TIDM83AB TIDMLLOY

RNS Number : 7793Z

Lloyds Bank Corporate Markets PLC

16 September 2022

Lloyds Bank Corporate Markets plc

2022 Half-Year Results

Member of the Lloyds Banking Group

CONTENTS

 
                                                             Page 
Review of performance                                           1 
 
Principal risks and uncertainties                               4 
 
Condensed consolidated interim financial statements             7 
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 to the condensed consolidated half-year financial 
 statements                                                    16 
 
Statement of directors' responsibilities                       51 
Independent review report to Lloyds Bank Corporate Markets 
 plc                                                           53 
Forward looking statements                                     55 
 

REVIEW OF PERFORMANCE

Lloyds Bank Corporate Markets plc (the Bank) and its subsidiaries (the Group) carries out the non-ring fenced banking operations of Lloyds Banking Group (LBG) and provides a wide range of banking and financial services in the UK and overseas. The Group operates as an integrated business across the UK, the Crown Dependencies, the USA, Singapore and Germany, and contributes to the financial results of the Commercial Banking Division of LBG.

The Group's strategic purpose as part of LBG is to Help Britain Prosper by connecting the UK and LBG with the world through a first class banking, financing and risk management proposition. All underpinned by excellent customer service.

Principal activities

Supporting a diverse range of customers, the Group provides a broad range of banking products to help them achieve their financial goals. The Group's revenues are earned through the provision of financing and risk management solutions to commercial customers; and current accounts, savings accounts, mortgages, car finance and personal loans in the retail market in our Crown Dependencies businesses.

The target market for these products and services in the UK and internationally is made up of large corporates, financial institutions and commercial customers plus, in the Crown Dependencies, retail customers and includes the following product propositions:

- Commercial lending (including fixed rate loans, revolving credit facilities, variable loans and business mortgages)

- Trade and working capital management (including trade services, trade finance, supply chain finance and asset finance)

   -    Bonds and structured finance (including bonds, structured lending and asset securitisation) 

- Risk management (including foreign exchange, rates, credit, commodities and liabilities management)

- Retail banking services (including mortgages, personal current accounts, personal loans and motor finance) in the Crown Dependencies

   -    ESG product solutions (including green bonds and sustainability-linked loans) 

Review of results

During the half-year to 30 June 2022, the Group recorded a profit before tax of GBP249 million compared to GBP193 million during the half-year to 30 June 2021, an overall increase of GBP56 million. The Group has benefited from good performance in its core businesses including increased lending combined with rising interest rates and foreign exchange trading activity. Work has continued successfully on the tasks required to safely close down the Singapore branch which is on schedule to complete this year and continued progress has been made on the transition from Interbank Offered Rates (IBORs) to Alternative Risk Free Reference Rates (refer Note 14).

The Group recognised an impairment charge of GBP11 million (2021: GBP47 million impairment credit in the half-year to 30 June 2021) in the income statement relating to expected credit loss (ECL) driven largely by the future economic outlook. The Group's ECL calculated under IFRS 9 requires the use of a range of possible future outcomes and more details are contained in Notes 2 and 4.

Regulatory capital adequacy remains strong, with a Bank CET1 ratio of 12.6 per cent (2021: 13.1 per cent); reflecting the stability of the business, and the strength of the client franchise served by the Bank. Risk weighted assets have increased by GBP2,136 million from GBP18,436 million at 31 December 2021 to GBP20,572 million at 30 June 2022, reflecting increased lending and an increase on 1 January 2022 regarding the impact of regulatory changes, including a new standardised approach for measuring counterparty credit risk (SA-CCR). The Bank's UK leverage ratio of 4.5 per cent at 30 June 2022 increased from 3.5 per cent at 31 December 2021, largely following the impact of regulatory changes applied under the UK leverage ratio framework on 1 January 2022.

Total income was GBP476 million in the first half of 2022 compared to GBP350 million in the first half of 2021 which is an increase of 36 per cent. This predominantly comprises net interest income of GBP131 million (GBP70 million in the half-year to 30 June 2021), net fee and commission income of GBP107 million (GBP117 million in the half-year to 30 June 2021) and net trading income of GBP234 million (GBP171 million in the half-year to 30 June 2021). This reflects good lending growth, stable funding and resilient trading performance.

Operating expenses were GBP216 million, up from GBP204 million in the half-year to 30 June 2021, an increase of GBP12 million which includes severance and other costs of closing the Singapore branch. Operating expenses consist predominantly of management charges relating to the Intra Group Agreement paid to Lloyds Bank plc, staff costs and other operating expenses. The taxation charge in the period was GBP42 million (six months to 30 June 2021 GBP60 million charge) and more details are contained in Note 5.

Total assets were GBP1,378 million higher at GBP90,077 million at 30 June 2022 compared to GBP88,699 million at 31 December 2021. Cash and balances at central banks decreased by GBP5,798 million from GBP22,140 million at 31 December 2021 to GBP16,342 million at 30 June 2022 reflecting a lower assessment of liquidity required. Financial assets at fair value through profit or loss were GBP15,709 million at 30 June 2022 compared to GBP22,409 million at 31 December 2021 and predominantly consist of reverse repurchase agreements which have reduced in the period offsetting increases in derivative balances. Derivative financial instruments of GBP27,716 million at 30 June 2022 increased by GBP9,726 million compared to GBP17,990 million at 31 December 2021 reflecting fair value mark to market movements and the impact of the USD exchange rate at the period end. Financial assets at amortised cost increased by GBP2,296 million from GBP25,616 million at 31 December 2021 to GBP27,912 million at 30 June 2022, mainly as a result of increased customer lending.

Total liabilities of the Group were GBP86,867 million at 30 June 2022 compared to GBP85,210 million at 31 December 2021, a increase of GBP1,657 million. Deposits from banks were GBP3,223 million at 30 June 2022 which is GBP598 million lower than GBP3,821 million at 31 December 2021. Customer deposits increased by GBP314 million from GBP26,967 million at 31 December 2021 to GBP27,281 million at 30 June 2022 reflecting customer activity. Financial liabilities at fair value through profit or loss at 30 June 2022 of GBP14,082 million have decreased by GBP2,500 million when compared with the 31 December 2021 balance of GBP16,582 million which reflects a reduction in repurchase agreements offset by an increase in short positions. Derivative financial instruments of GBP23,122 million have increased by GBP7,550 million compared to the 31 December 2021 balance of GBP15,572 million reflecting fair value mark to market movements. Debt securities in issue of GBP14,929 million has decreased by GBP1,715 million compared to GBP16,644 million at 31 December 2021.

Total equity at 30 June 2022 was GBP3,210 million which is a decrease of GBP279 million compared to GBP3,489 million at 31 December 2021 including profits in the period less the dividend paid to LBG in the period of GBP220 million (2021: GBP200 million) and movements in other reserves (refer Note 10).

Capital position at 30 June 2022

The Bank's capital position as at 30 June 2022 is set out in the following section.

 
                                                                        At 30               At 31 
                                                                    June 2022            Dec 2021 
Capital resources of the bank                                            GBPm                GBPm 
----------------------------------------------------------  -----------------  ------------------ 
Common equity tier 1 
Shareholders' equity per balance sheet                                  2,483               2,783 
Adjustment to retained earnings for foreseeable dividends                   -               (220) 
Cash flow hedging reserve                                                 308                  48 
Debit valuation adjustment                                               (35)                (16) 
                                                                        2,756               2,595 
less: deductions from common equity tier 1 
Prudent valuation adjustment                                            (168)               (163) 
Excess of expected losses over impairment provisions 
 and value adjustments                                                      -                 (9) 
Common equity tier 1 capital                                            2,588               2,423 
Additional tier 1 
Additional tier 1 instruments                                             757                 757 
----------------------------------------------------------  -----------------  ------------------ 
Total tier 1 capital                                                    3,345               3,180 
----------------------------------------------------------  -----------------  ------------------ 
Tier 2 
Tier 2 instruments                                                        697                 633 
Other adjustments                                                       (101)               (104) 
----------------------------------------------------------  -----------------  ------------------ 
Total tier 2 capital                                                      596                 529 
----------------------------------------------------------  -----------------  ------------------ 
Total capital resources                                                 3,941               3,709 
----------------------------------------------------------  -----------------  ------------------ 
 
Risk-weighted assets                                                   20,572              18,436 
 
 
                                            12.6        13.1 
Common equity tier 1 capital ratio             %           % 
                                            16.3        17.2 
Tier 1 capital ratio                           %           % 
                                            19.2        20.1 
Total capital ratio                            %           % 
 
 
                                                              At 30             At 31 
                                                          June 2022          Dec 2021 
Risk-weighted assets of the Bank                               GBPm              GBPm 
                                                   ----------------  ---------------- 
Foundation Internal Ratings Based (IRB) Approach              9,302             7,665 
Other IRB Approach                                              545               579 
-------------------------------------------------  ----------------  ---------------- 
IRB Approach                                                  9,848             8,244 
Standardised Approach (1)                                     1,324             1,337 
-------------------------------------------------  ----------------  ---------------- 
Credit risk                                                  11,171             9,581 
-------------------------------------------------  ----------------  ---------------- 
Securitisation                                                  516               571 
Counterparty credit risk                                      5,426             4,024 
Credit valuation adjustment risk                                383               472 
Operational risk                                                763               855 
Market risk                                                   2,313             2,933 
-------------------------------------------------  ----------------  ---------------- 
Total risk-weighted assets                                   20,572            18,436 
-------------------------------------------------  ----------------  ---------------- 
Of which threshold risk-weighted assets (2)                     565               555 
-------------------------------------------------  ----------------  ---------------- 
 

(1) Threshold risk-weighted assets are now included within Other IRB Approach and the Standardised (STA) Approach. In addition securitisation risk-weighted assets are now shown separately. Comparatives have been presented on a consistent basis.

(2) Threshold risk-weighted assets reflect the element of significant investments and deferred tax assets that are permitted to be risk-weighted instead of being deducted from CET1 capital.

PRINCIPAL RISKS AND UNCERTAINTIES

The most significant risks that could impact the Group's ability to deliver its long-term strategic objectives, and approach to managing each risk, are reviewed and reported to the Board Risk Committee regularly. There has been no change to the principal risks as disclosed in the Group 2021 Annual Report and Accounts.

The external risks faced by the Group may also impact the success of delivering against the Group's long-term strategic objectives. These risks arise primarily from the war between Russia and Ukraine and the COVID-19 pandemic. The conflict is generating severe economic, political, social and humanitarian impacts across Europe and in the rest of the world. The Group's exposure to Russia, Ukraine and surrounding countries is not material, given our low risk appetite, and the impact of economic sanctions remains limited and manageable. However consequences are being felt through financial markets volatility, inflationary pressures and the risks associated with the conflict remain very high, such as economic contraction, cyber-attacks, higher default levels and other consequences of sanctions. The possibility of secondary sanctions could however add complexity to existing operational requirements in managing our exposure. In addition, the COVID-19 pandemic impacts remain through additional pressure on the global macro-economic conditions, global supply chains or public debts. A deterioration in the macro-economic environment may also impact the Group through higher impairments.

In addition to the geopolitical situation and COVID-19, the Group continues to monitor and address existing and emerging risks that could have an adverse impact on business model, financial conditions, operations and our ability to achieve revenue targets:

- The Group is subject to extensive regulation, supervision and examination by regulatory bodies in countries where it has a presence, as well as from wider initiatives. The pace and scope of new regulations could have material adverse impacts on the Group's business, financial and operating conditions such as regulatory fines for non compliance, additional capital requirements, business operations restrictions and associated costs

- The Group continues its transition from Interbank Offered Rates (IBORs) to Alternative Risk Free Reference Rates. The complexity of the transition could have material adverse impacts such as less liquid interest rates, increased litigation or disputes and higher operational risks

- Since the relationship between the UK and the European Union has still not settled, the UK's exit from the EU continues to create uncertainty as to what the future UK legal and regulatory framework will look like, noting the potential for the UK to deviate from the EU's legal and regulatory system. Trade disruption continues to be felt and meeting stringent EU regulations restrict the scope of the Group business model in the European Union

- The Group uses proprietary models to forecast losses, measure capital requirements, make business decisions and assess and control our operations and financial condition. Models are inherently subject to limitations due to their use of historical data and trends, simplifying assumptions and reliance on uncertain macroeconomic and financial variables. Our models may not be sufficiently predictive of future results due to limited historical data, extreme market volatility, parameterisation and implementation errors. In addition, our models may be ineffective if we fail to oversee them and detect flaws in the review and monitoring process

- The Group operates in a highly competitive market where the recruitment and retention of talent, particularly at a junior level, remains challenging. Ensuring that we have the right number and calibre of employees is core to the Group's success

- On climate risk, the Group is aligned with LBG, its service provider, which has taken a strategic approach to support the transition to a low carbon economy and the aims of the 2015 Paris Climate Agreement, the UK Government's net zero target, the Ten Point Plan for the Green Industrial Revolution and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations

- The provision of services to the Group is outsourced to Lloyds Bank plc via a shared service provision model or by external providers via Lloyds Bank plc. Therefore, issues impacting the shared service provider could have a detrimental impact on the Group's operations

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

Credit risk - The risk that parties with whom the Group has contracted fail to meet their financial obligations (both on and off-balance sheet). Observed or anticipated changes in the economic environment could impact profitability due to an increase in delinquency, defaults, write-downs and/or expected credit losses.

