LLOY Lloyds Banking Group plc

DGAP-News: Lloyds Banking Group: 2019 Half-Year Results - News Release part 2 of 2

DGAP-News: Lloyds Banking Group / Key word(s): Half Year Results
Lloyds Banking Group: 2019 Half-Year Results - News Release part 2 of 2

31.07.2019 / 08:00
The issuer is solely responsible for the content of this announcement.

 
 
 
 
2019 Half-Year Results
News Release
 
Lloyds Banking Group plc
 
31 July 2019
 
 
 
 
 
 
 
 
Part 2 of 2

 

STATUTORY INFORMATION
                                                                                   
     
  Page 
Condensed consolidated half-year financial statements  
Consolidated income statement 58 
Consolidated statement of comprehensive income 60 
Consolidated balance sheet 61 
Consolidated statement of changes in equity 63 
Consolidated cash flow statement 66 
   
Notes  
1 Accounting policies, presentation and estimates 67 
2 Segmental analysis 70 
3 Net fee and commission income 72 
4 Operating expenses 73 
5 Impairment 74 
6 Taxation 75 
7 Earnings per share 75 
8 Financial assets at fair value through profit or loss 76 
9 Derivative financial instruments 76 
10 Financial assets at amortised cost 77 
11 Allowance for impairment losses 80 
12 Debt securities in issue 83 
13 Post-retirement defined benefit schemes 84 
14 Subordinated liabilities 85 
15 Share capital 85 
16 Other equity instruments 86 
17 Provisions for liabilities and charges 87 
18 Contingent liabilities and commitments 89 
19 Fair values of financial assets and liabilities 92 
20 Credit quality of loans and advances to banks and customers 99 
21 Dividends on ordinary shares 107 
22 Implementation of IFRS 16 107 
23 Future accounting developments 108 
24 Other information 108 
 

 
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
 
                 
              Half-year to    Half-year to       Half-year to 
        30 June    30 June    31 Dec 
        2019       20181    20181 
    Note   £m    £m    £m 
                 
Interest and similar income       8,399     8,032     8,317 
Interest and similar expense       (3,760)    (2,025)    (928)
Net interest income       4,639     6,007     7,389 
Fee and commission income       1,428     1,372     1,476 
Fee and commission expense       (694)    (674)    (712)
Net fee and commission income   3   734     698     764 
Net trading income       11,789     1,522     (5,398)
Insurance premium income       4,431     4,815     4,374 
Other operating income       1,547     1,238     682 
Other income       18,501     8,273     422 
Total income       23,140     14,280     7,811 
Insurance claims       (14,009)    (4,709)    1,244 
Total income, net of insurance claims       9,131     9,571     9,055 
Regulatory provisions       (793)    (807)    (543)
Other operating expenses       (4,862)    (5,191)    (5,188)
Total operating expenses   4   (5,655)    (5,998)    (5,731)
Trading surplus       3,476     3,573     3,324 
Impairment   5   (579)    (456)    (481)
Profit before tax       2,897     3,117     2,843 
Tax expense   6   (672)    (800)    (654)
Profit for the period       2,225     2,317     2,189 
                 
Profit attributable to ordinary shareholders       1,942     2,075     1,900 
Profit attributable to other equity holders       251     205     228 
Profit attributable to equity holders       2,193     2,280     2,128 
Profit attributable to non-controlling interests       32     37     61 
Profit for the period       2,225     2,317     2,189 
                 
Basic earnings per share   7   2.7p    2.9p    2.6p 
Diluted earnings per share   7   2.7p    2.9p    2.6p 
 
   
1 Restated, see note 1.
 
 
 

 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
 
             
       Half-year to    Half-year to    Half-year to 
    30 June    30 June    31 Dec 
    2019       20181    20181 
    £m    £m    £m 
             
Profit for the period   2,225     2,317     2,189 
Other comprehensive income            
Items that will not subsequently be reclassified to profit or loss:            
Post-retirement defined benefit scheme remeasurements:            
Remeasurements before tax   (173)    908     (741)
Tax   44     (206)     159 
    (129)    702     (582)
Movements in revaluation reserve in respect of equity shares held at fair value through other comprehensive income:            
Change in fair value   1     (97)    -  
Tax   12     22    -  
    13     (75)     -  
Gains and losses attributable to own credit risk:            
Gains (losses) before tax   (303)    167     366 
Tax   82     (45)     (99)
    (221)    122     267 
Share of other comprehensive income of associates and joint ventures   -     -     8 
             
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:            
Change in fair value   (50)    110    (147)
Income statement transfers in respect of disposals   (177)    (203)    (72)
Tax   68     46    73 
    (159)    (47)     (146)
Movements in cash flow hedging reserve:            
Effective portion of changes in fair value taken to other comprehensive income   1,179     (223)     457 
Net income statement transfers   (242)    (423)    (278)
Tax   (250)    182     (69)
    687     (464)     110 
Currency translation differences (tax: nil)   1     5     (13)
Other comprehensive income for the period, net of tax   192     243     (356)
Total comprehensive income for the period   2,417     2,560     1,833
             
Total comprehensive income attributable to ordinary shareholders   2,134     2,318     1,544
Total comprehensive income attributable to other equity holders   251     205     228
Total comprehensive income attributable to equity holders   2,385     2,523     1,772
Total comprehensive income attributable to non-controlling interests   32     37     61
Total comprehensive income for the period   2,417     2,560     1,833
 
   
1 Restated, see note 1.

 
CONSOLIDATED BALANCE SHEET
 
         
  Note At 30 June   At 31 Dec
    20191   2018
    (unaudited)   (audited)
    £m   £m
         
Assets        
Cash and balances at central banks   57,290   54,663
Items in the course of collection from banks   693   647
Financial assets at fair value through profit or loss 8 155,108   158,529
Derivative financial instruments 9 26,148   23,595
Loans and advances to banks   8,374   6,283
Loans and advances to customers   495,138   484,858
Debt securities   5,434   5,238
Financial assets at amortised cost 10 508,946   496,379
Financial assets at fair value through other comprehensive income   27,078   24,815
Goodwill   2,314   2,310
Value of in-force business   5,326   4,762
Other intangible assets   3,615   3,347
Property, plant and equipment   13,646   12,300
Current tax recoverable   6   5
Deferred tax assets   2,401   2,453
Retirement benefit assets 13 1,509   1,267
Other assets   18,168   12,526
Total assets   822,248   797,598
 
1  Reflects the implementation of IFRS 16, see note 1.

 
CONSOLIDATED BALANCE SHEET (continued)
 
         
  Note At 30 June   At 31 Dec
    20191   2018
    (unaudited)   (audited)
Equity and liabilities   £m   £m
         
Liabilities        
Deposits from banks   34,777   30,320
Customer deposits   421,692   418,066
Items in course of transmission to banks   499   636
Financial liabilities at fair value through profit or loss   24,754   30,547
Derivative financial instruments 9 23,026   21,373
Notes in circulation   1,042   1,104
Debt securities in issue 12 97,815   91,168
Liabilities arising from insurance contracts and participating investment contracts   107,409   98,874
Liabilities arising from non-participating investment contracts   14,706   13,853
Other liabilities   26,124   19,633
Retirement benefit obligations 13 250   245
Current tax liabilities   383   377
Deferred tax liabilities   49   -
Other provisions 17 2,858   3,547
Subordinated liabilities 14 17,809   17,656
Total liabilities   773,193   747,399
Equity and liabilities        
         
Equity        
Share capital 15 7,076   7,116
Share premium account   17,739   17,719
Other reserves   13,864   13,210
Retained profits   4,769   5,389
Shareholders' equity   43,448   43,434
Other equity instruments 16 5,406   6,491
Total equity excluding non-controlling interests   48,854   49,925
Non-controlling interests   201   274
Total equity   49,055   50,199
Total equity and liabilities   822,248   797,598
 
   
1 Reflects the implementation of IFRS 16, see note 1.  

 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
 
                             
    Attributable to equity shareholders            
    Share                         
    capital                Other    Non -     
    and    Other    Retained        equity    controlling     
    premium    reserves    profits    Total    instruments    interests    Total  
    £m    £m    £m    £m    £m    £m    £m  
                             
                                
Balance at 1 January 2019    24,835     13,210     5,389     43,434     6,491     274     50,199 
Comprehensive income                            
Profit for the period   -    -    2,193    2,193    -    32    2,225 
Other comprehensive income                            
Post-retirement defined benefit scheme remeasurements, net of tax   -    -    (129)   (129)   -    -    (129)
Movements in revaluation reserve in  respect of financial assets held at fair value through other comprehensive income, net of tax:                            
Debt securities   -    (159)   -    (159)   -    -    (159)
Equity shares   -    13    -    13    -    -    13 
Gains and losses attributable to own credit risk, net of tax   -    -    (221)   (221)   -    -    (221)
Movements in cash flow hedging reserve, net of tax   -    687    -    687    -    -    687 
Currency translation differences (tax: £nil)   -    1    -    1    -    -    1 
Total other comprehensive income   -    542    (350)   192   -    -    192 
Total comprehensive income   -    542    1,843   2,385   -    32    2,417 
Transactions with owners                            
Dividends   -    -    (1,523)   (1,523)   -    (91)   (1,614)
Distributions on other equity instruments   -    -    (251)   (251)   -    -    (251)
Issue of ordinary shares   90    -    -    90    -    -    90 
Share buyback   (113)   113    (879)   (879)   -    -    (879)
Redemption of preference shares   3    (3)   -    -    -    -    - 
Issue of other equity instruments   -    -    (1)   (1)   396    -    395 
Redemption of other equity instruments   -    -    -    -    (1,481)   -    (1,481)
Movement in treasury shares   -    -    71    71    -    -    71 
Value of employee services:                            
Share option schemes   -    -    34    34    -    -    34 
Other employee award schemes   -    -    88    88    -    -    88 
Changes in non-controlling interests   -    -    -    -    -    (14)   (14)
Total transactions with owners   (20)   110    (2,461)   (2,371)   (1,085)   (105)   (3,561)
Realised gains and losses on equity shares held at fair value through other comprehensive income   -    2    (2)   -    -    -    - 
Balance at 30 June 2019   24,815    13,864    4,769    43,448    5,406    201    49,055 

 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)
 
                             
    Attributable to equity shareholders            
    Share                         
    capital                Other     Non-     
    and    Other    Retained        equity    controlling     
    premium    reserves    profits    Total    instruments    interests    Total 
    £m    £m    £m    £m    £m    £m    £m 
                             
Balance at 1 January 2018    24,831     13,553     3,976     42,360     5,355     237     47,952 
Comprehensive income                            
Profit for the period1    -     -     2,280     2,280     -     37     2,317 
Other comprehensive income                            
Post-retirement defined benefit scheme remeasurements, net of tax    -     -     702     702     -     -     702 
Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:                            
Debt securities   -    (47)   -    (47)   -    -    (47)
Equity shares   -    (75)   -    (75)   -    -    (75)
Gains and losses attributable to own credit risk, net of tax    -     -    122      122      -     -     122  
Movements in cash flow hedging reserve, net of tax    -    (464)    -     (464)     -     -     (464) 
Currency translation differences (tax: £nil)    -     5      -     5      -     -     5  
Total other comprehensive income    -     (581)     824     243      -     -     243  
Total comprehensive income    -     (581)     3,104     2,523     -     37     2,560 
Transactions with owners                            
Dividends    -     -     (1,475)     (1,475)     -     (26)     (1,501) 
Distributions on other equity instruments1    -     -     (205)     (205)     -     -     (205) 
Issue of ordinary shares    142     -     -     142     -     -     142 
Share buyback   (72)   72    (565)   (565)    -     -    (565)
Movement in treasury shares    -     -     35      35      -     -     35  
Value of employee services:                            
Share option schemes    -     -     21     21     -     -     21 
Other employee award schemes    -     -     104     104     -     -     104 
Total transactions with owners    70     72     (2,085)     (1,943)     -     (26)     (1,969) 
Realised gains and losses on equity shares held at fair value through other comprehensive income   -    141    (141)   -    -     -    - 
Balance at 30 June 2018    24,901     13,185     4,854     42,940     5,355      248     48,543 
 
   
1 Restated, see note 1.
 

 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)
 
                             
    Attributable to equity shareholders            
    Share                         
    capital                Other     Non-     
    and    Other    Retained        equity    controlling     
    premium    reserves    profits    Total    instruments    interests    Total 
    £m    £m    £m    £m    £m    £m    £m 
                             
Balance at 1 July 2018    24,901    13,185     4,854     42,940    5,355    248     48,543 
Comprehensive income                            
Profit for the period1    -     -     2,128     2,128    -    61     2,189 
Other comprehensive income                            
Post-retirement defined benefit scheme remeasurements, net of tax    -     -     (582)    (582)    -     -    (582)
Share of other comprehensive income of associates and joint ventures   -    -    8    8    -    -    8  
Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:                            
Debt securities   -    (146)   -    (146)    -    -    (146) 
Equity shares   -    -    -    -     -    -    -  
Gains and losses attributable to own credit risk, net of tax    -    -    267     267      -     -     267  
Movements in cash flow hedging reserve, net of tax    -     110     -     110      -     -     110  
Currency translation differences (tax: £nil)    -     (13)    -     (13)     -     -     (13)  
Total other comprehensive income    -     (49)    (307)    (356)     -     -     (356) 
Total comprehensive income    -     (49)    1,821     1,772     -     61     1,833 
Transactions with owners                            
Dividends    -     -     (765)    (765)     -     (35)     (800) 
Distributions on other equity instruments1    -     -     (228)    (228)     -     -     (228) 
Issue of ordinary shares    20     -     -     20     -     -     20 
Share buyback   (86)   86    (440)   (440)    -     -    (440)
Issue of other equity instruments   -    -    (5)   (5)    1,136    -    1,131  
Movement in treasury shares    -     -     5     5      -     -     5  
Value of employee services:                            
Share option schemes    -     -     32     32     -     -     32 
Other employee award schemes    -     -     103     103     -     -     103 
Total transactions with owners   (66)    86     (1,298)    (1,278)     1,136     (35)     (177) 
Realised gains and losses on equity shares held at fair value through other comprehensive income   -    (12)   12    -    -    -    - 
Balance at 31 December 2018    24,835     13,210     5,389     43,434    6,491     274     50,199 
 
