DTR 4.2.7R and DTR 4.2.8R,
namely:
-- an indication of important events that have occurred during
the six months ended 30 June 2017 and their impact on the condensed
consolidated half-year financial statements, and a description of
the principal risks and uncertainties for the remaining six months
of the financial year; and
-- material related party transactions in the six months ended
30 June 2017 and any material changes in the related party
transactions described in the last annual report.
Signed on behalf of the board by
António Horta-Osório
Group Chief Executive
26 July 2017
Lloyds Bank plc board of directors:
António Horta-Osório (Group Chief Executive)
George Culmer (Chief Financial Officer)
Juan Colombás (Chief Risk Officer)
Lord Blackwell (Chairman)
Anita Frew (Deputy Chairman)
Alan Dickinson
Simon Henry
Lord Lupton CBE
Deborah McWhinney
Nicholas Prettejohn
Stuart Sinclair
Sara Weller CBE
INDEPENDENT REVIEW REPORT TO LLOYDS BANK PLC
Report on the condensed consolidated half-year financial
statements
Our conclusion
We have reviewed Lloyds Bank plc's condensed consolidated
half-year financial statements (the 'interim financial statements')
in the 2017 half-year management report of Lloyds Bank plc for the
six month period ended 30 June 2017. Based on our review, nothing
has come to our attention that causes us to believe that the
interim financial statements are not prepared, in all material
respects, in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and
the Disclosure Guidance and Transparency Rules sourcebook of the
United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the consolidated balance sheet as at 30 June 2017;
-- the consolidated income statement for the period then ended;
-- the consolidated statement of comprehensive income for the period then ended;
-- the consolidated cash flow statement for the period then ended;
-- the consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the 2017 half-year
management report have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The 2017 half-year management report, including the interim
financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the 2017 half-year management report in accordance with
the Disclosure Guidance and Transparency Rules sourcebook of the
United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the 2017 half-year management report based
on our review. This report, including the conclusion, has been
prepared for and only for the Bank for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the 2017
half-year management report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
26 July 2017
Notes:
(a) The maintenance and integrity of the Lloyds Banking Group
plc website is the responsibility of the directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the interim financial
statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
CONTACTS
For further information please contact:
INVESTORS AND ANALYSTS
Douglas Radcliffe
Group Investor Relations Director
020 7356 1571
douglas.radcliffe@finance.lloydsbanking.com
Andrew Downey
Director of Investor Relations
020 7356 2334
andrew.downey@finance.lloydsbanking.com
Edward Sands
Director of Investor Relations
020 7356 1585
edward.sands@lloydsbanking.com
CORPORATE AFFAIRS
Fiona Laffan
Group Corporate Communications Director
020 7356 2081
fiona.laffan@lloydsbanking.com
Matt Smith
Head of Corporate Media
020 7356 3522
matt.smith@lloydsbanking.com
Copies of this news release may be obtained from Investor
Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V
7HN. The full news release can also be found on the Group's website
- www.lloydsbankinggroup.com.
Registered office: Lloyds Banking Group plc, The Mound,
Edinburgh, EH1 1YZ
Registered in Scotland No. 95000
This information is provided by RNS
The company news service from the London Stock Exchange
END
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