Regulatory and legal risk - The risk arising from the failure to identify, assess, correctly interpret, comply with, or manage regulatory and/or legal requirements, leading to customer detriment, failure to prevent and/or detect economic crime, financial penalties, regulatory censure, criminal or civil enforcement action.

Conduct risk - The risk of detriment across the customer life cycle including: failures in product management, distribution and servicing activities, from other risks materialising, or other activities which could undermine the integrity of the market or distort competition, leading to unfair customer outcomes, regulatory censure, reputational damage or financial loss.

Operational risk - The risk of inadequate or failed internal processes, people, systems or from external events leading to loss. This includes cyber-attack, internal and/or external fraud or financial crime, IT systems failures or, failure to ensure compliance with associated increasingly complex and detailed regulation.

Operational risk: shared services model (SSM) - LBG's chosen ring-fencing operating model introduces risk for the Group in the execution of that model as a shared service recipient.

Key Risks include:

- Key reliance on the SSM increases the prominence of internal service provision risk which is compounded, given the leanness of the relevant teams, in situations where the Group's priorities are not wholly aligned with those of the wider LBG

- Business process risk (i.e. non-adherence to key processes, including those relating to market, operational, capital, credit, economic crime prevention and funding & liquidity risk)

- Information security & cyber risk including access management, records, data protection and cyber

   -    IT systems risk due to reliance on the shared service from LBG's IT department 

- Reliance on the SSM to operate a number of key controls and processes designed to detect, prevent and respond to economic crime

   -    Operational risk around business resilience, change activity and sourcing 

- Impact of resourcing challenges LBG might face around attracting and retaining people with the necessary skills

Operational resilience risk - The risk that the Group fails to design resilience into business operations, underlying infrastructure and controls (people, process and technical) to withstand external or internal events that could impact the continuity of operations or alternatively the failure to respond to events in a way which meets stakeholder expectations and needs when the continuity of operations is compromised.

People risk - The risk that the Group fails to provide an appropriate colleague and customer centric culture, supported by robust reward and wellbeing policies and processes; effective leadership to manage colleague resources; effective talent and succession management; and control framework to ensure all colleague related requirements are met.

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 - Funding risk is defined as the risk that the Group does not have sufficiently stable and diverse sources of funding or the funding structure is inefficient. Liquidity risk is defined as the risk that financial resources are insufficient to meet commitments as they fall due or can only secure them at excessive cost.

Market risk - The risk that the Group's capital or earnings profile is affected by adverse market rates, in particular changes and volatility in interest and foreign exchange rates, inflation rates, commodity prices and credit spreads through activity in the banking and markets businesses.

Model risk - The risk of financial loss, regulatory censure, reputational damage or customer detriment from deficiencies in developing, applying and operating models and rating systems.

Data risk - The risk of the Group failing to effectively govern, manage, and control its data (including data processed by third party suppliers) leading to unethical decisions, poor customer outcomes, loss of value to the Group and mistrust.

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

Governance risk - The risk that its organisational infrastructure fails to provide robust oversight of decision making and the control mechanisms to ensure strategies and management instructions are implemented effectively.

Change/execution risk - The risk that, in delivering its change agenda, the Group fails to ensure compliance with laws and regulation, maintain effective customer service and availability, and/or operate within the Group's risk appetite.

Strategic risk - Strategic risk is defined as the risk which results from:

   -    Incorrect assumptions about internal or external operating environments 

- Failure to understand the potential impact of strategic responses and business plans on existing risk types

- Failure to respond or the inappropriate strategic response to material changes in the external or internal operating environments

STATUTORY INFORMATION

 
                                                         Page 
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 
1    Basis of preparation and accounting policies          16 
2    Critical accounting judgements and key sources 
      of estimation uncertainty                            17 
3    Operating expenses                                    25 
4    Impairment                                            25 
5    Tax expense                                           26 
     Financial assets at fair value through profit 
6     or loss                                              27 
7    Financial assets at amortised cost                    28 
8    Debt securities in issue                              33 
9    Other provisions                                      33 
10   Other reserves                                        33 
11   Related party transactions                            36 
12   Contingent liabilities, commitments and guarantees    37 
13   Fair values of financial assets and liabilities       38 
14   Interest rate benchmark reform                        47 
15   Dividends on ordinary shares                          49 
16   Ultimate parent undertaking                           50 
17   Events since the balance sheet date                   50 
18   Other information                                     50 
 

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

 
                                                                 Half-year 
                                                                     to 30              Half-year 
                                                                      June             to 30 June 
                                                                      2022                   2021 
                                               Note                   GBPm                   GBPm 
 
Interest income (1)                                                    290                    162 
Interest expense (1)                                                 (159)                   (92) 
                                                     ---------------------  --------------------- 
Net interest income                                                    131                     70 
                                                     ---------------------  --------------------- 
Fee and commission income                                              122                    132 
Fee and commission expense                                            (15)                   (15) 
                                                     ---------------------  --------------------- 
Net fee and commission income                                          107                    117 
Net trading income                                                     234                    171 
Other operating income (expense)                                         4                    (8) 
                                                     ---------------------  --------------------- 
Other income                                                           345                    280 
                                                     ---------------------  --------------------- 
Total income                                                           476                    350 
Operating expenses                              3                    (216)                  (204) 
Impairment (charge) credit                      4                     (11)                     47 
                                                     ---------------------  --------------------- 
Profit before tax                                                      249                    193 
Tax expense                                     5                     (42)                   (60) 
                                                     ---------------------  --------------------- 
Profit for the period                                                  207                    133 
                                                     ---------------------  --------------------- 
 
Profit attributable to ordinary shareholders                           190                    117 
Profit attributable to other equity holders                             17                     16 
Profit for the period                                                  207                    133 
                                                     ---------------------  --------------------- 
 

(1) Restated - See note 1

The accompanying notes are an integral part of the condensed consolidated half-year financial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

 
                                                                   Half-year 
                                                                       to 30              Half-year 
                                                                        June             to 30 June 
                                                                        2022                   2021 
                                                 Note                   GBPm                   GBPm 
 
Profit for the period                                                    207                    133 
Other comprehensive income 
Items that may subsequently be reclassified 
 to profit or loss: 
                                                       ---------------------  --------------------- 
Movements in revaluation reserve in respect 
 of debt securities held at fair value through 
 other comprehensive income, net of tax           10                       1                      5 
 
Movements in cash flow hedging reserve, net 
 of tax                                           10                   (260)                   (63) 
 
Movements in foreign currency translation 
 reserve, net of tax                              10                      10                    (2) 
                                                       ---------------------  --------------------- 
Other comprehensive income for the period, 
 net of tax                                                            (249)                   (60) 
                                                       ---------------------  --------------------- 
Total comprehensive income for the period                               (42)                     73 
                                                       ---------------------  --------------------- 
 
Total comprehensive income attributable to 
 ordinary shareholders                                                  (59)                     57 
Total comprehensive income attributable to 
 other equity holders                                                     17                     16 
                                                       ---------------------  --------------------- 
Total comprehensive income for the period                               (42)                     73 
                                                       ---------------------  --------------------- 
 

CONSOLIDATED BALANCE SHEET

 
                                                                             At                    At 
                                                                        30 June                31 Dec 
                                                                           2022                  2021 
                                                                    (unaudited)             (audited) 
                                                    Note                   GBPm                  GBPm 
 
Assets 
Cash and balances at central banks                                       16,342                22,140 
Financial assets at fair value through profit 
 or loss                                             6                   15,709                22,409 
Derivative financial instruments                                         27,716                17,990 
                                                          ---------------------  -------------------- 
Loans and advances to banks                                               2,021                 2,354 
Loans and advances to customers                                          20,809                17,432 
Reverse repurchase agreements                                             4,461                 5,044 
Debt securities                                                             309                   229 
Due from fellow Lloyds Banking Group undertakings                           312                   557 
                                                          ---------------------  -------------------- 
Financial assets at amortised cost                   7                   27,912                25,616 
Financial assets at fair value through other 
 comprehensive income                                                        12                   100 
Property, plant and equipment                                                60                    67 
Current tax recoverable                                                       2                    16 
Deferred tax assets                                                         134                    37 
Other assets                                                              2,190                   324 
                                                          ---------------------  -------------------- 
Total assets                                                             90,077                88,699 
                                                          ---------------------  -------------------- 
 
 
Liabilities and equity 
Liabilities 
Deposits from banks                                                   3,223                  3,821 
Customer deposits                                                    27,281                 26,967 
Repurchase agreements                                                     1                  1,019 
Due to fellow Lloyds Banking Group undertakings                       1,261                  3,442 
Financial liabilities at fair value through 
 profit or loss                                                      14,082                 16,582 
Derivative financial instruments                                     23,122                 15,572 
Debt securities in issue                          8                  14,929                 16,644 
Other liabilities                                                     2,188                    461 
Current tax liabilities                                                   5                      5 
Deferred tax liabilities                                                  -                      - 
Other provisions                                  9                      26                     13 
Subordinated liabilities                                                749                    684 
                                                      ---------------------  --------------------- 
Total liabilities                                                    86,867                 85,210 
                                                      ---------------------  --------------------- 
 
Equity 
Share capital                                                           120                    120 
Other reserves                                    10                  (313)                   (64) 
Retained profits                                                      2,621                  2,651 
                                                      ---------------------  --------------------- 
Ordinary shareholder's equity                                         2,428                  2,707 
Other equity instruments                                                782                    782 
                                                      ---------------------  --------------------- 
Total equity                                                          3,210                  3,489 
                                                      ---------------------  --------------------- 
Total equity and liabilities                                         90,077                 88,699 
                                                      ---------------------  --------------------- 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

 
                                   Attributable to ordinary shareholders 
                --------------------------------------------------------------------------- 
                                                                                                           Other 
                           Share               Other           Retained                                   equity 
                         capital            reserves            profits               Total          instruments               Total 
                            GBPm                GBPm               GBPm                GBPm                 GBPm                GBPm 
 
At 1 January 
 2022                        120                (64)              2,651               2,707                  782               3,489 
Comprehensive 
income 
Profit for the 
 period                                                             190                 190                   17                 207 
Other 
comprehensive 
income 
Movements in 
 revaluation 
 reserve in 
 respect 
 of debt 
 securities 
 held at fair 
 value 
 through other 
 comprehensive 
 income, net 
 of tax                                            1                                      1                                        1 
Movements in 
 cash 
 flow hedging 
 reserve, 
 net of tax                                    (260)                                  (260)                                    (260) 
Movements in 
 foreign 
 currency 
 translation 
 reserve, net 
 of tax                                           10                                     10                                       10 
                ----------------  ------------------  -----------------  ------------------  -------------------  ------------------ 
Total other 
 comprehensive 
 income                                        (249)                                  (249)                                    (249) 
                ----------------  ------------------  -----------------  ------------------  -------------------  ------------------ 
Total 
 comprehensive 
 income                                        (249)                190                (59)                   17                (42) 
                ----------------  ------------------  -----------------  ------------------  -------------------  ------------------ 
Transactions 
with 
owners 
                ----------------  ------------------  -----------------  ------------------  -------------------  ------------------ 
Dividends                                                         (220)               (220)                                    (220) 
Distributions 
 on 
 other equity 
 instruments                                                                                                (17)                (17) 
Total 
 transactions 
 with owners                                                      (220)               (220)                 (17)               (237) 
At 30 June 
 2022                        120               (313)              2,621               2,428                  782               3,210 
                ----------------  ------------------  -----------------  ------------------  -------------------  ------------------ 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)

 
                                    Attributable to ordinary shareholders 
                ----------------------------------------------------------------------------- 
                                                                                                             Other 
                           Share                Other           Retained                                    equity 
                         capital             reserves            profits                Total          instruments                Total 
                            GBPm                 GBPm               GBPm                 GBPm                 GBPm                 GBPm 
 