   
1 Restated, see note 1.
 

 
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
 
             
    Half-year to   Half-year to   Half-year to
    30 June   30 June   31 Dec
    2019      2018   2018
    £m   £m   £m
             
Profit before tax   2,897   3,117    2,843
Adjustments for:            
Change in operating assets   (16,318)   (19,056)    14,584
Change in operating liabilities   15,630   19,461    (28,134)
Non-cash and other items   10,060   1,204    (4,096)
Tax paid   (557)   (527)    (503)
Net cash provided by (used in) operating activities   11,712   4,199    (15,306)
Cash flows from investing activities            
Purchase of financial assets   (8,618)   (6,050)    (6,607)
Proceeds from sale and maturity of financial assets   6,574   14,856   11,950
Purchase of fixed assets   (1,866)   (1,807)    (1,707)
Proceeds from sale of fixed assets   676   643   691
Acquisition of businesses, net of cash acquired   (6)   (37)    (12)
Disposal of businesses, net of cash disposed   -   1   -
Net cash provided by investing activities   (3,240)    7,606   4,315
Cash flows from financing activities            
Dividends paid to ordinary shareholders   (1,523)   (1,475)    (765)
Distributions on other equity instruments   (251)   (205)    (228)
Dividends paid to non-controlling interests   (91)   (26)    (35)
Interest paid on subordinated liabilities   (666)   (780)    (488)
Proceeds from issue of subordinated liabilities   -   1,729    -
Proceeds from issue of other equity instruments   395   -   1,131
Proceeds from issue of ordinary shares   20   85    17
Share buyback   (694)   (470)   (535)
Repayment of subordinated liabilities   (515)   (1,612)    (644)
Redemption of other equity instruments   (1,481)   -     -
Net cash used in financing activities   (4,806)   (2,754)    (1,547)
Effects of exchange rate changes on cash and cash equivalents   -   1    2
Change in cash and cash equivalents   3,666   9,052    (12,536)
Cash and cash equivalents at beginning of period   55,224   58,708    67,760
Cash and cash equivalents at end of period   58,890    67,760    55,224
 
Cash and cash equivalents comprise cash and balances at central banks (excluding mandatory deposits) and amounts due from banks with a maturity of less than three months. Included within cash and cash equivalents at 30 June 2019 is £29 million (30 June 2018: £89 million; 31 December 2018: £40 million) held within the Group's life funds, which is not immediately available for use in the business.

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
1.         Accounting policies, presentation and estimates
 
These condensed consolidated interim financial statements as at and for the period to 30 June 2019 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (FCA) and with International Accounting Standard 34 (IAS 34), Interim Financial Reporting as adopted by the European Union and comprise the results of Lloyds Banking Group plc (the Company) 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 2018 which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Copies of the 2018 Annual Report and Accounts are available on the Group's website and are available upon request from Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN.
 
The UK Finance Code for Financial Reporting Disclosure (the Disclosure Code) sets out disclosure principles together with supporting guidance in respect of the financial statements of UK banks. The Group has adopted the Disclosure Code and these condensed consolidated half-year financial statements have been prepared in compliance with the Disclosure Code's principles. Terminology used in these condensed consolidated half-year financial statements is consistent with that used in the Group's 2018 Annual Report and Accounts.
 
The directors consider that it is appropriate to continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements. In reaching this assessment, the directors have considered projections for the Group's capital and funding position and have had regard to the factors set out in Risk management: Principal risks and uncertainties on page 27.
 
Except as noted below, the accounting policies are consistent with those applied by the Group in its 2018 Annual Report and Accounts.
 
Changes in accounting policy
The Group adopted IFRS 16 Leases from 1 January 2019. IFRS 16 replaces IAS 17 Leases and addresses the classification and measurement of all leases. The Group's accounting as a lessor under IFRS 16 is substantially unchanged from its approach under IAS 17; however for lessee accounting there is no longer a distinction between finance and operating leases.
 
As lessee, under IFRS 16, in respect of leased properties previously accounted for as operating leases the Group now recognises a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use. Assets and liabilities arising from a lease are initially measured on a present value basis. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the Group's incremental borrowing rate. Lease payments are allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. Payments associated with leases with a lease term of 12 months or less and leases of low-value assets are recognised as an expense in profit or loss on a straight-line basis.
 
Details of the impact of adoption of IFRS 16 are provided in note 22.
 
The Group has also implemented the amendments to IAS 12 Income Taxes with effect from 1 January 2019 and as a result tax relief on distributions on other equity instruments, previously taken directly to retained profits, is now reported within tax expense in the income statement. Comparatives have been restated. Adoption of these amendments to IAS 12 has resulted in a reduction in tax expense and an increase in profit for the period in the half-year to 30 June 2019 of £60 million (half-year to 30 June 2018: £50 million). There is no impact on total shareholders' equity or on earnings per share.

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
1.         Accounting policies, presentation and estimates (continued)
 
Future accounting developments
Details of those IFRS pronouncements which will be relevant to the Group but which will not be effective at 31 December 2019 and which have not been applied in preparing these financial statements are set out in note 23.
 
Related party transactions
The Group has had no material or unusual related party transactions during the six months to 30 June 2019. Related party transactions for the six months to 30 June 2019 are similar in nature to those for the year ended 31 December 2018. Full details of the Group's related party transactions for the year to 31 December 2018 can be found in the Group's 2018 Annual Report and Accounts.
 
Critical accounting estimates and judgements
The preparation of the Group's financial statements requires management to make judgements, estimates and assumptions that impact the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may include amounts which differ from those estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group's significant judgements, estimates and assumptions are unchanged compared to those applied at 31 December 2018, except as detailed below.
 
Allowance for impairment losses
At 30 June 2019 the Group's allowance for expected credit losses (ECL) was £3,511 million (31 December 2018: £3,362 million), of which £3,338 million (31 December 2018: £3,169 million) was in respect of drawn balances.
 
The measurement of expected credit losses is required to reflect an unbiased probability-weighted range of possible future outcomes. The approach to generating the economic scenarios used in the calculation of the Group's ECL allowances is little changed since 31 December 2018. The central scenario reflects the Group's updated base case assumptions used for medium-term planning purposes. Additional model-generated upside, downside and severe downside scenarios are identified to represent a typical scenario from specified points along an estimated loss distribution, with the scenario weightings unchanged since 31 December 2018. The key UK economic assumptions made by the Group as at 30 June 2019 averaged over a five year period are shown below.
 
Economic assumptions
                 
    Base case   Upside   Downside   Severe
downside
    %   %   %   %
                 
Scenario weighting   30   30   30   10
                 
At 30 June 2019                
Bank of England base rate   1.25   2.05   0.49   0.11
Unemployment rate   4.3   3.8   5.7   7.0
House price growth   1.5   5.2   (2.3)   (7.4)
Commercial real estate price growth   (0.2)   1.6   (4.9)   (9.5)
                 
At 31 December 2018                
Bank of England base rate   1.25   2.34   1.30   0.71
Unemployment rate   4.5   3.9   5.3   6.9
House price growth   2.5   6.1   (4.8)   (7.5)
Commercial real estate price growth   0.4   5.3   (4.7)   (6.4)
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
1.         Accounting policies, presentation and estimates (continued)
 
Economic assumptions - start to peak
                 
    Base case   Upside   Downside   Severe
downside
    %   %   %   %
At 30 June 2019                
Bank of England base rate   1.75   2.70   0.75   0.75
Unemployment rate   4.7   4.5   7.0   8.1
House price growth   7.3   28.8   (1.6)   (2.2)
Commercial real estate price growth   (0.6)   8.4   (1.0)   (1.6)
                 
At 31 December 2018                
Bank of England base rate   1.75   4.00   1.75   1.25
Unemployment rate   4.8   4.3   6.3   8.6
House price growth   13.7   34.9   0.6   (1.6)
Commercial real estate price growth   0.1   26.9   (0.5)   (0.5)
 
Economic assumptions - start to trough
                 
    Base case   Upside   Downside   Severe
downside
    %   %   %   %
At 30 June 2019                
Bank of England base rate   0.75   0.75   0.31   0.01
Unemployment rate   3.8   3.4   3.8   3.9
House price growth   (1.1)   (0.5)   (12.0)   (33.2)
Commercial real estate price growth   (1.5)   0.0   (23.8)   (40.7)
                 
At 31 December 2018                
Bank of England base rate   0.75   0.75   0.75   0.25
Unemployment rate   4.1   3.5   4.3   4.2
House price growth   0.4   2.3   (26.5)   (33.5)
Commercial real estate price growth   (0.1)   0.0   (23.8)   (33.8)
 
The Group's base-case economic scenario has changed little over the year and reflects a broadly stable outlook for the economy. Although there remains considerable uncertainty about the economic consequences of the UK's planned exit from the European Union, the Group considers that at this stage the range of possible outcomes is adequately reflected in its choice and weighting of scenarios. The effect of the revised economic assumptions has been to increase the ECL allowance by £50 million.
 
Impact of forward looking information
As a result of applying the assumptions set out above, the extent to which a higher ECL allowance has been recognised is shown below:
 
                     
                Probability      
            Base case   -weighted   Difference  
            £m   £m   £m  
                       
UK mortgages           501   619   118  
Other Retail           1,365   1,386   21  
Commercial           1,376   1,433   57  
Other           73   73   -  
At 30 June 2019           3,315   3,511   196  
At 31 December 2018           3,100   3,362   262  
                                   

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2.         Segmental analysis
 
Lloyds Banking Group provides a wide range of banking and financial services in the UK and in certain locations overseas. The Group Executive Committee (GEC) remains the chief operating decision maker for the Group.
 
The segmental results and comparatives are presented on an underlying basis, the basis reviewed by the chief operating decision maker. The effects of certain asset sales, volatile items, the insurance grossing adjustment, liability management, restructuring, payment protection insurance provisions, the amortisation of purchased intangible assets and the unwind of acquisition-related fair value adjustments are excluded in arriving at underlying profit.
 
During the half-year to 30 June 2019, the Group transferred Cardnet, its card payment acceptance service, from Retail into Commercial Banking and also transferred certain equity business from Commercial Banking into Central items. Comparatives have been restated accordingly.
 
The Group's activities are organised into three financial reporting segments: Retail; Commercial Banking; and Insurance and Wealth. There has been no change to the descriptions of these segments as provided in note 4 to the Group's financial statements for the year ended 31 December 2018, neither has there been any change to the Group's segmental accounting for internal segment services or derivatives entered into by units for risk management purposes since 31 December 2018.
 
                         
        Other   Total            
        income,   income,            
    Net   net of   net of   Profit       Inter-
    interest   insurance   insurance   (loss)   External   segment
    income   claims   claims   before tax   revenue   revenue
Half-year to 30 June 2019    £m    £m    £m    £m    £m    £m
                         
Underlying basis                        
Retail   4,366   1,007   5,373   1,983   6,501   (1,128)
Commercial Banking   1,460   733   2,193   992   1,770   423
Insurance and Wealth   58   1,183   1,241   677   939   302
Other   261   227   488   542   85   403
Group   6,145   3,150   9,295   4,194   9,295   -
Reconciling items:                        
Insurance grossing adjustment   (1,303)   1,418   115   -        
Market volatility and asset sales   (87)   (22)   (109)   (296)        
Amortisation of purchased intangibles   -   -   -   (34)        
Restructuring costs   -   (48)   (48)   (182)        
Fair value unwind and other items   (116)   (6)   (122)   (135)        
Payment protection insurance provision   -   -   -   (650)        
Group - statutory   4,639   4,492   9,131   2,897        
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2.         Segmental analysis (continued)
 
 
                         
        Other   Total            
        income,   income,            
    Net   net of   net of   Profit       Inter-
    interest   insurance   insurance   (loss)   External   segment
    income   claims   claims   before tax   revenue   revenue
Half-year to 30 June 20181    £m    £m    £m    £m    £m    £m
                         
Underlying basis                        
Retail   4,511   1,052   5,563   2,134   6,399   (836)
Commercial Banking   1,501   842   2,343   1,181   1,818   525
Insurance and Wealth   60   979   1,039   480   1,202   (163)
Other   272   251   523   439   49   474
Group   6,344   3,124   9,468   4,234   9,468   -
Reconciling items:                        
Insurance grossing adjustment   (244)   321   77   -        
Market volatility and asset sales   54   128   182   34        
Amortisation of purchased intangibles   -   -   -   (53)        
Restructuring costs   -   -   -   (377)        
Fair value unwind and other items   (147)   (9)   (156)   (171)        
Payment protection insurance provision   -   -   -   (550)        
Group - statutory   6,007   3,564   9,571   3,117        
 
