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2013 HALF-YEAR RESULTS NEWS RELEASE - PART 2

1st Aug 2013 07:00

RNS Number : 6692K

Lloyds Banking Group PLC

01 August 2013

STATUTORY INFORMATION

		Page
Condensed consolidated half-year financial statements (unaudited)
Consolidated income statement		105
Consolidated statement of comprehensive income		106
Consolidated balance sheet		107
Consolidated statement of changes in equity		109
Consolidated cash flow statement		112

Notes
1	Accounting policies, presentation and estimates	113
2	Segmental analysis	115
3	Other income	120
4	Operating expenses	121
5	Impairment	122
6	Taxation	122
7	Earnings (loss) per share	123
8	Disposal groups	123
9	Trading and other financial assets at fair value through profit or loss	124
10	Derivative financial instruments	125
11	Loans and advances to customers	126
12	Allowance for impairment losses on loans and receivables	126
13	Securitisations and covered bonds	127
14	Debt securities classified as loans and receivables	128
15	Available-for-sale financial assets	128
16	Customer deposits	128
17	Debt securities in issue	129
18	Post-retirement defined benefit schemes	129
19	Subordinated liabilities	130
20	Share capital	131
21	Reserves	131
22	Provisions for liabilities and charges	132
23	Contingent liabilities and commitments	134
24	Fair values of financial assets and liabilities	137
25	Related party transactions	143
26	Restatement of prior period information	145
27	Future accounting developments	153
28	Other information	153

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED INCOME STATEMENT

		Half-year to 30 June 2013	Half-year to 30 June 20121	Half-year to 31 Dec 20121
	Note	£ million	£ million	£ million

Interest and similar income		10,751	12,734	10,814
Interest and similar expense		(7,481)	(8,470)	(7,360)
Net interest income		3,270	4,264	3,454
Fee and commission income		2,194	2,353	2,297
Fee and commission expense		(730)	(751)	(693)
Net fee and commission income		1,464	1,602	1,604
Net trading income		11,015	4,546	10,459
Insurance premium income		3,851	4,183	4,101
Other operating income		2,472	1,661	3,039
Other income	3	18,802	11,992	19,203
Total income		22,072	16,256	22,657
Insurance claims		(11,687)	(7,288)	(11,108)
Total income, net of insurance claims		10,385	8,968	11,549
Regulatory provisions		(575)	(1,075)	(3,100)
Other operating expenses		(5,993)	(5,621)	(6,178)
Total operating expenses	4	(6,568)	(6,696)	(9,278)
Trading surplus		3,817	2,272	2,271
Impairment	5	(1,683)	(2,728)	(2,421)
Profit (loss) before tax		2,134	(456)	(150)
Taxation	6	(556)	(206)	(575)
Profit (loss) for the period		1,578	(662)	(725)

Profit attributable to non-controlling interests		18	35	49
Profit (loss) attributable to equity shareholders		1,560	(697)	(774)
Profit (loss) for the period		1,578	(662)	(725)

Basic earnings (loss) per share	7	2.2p	(1.0)p	(1.1)p
Diluted earnings (loss) per share	7	2.2p	(1.0)p	(1.1)p

1	Restated - see notes 1 and 26.

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	Half-year to 30 June 2013	Half-year to 30 June 20121	Half-year to 31 Dec 20121
	£ million	£ million	£ million

Profit (loss) for the period	1,578	(662)	(725)
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements (note 18):
Remeasurements before taxation	981	398	(2,534)
Taxation	(226)	(96)	587
	755	302	(1,947)
Items that may subsequently be reclassified to profit or loss:
Movements in revaluation reserve in respect of available-for-sale financial assets:
Adjustment on transfers from held-to-maturity portfolio	-	-	1,168
Change in fair value	(584)	738	162
Income statement transfers in respect of disposals	(711)	(792)	(2,755)
Income statement transfers in respect of impairment	2	28	14
Other income statement transfers	-	-	169
Taxation	335	42	297
	(958)	16	(945)
Movements in cash flow hedging reserve:
Effective portion of changes in fair value	120	128	(12)
Net income statement transfers	(417)	238	(330)
Taxation	71	(83)	84
	(226)	283	(258)
Currency translation differences (tax: nil)	25	(20)	6
Other comprehensive income for the period, net of tax	(404)	581	(3,144)
Total comprehensive income for the period	1,174	(81)	(3,869)