At 1 January 
 2021                        120                   81              2,646                2,847                  782                3,629 
Comprehensive 
income 
Profit for the 
 period                        -                    -                117                  117                   16                  133 
Other 
comprehensive 
income 
Movements in 
 revaluation 
 reserve in 
 respect 
 of financial 
 assets 
 held at fair 
 value 
 through other 
 comprehensive 
 income, net 
 of tax                        -                    5                  -                    5                    -                    5 
Movements in 
 cash 
 flow hedging 
 reserve, 
 net of tax                    -                 (63)                  -                 (63)                    -                 (63) 
Movements in 
 foreign 
 currency 
 translation 
 reserve, net 
 of tax                        -                  (2)                  -                  (2)                    -                  (2) 
                ----------------  -------------------  -----------------  -------------------  -------------------  ------------------- 
Total other 
 comprehensive 
 income                        -                 (60)                  -                 (60)                    -                 (60) 
                ----------------  -------------------  -----------------  -------------------  -------------------  ------------------- 
Total 
 comprehensive 
 income                        -                 (60)                117                   57                   16                   73 
                ----------------  -------------------  -----------------  -------------------  -------------------  ------------------- 
Transactions 
with 
owners 
                ----------------  -------------------  -----------------  -------------------  -------------------  ------------------- 
Dividends                      -                    -              (200)                (200)                    -                (200) 
Distributions 
 on 
 other equity 
 instruments                   -                    -                  -                    -                 (16)                 (16) 
Total 
 transactions 
 with owners                   -                    -              (200)                (200)                 (16)                (216) 
At 30 June 
 2021                        120                   21              2,563                2,704                  782                3,486 
                ----------------  -------------------  -----------------  -------------------  -------------------  ------------------- 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)

 
                                   Attributable to ordinary shareholders 
                --------------------------------------------------------------------------- 
                                                                                                           Other 
                           Share               Other           Retained                                   equity 
                         capital            reserves            profits               Total          instruments               Total 
                            GBPm                GBPm               GBPm                GBPm                 GBPm                GBPm 
 
At 1 July 2021               120                  21              2,563               2,704                  782               3,486 
Comprehensive 
income 
Profit for the 
 period                        -                   -                 88                  88                   17                 105 
Other 
comprehensive 
income 
Movements in 
 revaluation 
 reserve in 
 respect 
 of financial 
 assets 
 held at fair 
 value 
 through other 
 comprehensive 
 income, net 
 of tax                        -                   3                  -                   3                    -                   3 
Movements in 
 cash 
 flow hedging 
 reserve, 
 net of tax                    -                (90)                  -                (90)                    -                (90) 
Movements in 
 foreign 
 currency 
 translation 
 reserve, net 
 of tax                        -                   2                  -                   2                    -                   2 
                ----------------  ------------------  -----------------  ------------------  -------------------  ------------------ 
Total other 
 comprehensive 
 income                        -                (85)                  -                (85)                    -                (85) 
                ----------------  ------------------  -----------------  ------------------  -------------------  ------------------ 
Total 
 comprehensive 
 income                        -                (85)                 88                   3                   17                  20 
                ----------------  ------------------  -----------------  ------------------  -------------------  ------------------ 
Transactions 
with 
owners 
                ----------------  ------------------  -----------------  ------------------  -------------------  ------------------ 
Dividends                      -                   -                  -                   -                    -                   - 
Distributions 
 on 
 other equity 
 instruments                   -                   -                  -                   -                 (17)                (17) 
Total 
 transactions 
 with owners                   -                   -                  -                   -                 (17)                (17) 
At 31 December 
 2021                        120                (64)              2,651               2,707                  782               3,489 
                ----------------  ------------------  -----------------  ------------------  -------------------  ------------------ 
 

CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

 
                                                                   Half-year 
                                                                       to 30               Half-year 
                                                                        June              to 30 June 
                                                                        2022                    2021 
                                                                        GBPm                    GBPm 
 
Profit (loss) before tax                                                 249                     193 
Adjustments for: 
Change in operating assets                                           (6,498)                   6,104 
Change in operating liabilities                                          915                (10,306) 
Non-cash and other items                                               (606)                    (26) 
Tax paid                                                                (26)                    (33) 
                                                      ----------------------  ---------------------- 
Net cash provided by operating activities                            (5,966)                 (4,068) 
                                                      ----------------------  ---------------------- 
Cash flows from investing activities 
Purchase of financial assets                                            (27)                    (25) 
Proceeds from sale and maturity of financial assets                      119                      41 
Purchase of fixed assets                                                 (1)                     (4) 
Net cash used in investing activities                                     91                      12 
                                                      ----------------------  ---------------------- 
Cash flows from financing activities 
Dividends paid to ordinary shareholders                                (220)                   (200) 
Distributions on other equity instruments                               (17)                    (16) 
Interest paid on subordinated liabilities                                (9)                     (8) 
Finance Leases                                                           (1)                       - 
Net cash provided by financing activities                              (247)                   (224) 
                                                      ----------------------  ---------------------- 
Effect of exchange rate changes on cash and cash 
 equivalents                                                             716                    (63) 
                                                      ----------------------  ---------------------- 
Change in cash and cash equivalents                                  (5,406)                 (4,343) 
Cash and cash equivalents at beginning of period 
 (1)                                                                  23,103                  26,392 
                                                      ----------------------  ---------------------- 
Cash and cash equivalents at end of period (1)                        17,697                  22,049 
                                                      ----------------------  ---------------------- 
 

Cash and cash equivalents comprise cash and non-mandatory balances with central banks and amounts due from banks with a maturity of less than three months.

(1) Restated see Note 1

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS

Note 1: Basis of preparation and accounting policies

These condensed consolidated half-year financial statements as at and for the period to 30 June 2022 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 United Kingdom and comprise the results of Lloyds Bank Corporate Markets 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 2021 which complied with international accounting standards in conformity with the requirements of the Companies Act 2006 and were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Copies of the 2021 Annual Report and Accounts are available on the Group's website 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 taken into account the uncertainties affecting the UK economy and their potential effects upon the Group's performance and projected funding and capital position; the impact of further stress scenarios has also been considered. On this basis, the Directors are satisfied that the Group will maintain adequate levels of funding and capital for the foreseeable future.

The 2021 interest income and interest expense balances as at 30 June 2021 have been restated to reflect GBP11 million negative interest correctly in the interest expense line. There has been no impact to net interest income.

Changes in accounting policy

Except for the matter referred to below, the Group's accounting policies are consistent with those applied by the Group in its financial statements for the year ended 31 December 2021 and there have been no changes in the Group's methods of computation.

Cash and cash equivalents: Following a decision by the IFRS Interpretations Committee in April 2022, the Group includes mandatory reserve deposits with central banks that are held in demand accounts within cash and cash equivalents disclosed in the cash flow statement, whereas these amounts were previously excluded from the amount presented in the cash flow statement. This change increased the Group's cash and cash equivalents at 31 December 2021 by GBP 45 million (to GBP23,103 million) and at 30 June 2022 by GBP23 million (to GBP17,697 million).

Future accounting developments

The IASB has issued a number of minor amendments to IFRSs effective 1 January 2023 (including IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors). These amendments are not expected to have a significant impact on the Group.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 2: Critical accounting judgements and key sources of estimation uncertainty

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. The Group's significant judgements, estimates and assumptions are unchanged compared to those applied at 31 December 2021, except as detailed below.

Allowance for expected credit losses

The Group recognises an allowance for expected credit losses (ECLs) for loans and advances to customers and banks, other financial assets held at amortised cost, financial assets measured at fair value through other comprehensive income and certain loan commitment and financial guarantee contracts. At 30 June 2022 , the Group's ECL allowance was GBP28 million (31 December 2021: GBP17 million), of which GBP17 million (31 December 2021: GBP11 million) was in respect of drawn balances.

The calculation of the Group's ECLs and provisions against loan commitments and guarantees under IFRS 9 requires the Group to make a number of judgements, assumptions and estimates. These are set out in detail in the Group's 2021 Annual Report and Accounts. The principal changes made in the period ended 30 June 2022 are as follows:

Base case and MES economic assumptions

The Group's base case economic scenario has been revised in light of the ongoing war in Ukraine, intensifying global inflation pressures, and a continuing shift towards a more restrictive monetary policy stance by central banks. The Group's updated base case scenario has two conditioning assumptions: first, no further UK COVID-19 national lockdowns are mandated; and, second, the war in Ukraine remains 'local', i.e. without overtly involving neighbouring countries, NATO or China.

Based on these assumptions and incorporating the economic data published in the second quarter, the Group's base case scenario is for a modest rise in the unemployment rate alongside an easing of residential and commercial property prices, as the UK Bank Rate continues to be raised in response to persistent inflationary pressures. Risks around this base case economic view lie in both directions, and are partly captured by the generation of alternative economic scenarios. Uncertainties relating to key epidemiological developments, notably the possibility that a vaccine-resistant strain could emerge, are not specifically captured by these scenarios.

The Group has taken into account the latest available information at the reporting date in defining its base case scenario and generating alternative economic scenarios. The scenarios include forecasts for key variables in the second quarter of 2022, for which actuals may have since emerged prior to publication.

The Group's approach to generating alternative economic scenarios is set out in detail in its financial statements for the year ended 31 December 2021. For June 2022, the Group has judged it appropriate to include a non-modelled severe downside scenario to incorporate high CPI inflation and UK Bank Rate profiles and to adopt this adjusted severe downside scenario to calculate the Group's ECL. This is because the historic macroeconomic and loan loss data upon which the scenario model is calibrated imply an association of downside economic outcomes with easier monetary policy, and therefore low interest rates. The adjustment is considered to better reflect the risks around the Group's base case view in an economic environment where supply shocks are the principal concern.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 2: Critical accounting judgements and key sources of estimation uncertainty (continued)

Scenarios by year

Key annual assumptions made by the Group are shown below. Gross domestic product and Consumer Price Index (CPI) inflation are presented as an annual change, house price growth and commercial real estate price growth are presented as the growth in the respective indices within the period. Unemployment rate and UK Bank Rate are averages for the period. For 31 December 2021, CPI numbers are translations of modelled Retail Price Index excluding mortgage interest payments (RPIX) estimates, except for the base case view.

The key UK economic assumptions made by the Group averaged over a five-year period are also shown below. The use of calendar years maintains a comparability between tables disclosed, noting that comparatives reflect one calendar year earlier.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 2: Critical accounting judgements and key sources of estimation uncertainty (continued)