   
1 Restated, see page 70.
 
                         
        Other   Total            
        income,   income,            
    Net   net of   net of   Profit       Inter-
    interest   insurance   insurance   (loss)   External   segment
    income   claims   claims   before tax   revenue   revenue
Half-year to 31 December 20181    £m    £m    £m    £m    £m    £m
                         
Underlying basis                        
Retail   4,549   1,045   5,594   2,077   6,623   (1,029)
Commercial Banking   1,512   828   2,340   1,002   3,071   (731)
Insurance and Wealth   63   886   949   447   693   256
Other   246   127   373   306   (1,130)   1,504
Group   6,370   2,886   9,256   3,832   9,257   -
Reconciling items:                        
Insurance grossing adjustment   1,078   (994)   84   -        
Market volatility and asset sales   73   (171)   (98)   (84)        
Amortisation of purchased intangibles   -   -   -   (55)        
Restructuring costs   -   (54)   (54)   (502)        
Fair value unwind and other items   (132)   (1)   (133)   (148)        
Payment protection insurance provision   -   -   -   (200)        
Group - statutory   7,389   1,666   9,055   2,843        
 
   
1 Restated, see page 70.
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2.         Segmental analysis (continued)
 
                         
    Segment external   Segment customer   Segment external
     assets   deposits   liabilities
    At 30 June   At 31 Dec    At 30 June   At 31 Dec    At 30 June   At 31 Dec
    2019   2018   2019   2018   2019   2018
     £m    £m   £m    £m   £m    £m
                         
Retail   346,979   349,412   252,400   252,808   259,372   259,778
Commercial Banking   158,234   165,030   150,553   148,635   191,275   191,687
Insurance and Wealth   151,165   140,487   13,832   14,063   158,272   147,673
Other   165,870   142,669   4,907   2,560   164,274   148,261
Total Group   822,248   797,598   421,692   418,066   773,193   747,399
 
 
3.         Net fee and commission income
 
             
    Half-year to   Half-year to   Half-year to
    30 June   30 June   31 Dec
    2019      2018   2018
    £m   £m   £m
Fee and commission income:            
Current accounts   325   315   335
Credit and debit card fees   469   487   506
Commercial banking and treasury fees   138   152   153
Unit trust and insurance broking   114   105   116
Private banking and asset management   46   49   48
Factoring   53   39   44
Other   283   225   274
Total fee and commission income   1,428   1,372   1,476
Fee and commission expense   (694)   (674)   (712)
Net fee and commission income   734   698   764
 
Current account and credit and debit card fees principally arise in Retail; commercial banking, treasury and factoring fees arise in Commercial Banking; and private banking, unit trust, insurance broking and asset management fees arise in Insurance and Wealth.
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
4.         Operating expenses
 
             
    Half-year to   Half-year to   Half-year to
    30 June   30 June   31 Dec
    2019      2018   2018
    £m   £m   £m
Administrative expenses            
Salaries and social security costs   1,627   1,663   1,671
Pensions and other post-retirement benefit schemes  (note 13)   280   405   300
Restructuring and other staff costs   250   444   279
    2,157    2,512   2,250
Premises and equipment   242    367   362
Other expenses:            
IT, data processing and communications   535    563   558
UK bank levy   -    -   225
Operations, marketing and other    626    534   603
    1,161    1,097   1,386
    3,560    3,976   3,998
Depreciation and amortisation   1,302    1,215   1,190
Total operating expenses, excluding regulatory provisions   4,862    5,191   5,188
Regulatory provisions (note 17):            
Payment protection insurance provision   650    550   200
Other regulatory provisions   143    257   343
    793    807   543
Total operating expenses   5,655    5,998   5,731
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
5.         Impairment
 
             
    Half-year to   Half-year to   Half-year to
    30 June   30 June   31 Dec
    2019   2018   2018
    £m   £m   £m
             
Impact of transfers between stages   379    352    133 
Other changes in credit quality   223    242    283 
Additions (repayments)   (64)   (70)   (20)
Methodology changes   16    (61)   41 
Model changes   27    -    - 
Other items   (2)   (7)   44 
    200    104    348 
Total impairment charge   579    456    481 
             
In respect of:            
Loans and advances to banks   1    -    1 
Loans and advances to customers   598    470    552 
Debt securities   -    -    - 
Financial assets at amortised cost   599    470    553 
Other assets   -    -    1 
Impairment charge on drawn balances   599    470    554 
Loan commitments and financial guarantees   (19)   (15)   (58)
Financial assets at fair value through other comprehensive income   (1)   1    (15)
Total impairment charge   579    456    481 
 
The Group's impairment charge comprises the following:
 
Transfers between stages
The net impact on the impairment charge of transfers between stages.
 
Other changes in credit quality
Changes in loss allowance as a result of movements in risk parameters that reflect changes in customer credit quality, but which have not resulted in a transfer to a different stage. This also contains the impact on the impairment charge of write-offs and recoveries, where the related loss allowances are reassessed to reflect ultimate realisable or recoverable value.
 
Additions (repayments)
Expected loss allowances are recognised on origination of new loans or further drawdowns of existing facilities. Repayments relate to the reduction of allowances as a result of repayments of outstanding balances.
 
Methodology changes
Increase or decrease in impairment charge as a result of adjustments to the models used for expected credit loss calculations; either as changes to the model inputs (risk parameters) or to the underlying assumptions.
 
Model changes
The impact on the impairment charge of changing the models used to calculate expected credit losses.

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
6.         Taxation
 
In accordance with IAS 34, the Group's income tax expense for the half-year to 30 June 2019 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 to   Half-year to   Half-year to
    30 June   30 June   31 Dec
    2019   20181   20181
    £m   £m   £m
             
Profit before tax   2,897    3,117   2,843
UK corporation tax thereon at 19 per cent (2018:19 per cent)   (550)    (592)   (540)
Impact of surcharge on banking profits   (221)    (175)   (234)
Non-deductible costs: conduct charges   (103)    (92)   (9)
Non-deductible costs: bank levy   -     -   (43)
Other non-deductible costs   (39)    (44)   (46)
Non-taxable income   45    51   36
Tax relief on coupons on other equity instruments   47   39   44
Tax-exempt gains on disposals   10    38   86
(Derecognition) recognition of losses that arose in prior years   12    (10)   1
Remeasurement of deferred tax due to rate changes   14    10   22
Differences in overseas tax rates   (15)    3   3
Policyholder tax   (38)    (36)   (26)
Policyholder deferred tax asset in respect of life assurance expenses   -    -   73
Adjustments in respect of prior years   166    8   (21)
Tax expense   (672)    (800)   (654)
 
   
1 Restated, see note 1.
 
7.         Earnings per share
 
             
       Half-year to   Half-year to   Half-year to
    30 June   30 June   31 Dec
    2019      20181   20181
             
Profit attributable to ordinary shareholders - basic and diluted (£m)   1,942    2,075    1,900
 
   
1 Restated, see note 1.
 
             
             
Weighted average number of ordinary shares in issue - basic (m)   71,053    72,025    71,257
Adjustment for share options and awards (m)   663    670    612
Weighted average number of ordinary shares in issue - diluted (m)   71,716    72,695    71,869
             
Basic earnings per share   2.7p   2.9p   2.6p
Diluted earnings per share   2.7p   2.9p   2.6p
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
8.         Financial assets at fair value through profit or loss
 
         
    At 30 June   At 31 Dec
    2019   2018
    £m   £m
         
Trading assets   23,867   35,246
         
Other financial assets at fair value through profit or loss:        
Treasury and other bills   20   20
Loans and advances to customers   10,787   10,964
Loans and advances to banks   2,033   2,178
Debt securities   33,512   32,636
Equity shares   84,889   77,485
    131,241   123,283
Financial assets at fair value through profit or loss   155,108   158,529
 
Included in the above is £125,272 million (31 December 2018: £116,903 million) of assets relating to the insurance businesses.
 
9.         Derivative financial instruments
 
                 
    30 June 2019   31 December 2018
    Fair value   Fair value   Fair value   Fair value
    of assets   of liabilities   of assets   of liabilities
    £m   £m   £m   £m
Hedging                
Derivatives designated as fair value hedges   949   223   950   216
Derivatives designated as cash flow hedges   598   965   613   892
    1,547   1,188   1,563   1,108
Trading                
Exchange rate contracts   5,718   4,324   5,797   4,753
Interest rate contracts   18,560   16,653   15,747   14,632
Credit derivatives   64   137   99   181
Equity and other contracts   259   724   389   699
    24,601   21,838   22,032   20,265
Total recognised derivative assets/liabilities   26,148   23,026   23,595   21,373
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
10.       Financial assets at amortised cost
 
Half-year to 30 June 2019
 
(A) Loans and advances to customers
 
                         
                    Purchased       
                    or 
originated 		      
                    credit-       
        Stage 1    Stage 2    Stage 3    impaired    Total   
        £m    £m    £m    £m    £m   
                           
At 1 January 2019       441,531    25,345    5,741    15,391    488,008   
Exchange and other adjustments       24    (114)    160    194    264   
Additions (repayments)       14,982    (2,815)    (149)    (999)    11,019   
Transfers to Stage 1       5,432    (5,417)    (15)        -   
Transfers to Stage 2       (12,982)    13,241    (259)        -   
Transfers to Stage 3       (741)    (1,069)    1,810        -   
        (8,291)    6,755    1,536        -   
Recoveries               201    28    229   
Financial assets that have been written off           (1,069)    -    (1,069)   
At 30 June 2019       448,246    29,171    6,420    14,614    498,451   
Allowance for impairment losses   (621)    (953)    (1,558)    (181)    (3,313)   
Total loans and advances to customers   447,625    28,218    4,862    14,433    495,138   
                                                   
 
(B) Loans and advances to banks
 
                         
At 1 January 2019       6,282   3   -   -   6,285  
Exchange and other adjustments       (23)   2   -   -   (21)  
Transfers to Stage 2       (10)   10   -   -   -  
Additions (repayments)       2,113   -   -   -   2,113  
At 30 June 2019       8,362   15   -   -   8,377  
Allowance for impairment losses   (3)   -   -   -   (3)  
Total loans and advances to banks   8,359   15   -   -   8,374  
                                                   
 
(C) Debt securities
 
                         
At 1 January 2019       5,238   -   6   -   5,244  
Exchange and other adjustments       (6)   -   -   -   (6)  
Additions (repayments)       202   -   -   -   202  
Assets which have been derecognised   -   -   (2)   -   (2)  
Financial assets that have been written off           (1)   -   (1)  
At 30 June 2019       5,434   -   3   -   5,437  
Allowance for impairment losses   -   -   (3)   -   (3)  
Total debt securities       5,434   -   -   -   5,434  
                           
Total financial assets at amortised cost   461,418   28,233   4,862   14,433   508,946  
                                                   
 
Exchange and other adjustments includes certain adjustments, prescribed by IFRS 9, in respect of purchased or originated credit-impaired financial assets

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
10.       Financial assets at amortised cost (continued)
 
Year ended 31 December 2018
 
(A) Loans and advances to customers
 
                         
                    Purchased       
                    or 
originated 		      
                    credit-       
        Stage 1    Stage 2    Stage 3    impaired    Total   
        £m    £m    £m    £m    £m   
                           
At 1 January 2018       403,881    37,245    5,140    17,973    464,239   
Exchange and other adjustments       958    32    -    -    990   
Additions (repayments)       34,942    (2,187)   (2,074)   (2,609)   28,072   
Transfers to Stage 1       19,524    (19,501)   (23)       -   
Transfers to Stage 2       (15,743)   15,996    (253)       -   
Transfers to Stage 3       (2,031)   (2,220)   4,251        -   
        1,750    (5,725)   3,975        -   
Recoveries       -   -    553    27    580   
Disposal of businesses       -   (4,020)   (277)   -    (4,297)  
Financial assets that have been written off           (1,576)   -    (1,576)  
At 31 December 2018       441,531    25,345    5,741    15,391    488,008   
Allowance for impairment losses       (525)   (994)   (1,553)   (78)   (3,150)  
Total loans and advances to customers   441,006    24,351    4,188    15,313    484,858   
                                                   
 
(B) Loans and advances to banks
 
                         
At 1 January 2018       4,245    2    -    -    4,247   
Exchange and other adjustments       (29)   1    -    -    (28)  
Additions (repayments)       2,066    -    -    -    2,066   
At 31 December 2018       6,282    3    -    -    6,285   
Allowance for impairment losses       (2)   -    -    -    (2)  
Total loans and advances to banks   6,280    3    -    -    6,283   
                                                   
 
(C) Debt securities
 
                         
At 1 January 2018       3,291    -    49    -    3,340   
Exchange and other adjustments       77    -    (14)   -    63   
Additions (repayments)       1,870    -    -    -    1,870   
Financial assets that have been written off           (29)   -    (29)  
At 31 December 2018       5,238    -    6    -    5,244   
Allowance for impairment losses       -    -    (6)   -    (6)  
Total debt securities       5,238    -    -    -    5,238   
                           
Total financial assets at amortised cost   452,524    24,354    4,188    15,313    496,379   
                                                   
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
10.       Financial assets at amortised cost (continued)
 
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 30 June 2019, with the exception of those held within Purchased or originated credit-impaired, which are not transferrable. Net increase and decrease in balances 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 write-off.
 
Loans and advances to customers include advances securitised under the Group's securitisation and covered bond programmes (see note 12).

