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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
IR UBURRBSABUAR
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July 27, 2017 06:56 ET (10:56 GMT)
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