 
                                                                                                                                                    2022-2026 
                                        2022                   2023                   2024                  2025                  2026                average 
 At 30 June 2022                           %                      %                      %                     %                     %                      % 
Upside 
UK Gross domestic 
 product                                 3.5                    1.2                    1.8                   1.7                   1.7                    2.0 
UK Unemployment rate                     3.1                    2.7                    2.9                   3.2                   3.4                    3.1 
UK Commercial real 
 estate 
 price growth                            9.2                    1.8                    0.9                 (0.9)                 (0.2)                    2.1 
UK Bank Rate                            1.64                   3.12                   2.97                  2.88                  2.78                   2.68 
CPI inflation                            8.6                    5.5                    2.5                   1.9                   2.2                    4.1 
US Gross domestic 
 product                                 3.0                    3.2                    2.3                   1.4                   1.0                    2.2 
US Unemployment rate                     3.5                    2.9                    2.6                   3.0                   3.6                    3.1 
Base case 
UK Gross domestic 
 product                                 3.3                    0.6                    1.5                   1.6                   1.7                    1.7 
UK Unemployment rate                     3.8                    4.2                    4.4                   4.5                   4.5                    4.3 
UK Commercial real 
 estate 
 price growth                            1.8                  (5.0)                  (1.6)                 (1.3)                   0.8                  (1.1) 
UK Bank Rate                            1.44                   2.25                   2.00                  2.00                  2.00                   1.94 
CPI inflation                            8.6                    5.5                    2.2                   1.3                   1.5                    3.8 
US Gross domestic 
 product                                 2.5                    1.1                    1.4                   2.2                   2.0                    1.9 
US Unemployment rate                     3.6                    3.8                    4.0                   4.0                   4.1                    3.9 
Downside 
UK Gross domestic 
 product                                 3.0                  (0.1)                    1.1                   1.4                   1.7                    1.4 
UK Unemployment rate                     4.5                    6.0                    6.3                   6.1                   5.9                    5.8 
UK Commercial real 
 estate 
 price growth                          (4.4)                 (11.9)                  (5.5)                 (3.6)                 (0.7)                  (5.3) 
UK Bank Rate                            1.25                   1.23                   0.80                  0.85                  0.95                   1.02 
CPI inflation                            8.7                    5.5                    1.8                   0.6                   0.7                    3.5 
US Gross domestic 
 product                                 2.1                  (0.9)                    0.0                   2.6                   3.0                    1.3 
US Unemployment rate                     3.8                    5.0                    6.0                   6.0                   5.5                    5.3 
Severe downside 
UK Gross domestic 
 product                                 1.6                  (1.8)                    1.0                   1.4                   1.6                    0.8 
UK Unemployment rate                     5.8                    8.7                    8.7                   8.3                   7.7                    7.8 
UK Commercial real 
 estate 
 price growth                         (14.9)                 (20.9)                 (11.0)                 (5.6)                   1.0                 (10.6) 
UK Bank Rate - 
 modelled                               0.76                   0.18                   0.18                  0.21                  0.24                   0.31 
UK Bank Rate - 
 adjusted                                2.9                    4.8                    3.0                   2.3                   2.3                    3.0 
CPI inflation - 
 modelled                                8.6                    5.1                    0.9                 (0.5)                 (0.5)                    2.7 
CPI inflation - 
 adjusted                                9.8                   13.7                    4.1                   1.7                   0.1                    5.9 
US Gross domestic 
 product                                 1.5                  (3.5)                  (1.7)                   2.9                   4.2                    0.6 
US Unemployment rate                     4.0                    6.5                    8.7                   8.5                   7.3                    7.0 
Probability-weighted 
UK Gross domestic 
 product                                 3.1                    0.3                    1.5                   1.5                   1.7                    1.6 
UK Unemployment rate                     4.0                    4.7                    5.0                   5.0                   4.9                    4.7 
UK Commercial real 
 estate 
 price growth                            0.5                  (6.6)                  (3.0)                 (2.3)                   0.1                  (2.3) 
UK Bank Rate - 
 modelled                               1.37                   2.00                   1.75                  1.74                  1.75                   1.72 
UK Bank Rate - 
 adjusted                               1.59                   2.46                   2.03                  1.94                  1.95                   1.99 
CPI inflation - 
 modelled                                8.6                    5.5                    2.0                   1.1                   1.3                    3.7 
CPI inflation - 
 adjusted                                8.8                    6.3                    2.3                   1.3                   1.3                    4.0 
US Gross domestic 
 product                                 2.4                    0.7                    1.0                   2.1                   2.2                    1.7 
US Unemployment rate                     3.7                    4.2                    4.7                   4.7                   4.7                    4.4 
 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 2: Critical accounting judgements and key sources of estimation uncertainty (continued)

 
                                                                                                                                         2021-2025 
                              2021                   2022                   2023                  2024                  2025               average 
At 31 December 2021              %                      %                      %                     %                     %                     % 
Upside 
UK Gross domestic 
 product                       7.1                    4.0                    1.4                   1.3                   1.4                   3.0 
UK Unemployment rate           4.4                    3.3                    3.4                   3.5                   3.7                   3.7 
UK Commercial real 
 estate 
 price growth                 12.4                    5.8                    0.7                   1.0                 (0.6)                   3.7 
UK Bank Rate                  0.14                   1.44                   1.74                  1.82                  2.03                  1.43 
CPI inflation                  2.6                    5.9                    3.3                   2.6                   3.3                   3.5 
US Gross domestic 
 product                       5.7                    6.7                    4.4                   0.3                 (0.5)                   3.3 
US Unemployment rate           5.3                    3.4                    2.6                   3.4                   4.6                   3.9 
Base case 
UK Gross domestic 
 product                       7.1                    3.7                    1.5                   1.3                   1.3                   2.9 
UK Unemployment rate           4.5                    4.3                    4.4                   4.4                   4.5                   4.4 
UK Commercial real 
 estate 
 price growth                 10.2                  (2.2)                  (1.9)                   0.1                   0.6                   1.2 
UK Bank Rate                  0.14                   0.81                   1.00                  1.06                  1.25                  0.85 
CPI inflation                  2.6                    5.9                    3.0                   1.6                   2.0                   3.0 
US Gross domestic 
 product                       5.5                    3.6                    2.5                   2.0                   1.5                   3.0 
US Unemployment rate           5.4                    4.0                    3.9                   3.9                   4.1                   4.3 
Downside 
UK Gross domestic 
 product                       7.1                    3.4                    1.3                   1.1                   1.2                   2.8 
UK Unemployment rate           4.7                    5.6                    5.9                   5.8                   5.7                   5.6 
UK Commercial real 
 estate 
 price growth                  8.6                 (10.1)                  (7.0)                 (3.4)                 (0.3)                 (2.6) 
UK Bank Rate                  0.14                   0.45                   0.52                  0.55                  0.69                  0.47 
CPI inflation                  2.6                    5.8                    2.8                   1.3                   1.6                   2.8 
US Gross domestic 
 product                       5.4                    1.0                    0.2                   2.4                   3.0                   2.4 
US Unemployment rate           5.4                    4.7                    5.9                   5.8                   5.2                   5.4 
Severe downside 
UK Gross domestic 
 product                       6.8                    0.9                    0.4                   1.0                   1.4                   2.1 
UK Unemployment rate           4.9                    7.7                    8.5                   8.1                   7.6                   7.3 
UK Commercial real 
 estate 
 price growth                  5.8                 (19.6)                 (12.1)                 (5.3)                 (0.5)                 (6.8) 
UK Bank Rate                  0.14                   0.04                   0.06                  0.08                  0.09                  0.08 
CPI inflation                  2.6                    5.8                    2.3                   0.5                   0.9                   2.4 
US Gross domestic 
 product                       5.2                  (3.2)                  (3.1)                   3.9                   5.7                   1.6 
US Unemployment rate           5.4                    5.8                    8.5                   7.9                   5.9                   6.7 
Probability-weighted 
UK Gross domestic 
 product                       7.0                    3.4                    1.3                   1.2                   1.3                   2.8 
UK Unemployment rate           4.6                    4.7                    5.0                   5.0                   4.9                   4.8 
UK Commercial real 
 estate 
 price growth                  9.9                  (3.9)                  (3.7)                 (1.2)                 (0.1)                   0.1 
UK Bank Rate                  0.14                   0.82                   0.99                  1.04                  1.20                  0.83 
CPI inflation                  2.6                    5.9                    2.9                   1.7                   2.2                   3.1 
US Gross domestic 
 product                       5.5                    3.1                    1.8                   1.8                   1.8                   2.8 
US Unemployment rate           5.4                    4.2                    4.6                   4.7                   4.7                   4.7 
 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 2: Critical accounting judgements and key sources of estimation uncertainty (continued)

ECL sensitivity to economic assumptions

The table below shows the Group's ECL for the upside, base case, downside and severe downside scenarios. The stage allocation for an asset is based on the overall scenario probability-weighted PD and, hence, the staging of assets is constant across all the scenarios. In each economic scenario the ECL for individual assessments and post-model adjustments is constant, reflecting the basis on which they are evaluated. Judgements applied through changes to inputs are reflected in the scenario sensitivities. The probability-weighted view shows the extent to which a higher ECL allowance has been recognised to take account of multiple economic scenarios relative to the base case; the uplift being GBP4 million compared to GBP1 million at 31 December 2021.

 
                    Probability-                                                                                      Severe 
                        weighted                 Upside              Base case               Downside               downside 
                            GBPm                   GBPm                   GBPm                   GBPm                   GBPm 
At 30 
 June 
 2022                         28                     20                     24                     30                     53 
At 31 
 December 
 2021                         17                     13                     16                     18                     26 
 

Application of judgement in adjustments to modelled ECL

Impairment models fall within the Group's Model Risk framework as reported in note 3 of the 2021 Annual Report and Accounts.

The coronavirus pandemic and the various support measures that were put in place resulted in an economic environment which differed significantly from the historical economic conditions upon which the impairment models had been built. As a result there has been a greater need for management judgements to be applied alongside the use of models. Over the first half of 2022 the intensifying inflationary pressures within the Group's outlook have created further risks not present in these historic conditions. Conversely, the direct impact of the pandemic on both economic and credit performance has appeared to reduce, resulting in a reduction in judgements required specifically to capture COVID-19 risks. At 30 June 2022 total management judgement resulted in additional ECL allowances of GBP6 million (31 December 2021: GBP6 million). The table below analyses total ECL allowance by portfolio, separately identifying the amounts that have been modelled, those that have been individually assessed and those arising through the application of management judgement.

 
 
                        Modelled                 Individually                           Management                Total 
                             ECL                     assessed                        Judgements(1)                  ECL 
                            GBPm                         GBPm                                 GBPm                 GBPm 
At 30 
 June 
 2022                         22                            -                                    6                   28 
At 31 
 December 
 2021                         10                            1                                    6                   17 
 

(1) Judgements introduced to address the impact that COVID-19 and resulting interventions have had on the Group's economic outlook and observed loss experience, which have required additional model limitations to be addressed.

Post-model adjustments have been raised to reflect uncertainty in the near term economic outlook and limitations in the models in dealing with this uncertainty but the impact on staging of assets has not been reflected. These adjustments principally comprise:

Economic impacts not captured by models: GBP5 million (31 December 2021: GBP5 million)

Management adjustment of GBP5 million has been maintained to reflect additional uncertainty in the economic outlook, specifically for risks associated with inflationary pressures. This qualitative overlay is a management judgement to ensure the overall provision adequately reflects the current material risks; considering the range of the quarterly provision release, review of trends and provision coverage.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 3: Operating expenses

 
                                                              Half-year           Half-year 
                                                                  to 30               to 30 
                                                                   June                June 
                                                                   2022                2021 
                                                                   GBPm                GBPm 
 
Staff costs: 
                                                     ------------------  ------------------ 
Salaries                                                           (76)                (81) 
Social security costs                                               (8)                 (7) 
Pensions and other post-retirement benefit schemes                  (7)                 (7) 
Restructuring costs                                                (11)                 (4) 
Other staff costs                                                   (4)                 (3) 
                                                     ------------------ 
                                                                  (106)               (102) 
Management charges payable                                         (79)                (69) 
Depreciation and amortisation                                       (9)                 (7) 
Premises and equipment                                              (3)                 (9) 
Communications and data processing                                  (7)                 (6) 
Professional fees                                                   (2)                 (2) 
Other operating expenses                                           (10)                 (9) 
                                                     ------------------  ------------------ 
Total operating expenses                                          (216)               (204) 
                                                     ------------------  ------------------ 
 

Note 4: Impairment

 
                                                        Half-year           Half-year 
                                                            to 30               to 30 
                                                             June                June 
                                                             2022                2021 
                                                             GBPm                GBPm 
                                               ------------------  ------------------ 
Loans and advances to banks                                   (1)                   1 
Loans and advances to customers                               (5)                  25 
Impairment (charge) credit on drawn balances                  (6)                  26 
Loan commitments and financial guarantees                     (5)                  21 
Total impairment (charge) credit                             (11)                  47 
                                               ------------------  ------------------ 
 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 5: Tax expense

In accordance with IAS 34, the Group's income tax expense for the half-year to 30 June 2022 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 
                                                                   2022                 2021 
                                                                   GBPm                 GBPm 
 
Profit before tax                                                   249                  193 
                                                    -------------------  ------------------- 
UK corporation tax thereon at 19 per cent (2021: 
 19 per cent)                                                      (47)                 (37) 
Impact of surcharge on banking profits                              (7)                 (13) 
Non-deductible costs                                                  -                  (3) 
Non-taxable income                                                   14                    1 
Tax relief on coupons on other equity instruments                     3                    3 
Tax losses where no deferred tax recognised                         (2)                  (3) 
Remeasurement of deferred tax due to rate changes                     -                  (1) 
Differences in overseas tax rates                                   (3)                  (7) 
Tax expense                                                        (42)                 (60) 
                                                    -------------------  ------------------- 
 

Note 6: Financial assets at fair value through profit or loss

 
                                                                     At                 At 
                                                                30 June             31 Dec 
                                                                   2022               2021 
                                                                   GBPm               GBPm 
 
Trading assets                                                   14,998             21,773 
 
Financial assets mandatorily at fair value through 
 profit or loss: 
                                                      -----------------  ----------------- 
Loans and advances to customers                                     402                307 
Debt securities                                                     288                310 
Treasury and other bills                                             21                 19 
                                                                    711                636 
                                                      -----------------  ----------------- 
Total financial assets at fair value through profit 
 or loss                                                         15,709             22,409 
                                                      -----------------  ----------------- 
 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 7: Financial assets at amortised cost