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
11.       Allowance for impairment losses
 
Half-year to 30 June 2019
 
                                               
                  Purchased     
                  or 
originated 		    
                  credit-      
      Stage 1     Stage 2     Stage 3      impaired     Total 
      £m     £m     £m      £m     £m 
In respect of drawn balances                                              
At 1 January 2019           527         994        1,570        78        3,169   
Exchange and other adjustments           5        (86)        324        195        438   
                                               
Transfers to Stage 1           329        (323)        (6)                -   
Transfers to Stage 2           (50)        86        (36)                -   
Transfers to Stage 3           (7)        (36)        43                -   
Impact of transfers between stages           (280)        373        276                369   
            (8)        100        277                369   
Other items charged to the income statement           100        (55)        305        (120)        230   
Charge to the income statement (note 5)           92        45        582        (120)        599   
Advances written off                           (1,069)        -        (1,069)   
Recoveries of advances written off in previous years                           201        28        229    
Discount unwind                           (28)        -        (28)   
At 30 June 2019           624        953        1,580        181        3,338    
                                               
In respect of undrawn balances                                              
At 1 January 2019           123        64        6        -        193   
Exchange and other adjustments           -        (1)        -        -        (1)   
                                                   
Transfers to Stage 1           17        (17)        -                -   
Transfers to Stage 2           (5)        5        -                -   
Transfers to Stage 3           -        (2)        2                -   
Impact of transfers between stages           (14)        25        (1)                10    
            (2)        11        1                10    
Other items charged to the income statement           (32)        5        (2)        -        (29)   
Charge to the income statement           (34)        16        (1)        -        (19)   
At 30 June 2019           89        79        5         -        173    
Total allowance for impairment losses           713        1,032        1,585         181        3,511    
                                               
In respect of:                                              
Loans and advances to banks           3        -        -        -        3    
Loans and advances to customers           621        953        1,558         181        3,313    
Debt securities           -        -        3        -        3    
Other assets           -        -        19        -        19    
Drawn balances           624        953        1,580         181        3,338    
Provisions in relation  to loan commitments and
financial guarantees		           89        79        5         -        173    
Total allowance for impairment losses           713        1,032        1,585         181        3,511    
Expected credit loss in respect of financial assets at fair
value through other comprehensive income
(memorandum item)		       1        -        -         -        1    
 
Exchange and other adjustments includes certain adjustments, prescribed by IFRS 9, in respect of purchased or originated credit-impaired financial assets.

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
11.       Allowance for impairment losses (continued)
 
Year ended 31 December 2018
 
                                               
                  Purchased     
                  or 
 originated 		    
                  credit-     
      Stage 1     Stage 2     Stage 3      Impaired    Total
      £m     £m     £m      £m    £m
In respect of drawn balances                                              
At 1 January 2018           590         1,147        1,491        32        3,260   
Exchange and other adjustments           2         -        133        -        135   
                                               
Transfers to Stage 1           304         (299)       (5)               -   
Transfers to Stage 2           (46)        85        (39)               -   
Transfers to Stage 3           (32)        (131)       163                -   
Impact of transfers between stages           (233)        401        325                493   
            (7)       56        444                493   
Other items charged to the income statement           (58)       (107)       696        -        531   
Charge to the income statement (note 5)           (65)       (51)       1,140        -        1,024   
Advances written off                           (1,605)       -        (1,605)  
Disposal of businesses           -        (102)       (79)       -        (181)  
Recoveries of advances written off in previous years                           553        27        580   
Discount unwind                           (63)       19        (44)  
At 31 December 2018           527        994        1,570        78        3,169   
                                               
In respect of undrawn balances                                              
At 1 January 2018           147        126        -        -        273   
Exchange and other adjustments           (5)       (14)       12        -        (7)  
                                               
Transfers to Stage 1           28        (28)       -                -   
Transfers to Stage 2           (6)       6        -                -   
Transfers to Stage 3           (2)       (5)       7                -   
Impact of transfers between stages           (25)       22        (5)               (8)   
            (5)       (5)       2                (8)   
Other items charged to the income statement           (14)       (43)       (8)       -        (65)  
Charge to the income statement           (19)       (48)       (6)       -        (73)  
At 31 December 2018           123        64        6        -        193   
Total allowance for impairment losses           650        1,058        1,576        78        3,362   
                                               
In respect of:                                              
Loans and advances to banks           2        -        -        -        2   
Loans and advances to customers           525        994        1,553        78        3,150   
Debt securities           -        -        6        -        6   
Other assets           -        -        11        -        11   
Drawn balances           527       994        1,570       78        3,169   
Provisions in relation  to loan commitments and
financial guarantees		           123        64        6        -        193   
Total allowance for impairment losses           650        1,058        1,576        78        3,362   
Expected credit loss in respect of financial assets at fair
value through other comprehensive income
(memorandum item)		       1        -        -        -        1   

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
11.       Allowance for impairment losses (continued)
 
The Group's income statement charge comprises:
         
    Half-year   Year ended
    to 30 June   31 Dec
    2019   2018
    £m   £m
         
Drawn balances   599   1,024
Undrawn balances   (19)   (73)
Financial assets at fair value through other comprehensive income   (1)   (14)
Total   579   937
 
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 30 June 2019, with the exception of those held within purchased or originated credit-impaired, which are not transferable. As assets are transferred between stages, the resulting change in expected credit loss of £369 million for drawn balances, and £10 million for undrawn balances, is presented separately, in the stage in which the allowance is recognised at the end of the reporting period.
 
Net increase and decrease in balances comprise the movements in the expected credit loss as a result of 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 write-off. Consequently, recoveries on assets previously written-off will also occur in Stage 3 only.
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
12.       Debt securities in issue
 
                         
    30 June 2019   31 December 2018
    At fair           At fair        
    value           value        
    through   At       through   At    
    profit or   amortised       profit or   amortised    
    loss   cost   Total   loss   cost   Total
      £m     £m     £m     £m     £m     £m
                         
Medium-term notes issued   7,930   39,404   47,334    7,032   37,490   44,522
Covered bonds   -   30,479   30,479    -   28,194   28,194
Certificates of deposit   -   12,167   12,167    -   12,020   12,020
Securitisation notes   52   5,261   5,313   53   5,426   5,479
Commercial paper   -   10,504   10,504    -   8,038   8,038
    7,982   97,815   105,797    7,085   91,168   98,253
 
The notes issued by the Group's securitisation and covered bond programmes are held by external parties and by subsidiaries of the Group.
 
Securitisation programmes
At 30 June 2019, external parties held £5,313 million (31 December 2018: £5,479 million) and the Group's subsidiaries held £30,139 million (31 December 2018: £31,701 million) of total securitisation notes in issue of £35,452 million (31 December 2018: £37,180 million). The notes are secured on loans and advances to customers and debt securities held at amortised cost amounting to £38,604 million (31 December 2018: £41,674 million), the majority of which have been sold by subsidiary companies to bankruptcy remote structured entities. The structured entities are consolidated fully and all of these loans are retained on the Group's balance sheet.
 
Covered bond programmes
At 30 June 2019, external parties held £30,479 million (31 December 2018: £28,194 million) and the Group's subsidiaries held £700 million (31 December 2018: £700 million) of total covered bonds in issue of £31,179 million (31 December 2018: £28,894 million). The bonds are secured on certain loans and advances to customers amounting to £41,049 million (31 December 2018: £36,802 million) that have been assigned to bankruptcy remote limited liability partnerships. These loans are retained on the Group's balance sheet.
 
Cash deposits of £4,049 million (31 December 2018: £4,102 million) which support the debt securities issued by the structured entities, the term advances related to covered bonds and other legal obligations are held by the Group.

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
13.       Post-retirement defined benefit schemes
 
The Group's post-retirement defined benefit scheme obligations are comprised as follows:
 
         
    At 30 June   At 31 Dec
    2019   2018
       £m      £m
Defined benefit pension schemes:        
Fair value of scheme assets   45,763   42,238
Present value of funded obligations   (44,375)   (41,092)
Net pension scheme asset   1,388   1,146
Other post-retirement schemes   (129)   (124)
Net retirement benefit asset   1,259   1,022
         
Recognised on the balance sheet as:        
Retirement benefit assets   1,509   1,267
Retirement benefit obligations   (250)   (245)
Net retirement benefit asset   1,259   1,022
 
The movement in the Group's net post-retirement defined benefit scheme asset during the period was as follows:
 
     
      £m
     
Asset at 1 January 2019   1,022
Exchange and other adjustments   11
Income statement charge   (139)
Employer contributions   538
Remeasurement   (173)
Asset at 30 June 2019   1,259
         
 
The charge to the income statement in respect of pensions and other post-retirement benefit schemes is comprised as follows:
 
9            
    Half-year to   Half-year to   Half-year to
    30 June   30 June   31 Dec
    2019      2018   2018
    £m   £m   £m
             
Defined benefit pension schemes   139   271   134
Defined contribution schemes   141   134   166
Total charge to the income statement (note 4)   280   405   300
                       
 
The principal assumptions used in the valuations of the defined benefit pension schemes were as follows:
 
         
    At 30 June   At 31 Dec
    2019   2018
    %   %
         
Discount rate   2.33   2.90
Rate of inflation:        
Retail Prices Index   3.19   3.20
Consumer Price Index   2.14   2.15
Rate of salary increases   0.00   0.00
Weighted-average rate of increase for pensions in payment   2.73   2.73

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
14.       Subordinated liabilities
 
The Group's subordinated liabilities are comprised as follows:
 
9        
    At 30 June   At 31 Dec
    2019   2018
    £m   £m
         
Preference shares   919   803
Preferred securities   3,314   3,205
Undated subordinated liabilities   587   588
Dated subordinated liabilities   12,989   13,060
Total subordinated liabilities   17,809   17,656
 
15.       Share capital 
 
Movements in share capital during the period were as follows:
 
         
    Number    
    of  shares    
    (million)   £m
Ordinary shares of 10p each        
At 1 January 2019   71,164   7,116
Issued in the period1   725   73
Share buybacks   (1,125)   (113)
At period end   70,764   7,076
 
1 The ordinary shares issued in the period were in respect of employee share schemes.
 
On 20 February 2019 the Group announced the launch of a share buyback programme to repurchase up to £1.75 billion of its outstanding ordinary shares; the programme commenced on 1 March 2019. The Group entered into an agreement with Morgan Stanley & Co. International plc and UBS AG, London Branch (the joint brokers) to conduct the share buyback programme on its behalf and to make trading decisions under the programme independently of the Group. The joint brokers are purchasing the Group's ordinary shares as principal and selling them to the Group in accordance with the terms of their engagement. The Group cancels the shares that it purchases through the programme. By 30 June 2019, the Group had bought back and cancelled 1,125 million shares under the programme, for a total cost of £694 million.
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
16.       Other equity instruments
 
           
        £m   
           
At 1 January 2019       6,491   
Redemption of Additional Tier 1 securities       (1,481)  
Additional Tier 1 securities issued in the period:          
US dollar notes ($500 million nominal)       396   
At 30 June 2019       5,406   
                     
 
On 27 June 2019 the Group redeemed, at par, £1,481 million of Additional Tier 1 securities at their first call date.
 
During the half-year to 30 June 2019 the Group issued £396 million (US$500 million) of Additional Tier 1 (AT1) securities; issue costs of £1 million, net of tax, have been charged to retained profits.
 
The AT1 securities are Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities with no fixed maturity or redemption date.
 
The principal terms of the AT1 securities are described below:
 
  • The securities rank behind the claims against Lloyds Banking Group plc of (a) unsubordinated creditors, (b) claims which are, or are expressed to be, subordinated to the claims of unsubordinated creditors of Lloyds Banking Group plc but not further or otherwise or (c) whose claims are, or are expressed to be, junior to the claims of other creditors of Lloyds Banking Group, whether subordinated or unsubordinated, other than those whose claims rank, or are expressed to rank, pari passu with, or junior to, the claims of the holders of the AT1 Securities in a winding-up occurring prior to a conversion event being triggered.
  • The securities bear a fixed rate of interest until the first call date. After the initial call date, in the event that they are not redeemed, the AT1 securities will bear interest at rates fixed periodically in advance for five year periods based on market rates.
  • Interest on the securities will be due and payable only at the sole discretion of Lloyds Banking Group plc, and Lloyds Banking Group plc may at any time elect to cancel any Interest Payment (or any part thereof) which would otherwise be payable on any Interest Payment Date. There are also certain restrictions on the payment of interest as specified in the terms.
  • The securities are undated and are repayable, at the option of Lloyds Banking Group plc, in whole at the first call date, or on any fifth anniversary after the first call date. In addition, the AT1 securities are repayable, at the option of Lloyds Banking Group plc, in whole for certain regulatory or tax reasons. Any repayments require the prior consent of the PRA.
  • The securities convert into ordinary shares of Lloyds Banking Group plc, at a pre-determined price, should the fully loaded Common Equity Tier 1 ratio of the Group fall below 7.0 per cent.

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
17.       Provisions for liabilities and charges
 
                           
        Provisions   Payment   Other        
        for   Protection   regulatory        
        commitments   Insurance   provisions   Other   Total
        £m   £m   £m   £m   £m
                         
Balance at 31 December 2018       193   1,524   861   969   3,547
Adjustment on implementation of IFRS 16   -   -   -   (97)   (97)
Exchange and other adjustments       (1)   32   -   1   32
Provisions applied       -   (992)   (412)   (204)   (1,608)
Charge for the period       (19)   650   143   210   984
At 30 June 2019       173   1,214   592   879   2,858
                                               
 
Payment protection insurance (excluding MBNA)
The Group increased the provision for PPI costs by a further £650 million in the half-year to 30 June 2019, of which £550 million was in the second quarter, bringing the total amount provided to £20,075 million.
 
The charge in the second quarter is largely driven by the significant increase in PPI information requests (PIRs) which is likely to lead to higher total complaints and associated administration costs. The Group has historically received around 70,000 PIRs per week, of which around 9,000 converted into a complaint. Through the second quarter, the number of PIRs received increased to around 150,000 per week and in recent weeks around 190,000 per week and the Group has assumed that PIRs remain at this elevated level until the industry deadline at the end of August 2019. At the same time, the quality of PIRs has deteriorated and the Group expects this to continue. While PIR and complaint volumes remain uncertain, the impact of these additional volumes is expected to generate around 200,000 extra complaints, increasing the total expected complaint volumes from 5.6 million to 5.8 million.
 
At 30 June 2019, a provision of £1,083 million remained unutilised relating to complaints and associated administration costs. Total cash payments were £896 million during the six months to 30 June 2019.
 
Sensitivities
The Group estimates that it has sold approximately 16 million PPI policies since 2000. These include policies that were not mis-sold and those that have been successfully claimed upon. Since the commencement of the PPI redress programme in 2011 the Group estimates that it has contacted, settled or provided for approximately 54 per cent of the policies sold since 2000.
 
The total amount provided for PPI represents the Group's best estimate of the likely future cost. A number of risks and uncertainties remain including with respect to future complaint volumes, however the potential impact of these risks has reduced due to the proximity of the industry deadline. The cost could differ from the Group's estimates and the assumptions underpinning them, and could result in a further provision being required. These may also be impacted by any further regulatory changes, the final stage of the Financial Conduct Authority (FCA) media campaign and Claims Management Company and customer activity, and potential additional remediation arising from the continuous improvement of the Group's operational practices.
 
Deloitte LLP has been appointed to assist the Official Receiver with the submission of PPI queries to providers to establish whether any mis-sold PPI redress is due to creditors of bankrupts' estates. The Group has not made any provision in relation to this matter, which will remain under review.
 
For every additional 1,000 reactive complaints per week from July 2019 through to the industry deadline of the end of August 2019, the Group would expect an additional charge of approximately £20 million.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
17.       Provisions for liabilities and charges (continued)
 
Payment protection insurance (MBNA)
As announced in December 2016, the Group's exposure is capped at £240 million, which is already provided for, through an indemnity received from Bank of America. MBNA increased its PPI provision by £32 million in the half-year to 30 June 2019 but the Group's exposure continues to remain capped at £240 million under the arrangement with Bank of America, notwithstanding this increase by MBNA.
 
Other provisions for legal actions and regulatory matters
In the course of its business, the Group is engaged in discussions with the PRA, FCA and other UK and overseas regulators and other governmental authorities on a range of matters. The Group also receives complaints in connection with its past conduct and claims brought by or on behalf of current and former employees, customers, investors and other third parties and is subject to legal proceedings and other legal actions. Where significant, provisions are held against the costs expected to be incurred in relation to these matters and matters arising from related internal reviews. During the six months to 30 June 2019 the Group charged a further £143 million in respect of legal actions and other regulatory matters, and the unutilised balance at 30 June 2019 was £592 million (31 December 2018: £861 million). The most significant items are as follows.
 
Arrears handling related activities
The Group has provided an additional £55 million in the half-year to 30 June 2019 for the costs of identifying and rectifying certain arrears management fees and activities, taking the total provided to date to £848 million. The Group has put in place a number of actions to improve its handling of customers in these areas and has made good progress in reimbursing arrears fees to impacted customers.
 
Packaged bank accounts
The Group had provided a total of £795 million up to 31 December 2018 in respect of complaints relating to alleged mis-selling of packaged bank accounts, with no further amounts provided during the six months to 30 June 2019. A number of risks and uncertainties remain particularly with respect to future volumes.
 
Customer claims in relation to insurance branch business in Germany
The Group continues to receive claims in Germany from customers relating to policies issued by Clerical Medical Investment Group Limited (subsequently renamed Scottish Widows Limited), with smaller numbers received from customers in Austria and Italy. The industry-wide issue regarding notification of contractual 'cooling off' periods continued to lead to an increasing number of claims in 2016 and 2017 levelling out in 2018 and into 2019. Up to 31 December 2018 the Group had provided a total of £639 million, with no further amounts provided in 2019. The validity of the claims facing the Group depends upon the facts and circumstances in respect of each claim. As a result the ultimate financial effect, which could be significantly different from the current provision, will be known only once all relevant claims have been resolved.
 
HBOS Reading - customer review
The Group has now completed its compensation assessment for all 71 business customers within the customer review, with more than 98 per cent of these offers to individuals accepted. In total, more than £98 million has been offered of which £84 million has so far been accepted, in addition to £9 million for ex-gratia payments and £6 million for the re-imbursements of legal fees.
 
The review follows the conclusion of a criminal trial in which a number of individuals, including two former HBOS employees, were convicted of conspiracy to corrupt, fraudulent trading and associated money laundering offences which occurred prior to the acquisition of HBOS by the Group in 2009. The Group provided a further £15 million in the year ended 31 December 2018 for customer settlements, raising the total amount provided to £115 million and is now nearing the end of the process of paying compensation to the victims of the fraud, including ex-gratia payments and re-imbursements of legal fees.

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
18.       Contingent liabilities and commitments
 
Interchange fees
With respect to multi-lateral interchange fees (MIFs), the Group is not directly involved in the ongoing litigation (as described below) which involve card schemes such as Visa and Mastercard. However, the Group is a member / licensee of Visa and Mastercard and other card schemes:
  • Litigation brought by retailers continues in the English Courts against both Visa and Mastercard
  • Litigation brought on behalf of UK consumers is also proceeding in the English Courts against Mastercard
  • Any ultimate impact on the Group of the litigation against Visa and Mastercard remains uncertain at this time
 
Visa Inc completed its acquisition of Visa Europe on 21 June 2016. As part of this transaction, the Group and certain other UK banks also entered into a Loss Sharing Agreement (LSA) with Visa Inc, which clarifies the allocation of liabilities between the parties should the litigation referred to above result in Visa Inc being liable for damages payable by Visa Europe. The maximum amount of liability to which the Group may be subject under the LSA is capped at the cash consideration which was received by the Group at completion. Visa Inc may also have recourse to a general indemnity, previously in place under Visa Europe's Operating Regulations, for damages claims concerning inter or intra-regional MIF setting activities.
 
LIBOR and other trading rates
In July 2014, the Group announced that it had reached settlements totalling £217 million (at 30 June 2014 exchange rates) to resolve with UK and US federal authorities legacy issues regarding the manipulation several years ago of Group companies' submissions to the British Bankers' Association (BBA) London Interbank Offered Rate (LIBOR) and Sterling Repo Rate. The Swiss Competition Commission concluded its investigation against Lloyds in June 2019. The Group continues to cooperate with various other government and regulatory authorities, including a number of US State Attorneys General, in conjunction with their investigations into submissions made by panel members to the bodies that set LIBOR and various other interbank offered rates.
 
Certain Group companies, together with other panel banks, have also been named as defendants in private lawsuits, including purported class action suits, in the US in connection with their roles as panel banks contributing to the setting of US Dollar, Japanese Yen and Sterling LIBOR and the Australian BBSW Reference Rate. Certain of the plaintiffs' claims, have been dismissed by the US Federal Court for Southern District of New York (subject to appeals).
 
Certain Group companies are also named as defendants in (i) UK based claims; and (ii) two Dutch class actions, raising LIBOR manipulation allegations. A number of the claims against the Group in relation to the alleged mis-sale of interest rate hedging products also include allegations of LIBOR manipulation.
 
It is currently not possible to predict the scope and ultimate outcome on the Group of the various outstanding regulatory investigations not encompassed by the settlements, any private lawsuits or any related challenges to the interpretation or validity of any of the Group's contractual arrangements, including their timing and scale.
 
UK shareholder litigation
In August 2014, the Group and a number of former directors were named as defendants in a claim by a number of claimants who held shares in Lloyds TSB Group plc (LTSB) prior to the acquisition of HBOS plc, alleging breaches of duties in relation to information provided to shareholders in connection with the acquisition and the recapitalisation of LTSB. The defendants refute all claims made. A trial commenced in the English High Court on 18 October 2017 and concluded on 5 March 2018 with judgment to follow. It is currently not possible to determine the ultimate impact on the Group (if any).
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
18.       Contingent liabilities and commitments (continued)
 
Tax authorities
The Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which ceased trading on 31 December 2010. In 2013 HMRC informed the Group that their interpretation of the UK rules which allow the offset of such losses denies the claim. If HMRC's position is found to be correct management estimate that this would result in an increase in current tax liabilities of approximately £770 million (including interest) and a reduction in the Group's deferred tax asset of approximately £250 million. The Group does not agree with HMRC's position and, having taken appropriate advice, does not consider that this is a case where additional tax will ultimately fall due. There are a number of other open matters on which the Group is in discussion with HMRC (including the tax treatment of certain costs arising from the divestment of TSB Banking Group plc), none of which is expected to have a material impact on the financial position of the Group.
 
Mortgage arrears handling activities
On 26 May 2016, the Group was informed that an enforcement team at the FCA had commenced an investigation in connection with the Group's mortgage arrears handling activities. This investigation is ongoing and the Group continues to cooperate with the FCA. It is not currently possible to make a reliable assessment of any liability that may result from the investigation including any financial penalty or public censure.
 
HBOS Reading - FCA investigation
The FCA's investigation into the events surrounding the discovery of misconduct within the Reading-based Impaired Assets team of HBOS has concluded. The FCA issued a final notice on 21 June 2019 announcing that the Group had agreed to settle the matter and pay a fine of £45.5 million.
 
Other legal actions and regulatory matters
In addition, during the ordinary course of business the Group is subject to other complaints and threatened or actual legal proceedings (including class or group action claims) brought by or on behalf of current or former employees, customers, investors or other third parties, as well as legal and regulatory reviews, challenges, investigations and enforcement actions, both in the UK and overseas. All such material matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability. In those instances where it is concluded that it is more likely than not that a payment will be made, a provision is established to management's best estimate of the amount required at the relevant balance sheet date. In some cases it will not be possible to form a view, for example because the facts are unclear or because further time is needed properly to assess the merits of the case, and no provisions are held in relation to such matters. In these circumstances, specific disclosure in relation to a contingent liability will be made where material. However the Group does not currently expect the final outcome of any such case to have a material adverse effect on its financial position, operations or cash flows.
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
18.       Contingent liabilities and commitments (continued)
 
Contingent liabilities and commitments arising from the banking business
         
         
    At 30 June   At 31 Dec
    2019   2018
       £m   £m
         
Contingent liabilities        
Acceptances and endorsements   74   194
Other:        
Other items serving as direct credit substitutes   1,042   632
Performance bonds and other transaction-related contingencies   2,462   2,425
    3,504   3,057
Total contingent liabilities   3,578   3,251
         
Commitments and guarantees        
Documentary credits and other short-term trade-related transactions   1   1
Forward asset purchases and forward deposits placed   171   731
         
Undrawn formal standby facilities, credit lines and other commitments to lend:        
Less than 1 year original maturity:        
Mortgage offers made   15,011   11,594
Other commitments and guarantees   84,322   85,060
    99,333   96,654
1 year or over original maturity   37,599   37,712
Total commitments and guarantees   137,104   135,098
 
Of the amounts shown above in respect of undrawn formal standby facilities, credit lines and other commitments to lend, £67,814 million (31 December 2018: £64,884 million) was irrevocable.

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
19.       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 49 to the Group's 2018 financial statements describes the definitions of the three levels in the fair value hierarchy.
 
Valuation control framework
Key elements of the valuation control framework, which covers processes for all levels in the fair value hierarchy including level 3 portfolios, include model validation (incorporating pre-trade and post-trade testing), product implementation review and independent price verification. Formal committees meet quarterly to discuss and approve valuations in more judgemental areas.
 
Transfers into and out of level 3 portfolios
Transfers out of level 3 portfolios arise when inputs that could have a significant impact on the instrument's valuation become market observable; conversely, transfers into the portfolios arise when 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 2018 Annual Report and Accounts applied to these portfolios.
 
The table below summarises the carrying values of financial assets and liabilities presented on the Group's balance sheet. The fair values presented in the table are at a specific date and may be significantly different from the amounts which will actually be paid or received on the maturity or settlement date.
 
                 
    30 June 2019   31 December 2018
    Carrying   Fair   Carrying   Fair
    value   value   value   value
    £m   £m   £m   £m
Financial assets                
Financial assets at fair value through profit or loss   155,108   155,108   158,529   158,529
Derivative financial instruments   26,148   26,148   23,595   23,595
                 
Loans and advances to banks   8,374   8,363   6,283   6,286
Loans and advances to customers   495,138   496,768   484,858   484,660
Debt securities   5,434   5,427   5,238   5,244
Financial assets at amortised cost   508,946   510,558   496,379   496,190
Financial assets at fair value through other comprehensive income   27,078   27,078   24,815   24,815
Financial liabilities                
Deposits from banks   34,777   34,761   30,320   30,322
Customer deposits   421,692   422,277   418,066   418,450
Financial liabilities at fair value through profit or loss   24,754   24,754   30,547   30,547
Derivative financial instruments   23,026   23,026   21,373   21,373
Debt securities in issue   97,815   100,102   91,168   93,233
Liabilities arising from non-participating investment contracts   14,706   14,706   13,853   13,853
Subordinated liabilities   17,809   20,200   17,656   19,564
 
The carrying amount of the following financial instruments is a reasonable approximation of fair value: cash and balances at central banks, items in the course of collection from banks, items in course of transmission to banks and notes in circulation.