Half-year to 30 June 2022

 
                                                                                   Allowance for expected 
                              Gross carrying amount                                     credit losses 
              -----------------------------------------------------  --------------------------------------------------- 
                     Stage         Stage         Stage                     Stage         Stage        Stage 
                         1             2             3        Total            1             2            3        Total 
                      GBPm          GBPm          GBPm         GBPm         GBPm          GBPm         GBPm         GBPm 
 
Loans and advances to 
banks 
 At 1 
  January 
  2022               2,355             -             -        2,355            1             -            -            1 
Exchange and 
 other 
 adjustments 
 (1)                   108             -             -          108            -             -            -            - 
                                                                     -----------  ------------  -----------  ----------- 
Additions 
 and 
 repayments          (440)             -             -        (440)            1             -            -            1 
Other 
changes in 
credit 
quality                                                                        -             -            -            - 
                                                                     -----------  ------------  ----------- 
Charge 
 (credit) to 
 the 
 income 
 statement                                                                     1             -            -            1 
At 30 June 
 2022                2,023                                    2,023            2             -            -            2 
              ------------  ------------  ------------  -----------  -----------  ------------  -----------  ----------- 
Allowance 
 for 
 impairment 
 losses                (2)             -             -          (2) 
              ------------  ------------  ------------  ----------- 
Net carrying 
 amount              2,021             -             -        2,021 
              ------------  ------------  ------------  ----------- 
 
Loans and advances to 
customers 
 At 1 
  January 
  2022              17,366            47            29       17,442            7             2            1           10 
Exchange and 
 other 
 adjustments 
 (1)                 1,090             1             -        1,091            -             -            -            - 
Transfers to 
 Stage 1                 6           (6)             -            -            -             -            -            - 
Transfers to 
 Stage 2              (98)            98             -            -            -             -            -            - 
Transfers to 
 Stage 3              (17)             -            17            -            -             -            -            - 
              ------------  ------------  ------------  ----------- 
Impact of 
 transfers 
 between 
 stages              (109)            92            17            -            -             1            -            1 
                                                                     -----------  ------------  ----------- 
                                                                               -             1            -            1 
Other 
 changes in 
 credit 
 quality                                                                       2           (1)            -            1 
Additions 
 and 
 repayments          2,296            13          (18)        2,291            3             -            -            3 
Methodology 
and model 
changes                                                                        -             -            -            - 
                                                                     -----------  ------------  ----------- 
Charge 
 (credit) to 
 the 
 income 
 statement                                                                     5             -            -            5 
Advances 
written off                                          -            -                                       -            - 
Recoveries 
of advances 
written off 
in previous 
years                                                -            -                                       -            - 
At 30 June 
 2022               20,643           153            28       20,824           12             2            1           15 
              ------------  ------------  ------------  -----------  -----------  ------------  -----------  ----------- 
Allowance 
 for 
 impairment 
 losses               (12)           (2)           (1)         (15) 
              ------------  ------------  ------------  ----------- 
Net carrying 
 amount             20,631           151            27       20,809 
              ------------  ------------  ------------  ----------- 
 

(1) Exchange and other adjustments includes the impact of movements in exchange rates.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 7: Financial assets at amortised cost (continued)

 
                                                                        Allowance for expected 
                           Gross carrying amount                             credit losses 
               ---------------------------------------------  ------------------------------------------ 
                    Stage      Stage       Stage                  Stage      Stage      Stage 
                        1          2           3       Total          1          2          3      Total 
                     GBPm       GBPm        GBPm        GBPm       GBPm       GBPm       GBPm       GBPm 
 
Debt 
securities 
At 1 January 
 2022                 229          -           -         229          -          -          -          - 
Exchange and 
 other 
 adjustments 
 (1)                   11          -           -          11          -          -          -          - 
Additions and 
 repayments            69          -           -          69          -          -          -          - 
Charge to the 
income 
statement                                                             -          -          -          - 
At 30 June 
 2022                 309          -           -         309          -          -          -          - 
               ----------  ---------  ----------  ----------  ---------  ---------  ---------  --------- 
Allowance for 
impairment 
losses                  -          -           -           - 
               ----------  ---------  ----------  ---------- 
Net carrying 
 amount               309          -           -         309 
               ----------  ---------  ----------  ---------- 
 
Reverse 
repurchase 
agreements 
At 30 June 
 2022               4,461          -           -       4,461 
Allowance for 
impairment 
losses                  -          -           -           - 
               ----------  ---------  ----------  ---------- 
Net carrying 
 amount             4,461          -           -       4,461 
               ----------  ---------  ----------  ---------- 
 
Due from fellow Lloyds Banking Group 
 undertakings 
At 30 June 
 2022                 312          -           -         312 
Allowance for 
impairment 
losses                  -          -           -           - 
               ----------  ---------  ----------  ---------- 
Net carrying 
 amount               312          -           -         312 
               ----------  ---------  ----------  ---------- 
Total 
 financial 
 assets 
 at amortised 
 cost              27,734        151          27      27,912 
               ----------  ---------  ----------  ---------- 
 

(1.) Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind, and derecognising assets as a result of modifications.

Movements in allowance for expected credit losses in respect of undrawn balances were as follows:

 
                                                         Allowance for expected 
                                                              credit losses 
                                            ------------------------------------------------ 
                                                  Stage        Stage      Stage 
                                                      1            2          3        Total 
                                                   GBPm         GBPm       GBPm         GBPm 
 
Undrawn balances 
At 1 January 2022                                     6            -          -            6 
Exchange and other adjustments                        -            -          -            - 
                                            -----------  -----------  ---------  ----------- 
Transfers to Stage 
 1                                                    -            -          -            - 
Transfers to Stage 
 2                                                  (1)            1          -            - 
Transfers to Stage 
 3                                                    -            -          -            - 
Impact of transfers between 
 stages                                               -            1          -            1 
                                            -----------  -----------  --------- 
                                                    (1)            2          -            1 
Other changes in credit quality                       4            -          -            4 
                                            -----------  -----------  --------- 
Charge (credit) to the income 
 statement                                            3            2          -            5 
                                            -----------  -----------  ---------  ----------- 
At 30 June 2022                                       9            2          -           11 
                                            -----------  -----------  ---------  ----------- 
 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 7: Financial assets at amortised cost (continued)

The Group's total impairment allowances were as follows:

 
                                                        Allowance for expected 
                                                             credit losses 
                                          -------------------------------------------------- 
                                                Stage        Stage        Stage 
                                                    1            2            3        Total 
                                                 GBPm         GBPm         GBPm         GBPm 
 
In respect of: 
                                          -----------  -----------  -----------  ----------- 
Loans and advances to banks                         2            -            -            2 
Loans and advances to customers                    12            2            1           15 
Financial assets at amortised 
 cost                                              14            2            1           17 
Provisions in relation to loan 
 commitments 
 and financial guarantees                           9            2            -           11 
                                          -----------  -----------  -----------  ----------- 
Total                                              23            4            1           28 
                                          -----------  -----------  -----------  ----------- 
Expected credit loss in respect of 
 financial 
 assets at fair value through other 
 comprehensive 
 income (memorandum item)                           -            -            -            - 
                                          -----------  -----------  -----------  ----------- 
 

Year ended 31 December 2021

 
                                                                             Allowance for expected 
                           Gross carrying amount                                  credit losses 
              ------------------------------------------------  ------------------------------------------------ 
                     Stage      Stage      Stage                       Stage      Stage      Stage 
                         1          2          3         Total             1          2          3         Total 
                      GBPm       GBPm       GBPm          GBPm          GBPm       GBPm       GBPm          GBPm 
 
Loans and advances to 
banks 
At 1 January 
 2021                3,602          -          -         3,602             2          -          -             2 
Exchange and 
 other 
 adjustments 
 (1)                  (23)          -          -          (23)             -          -          -             - 
Additions 
 and 
 repayments        (1,224)          -          -       (1,224)             -          -          -             - 
Charge 
 (credit) to 
 the 
 income 
 statement                                                               (1)          -          -           (1) 
At 31 
 December 
 2021                2,355          -          -         2,355             1          -          -             1 
              ------------  ---------  ---------  ------------  ------------  ---------  ---------  ------------ 
Allowance 
 for 
 impairment 
 losses                (1)          -          -           (1) 
              ------------  ---------  ---------  ------------ 
Net carrying 
 amount              2,354          -          -         2,354 
              ------------  ---------  ---------  ------------ 
 

(1) Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind, and derecognising assets as a result of modifications.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 7: Financial assets at amortised cost (continued)

 
                                                                                      Allowance for expected 
                              Gross carrying amount                                        credit losses 
              ------------------------------------------------------  ------------------------------------------------------ 
                     Stage         Stage         Stage                       Stage         Stage         Stage 
                         1             2             3         Total             1             2             3         Total 
                      GBPm          GBPm          GBPm          GBPm          GBPm          GBPm          GBPm          GBPm 
 
Loans and advances to 
customers 
At 1 January 
 2021               13,886           379            39        14,304            26            20             2            48 
Exchange and 
 other 
 adjustments 
 (1)                 (113)           (7)             -         (120)             -             -           (1)           (1) 
Transfers to 
 Stage 1                43          (42)           (1)             -             2           (2)             -             - 
Transfers to 
 Stage 2              (14)            14             -             -             -             -             -             - 
Transfers to 
 Stage 3                 -           (3)             3             -             -             -             -             - 
              ------------  ------------  ------------  ------------ 
Impact of 
 transfers 
 between 
 stages                 29          (31)             2             -           (2)             -             -           (2) 
                                                                      ------------  ------------  ------------ 
                                                                                 -           (2)             -           (2) 
Other 
 changes in 
 credit 
 quality                                                                       (8)          (13)             1          (20) 
Additions 
 and 
 repayments          3,564         (294)          (11)         3,259          (11)           (3)             -          (14) 
Methodology 
and model 
changes                                                                          -             -             -             - 
                                                                      ------------  ------------  ------------ 
Charge 
 (credit) to 
 the 
 income 
 statement                                                                    (19)          (18)             1          (36) 
Advances 
 written off                                       (1)           (1)                                       (1)           (1) 
At 31 
 December 
 2021               17,366            47            29        17,442             7             2             1            10 
              ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------ 
Allowance 
 for 
 impairment 
 losses                (7)           (2)           (1)          (10) 
              ------------  ------------  ------------  ------------ 
Net carrying 
 amount             17,359            45            28        17,432 
              ------------  ------------  ------------  ------------ 
 
 
 
Debt 
securities 
At 1 January 
 2021                 257           -           -          257          -          -          -          - 
Exchange and 
 other 
 adjustments 
 (1)                    1           -           -            1          -          -          -          - 
Additions 
 and 
 repayments          (29)           -           -         (29)          -          -          -          - 
At 31 
 December 
 2021                 229           -           -          229          -          -          -          - 
              -----------  ----------  ----------  -----------  ---------  ---------  ---------  --------- 
Allowance 
for 
impairment 
losses                  -           -           -            - 
              -----------  ----------  ----------  ----------- 
Net carrying 
 amount               229           -           -          229 
              -----------  ----------  ----------  ----------- 
 
Reverse 
repurchase 
agreements 
At 31 
 December 
 2021               5,044           -           -        5,044 
Allowance 
for 
impairment 
losses                  -           -           -            - 
              -----------  ----------  ----------  ----------- 
Net carrying 
 amount             5,044           -           -        5,044 
              -----------  ----------  ----------  ----------- 
 
Due from fellow Lloyds Banking Group 
 undertakings 
At 31 
 December 
 2021                 557           -           -          557 
Allowance 
for 
impairment 
losses                  -           -           -            - 
              -----------  ----------  ----------  ----------- 
Net carrying 
 amount               557           -           -          557 
              -----------  ----------  ----------  ----------- 
Total 
 financial 
 assets 
 at 
 amortised 
 cost              25,543          45          28       25,616 
              -----------  ----------  ----------  ----------- 
 

(1) Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind, and derecognising assets as a result of modifications.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 7: Financial assets at amortised cost (continued)

Movements in allowance for expected credit losses in respect of undrawn balances were as follows:

 
                                                        Allowance for expected 
                                                             credit losses 
                                           ------------------------------------------------- 
                                                 Stage        Stage      Stage 
                                                     1            2          3         Total 
                                                  GBPm         GBPm       GBPm          GBPm 
 
Undrawn balances 
At 1 January 2021                                   20           13          -            33 
Exchange and other adjustments                     (1)          (1)          -           (2) 
                                           -----------  -----------  ---------  ------------ 
Transfers to Stage 
 1                                                   4          (4)          -             - 
Transfers to Stage 
 2                                                   -            -          -             - 
Transfers to Stage 
 3                                                   -            -          -             - 
Impact of transfers between 
 stages                                            (4)            -          -           (4) 
                                           -----------  -----------  --------- 
                                                     -          (4)          -           (4) 
Other changes in credit quality                   (13)          (8)          -          (21) 
                                           -----------  -----------  --------- 
Charge (credit) to the income 
 statement                                        (13)         (12)          -          (25) 
                                           -----------  -----------  ---------  ------------ 
At 31 December 2021                                  6            -          -             6 
                                           -----------  -----------  ---------  ------------ 
 

The Group's total impairment allowances were as follows:

 
                                                        Allowance for expected 
                                                             credit losses 
                                          -------------------------------------------------- 
                                                Stage        Stage        Stage 
                                                    1            2            3        Total 
                                                 GBPm         GBPm         GBPm         GBPm 
 
In respect of: 
                                          -----------  -----------  -----------  ----------- 
Loans and advances to banks                         1            -            -            1 
Loans and advances to customers                     7            2            1           10 
Financial assets at amortised 
 cost                                               8            2            1           11 
Provisions in relation to loan 
 commitments 
 and financial guarantees                           6            -            -            6 
                                          -----------  -----------  -----------  ----------- 
At 31 December 2021                                14            2            1           17 
                                          -----------  -----------  -----------  ----------- 
Expected credit loss in respect of 
 financial 
 assets at fair value through other 
 comprehensive 
 income (memorandum item)                           -            -            -            - 
                                          -----------  -----------  -----------  ----------- 
 

The movement tables are compiled by comparing the position at the reporting date to that at the beginning of the year.