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
19.       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.
 
Financial assets
                 
    Level 1   Level 2   Level 3   Total
    £m   £m   £m   £m
At 30 June 2019                
Financial assets at fair value through profit or loss:                
Loans and advances to customers   -   14,907   11,042   25,949
Loans and advances to banks   -   3,082   -   3,082
Debt securities   17,931   21,459   1,778   41,168
Equity shares   82,833   13   2,043   84,889
Treasury and other bills   20   -   -   20
Total financial assets at fair value through profit or loss   100,784   39,461   14,863   155,108
Financial assets at fair value through other comprehensive income:                
Debt securities   15,252   11,083   171   26,506
Equity shares   -   -   25   25
Treasury and other bills   547   -   -   547
Total financial assets at fair value through other comprehensive income   15,799   11,083   196   27,078
Derivative financial instruments   83   24,881   1,184   26,148
Total financial assets carried at fair value   116,666   75,425   16,243   208,334
                 
At 31 December 2018                
Financial assets at fair value through profit or loss:                
Loans and advances to customers   -    27,285   10,565    37,850
Loans and advances to banks   -    3,026   -    3,026
Debt securities    18,010    20,544    1,594    40,148
Equity shares    75,701    26    1,758    77,485
Treasury and other bills    20   -   -    20
Total financial assets at fair value through profit or loss    93,731    50,881    13,917    158,529
Financial assets at fair value through other comprehensive income:                
Debt securities    18,879    5,366   246    24,491
Treasury and other bills   303   -   -   303
Equity shares   -   -   21    21
Total financial assets at fair value through other comprehensive income    19,182    5,366   267    24,815
Derivative financial instruments    93    22,575    927    23,595
Total financial assets carried at fair value   113,006   78,822   15,111   206,939
                   
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
19.       Fair values of financial assets and liabilities (continued)
 
Financial liabilities
                 
    Level 1   Level 2   Level 3   Total
    £m   £m   £m   £m
                 
At 30 June 2019                
Financial liabilities at fair value through profit or loss:                
Liabilities held at fair value through profit or loss   -   7,930   52   7,982
Trading liabilities   2,672   14,100   -   16,772
Total financial liabilities at fair value through profit or loss   2,672   22,030   52   24,754
Derivative financial instruments   274   21,479   1,273   23,026
Total financial liabilities carried at fair value   2,946   43,509   1,325   47,780
                 
At 31 December 2018                
Financial liabilities at fair value through profit or loss:                
Liabilities held at fair value through profit or loss    -    7,085   11    7,096
Trading liabilities    1,464    21,987   -    23,451
Total financial liabilities at fair value through profit or loss    1,464    29,072   11    30,547
Derivative financial instruments   132    20,525    716    21,373
Total financial liabilities carried at fair value   1,596   49,597   727   51,920
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
19.       Fair values of financial assets and liabilities (continued)
 
Movements in level 3 portfolio
The tables below analyse movements in the level 3 financial assets portfolio.
 
                 
        Financial        
    Financial   assets at       Total
    assets at   fair value       financial
    fair value   through other       assets
    through profit   comprehensive   Derivative   carried at
     or loss   income   assets    fair value
    £m   £m   £m   £m
                 
At 1 January 2019   13,917   267   927   15,111
Exchange and other adjustments   3   1   -   4
Gains recognised in the income statement within other income   489   -   251   740
Gains (losses) recognised in other comprehensive income within the revaluation reserve in respect of financial assets carried at fair value through other comprehensive income   -   8   -   8
Purchases/ increases to customer loans   1,511   -   2   1,513
Sales/ repayments   (1,522)   (80)   (16)   (1,618)
Transfers into the level 3 portfolio   563   -   22   585
Transfers out of the level 3 portfolio   (98)   -   (2)   (100)
At 30 June 2019   14,863   196   1,184   16,243
Gains (losses) recognised in the income statement within other income relating to those assets held at 30 June 2019   189   -   285   474
 
                 
        Financial        
    Financial   assets held       Total
    assets at   at fair value       financial
    fair value   through other       assets
    through profit   comprehensive   Derivative   carried at
     or loss   income   assets    fair value
    £m     £m     £m     £m
                 
At 1 January 2018   14,152   302   1,056   15,510
Exchange and other adjustments   3   (1)   -   2
Gains recognised in the income statement within other income   111   -   2   113
Gains recognised in other comprehensive income within the revaluation reserve in respect of financial assets held at fair value through other comprehensive income   -   1   -   1
Purchases/ increases to customer loans   206   -   -   206
Sales/ repayments   (491)   (91)   (90)   (672)
Transfers into the level 3 portfolio   532   334   -   866
Transfers out of the level 3 portfolio   (320)   (193)   -   (513)
At 30 June 2018   14,193   352   968   15,513
Gains (losses) recognised in the income statement within other income relating to those assets held at 30 June 2018   160   -   2   162

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
19.       Fair values of financial assets and liabilities (continued)
 
The tables below analyse movements in the level 3 financial liabilities portfolio.
 
             
    Financial       Total
    liabilities at       financial
    fair value       liabilities
    through   Derivative   carried at
    profit or loss   liabilities   fair value
      £m     £m     £m
             
At 1 January 2019   11   716   727
Exchange and other adjustments   -   -   -
Losses recognised in the income statement within other income   -   204   204
Additions   -   1   1
Redemptions   (1)   (12)   (13)
Transfers into the level 3 portfolio   53   364   417
Transfers out of the level 3 portfolio   (11)   -   (11)
At 30 June 2019   52   1,273   1,325
Losses recognised in the income statement within other income relating to those liabilities held at 30 June 2019   -   249   249
 
             
    Financial       Total
    liabilities at       financial
    fair value       liabilities
    through   Derivative   carried at
    profit or loss   liabilities   fair value
      £m     £m     £m
             
At 1 January 2018    -    804    804
Exchange and other adjustments    -    -    -
Gains recognised in the income statement within other income    -    (30)    (30)
Additions    -    -    -
Redemptions    -    (2)    (2)
Transfers into the level 3 portfolio   10    -    10
Transfers out of the level 3 portfolio    -   -    -
At 30 June 2018    10    772    782
Gains recognised in the income statement within other income relating to those liabilities held at 30 June 2018   -    (30)    (30)

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
19.       Fair values of financial assets and liabilities (continued)
 
The tables below set out the effects of reasonably possible alternative assumptions for categories of level 3 financial assets and financial liabilities which have an aggregated carrying value greater than £500 million.
 
                       
            At 30 June 2019  
                Effect of reasonably  
                possible alternative  
                assumptions1  
    Significant                  
  Valuation unobservable       Carrying   Favourable   Unfavourable  
  technique(s) inputs   Range2   value   changes   changes  
            £m   £m   £m  
Financial assets at fair value through profit or loss                  
Loans and advances to customers Discounted
 cash flows		 Gross interest rates, inferred spreads (bps)   76 bps /
208 bps		   11,042   347   (406)  
                       
Equity and venture capital investments Market approach Earnings multiple   0.9 /
14.6		   1,786   102   (96)  
Equity and venture capital investments Underlying asset/net asset value (incl. property prices)³ n/a       524   51   (74)  
Unlisted equities and debt securities, property partnerships in the life funds Underlying asset/net asset value (incl. property prices)³ n/a       1,153   16   (40)  
Other           358   47   (47)  
            14,863          
Financial assets at fair value through other comprehensive income       196            
Derivative financial assets                      
Interest rate derivatives Option pricing model Interest rate volatility   7% /
121%		   1,184          
            1,184   8   (4)  
Financial assets carried at fair value       16,243          
                   
Financial liabilities at fair value through profit or loss       52          
                   
Derivative financial liabilities                      
Interest rate derivatives Option pricing model Interest rate volatility   7% /
121%		   1,273   -   -  
Financial liabilities carried at fair value       1,325          
 
   
1 Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table.
2 The range represents the highest and lowest inputs used in the level 3 valuations.
3 Underlying asset/net asset values represent fair value.
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
19.       Fair values of financial assets and liabilities (continued)
 
                     
            At 31 December 2018
                Effect of reasonably
                possible alternative
                assumptions1
    Significant                
  Valuation unobservable       Carrying   Favourable   Unfavourable
  technique(s) inputs   Range2   value   changes   changes
            £m   £m   £m
Financial assets at fair value through profit or loss:                
Loans and advances to customers Discounted
cash flows		 Gross interest rates, inferred spreads (bps)
 		   97bps / 208bps   10,565   380   (371)
Equity and venture capital investments Market approach Earnings multiple   0.9 /
14.6		   1,657   54   (55)
  Underlying assets/net asset value (incl. property prices)³         523   48   (57)
Unlisted equities and debt securities, property partnerships in the life funds Underlying asset/net asset value (incl. property prices, broker quotes or discounted cash flows)3 n/a   n/a   898   2   (45)
Other           274   92   (21)
            13,917        
Financial assets at fair value through other comprehensive income         267        
Derivative financial assets:                    
Interest rate derivatives Option pricing model Interest rate volatility   19% /
 80%		   927   7   (5)
            927        
Financial assets carried at fair value         15,111        
Financial liabilities at fair value through profit or loss         11        
Derivative financial liabilities:                  
Interest rate derivatives Option pricing model Interest rate volatility   19% /
80%		   716   -   - 
            716        
Financial liabilities carried at fair value         727        
 
1 Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table.
2 The range represents the highest and lowest inputs used in the level 3 valuations.
3 Underlying asset/net asset values represent fair value.
 
Unobservable inputs
Significant unobservable inputs affecting the valuation of debt securities, unlisted equity investments and derivatives are unchanged from those described in the Group's 2018 financial statements.
 
Reasonably possible alternative assumptions
Valuation techniques applied to many of the Group's level 3 instruments often involve the use of two or more inputs whose relationship is interdependent. The calculation of the effect of reasonably possible alternative assumptions included in the table above reflects such relationships and are unchanged from those described in note 49 to the Group's 2018 financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
20.       Credit quality of loans and advances to banks and customers
 
Gross drawn exposures
 
                         
At 30 June 2019                   Purchased    
                    or    
                    originated    
                    credit-    
    PD   Stage 1   Stage 2   Stage 3   impaired   Total
    range   £m   £m   £m   £m   £m 
                         
Loans and advances to banks:                    
CMS 1-10   0.00-0.50%   8,170   15   -   -   8,185
CMS 11-14   0.51-3.00%   192   -   -   -   192
CMS 15-18   3.01-20.00%   -   -   -   -   -
CMS 19   20.01-99.99%   -   -   -   -   -
CMS 20-23   100%   -   -   -   -   -
        8,362   15   -   -   8,377
Loans and advances to customers:                    
Retail - mortgages                        
RMS 1-6   0.00-4.50%   252,238   13,585   -   -   265,823
RMS 7-9   4.51-14.00%   22   1,842   -   -   1,864
RMS 10   14.01-20.00%   -   421   -   -   421
RMS 11-13   20.01-99.99%   -   1,028   -   -   1,028
RMS 14   100.00%   -   -   1,543   14,614   16,157
        252,260   16,876   1,543   14,614   285,293
Retail - unsecured                        
RMS 1-6   0.00-4.50%   22,749   1,213   -   -   23,962
RMS 7-9   4.51-14.00%   1,782   738   -   -   2,520
RMS 10   14.01-20.00%   36   143   -   -   179
RMS 11-13   20.01-99.99%   11   545   -   -   556
RMS 14   100.00%   -   -   678   -   678
        24,578   2,639   678   -   27,895
Retail - UK Motor Finance                        
RMS 1-6   0.00-4.50%   14,013   881   -   -   14,894
RMS 7-9   4.51-14.00%   327   236   -   -   563
RMS 10   14.01-20.00%   -   93   -   -   93
RMS 11-13   20.01-99.99%   3   192   -   -   195
RMS 14   100.00%   -   -   137   -   137
        14,343   1,402   137   -   15,882
Retail - other                        
RMS 1-6   0.00-4.50%   8,252   370   -   -   8,622
RMS 7-9   4.51-14.00%   -   107   -   -   107
RMS 10   14.01-20.00%   -   10   -   -   10
RMS 11-13   20.01-99.99%   167   28   -   -   195
RMS 14   100.00%   -   -   132   -   132
        8,419   515   132   -   9,066
CMS 1-10   0.00-0.50%   1,538   275   -   -   1,813
CMS 11-14   0.51-3.00%   -   -   -   -   -
CMS 15-18   3.01-20.00%   -   -   -   -   -
CMS 19   20.01-99.99%   -   -   -   -   -
CMS 20-23   100%   -   -   29   -   29
        1,538   275   29   -   1,842
Total Retail       301,138   21,707   2,519   14,614   339,978
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
20.       Credit quality of loans and advances to banks and customers (continued)
 
Gross drawn exposures (continued)
 
                         
At 30 June 2019                   Purchased    
                    or    
                    originated    
                    credit-    
    PD   Stage 1   Stage 2   Stage 3   impaired   Total
    range   £m   £m   £m   £m   £m 
                         