Transfers between stages are deemed to have taken place at the start of the reporting period, with all other movements shown in the stage in which the asset is held at the period end, with the exception of those held within purchased or originated credit-impaired, which are not transferable.

Additions and repayments comprise new loans originated and repayments of outstanding balances throughout the reporting period. Loans which are written off in the period are first transferred to Stage 3 before acquiring a full allowance and subsequent write-off.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 8: Debt securities in issue

 
                                                                      At 31 
                                                     At 30         December 
                                                 June 2022             2021 
                                                      GBPm             GBPm 
 
Medium-term notes issued                             3,921            4,181 
Certificates of deposit issued                       4,413            4,164 
Commercial paper                                     3,241            5,129 
Amounts due to fellow Group undertakings             3,354            3,170 
                                           ---------------  --------------- 
Total debt securities in issue                      14,929           16,644 
                                           ---------------  --------------- 
 

Note 9: Other provisions

 
                               Provisions 
                            for financial              Regulatory 
                              commitments               and legal 
                           and guarantees              provisions                   Other                  Total 
                                     GBPm                    GBPm                    GBPm                   GBPm 
 
At 1 January 2022                       6                       2                       5                     13 
Exchange and 
other adjustments                       -                       -                       -                      - 
Provisions 
applied                                 -                       -                       -                      - 
Charge for the 
 period                                 5                       -                       8                     13 
                   ----------------------  ----------------------  ----------------------  --------------------- 
At 30 June 2022                        11                       2                      13                     26 
                   ----------------------  ----------------------  ----------------------  --------------------- 
 

Note 10: Other reserves

 
                                                                                          At 31 
                                                                      At 30            December 
                                                                  June 2022                2021 
                                                                       GBPm                GBPm 
Other reserves comprise: 
Revaluation reserve in respect of debt securities 
 held at fair value through other comprehensive income                  (1)                 (2) 
Cash flow hedging reserve                                             (308)                (48) 
Foreign currency translation reserve                                    (4)                (14) 
                                                         ------------------  ------------------ 
Total other reserves                                                  (313)                (64) 
                                                         ------------------  ------------------ 
 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 10: Other reserves (continued)

 
                                                                                            At 31 
                                                                       At 30             December 
                                                                   June 2022                 2021 
                                                                        GBPm                 GBPm 
 
Revaluation reserve in respect of debt securities 
 held at fair value through other comprehensive income 
At 1 January                                                             (2)                 (10) 
Change in fair value                                                       1                    5 
Deferred tax                                                               -                  (1) 
                                                                           1                    4 
                                                         -------------------  ------------------- 
Income statement transfers in respect of disposals                         -                    5 
Deferred tax                                                               -                  (1) 
                                                         ------------------- 
                                                                           -                    4 
At period end                                                            (1)                  (2) 
                                                         -------------------  ------------------- 
 
 
                                                                              At 31 
                                                           At 30           December 
                                                       June 2022               2021 
                                                            GBPm               GBPm 
Cash flow hedging reserve 
At 1 January                                                (48)                105 
                                              ------------------  ----------------- 
Change in fair value of hedging derivatives                (349)              (169) 
Deferred tax                                                  94                 48 
                                              ------------------ 
                                                           (255)              (121) 
                                              ------------------  ----------------- 
Net income statement transfers                               (7)               (44) 
Deferred tax                                                   2                 12 
                                              ------------------ 
                                                             (5)               (32) 
                                              ------------------  ----------------- 
At period end                                              (308)               (48) 
                                              ------------------  ----------------- 
 
 
                                                                                         At 31 
                                                                     At 30            December 
                                                                 June 2022                2021 
                                                                      GBPm                GBPm 
Foreign currency translation reserve 
At 1 January                                                          (14)                (14) 
Currency translation differences arising in the year                    10                   - 
At period end                                                          (4)                (14) 
                                                       -------------------  ------------------ 
 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 11: 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 
                                                                    2022               2021 
                                                                    GBPm               GBPm 
 
Assets, included within: 
Financial assets at amortised cost: due from fellow 
 Lloyds Banking Group undertakings                                   312                557 
Financial assets at fair value through profit or 
 loss                                                                 11                 12 
Derivative financial instruments                                   2,985              2,094 
                                                      ------------------  ----------------- 
                                                                   3,308              2,663 
                                                      ------------------  ----------------- 
Liabilities, included within: 
Due to fellow Lloyds Banking Group undertakings                    1,261              3,442 
Financial liabilities at fair value through profit 
 or loss                                                               5                  - 
Derivative financial instruments                                   2,660              2,579 
Debt securities in issue                                           3,354              3,170 
Subordinated liabilities                                             749                684 
                                                      ------------------  ----------------- 
                                                                   8,029              9,875 
                                                      ------------------  ----------------- 
 
Other equity instruments:                                            782                782 
                                                      ------------------  ----------------- 
Additional tier 1 instruments                                        782                782 
                                                      ------------------  ----------------- 
 

During the half-year to 30 June 2022 the Group earned GBP1 million (half-year to 30 June 2021: GBP1 million) of interest income and incurred GBP46 million (half-year to 30 June 2021: GBP54 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 2022 are similar in nature to those for the year ended 31 December 2021.

Management charges payable to Lloyds Bank plc of GBP79 million (half-year to 30 June 2021: GBP69 million) have been incurred in the period, see note 3.

During the period to June 2021, the Group sold a portfolio of facilities (GBP55 million of assets and GBP489 million of commitments) to Lloyds Bank plc, on which an GBP8 million operating loss arose. There have been no such transactions in the period to 30 June 2022.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 12: Contingent liabilities, commitments and guarantees

Legal actions and regulatory matters

During the ordinary course of business the Group is subject to 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, which could relate to a number of issues, including financial, environmental or other regulatory matters, both in the UK and overseas. Where material, such 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 based on 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 to assess properly 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, commitments and guarantees arising from the banking business

 
                                                                     At                 At 
                                                                30 June             31 Dec 
                                                                   2022               2021 
                                                                   GBPm               GBPm 
 
Contingent liabilities 
Acceptances and endorsements                                          -                170 
Other: 
                                                      -----------------  ----------------- 
Other items serving as direct credit substitutes                      -                 77 
Performance bonds, including letters of credit, and 
 other transaction-related contingencies                            142                158 
                                                      ----------------- 
                                                                    142                235 
                                                      -----------------  ----------------- 
Total contingent liabilities                                        142                405 
                                                      -----------------  ----------------- 
 
Commitments and guarantees 
Undrawn formal standby facilities, credit lines and 
 other commitments to lend: 
Less than 1 year original maturity: 
                                                      -----------------  ----------------- 
Mortgage offers made                                                 58                 50 
Other commitments and guarantees                                  9,898              8,831 
                                                      ----------------- 
                                                                  9,956              8,881 
1 year or over original maturity                                  7,521              6,310 
                                                      -----------------  ----------------- 
Total commitments and guarantees                                 17,477             15,191 
                                                      -----------------  ----------------- 
 

Of the amounts shown above in respect of undrawn formal standby facilities, credit lines and other commitments to lend, GBP16,942 million (31 December 2021: GBP15,124 million) were irrevocable.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: 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 32 to the Group's financial statements for the year ended 31 December 2021 details 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 sources of data cease to be observable.

Valuation methodology

For level 2 and level 3 portfolios, there is no significant change to the valuation methodology (techniques and inputs) disclosed in the Group's financial statements for the year ended 31 December 2021 applied to these portfolios.

The table below summarises the carrying values of financial assets and liabilities measured at amortised cost in the Group's consolidated 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.

 
                                                                                        At 31 December 
                                                 At 30 June 2022                             2021 
                                      --------------------------------------  ---------------------------------- 
                                                Carrying                Fair          Carrying              Fair 
                                                   value               value             value             value 
                                                    GBPm                GBPm              GBPm              GBPm 
 
Financial assets 
                                      ------------------  ==================  ----------------  ---------------- 
    Loans and advances to banks                    2,021               2,023             2,354             2,354 
    Loans and advances to customers               20,809              20,876            17,432            17,488 
   Reverse repurchase agreements                   4,461               4,461             5,044             5,044 
    Debt securities                                  309                 309               229               229 
   Due from fellow Lloyds Banking 
    Group 
    undertakings                                     312                 312               557               557 
                                      ------------------  ------------------  ---------------- 
Financial assets at amortised cost                27,912              27,981            25,616            25,672 
 
Financial liabilities 
Deposits from banks                                3,223               3,233             3,821             3,821 
Customer deposits                                 27,281              27,351            26,967            27,047 
Repurchase agreements                                  1                   1             1,019             1,019 
Due to fellow Lloyds Banking Group 
 undertakings                                      1,261               1,261             3,442             3,442 
Debt securities in issue                          14,929              14,747            16,644            16,723 
Subordinated liabilities                             749                 749               684               684 
 

Financial instruments classified as financial assets at fair value through profit or loss, derivative financial instruments, financial assets at fair value through other comprehensive income and financial liabilities at fair value through profit or loss are recognised at fair value.

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 and items in course of transmission to banks.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: Fair values of financial assets and liabilities (continued)

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. There were no significant transfers between level 1 and level 2 during the period.