Commercial                        
CMS 1-10   0.00-0.50%   68,151   344   -   -   68,495
CMS 11-14   0.51-3.00%   21,584   4,661   -   -   26,245
CMS 15-18   3.01-20.00%   598   2,334   -   -   2,932
CMS 19   20.01-99.99%   -   74   -   -   74
CMS 20-23   100%   -   -   3,777   -   3,777
        90,333   7,413   3,777   -   101,523
Other                        
RMS 1-6   0.00-4.50%   789   50   -   -   839
RMS 7-9   4.51-14.00%   -   -   -   -   -
RMS 10   14.01-20.00%   -   -   -   -   -
RMS 11-13   20.01-99.99%   -   -   -   -   -
RMS 14   100.00%   -   -   56   -   56
        789   50   56   -   895
CMS 1-10   0.00-0.50%   55,986   1   -   -   55,987
CMS 11-14   0.51-3.00%   -   -   -   -   -
CMS 15-18   3.01-20.00%   -   -   -   -   -
CMS 19   20.01-99.99%   -   -   -   -   -
CMS 20-23   100%   -   -   68   -   68
        55,986   1   68   -   56,055
Total loans and advances to customers   448,246   29,171   6,420   14,614   498,451
                         
In respect of:                        
Retail       301,138   21,707   2,519   14,614   339,978
Commercial       90,333   7,413   3,777   -   101,523
Other       56,775   51   124   -   56,950
Total loans and advances to customers   448,246   29,171   6,420   14,614   498,451
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
20.       Credit quality of loans and advances to banks and customers (continued)
 
Expected credit losses
 
                         
At 30 June 2019                   Purchased    
                    or    
                    originated    
                    credit-    
    PD   Stage 1   Stage 2   Stage 3   impaired   Total
    range   £m   £m   £m   £m   £m 
                         
Loans and advances to banks:                    
CMS 1-10   0.00-0.50%   2   -   -   -   2
CMS 11-14   0.51-3.00%   1   -   -   -   1
CMS 15-18   3.01-20.00%   -   -   -   -   -
CMS 19   20.01-99.99%   -   -   -   -   -
CMS 20-23   100%   -   -   -   -   -
        3   -   -   -   3
Loans and advances to customers:                    
Retail - mortgages                    
RMS 1-6   0.00-4.50%   37   168   -   -   205
RMS 7-9   4.51-14.00%   -   36   -   -   36
RMS 10   14.01-20.00%   -   15   -   -   15
RMS 11-13   20.01-99.99%   -   47   -   -   47
RMS 14   100.00%   -   -   134   181   315
        37   266   134   181   618
Retail - unsecured                        
RMS 1-6   0.00-4.50%   184   48   -   -   232
RMS 7-9   4.51-14.00%   70   76   -   -   146
RMS 10   14.01-20.00%   4   26   -   -   30
RMS 11-13   20.01-99.99%   3   180   -   -   183
RMS 14   100.00%   -   -   215   -   215
        261   330   215   -   806
Retail - UK Motor Finance                    
RMS 1-6   0.00-4.50%   187   19   -   -   206
RMS 7-9   4.51-14.00%   13   11   -   -   24
RMS 10   14.01-20.00%   -   9   -   -   9
RMS 11-13   20.01-99.99%   -   31   -   -   31
RMS 14   100.00%   -   -   77   -   77
        200   70   77   -   347
Retail - other                        
RMS 1-6   0.00-4.50%   6   8   -   -   14
RMS 7-9   4.51-14.00%   -   3   -   -   3
RMS 10   14.01-20.00%   -   -   -   -   -
RMS 11-13   20.01-99.99%   -   1   -   -   1
RMS 14   100.00%   -   -   46   -   46
        6   12   46   -   64
CMS 1-10   0.00-0.50%   20   19   -   -   39
CMS 11-14   0.51-3.00%   -   -   -   -   -
CMS 15-18   3.01-20.00%   -   -   -   -   -
CMS 19   20.01-99.99%   -   -   -   -   -
CMS 20-23   100%   -   -   6   -   6
        20   19   6   -   45
Total Retail       524   697   478   181   1,880
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
20.       Credit quality of loans and advances to banks and customers (continued)
 
Expected credit losses (continued)
 
                         
At 30 June 2019                   Purchased    
                    or    
                    originated    
                    credit-    
    PD   Stage 1   Stage 2   Stage 3   impaired   Total
    range   £m   £m   £m   £m   £m 
                         
Commercial                        
CMS 1-10   0.00-0.50%   35   1   -   -   36
CMS 11-14   0.51-3.00%   46   110   -   -   156
CMS 15-18   3.01-20.00%   3   135   -   -   138
CMS 19   20.01-99.99%   -   8   -   -   8
CMS 20-23   100%   -   -   1,046   -   1,046
        84   254   1,046   -   1,384
Other                        
RMS 1-6   0.00-4.50%   4   1   -   -   5
RMS 7-9   4.51-14.00%   -   -   -   -   -
RMS 10   14.01-20.00%   -   -   -   -   -
RMS 11-13   20.01-99.99%   -   -   -   -   -
RMS 14   100.00%   -   -   11   -   11
        4   1   11   -   16
CMS 1-10   0.00-0.50%   9   1   -   -   10
CMS 11-14   0.51-3.00%   -   -   -   -   -
CMS 15-18   3.01-20.00%   -   -   -   -   -
CMS 19   20.01-99.99%   -   -   -   -   -
CMS 20-23   100%   -   -   23   -   23
        9   1   23   -   33
Total loans and advances to customers   621   953   1,558   181   3,313
                         
In respect of:                        
Retail       524   697   478   181   1,880
Commercial       84   254   1,046   -   1,384
Other       13   2   34   -   49
Total loans and advances to customers   621   953   1,558   181   3,313
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
20.       Credit quality of loans and advances to banks and customers (continued)
 
Gross drawn exposures
 
                         
At 31 December 2018                   Purchased    
                    or    
                    originated    
                    credit-    
    PD   Stage 1   Stage 2   Stage 3   impaired   Total
    range   £m   £m   £m   £m   £m 
                         
Loans and advances to banks:                    
CMS 1-10   0.00-0.50%   6,177   3   -   -   6,180
CMS 11-14   0.51-3.00%   105   -   -   -   105
CMS 15-18   3.01-20.00%   -   -   -   -   -
CMS 19   20.01-99.99%   -   -   -   -   -
CMS 20-23   100%   -   -   -   -   -
        6,282   3   -   -   6,285
Loans and advances to customers:                    
Retail - mortgages                    
RMS 1-6   0.00-4.50%   257,740   10,784   -   -   268,524
RMS 7-9   4.51-14.00%   57   1,709   -   -   1,766
RMS 10   14.01-20.00%   -   262   -   -   262
RMS 11-13   20.01-99.99%   -   899   -   -   899
RMS 14   100.00%   -   -   1,393   15,391   16,784
        257,797   13,654   1,393   15,391   288,235
Retail - unsecured                        
RMS 1-6   0.00-4.50%   22,363   1,079   -   -   23,442
RMS 7-9   4.51-14.00%   2,071   774   -   -   2,845
RMS 10   14.01-20.00%   72   167   -   -   239
RMS 11-13   20.01-99.99%   199   687   -   -   886
RMS 14   100.00%   -   -   703   -   703
        24,705   2,707   703   -   28,115
Retail - UK Motor Finance                    
RMS 1-6   0.00-4.50%   12,918   954   -   -   13,872
RMS 7-9   4.51-14.00%   301   318   -   -   619
RMS 10   14.01-20.00%   -   111   -   -   111
RMS 11-13   20.01-99.99%   5   197   -   -   202
RMS 14   100.00%   -   -   129   -   129
        13,224   1,580   129   -   14,933
Retail - other                        
RMS 1-6   0.00-4.50%   7,428   473   -   -   7,901
RMS 7-9   4.51-14.00%   190   60   -   -   250
RMS 10   14.01-20.00%   -   7   -   -   7
RMS 11-13   20.01-99.99%   211   23   -   -   234
RMS 14   100.00%   -   -   136   -   136
        7,829   563   136   -   8,528
CMS 1-10   0.00-0.50%   1,605   231   -   -   1,836
CMS 11-14   0.51-3.00%   -   6   -   -   6
CMS 15-18   3.01-20.00%   -   -   -   -   -
CMS 19   20.01-99.99%   -   -   -   -   -
CMS 20-23   100%   -   -   29   -   29
        1,605   237   29   -   1,871
Total Retail       305,160   18,741   2,390   15,391   341,682
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
20.       Credit quality of loans and advances to banks and customers (continued)
 
Gross drawn exposures (continued)
 
                         
At 31 December 2018                   Purchased    
                    or    
                    originated    
                    credit-    
    PD   Stage 1   Stage 2   Stage 3   impaired   Total
    range   £m   £m   £m   £m   £m 
                         
Commercial                        
CMS 1-10   0.00-0.50%   65,089   100   -   -   65,189
CMS 11-14   0.51-3.00%   25,472   3,450   -   -   28,922
CMS 15-18   3.01-20.00%   1,441   2,988   -   -   4,429
CMS 19   20.01-99.99%   -   54   -   -   54
CMS 20-23   100%   -   -   3,230   -   3,230
        92,002   6,592   3,230   -   101,824
Other                        
RMS 1-6   0.00-4.50%   804   6   -   -   810
RMS 7-9   4.51-14.00%   -   -   -   -   -
RMS 10   14.01-20.00%   -   -   -   -   -
RMS 11-13   20.01-99.99%   -   -   -   -   -
RMS 14   100.00%   -   -   55   -   55
        804   6   55   -   865
CMS 1-10   0.00-0.50%   43,565   -   -   -   43,565
CMS 11-14   0.51-3.00%   -   6   -   -   6
CMS 15-18   3.01-20.00%   -   -   -   -   -
CMS 19   20.01-99.99%   -   -   -   -   -
CMS 20-23   100%   -   -   66   -   66
        43,565   6   66   -   43,637
Total loans and advances to customers   441,531   25,345   5,741   15,391   488,008
                         
In respect of:                        
Retail       305,160   18,741   2,390   15,391   341,682
Commercial       92,002   6,592   3,230   -   101,824
Other       44,369   12   121   -   44,502
Total loans and advances to customers   441,531   25,345   5,741   15,391   488,008
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
20.       Credit quality of loans and advances to banks and customers (continued)
 
Expected credit losses
 
                         
At 31 December 2018                   Purchased    
                    or    
                    originated    
                    credit-    
    PD   Stage 1   Stage 2   Stage 3   impaired   Total
    range   £m   £m   £m   £m   £m 
                         
Loans and advances to banks:                    
CMS 1-10   0.00-0.50%   2   -   -   -   2
CMS 11-14   0.51-3.00%   -   -   -   -   -
CMS 15-18   3.01-20.00%   -   -   -   -   -
CMS 19   20.01-99.99%   -   -   -   -   -
CMS 20-23   100%   -   -   -   -   -
        2   -   -   -   2
Loans and advances to customers:                    
Retail - mortgages                    
RMS 1-6   0.00-4.50%   37   141   -   -   178
RMS 7-9   4.51-14.00%   -   34   -   -   34
RMS 10   14.01-20.00%   -   9   -   -   9
RMS 11-13   20.01-99.99%   -   42   -   -   42
RMS 14   100.00%   -   -   118   78   196
        37   226   118   78   459
Retail - unsecured                        
RMS 1-6   0.00-4.50%   135   45   -   -   180
RMS 7-9   4.51-14.00%   57   83   -   -   140
RMS 10   14.01-20.00%   4   29   -   -   33
RMS 11-13   20.01-99.99%   3   172   -   -   175
RMS 14   100.00%   -   -   228   -   228
        199   329   228   -   756
Retail - UK Motor Finance                    
RMS 1-6   0.00-4.50%   114   19   -   -   133
RMS 7-9   4.51-14.00%   6   15   -   -   21
RMS 10   14.01-20.00%   -   11   -   -   11
RMS 11-13   20.01-99.99%   1   34   -   -   35
RMS 14   100.00%   -   -   78   -   78
        121   79   78   -   278
Retail - other                        
RMS 1-6   0.00-4.50%   10   8   -   -   18
RMS 7-9   4.51-14.00%   2   2   -   -   4
RMS 10   14.01-20.00%   -   -   -   -   -
RMS 11-13   20.01-99.99%   -   1   -   -   1
RMS 14   100.00%   -   -   53   -   53
        12   11   53   -   76
CMS 1-10   0.00-0.50%   20   17   -   -   37
CMS 11-14   0.51-3.00%   -   -   -   -   -
CMS 15-18   3.01-20.00%   -   -   -   -   -
CMS 19   20.01-99.99%   -   -   -   -   -
CMS 20-23   100%   -   -   7   -   7
        20   17   7   -   44
Total Retail       389   662   484   78   1,613
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
20.       Credit quality of loans and advances to banks and customers (continued)
 
Expected credit losses (continued)
 
                         
At 31 December 2018                   Purchased    
                    or    
                    originated    
                    credit-    
    PD   Stage 1   Stage 2   Stage 3   impaired   Total
    range   £m   £m   £m   £m   £m 
                         
Commercial                        
CMS 1-10   0.00-0.50%   32   1   -   -   33
CMS 11-14   0.51-3.00%   50   86   -   -   136
CMS 15-18   3.01-20.00%   11   231   -   -   242
CMS 19   20.01-99.99%   -   7   -   -   7
CMS 20-23   100%   -   -   1,031   -   1,031
        93   325   1,031   -   1,449
Other                        
RMS 1-6   0.00-4.50%   43   1   -   -   44
RMS 7-9   4.51-14.00%   -   -   -   -   -
RMS 10   14.01-20.00%   -   -   -   -   -
RMS 11-13   20.01-99.99%   -   -   -   -   -
RMS 14   100.00%       -   11   -   11
        43   1   11   -   55
CMS 1-10   0.00-0.50%   -   -   -   -   -
CMS 11-14   0.51-3.00%   -   6   -   -   6
CMS 15-18   3.01-20.00%   -   -   -   -   -
CMS 19   20.01-99.99%   -   -   -   -   -
CMS 20-23   100%   -   -   27   -   27
        -   6   27   -   33
Total loans and advances to customers   525   994   1,553   78   3,150
                         
In respect of:                        
Retail       389   662   484   78   1,613
Commercial       93   325   1,031   -   1,449
Other       43   7   38   -   88
Total loans and advances to customers   525   994   1,553   78   3,150
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
21.       Dividends on ordinary shares
 
On 21 May 2019, a final dividend in respect of 2018 of 2.14 pence per share, totalling £1,523 million was paid to shareholders. An interim dividend for 2019 of 1.12 pence per ordinary share (half-year to 30 June 2018: 1.07 pence) will be paid on 13 September 2019. The total amount of this dividend is £789 million (half-year to 30 June 2018: £765 million).
 
22.       Implementation of IFRS 16
 
The Group adopted IFRS 16 Leases from 1 January 2019 and elected to apply the standard retrospectively with the cumulative effect of initial application being recognised at that date; comparative information has therefore not been restated.
 
Lease liabilities amounting to £1,813 million in respect of leased properties previously accounted for as operating leases were recognised at 1 January 2019. These liabilities were measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate as at that date, adjusted to exclude short-term leases and leases of low-value assets. The weighted-average borrowing rate applied to these lease liabilities was 2.43 per cent in the UK, where the majority of the obligations arise, and 5.10 per cent in the US. The corresponding right-of-use asset of £1,716 million was measured at an amount equal to the lease liabilities, adjusted for lease liabilities recognised at 31 December 2018 of £97 million. The right-of-use asset and lease liabilities are included within Property, plant and equipment and Other liabilities respectively. There was no impact on shareholders' equity.
 
In applying IFRS 16 for the first time, the Group has used a number of practical expedients permitted by the standard; the most significant of which were the use of a single discount rate to a portfolio of leases with reasonably similar characteristics; reliance on previous assessments of whether a lease is onerous; and the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease. The Group has also elected not to apply IFRS 16 to contracts that were not identified as containing a lease under IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease.
 
 
 

 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
23.       Future accounting developments
 
The following pronouncements are not applicable for the year ending 31 December 2019 and have not been applied in preparing these interim financial statements. Save as disclosed below, the impact of these accounting changes is still being assessed by the Group and reliable estimates cannot be made at this stage.
 
IFRS 17 Insurance Contracts and certain minor amendments to other accounting standards have not been endorsed by the EU as at 30 July 2019.
 
IFRS 17 Insurance Contracts
IFRS 17 replaces IFRS 4 Insurance Contracts and is currently effective for annual periods beginning on or after 1 January 2021 although the International Accounting Standards Board has proposed delaying implementation until 1 January 2022.
 
IFRS 17 requires insurance contracts and participating investment contracts to be measured on the balance sheet as the total of the fulfilment cash flows and the contractual service margin. Changes to estimates of future cash flows from one reporting date to another are recognised either as an amount in profit or loss or as an adjustment to the expected profit for providing insurance coverage, depending on the type of change and the reason for it. The effects of some changes in discount rates can either be recognised in profit or loss or in other comprehensive income as an accounting policy choice. The risk adjustment is released to profit and loss as an insurer's risk reduces. Profits which are currently recognised through a value-in-force asset will no longer be recognised at inception of an insurance contract. Instead, the expected profit for providing insurance coverage is recognised in profit or loss over time as the insurance coverage is provided.
 
The Group's IFRS 17 project is progressing to plan.  Work has focused on interpreting the requirements of the standard to support the development of future accounting policy and methodology, and to help understand the financial and reporting impacts of IFRS 17. Further, build of the Group's data warehousing and actuarial liability calculation processes has progressed to enable readiness for reporting to required pace and granularity when IFRS 17 is implemented. The updated IFRS 17 Exposure Draft was published by the IASB on 26 June 2019, and the Group is currently assessing the implications of changes proposed.
 
Minor amendments to other accounting standards
The IASB has issued a number of minor amendments to IFRSs effective 1 January 2020 (including IFRS 3 Business Combinations and IAS 1 Presentation of Financial Statements). These amendments are not expected to have a significant impact on the Group.
 
24.          Other information
 
The financial information included in these condensed consolidated financial statements does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2018 were approved by the directors on 19 February 2019 and were delivered to the Registrar of Companies on 31 May 2019. 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 Companies Act 2006.

 
STATEMENT OF DIRECTORS' RESPONSIBILITIES
 
The directors listed below (being all the directors of Lloyds Banking Group plc) confirm that to the best of their knowledge these condensed consolidated half-year financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union, and that the half-year management report herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:
  • an indication of important events that have occurred during the six months ended 30 June 2019 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 2019 and any material changes in the related party transactions described in the last annual report.
 
Signed on behalf of the Board by
 
 
 
 
 
António Horta-Osório
Group Chief Executive
30 July 2019
 
Lloyds Banking Group plc Board of directors:
 
Executive directors:
António Horta-Osório (Group Chief Executive)
George Culmer (Chief Financial Officer)
Juan Colombás (Chief Operating Officer)
 
Non-executive directors:
Lord Blackwell (Chairman)
Anita Frew (Deputy Chairman and Senior Independent Director)
Alan Dickinson
Simon Henry
Lord Lupton CBE
Amanda Mackenzie OBE
Nicholas Prettejohn
Stuart Sinclair
Sara Weller CBE

 
INDEPENDENT REVIEW REPORT TO LLOYDS BANKING GROUP PLC
 
Report on the condensed consolidated half-year financial statements
 
Our conclusion
We have reviewed Lloyds Banking Group plc's condensed consolidated half-year financial statements (the 'interim financial statements') in the 2019 Half-Year Results of Lloyds Banking Group plc (the 'Company') for the six month period ended 30 June 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
 
What we have reviewed
The interim financial statements comprise:
  • the consolidated balance sheet as at 30 June 2019;
  • the consolidated income statement and consolidated statement of comprehensive income for the period then ended;
  • the consolidated cash flow statement for the period then ended;
  • the consolidated statement of changes in equity for the period then ended; and
  • the explanatory notes to the interim financial statements
 
The interim financial statements included in the 2019 Half-Year Results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
 
As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
 
Responsibilities for the interim financial statements and the review
 

The 2019 Half-Year Results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the 2019 Half-Year Results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
 
Our responsibility is to express a conclusion on the interim financial statements in the 2019 Half-Year Results based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose.  We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
 

 
INDEPENDENT REVIEW REPORT TO LLOYDS BANKING GROUP PLC (continued)
 
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
 
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the 2019 Half-Year Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
 
 
 
 
 
PricewaterhouseCoopers LLP
Chartered Accountants
London
30 July 2019
 
 

 
Summary of alternative performance measures
 
The Group calculates a number of metrics that are used throughout the banking and insurance industries on an underlying basis. A description of these measures and their calculation is set out below.
 
   
Asset quality ratio The underlying impairment charge for the period (on an annualised basis) in respect of loans and advances to customers after releases and write-backs, expressed as a percentage of average gross loans and advances to customers for the period
Banking net interest margin Banking net interest income on customer and product balances in the banking businesses as a percentage of average gross banking interest-earning assets for the period
Business as usual costs Operating costs, less investment expensed and depreciation
Cost:income ratio Total costs as a percentage of net income calculated on an underlying basis
Gross asset quality ratio The underlying impairment charge for the period (on an annualised basis) in respect of loans and advances to customers before releases and write-backs, expressed as a percentage of average gross loans and advances to customers for the period
Loan to deposit ratio Loans and advances to customers net of allowance for impairment losses and excluding reverse repurchase agreements divided by customer deposits excluding repurchase agreements
Jaws The difference between the period on period percentage change in net income and the period on period change in total costs calculated on an underlying basis
Present value of new business premium The total single premium sales received in the period (on an annualised basis) plus the discounted value of premiums expected to be received over the term of the new regular premium contracts
Return on
risk-weighted assets		 Underlying profit before tax divided by average risk-weighted assets
Return on tangible equity Statutory profit after tax adjusted to add back amortisation of intangible assets, and to deduct profit attributable to non-controlling interests and other equity holders, divided by average tangible net assets
Tangible net assets per share Net assets excluding intangible assets such as goodwill and acquisition-related intangibles divided by the weighted average number of ordinary shares in issue
Underlying, 'or above the line' profit Statutory profit adjusted for certain items as detailed in the Basis of Presentation
Underlying return on tangible equity Underlying profit after tax at the standard UK corporation tax rate adjusted to add back amortisation of intangible assets, and to deduct profit attributable to non-controlling interests and other equity holders, divided by average tangible net assets
 
 
 
KEY DATES FOR THE PAYMENT OF THE DIVIDENDS
 
                 
Shares quoted ex-dividend 8 August 2019 
   
Record date 9 August 2019 
   
Final date for joining or leaving the dividend reinvestment plan 23 August 2019 
   
Interim dividend paid 13 September 2019 
 
 

 
CONTACTS
 
 
For further information please contact:
 
INVESTORS AND ANALYSTS
Douglas Radcliffe
Group Investor Relations Director
020 7356 1571

 
Edward Sands
Director of Investor Relations
020 7356 1585

 
Nora Thoden
Director of Investor Relations
020 7356 2334

 
 
CORPORATE AFFAIRS
Grant Ringshaw
Director of Media Relations
020 7356 2362

 
Matt Smith
Head of Corporate Media
020 7356 3522

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Copies of this news release may be obtained from:
Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN
The statement can also be found on the Group's website -
 
Registered office: Lloyds Banking Group plc, The Mound, Edinburgh, EH1 1YZ
Registered in Scotland No. 95000
 
 
 
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  or visit .

31.07.2019 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG.
The issuer is solely responsible for the content of this announcement.

The DGAP Distribution Services include Regulatory Announcements, Financial/Corporate News and Press Releases.
Archive at

Language: English
Company: Lloyds Banking Group
Gresham Street
EC2V 7HN London
United Kingdom
Phone: 020 7626 1500
Internet:
ISIN: GB0008706128
WKN: 871784
Listed: Regulated Unofficial Market in Berlin, Dusseldorf, Frankfurt, Hamburg, Hanover, Munich, Stuttgart, Tradegate Exchange; London, BX, SIX
EQS News ID: 849257

 
End of News DGAP News Service

849257  31.07.2019 

fncls.ssp?fn=show_t_gif&application_id=849257&application_name=news&site_id=research_pool
EN
31/07/2019

Underlying

LLOYLloyds Banking Group plc

To request access to management, click here to engage with our
partner Phoenix-IR's CorporateAccessNetwork.com

Reports on Lloyds Banking Group plc

Free Trial
LLOY Lloyds Banking ...

Lloyds Banking Group: 1 director

A director at Lloyds Banking Group sold 3,204,797 shares at 113p and the significance rating of the trade was 100/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trades by all the company's directors over the last two years cle...

LLOY LLOYDS BANKING GROUP PLC
02/05/26 February 5, 2026 1 EN
EUR 154.91
LLOY Lloyds Banking ...

Lloyds Banking Group plc: Update to credit analysis following affirmat...

Our credit view of this issuer reflects its low asset risk, adequate capital and diversified profitability offset by potential motor finance remediation costs.

LLOY LLOYDS BANKING GROUP PLC
11/21/25 November 21, 2025 1 EN
Marine Leleux ... (+3)
  • Marine Leleux
  • Maureen Schuller
  • Suvi Platerink Kosonen
EUR 172.12
HSBA HSBC Holdings P...
LLOY Lloyds Banking ...

Bank Brunch/HSBC Hang Seng transaction, Lloyds motor finance costs

HSBC plans to take full ownership of Hang Seng Bank. Motor insurance to bring yet another hit to Lloyds

HSBA HSBC HOLDINGS PLC
LLOY LLOYDS BANKING GROUP PLC
10/09/25 October 9, 2025 1 EN
Marine Leleux ... (+3)
  • Marine Leleux
  • Maureen Schuller
  • Suvi Platerink Kosonen
HSBA HSBC Holdings P...
LLOY Lloyds Banking ...

Bank Brunch/HSBC Hang Seng transaction, Lloyds motor finance costs

HSBC plans to take full ownership of Hang Seng Bank Motor insurance to bring yet another hit to Lloyds

HSBA HSBC HOLDINGS PLC
LLOY LLOYDS BANKING GROUP PLC
10/09/25 October 9, 2025 1 EN
EUR 154.91
LLOY Lloyds Banking ...

Moody's Ratings corrects its website display for CUSIP 539439BE8, issu...

Moody's Ratings (Moody's) has corrected the display on its websites for Lloyds Banking Group plc CUSIP 539439BE8 to reflect that the correct rating is Baa1. Due to an internal administrative error, the incorrect rating was displayed for these Notes. This publication does not announce a credit rati...

LLOY LLOYDS BANKING GROUP PLC
06/16/25 June 16, 2025 1 EN

ResearchPool Subscriptions

Get the most out of your insights

Get in touch