 
                                                   Level            Level              Level 
                                                       1                2                  3             Total 
Financial assets                                    GBPm             GBPm               GBPm              GBPm 
 
At 30 June 2022 
Financial assets at fair value through 
 profit or loss: 
                                        ----------------  ---------------  -----------------  ---------------- 
Loans and advances to customers and 
 reverse repurchase agreements                         -           12,496                  2            12,498 
Loans and advances to banks and 
 reverse 
 repurchase agreements                                 -              299                  -               299 
Debt securities                                    2,424              300                167             2,891 
Treasury and other bills                              21                -                  -                21 
Total financial assets at fair value 
 through profit or loss                            2,445           13,095                169            15,709 
Financial assets at fair value through 
 other comprehensive income: 
Debt securities                                        -                -                 12                12 
Treasury and other bills                               -                -                  -                 - 
Total financial assets at fair value 
 through other comprehensive income                    -                -                 12                12 
                                        ----------------  ---------------  -----------------  ---------------- 
Derivative financial instruments                      43           27,049                624            27,716 
                                        ----------------  ---------------  -----------------  ---------------- 
Total financial assets carried at 
 fair value                                        2,488           40,144                805            43,437 
                                        ----------------  ---------------  -----------------  ---------------- 
 
At 31 December 2021 
Financial assets at fair value through 
 profit or loss 
                                        ================  ===============  =================  ================ 
Loans and advances to customers and 
 reverse repurchase agreements                         -           14,741                  2            14,743 
Loans and advances to banks and 
 reverse 
 repurchase agreements                                 -              486                  -               486 
Debt securities                                    6,580              393                188             7,161 
Treasury and other bills                              19                -                  -                19 
                                        ================  ===============  =================  ================ 
Total financial assets at fair value 
 through profit or loss                            6,599           15,620                190            22,409 
Financial assets at fair value through 
 other comprehensive income: 
Debt securities                                        -                -                 15                15 
Treasury and other bills                              85                -                  -                85 
                                        ----------------  ---------------  -----------------  ---------------- 
Total financial assets at fair value 
 through other comprehensive income                   85                -                 15               100 
                                        ----------------  ---------------  -----------------  ---------------- 
Derivative financial instruments                      22           17,239                729            17,990 
                                        ----------------  ---------------  -----------------  ---------------- 
Total financial assets carried at fair 
 value                                             6,706           32,859                934            40,499 
                                        ----------------  ---------------  -----------------  ---------------- 
 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: Fair values of financial assets and liabilities (continued)

 
                                                 Level          Level            Level 
                                                     1              2                3          Total 
Financial liabilities                             GBPm           GBPm             GBPm           GBPm 
 
At 30 June 2022 
Financial liabilities at fair value 
 through profit or loss: 
Trading liabilities                              2,341         11,741                -         14,082 
                                      ----------------  -------------  ---------------  ------------- 
Total financial liabilities at fair 
 value through profit or loss                    2,341         11,741                -         14,082 
                                      ----------------  -------------  ---------------  ------------- 
Derivative financial instruments                    30         22,410              682         23,122 
                                      ----------------  -------------  ---------------  ------------- 
Total financial liabilities carried 
 at fair value                                   2,371         34,151              682         37,204 
                                      ----------------  -------------  ---------------  ------------- 
 
At 31 December 2021 
Financial liabilities at fair value 
 through profit or loss: 
Trading liabilities                              1,569         15,013                -         16,582 
                                      ----------------  -------------  ---------------  ------------- 
Total financial liabilities at fair 
 value through profit or loss                    1,569         15,013                -         16,582 
                                      ----------------  -------------  ---------------  ------------- 
Derivative financial instruments                    13         14,633              926         15,572 
                                      ----------------  -------------  ---------------  ------------- 
Total financial liabilities carried 
 at fair value                                   1,582         29,646              926         32,154 
                                      ----------------  -------------  ---------------  ------------- 
 

Movements in level 3 portfolio

The tables below analyse movements in the level 3 financial assets portfolio.

 
                                                                    Financial 
                                       Financial                    assets at 
                                       assets at                   fair value 
                                      fair value                through other                                           Total financial 
                                  through profit                comprehensive                   Derivative               assets carried 
                                         or loss                       income                       assets                at fair value 
                                            GBPm                         GBPm                         GBPm                         GBPm 
 
At 1 January 2022                            190                           15                          729                          934 
Exchange and other 
 adjustments                                   -                            -                           21                           21 
(Losses) gains 
 recognised 
 in the income 
 statement 
 within other income                        (21)                            -                          133                          112 
Gains recognised in 
 other 
 comprehensive 
 income within 
 the revaluation 
 reserve 
 in respect of 
 financial 
 assets at fair 
 value through 
 other comprehensive 
 income                                        -                            1                            -                            1 
Purchases/increases                            -                            -                           41                           41 
Sales/repayments                               -                          (4)                          (9)                         (13) 
Transfers into the 
level 
3 portfolio                                    -                            -                            -                            - 
Transfers out of the 
 level 
 3 portfolio                                   -                            -                        (291)                        (291) 
                      --------------------------  ---------------------------  ---------------------------  --------------------------- 
At 30 June 2022                              169                           12                          624                          805 
                      --------------------------  ---------------------------  ---------------------------  --------------------------- 
(Losses) gains 
 recognised 
 in the income 
 statement, 
 within other 
 income, relating 
 to the change in 
 fair value 
 of those assets 
 held at 
 30 June 2022                               (21)                            -                          254                          233 
 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: Fair values of financial assets and liabilities (continued)

 
                                                                     Financial 
                                        Financial                    assets at 
                                        assets at                   fair value 
                                       fair value                through other                                           Total financial 
                                   through profit                comprehensive                   Derivative               assets carried 
                                          or loss                       income                       assets                at fair value 
                                             GBPm                         GBPm                         GBPm                         GBPm 
 
At 1 January 2021                             570                          113                          948                        1,631 
Exchange and other 
 adjustments                                    -                          (4)                            3                          (1) 
(Losses) gains 
 recognised 
 in the income 
 statement 
 within other income                         (30)                            -                        (175)                        (205) 
Gains recognised in 
 other 
 comprehensive 
 income within 
 the revaluation 
 reserve 
 in respect of 
 financial 
 assets at fair 
 value through 
 other comprehensive 
 income                                         -                            6                            -                            6 
Purchases/increases                             -                            -                          249                          249 
Sales/repayments                            (226)                          (6)                         (64)                        (296) 
Transfers into the 
 level 
 3 portfolio                                    1                            -                            -                            1 
Transfers out of the 
 level 
 3 portfolio                                (119)                            -                            -                        (119) 
                      ---------------------------  ---------------------------  ---------------------------  --------------------------- 
At 30 June 2021                               196                          109                          961                        1,266 
                      ---------------------------  ---------------------------  ---------------------------  --------------------------- 
Gains recognised in 
 the 
 income statement, 
 within 
 other income, 
 relating 
 to the change in 
 fair value 
 of those assets 
 held at 
 30 June 2021                                (30)                            1                        (168)                        (197) 
 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: Fair values of financial assets and liabilities (continued)

The tables below analyse movements in the level 3 financial liabilities portfolio.

 
                                              Financial                                                      Total 
                                            liabilities                                                  financial 
                                          at fair value                                                liabilities 
                                         through profit                    Derivative                   carried at 
                                                or loss                   liabilities                   fair value 
                                                   GBPm                          GBPm                         GBPm 
 
At 1 January 2022                                      -                          926                          926 
Exchange and other 
 adjustments                                           -                           17                           17 
Losses (gains) recognised 
 in the 
 income statement within 
 other income                                          -                         (12)                         (12) 
Purchases/increases                                    -                           37                           37 
Sales/repayments                                       -                          (2)                          (2) 
Transfers into the level 3 
portfolio                                             -                             -                            - 
Transfers out of the level 
 3 portfolio                                           -                        (284)                        (284) 
                             ---------------------------  ---------------------------  --------------------------- 
At 30 June 2022                                        -                          682                          682 
                             ---------------------------  ---------------------------  --------------------------- 
Losses (Gains) recognised 
 in the 
 income statement, within 
 other income, 
 relating to the change in 
 fair value 
 of those liabilities held 
 at 30 June 
 2022                                                  -                           28                           28 
 
At 1 January 2021                                      -                        1,251                        1,251 
Exchange and other 
 adjustments                                           -                            3                            3 
Losses (gains) recognised 
 in the 
 income statement within 
 other income                                          -                        (196)                        (196) 
Purchases/increases                                    -                          265                          265 
Sales/repayments                                       -                         (43)                         (43) 
Transfers into the level 3 
portfolio                                             -                             -                            - 
Transfers out of the level 
3 portfolio                                           -                             -                            - 
                             --------------------------   ---------------------------  --------------------------- 
At 30 June 2021                                        -                        1,280                        1,280 
                             ---------------------------  ---------------------------  --------------------------- 
(Gains) recognised in the 
 income 
 statement, within other 
 income, relating 
 to the change in fair 
 value of those 
 liabilities held at 30 
 June 2021                                             -                        (201)                        (201) 
 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: 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.

 
                                                                            At 30 June 2022 
                                                  -------------------------------------------------------------------- 
                                                                                   Effect of reasonably 
                                                                                    possible alternative 
                                                                                       assumptions(2) 
                                                                     ------------------------------------------------- 
                              Significant 
               Valuation       unobservable                Carrying               Favourable              Unfavourable 
                techniques     inputs(1)                      value                  changes                   changes 
                                                               GBPm                     GBPm                      GBPm 
 
Financial assets at fair 
value 
through profit or loss 
Loans and 
advances       Comparable 
to customers    pricing       Spread (-/+20bps)                   2                        -                         - 
                              Credit spreads 
                               (discount factor) 
                               and inflation 
Debt           Discounted      volatility 
 securities     cash flows     (-/+7bps)                        167                       12                      (12) 
                                                                169                       12                      (12) 
                                                  -----------------  -----------------------  ------------------------ 
Financial assets at fair value through 
 other comprehensive income 
Asset-backed   Comparable 
 securities     pricing       Spread (-/+7bps)                   12                        1                       (1) 
                                                  -----------------  -----------------------  ------------------------ 
                                                                 12                        1                       (1) 
                                                  -----------------  -----------------------  ------------------------ 
Derivative financial assets 
               Option 
Interest rate  pricing        Inflation 
derivatives    model          volatility                          -                        -                         - 
 Option 
  pricing       Interest rate 
  model          volatility (11.1-146.6bps)                     624                        5                       (5) 
                                                  -----------------  -----------------------  ------------------------ 
                                                                624                        5                       (5) 
                                                  -----------------  -----------------------  ------------------------ 
 
Level 3 financial assets 
 carried 
 at fair value                                                  805                       18                      (18) 
                                                  -----------------  -----------------------  ------------------------ 
 
 
Derivative 
financial 
liabilities 
               Option 
Interest rate  pricing        Illiquid long 
derivatives    model           dated repo rate                    -                        -                         - 
               Option 
               pricing        Inflation 
               model          volatility                          -                        -                         - 
 Option 
  pricing       Interest rate 
  model          volatility (11.1-146.6bps)                     682                       15                      (15) 
                                                  -----------------  -----------------------  ------------------------ 
                                                                682                       15                      (15) 
                                                  -----------------  -----------------------  ------------------------ 
 
Level 3 financial 
 liabilities 
 carried at fair value                                          682                       15                      (15) 
                                                  -----------------  -----------------------  ------------------------ 
 

(1) Ranges are shown where appropriate and represent the highest and lowest inputs used in the level 3 valuations.

(2) Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: Fair values of financial assets and liabilities (continued)

 
                                                                          At 31 December 2021 
                                                  -------------------------------------------------------------------- 
                                                                                   Effect of reasonably 
                                                                                    possible alternative 
                                                                                       assumptions(2) 
                                                                     ------------------------------------------------- 
                              Significant 
               Valuation       unobservable                Carrying               Favourable              Unfavourable 
                techniques     inputs(1)                      value                  changes                   changes 
                                                               GBPm                     GBPm                      GBPm 
 
Financial assets at fair value through 
 profit or loss 
Loans and 
advances       Comparable 
to customers    pricing       Spread (-/+20bps)                   2                        -                         - 
                              Credit spreads 
                               (discount factor) 
                               and inflation 
Debt           Discounted      volatility 
 securities     cash flows     (-/+7bps)                        188                       13                      (13) 
                                                                190                       13                      (13) 
                                                  -----------------  -----------------------  ------------------------ 
Financial assets at fair value through 
 other comprehensive income 
Asset-backed   Comparable 
securities      pricing       Spread (-/+0bps)                   15                        -                         - 
                                                  -----------------  -----------------------  ------------------------ 
                                                                 15                        -                         - 
                                                  -----------------  -----------------------  ------------------------ 
Derivative financial assets 
               Option         Inflation 
Interest rate   pricing        volatility 
 derivatives    model          (31.0-58.7bps)                   345                        5                       (4) 
 Option         Interest rate 
  pricing        volatility 
  model          (12.8-167.9bps)                                384                        1                       (1) 
                                                  -----------------  -----------------------  ------------------------ 
                                                                729                        6                       (5) 
                                                  -----------------  -----------------------  ------------------------ 
 
Level 3 financial assets 
 carried 
 at fair value                                                  934                       19                      (18) 
                                                  -----------------  -----------------------  ------------------------ 
 
 
Derivative 
financial 
liabilities 
               Option         Illiquid long 
Interest rate  pricing         dated repo 
derivatives    model           rate (-/+10.2bps)                  2                        -                         - 
 Option 
  pricing       Inflation volatility 
  model          (31.0-58.7bps)                                 297                        6                       (5) 
 Option         Interest rate 
  pricing        volatility 
  model          (12.8-167.9bps)                                627                       11                      (11) 
                                                  -----------------  -----------------------  ------------------------ 
                                                                926                       17                      (16) 
                                                  -----------------  -----------------------  ------------------------ 
 
Level 3 financial 
 liabilities 
 carried at fair value                                          926                       17                      (16) 
                                                  -----------------  -----------------------  ------------------------ 
 

(1) Ranges are shown where appropriate and represent the highest and lowest inputs used in the level 3 valuations.

(2) Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table.

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 financial statements for the year ended 31 December 2021

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: Fair values of financial assets and liabilities (continued)

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 financial statements for the year ended 31 December 2021.

Note 14: Interest rate benchmark reform

During 2022, the Group continues to manage the transition to alternative benchmark rates as part of the LBG IBOR transition programme. During 2021, the Group transitioned substantially all of its non-US Dollar LIBOR products and continues to work with customers to transition a small number of remaining contracts that either have yet to transition or have defaulted to the relevant synthetic LIBOR benchmark in the interim.

US Dollar LIBOR transition is expected to take place in the next year as these settings are expected to cease immediately after 30 June 2023. The majority of the Group's exposures are expected to transition through industry-led transition programmes managed by the London Clearing House and Futures exchanges, or through the International Swaps and Derivatives Association (ISDA) protocol. Other contracts (primarily loans) maturing after June 2023 will be managed through the Group's existing processes, either transitioning to an alternative benchmark rate or allowed to fallback under existing contract protocols or through US legislation.

At 30 June 2022, the Group had the following significant exposures impacted by interest rate benchmark reform which have yet to transition to the replacement benchmark rate:

 
                                                 Sterling        US Dollar            Other 
                                                    LIBOR            LIBOR             GBPm 
At 30 June 2022                                      GBPm             GBPm              (1)            Total 
 
Non-derivative financial assets 
Financial assets at fair value through 
 profit or loss                                         -               40                -               40 
                                         ----------------  ---------------  ---------------  --------------- 
Loans and advances to banks                             -              293                -              293 
Loans and advances to customers                         3            1,962               56            2,021 
Reverse repurchase agreements                           -                -                -                - 
Debt securities                                         -                -                -                - 
                                         ----------------  ---------------  --------------- 
Financial assets at amortised cost                      3            2,255               56            2,314 
Financial assets at fair value through 
 other comprehensive income                            12                -                -               12 
                                                       15            2,295               56            2,366 
                                         ----------------  ---------------  ---------------  --------------- 
 
Non-derivative financial liabilities 
Customer deposits                                       -               83                -               83 
Subordinated liabilities                                -              620                -              620 
                                         ----------------  ---------------  ---------------  --------------- 
                                                        -              703                -              703 
                                         ----------------  ---------------  ---------------  --------------- 
 
Derivative notional/contract amount 
Cross Currency                                          -           33,943            1,018           34,961 
Interest rate                                       1,429          165,461              731          167,621 
                                         ----------------  ---------------  ---------------  --------------- 
                                                    1,429          199,404            1,749          202,582 
                                         ----------------  ---------------  ---------------  --------------- 
 

(1) Balances within Other include Canadian Dollar Offered Rate for which a cessation announcement, effective after 28 June 2024, was published on 16 May 2022.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 14: Interest rate benchmark reform (continued)

 
                                                Sterling        US Dollar 
                                                   LIBOR            LIBOR           Other 
At 31 December 2021                                 GBPm             GBPm            GBPm            Total 
 
Non-derivative financial assets 
Financial assets at fair value through 
 profit or loss                                      189               96               -              285 
                                         ---------------  ---------------  --------------  --------------- 
Loans and advances to banks                            -              854               -              854 
Loans and advances to customers                      123            3,426               -            3,549 
Reverse repurchase agreements                          -                -               -                - 
Debt securities                                      126                -               -              126 
                                         ---------------  ---------------  -------------- 
Financial assets at amortised cost                   249            4,280               -            4,529 
Financial assets at fair value through 
 other comprehensive income                           15                -               -               15 
                                                     453            4,376               -            4,829 
                                         ---------------  ---------------  --------------  --------------- 
 
Non-derivative financial liabilities 
Customer deposits                                      -               74               -               74 
Subordinated liabilities                               -              558               -              558 
                                         ---------------  ---------------  --------------  --------------- 
                                                       -              632               -              632 
                                         ---------------  ---------------  --------------  --------------- 
 
Derivative notional/contract amount 
Cross Currency                                         -           36,212               -           36,212 
Interest rate                                      5,238          184,573               -          189,811 
                                                   5,238          220,785               -          226,023 
                                         ---------------  ---------------  --------------  --------------- 
 

As at 30 June 2022, the LIBOR balances in the above table relate to contracts that have not transitioned to an alternative benchmark rate. In the case of Sterling LIBOR, this includes contracts that will have both cash flows and valuations determined on a synthetic LIBOR basis during 2022 as well as contracts referencing panel bank LIBOR that have not yet had an interest rate reset in 2022.

Of the GBP199,404 million of USD derivative notional balances as at 30 June 2022, GBP70,695 million relate to contracts with their final LIBOR fixing prior to LIBOR cessation and GBP83,223 million relate to exchange traded futures or contracts settled through the London Clearing House. Of the remaining GBP45,486 million, GBP36,179 million are fallback-eligible and GBP8,979 million are intragroup trades.

By 31 December 2021, the Group had transitioned its Sterling, Euro, Japanese Yen and Swiss Franc LIBOR hedge accounting models to risk-free rates. The Group plans to complete the transition of its USD LIBOR hedge accounting models ahead of the 30 June 2023 cessation date.

Note 15: Dividends on ordinary shares

The Bank paid a dividend of GBP220 million on 26th April 2022 (2021: GBP200 million).

Note 16: 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 2021 and half-year results for the six month period to 30 June 2022, 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.

Note 17: Events since the balance sheet date

There are no events since the balance sheet date to disclose.

Note 18: Other information

The financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 (the Act). The statutory accounts for the year ended 31 December 2021 were approved by the directors on 24 March 2022 and were delivered to the Registrar of Companies on 8 April 2022. The auditors' report on those accounts was unqualified and did not include a statement under sections 498(2) (accounting records or returns inadequate or accounts not agreeing with records and returns) or 498(3) (failure to obtain necessary information and explanations) of the Act.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors listed below (being all the directors of Lloyds Bank Corporate Markets plc) confirm that to the best of their knowledge these condensed consolidated half-year financial statements have been prepared in accordance with UK adopted International Accounting Standard 34, Interim Financial Reporting, 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 2022 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 2022 and any material changes in the related party transactions described in the last annual report.

Signed on behalf of the Board by

Eduardo J Stock da Cunha

Chief Executive Officer

15 September 2022

Lloyds Bank Corporate Markets plc Board of directors:

Eduardo J Stock da Cunha (Chief Executive Officer)

Julienne C Daglish (Executive director and Chief Financial Officer)

Eve A Henrikson (Non-executive director)

Lord Lupton CBE (Non-executive director and Chair)

Andrew J McIntyre (Non-executive director)

Rupert H Mingay (Non-executive director)

John S W Owen (Non-executive director)

Changes to the composition of the Board since 1 January 2022 up to the date of this report are shown below:

John J Cummins (resigned 28 February 2022)

Rupert H Mingay (appointed 11 April 2022)

Emma Lawrence (resigned 7 July 2022)

Carla A S Antunes da Silva (resigned 8 September 2022)

Changes to the composition of the Board after the date of the report are shown below:

Rupert Mingay - will resign as Non-executive director on 30 September 2022 and will take up role of Chief Risk Officer from 1 October 2022

Eduardo Stock da Cunha - to resign as Chief Executive Officer in early 2023

Carla A S Antunes da Silva - to be appointed Chief Executive Officer in early 2023 (subject to regulatory approval)

Rose St Louis - to be appointed internal Non-executive director (subject to regulatory approval)

INDEPENT REVIEW REPORT TO LLOYDS BANK CORPORATE MARKETS PLC

Conclusion

We have been engaged by the Bank to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and related notes 1 to 18.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 is not prepared, in all material respects, in accordance with United Kingdom adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Basis for Conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, 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 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.

As disclosed in note 1, the annual financial statements of the Group will be prepared in accordance with United Kingdom adopted international accounting standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with United Kingdom adopted International Accounting Standard 34, "Interim Financial Reporting".

Conclusion Relating to Going Concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for Conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with this ISRE (UK), however future events or conditions may cause the entity to cease to continue as a going concern.

Responsibilities of the directors

The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

In preparing the half-yearly financial report, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the review of the financial information

In reviewing the half-yearly financial report, we are responsible for expressing to the Group a conclusion on the condensed consolidated set of financial statement in the half-yearly financial report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our report

This report is made solely to the Group in accordance with International Standard on Review Engagements (UK) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the Group those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group, for our review work, for this report, or for the conclusions we have formed.

Deloitte LLP

Statutory Auditor

London, England

15 September 2022

FORWARD LOOKING STATEMENTS

This document contains certain forward looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and section 27A of the US Securities Act of 1933, as amended, with respect to the business, strategy, plans and/or results of Lloyds Bank Corporate Markets plc together with its subsidiaries (the Group) and its current goals and expectations. Statements that are not historical or current facts, including statements about the Group's or its directors' and/or management's beliefs and expectations, are forward looking statements.

Words such as, without limitation, 'believes', 'achieves', 'anticipates', 'estimates', 'expects', 'targets', 'should', 'intends', 'aims', 'projects', 'plans', 'potential', 'will', 'would', 'could', 'considered', 'likely', 'may', 'seek', 'estimate', 'probability', 'goal', 'objective', 'deliver', 'endeavour', 'prospects', 'optimistic' and similar expressions or variations on these expressions are intended to identify forward looking statements.

These statements concern or may affect future matters, including but not limited to: projections or expectations of the Group's future financial position, including profit attributable to shareholders, provisions, economic profit, dividends, capital structure, portfolios, net interest margin, capital ratios, liquidity, risk-weighted assets (RWAs), expenditures or any other financial items or ratios; litigation, regulatory and governmental investigations; the Group's future financial performance; the level and extent of future impairments and write-downs; the Group's ESG targets and/or commitments; statements of plans, objectives or goals of the Group or its management and other statements that are not historical fact; expectations about the impact of COVID-19; and statements of assumptions underlying such 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 forward looking statements include, but are not limited to: general economic and business conditions in the UK and internationally; market related risks, trends and developments; risks concerning borrower and counterparty credit quality; fluctuations in interest rates, inflation, exchange rates, stock markets and currencies; volatility in credit markets; volatility in the price of our securities; any impact of the transition from IBORs to alternative reference rates; the ability to access sufficient sources of capital, liquidity and funding when required; changes to the 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; inability to capture accurately the expected value from acquisitions; potential changes in dividend policy; the ability to achieve strategic objectives; insurance risks; management and monitoring of conduct risk; exposure to counterparty risk; credit rating risk; tightening of monetary policy in jurisdictions in which the Group operates; instability in the global financial markets, including within the Eurozone, and as a result of ongoing uncertainty following the exit by the UK from the European Union (EU) and the effects of the EU-UK Trade and Cooperation Agreement; political instability including as a result of any UK general election and any further possible referendum on Scottish independence; operational risks; conduct risk; 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 (including but not limited to the COVID-19 pandemic) and other disasters; inadequate or failed internal or external processes or systems; acts of hostility or terrorism and responses to those acts, or other such events; geopolitical unpredictability; the war between Russia and Ukraine; risks relating to sustainability and climate change (and achieving climate change ambitions), including the Group and/or Lloyds Banking Group plc's ability along with the government and other stakeholders to measure, manage and mitigate the impacts of climate change effectively; changes in laws, regulations, practices and accounting standards or taxation; changes to regulatory capital or liquidity requirements and similar contingencies; assessment related to resolution planning requirements; the policies and actions of governmental or regulatory authorities or courts together with any resulting impact on the future structure of the Group; failure to comply with anti-money laundering, counter terrorist financing, anti-bribery and sanctions regulations; failure to prevent or detect any illegal or improper activities; projected employee numbers and key person risk; increased labour costs; assumptions and estimates that form the basis of our financial statements; the impact of competitive conditions; and exposure to legal, regulatory or competition proceedings, investigations or complaints. A number of these influences and factors are beyond the control of the Group or Lloyds Banking Group plc. Please refer to the Base Prospectus for the Group's Euro Medium Term Note Programme and the latest Annual Report on Form 20-F filed by Lloyds Banking Group plc with the US Securities and Exchange Commission (the SEC), which is available on the SEC's website at www.sec.gov, for a discussion of certain factors and risks.

FORWARD LOOKING STATEMENTS (continued)

Lloyds Banking Group plc may also make or disclose written and/or oral forward-looking statements in other written materials and in oral statements made by the directors, officers or employees of Lloyds Banking Group plc to third parties, including financial analysts.

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 the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this document whether as a result of new information, future events or otherwise. 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.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

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