Total comprehensive income attributable to non-controlling interests	18	34	48
Total comprehensive income attributable to equity shareholders	1,156	(115)	(3,917)
Total comprehensive income for the period	1,174	(81)	(3,869)

1	Restated - see notes 1 and 26.

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

CONSOLIDATED BALANCE SHEET

		At 30 June 2013	At 31 Dec 20121
Assets	Note	£ million	£ million

Cash and balances at central banks		60,555	80,298
Items in course of collection from banks		1,581	1,256
Trading and other financial assets at fair value through profit or loss	9	140,658	160,620
Derivative financial instruments	10	43,440	56,557
Loans and receivables:
Loans and advances to banks		32,593	32,757
Loans and advances to customers	11	505,784	517,225
Debt securities	14	1,690	5,273
		540,067	555,255
Available-for-sale financial assets	15	36,495	31,374
Investment properties		4,638	5,405
Goodwill		2,016	2,016
Value of in-force business		6,129	6,800
Other intangible assets		2,389	2,792
Tangible fixed assets		7,553	7,342
Current tax recoverable		350	354
Deferred tax assets		5,098	4,913
Retirement benefit assets	18	859	741
Other assets	8	24,951	18,498
Total assets		876,779	934,221

1	Restated - see notes 1 and 26.

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

CONSOLIDATED BALANCE SHEET (continued)

		At 30 June 2013	At 31 Dec 20121
Equity and liabilities	Note	£ million	£ million

Liabilities
Deposits from banks		14,226	38,405
Customer deposits	16	433,559	426,912
Items in course of transmission to banks		1,300	996
Trading and other financial liabilities at fair value through profit or loss		40,673	33,392
Derivative financial instruments	10	36,601	48,676
Notes in circulation		1,354	1,198
Debt securities in issue	17	106,347	117,253
Liabilities arising from insurance contracts andparticipating investment contracts		84,635	82,953
Liabilities arising from non-participating investment contracts		27,298	54,372
Unallocated surplus within insurance businesses		327	267
Other liabilities	8	48,190	46,793
Retirement benefit obligations	18	780	1,905
Current tax liabilities		146	138
Deferred tax liabilities		316	327
Other provisions		3,105	3,961
Subordinated liabilities	19	34,235	34,092
Total liabilities		833,092	891,640

Equity
Share capital	20	7,141	7,042
Share premium account	21	17,266	16,872
Other reserves	21	11,743	12,902
Retained profits	21	7,214	5,080
Shareholders' equity		43,364	41,896
Non-controlling interests		323	685
Total equity		43,687	42,581
Total equity and liabilities		876,779	934,221

1	Restated - see notes 1 and 26.

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Attributable to equity shareholders
	Share capital and premium		Other reserves	Retained profits	Total	Non- controlling interests		Total
		£ million	£ million	£ million	£ million		£ million	£ million

Balance at 1 January 2013
As previously reported		23,914	12,902	7,183	43,999		685	44,684
Restatement (see notes 1 and 26)		-	-	(2,103)	(2,103)		-	(2,103)
Restated		23,914	12,902	5,080	41,896		685	42,581
Comprehensive income
Profit for the period		-	-	1,560	1,560		18	1,578
Other comprehensive income
Post-retirement defined benefit scheme remeasurements,net of tax		-	-	755	755		-	755
Movements in revaluation reserve in respect of available-for-sale financial assets, net of tax		-	(958)	-	(958)		-	(958)
Movements in cash flow hedging reserve, net of tax		-	(226)	-	(226)		-	(226)
Currency translation differences (tax: nil)		-	25	-	25		-	25
Total other comprehensive income		-	(1,159)	755	(404)		-	(404)
Total comprehensive income		-	(1,159)	2,315	1,156		18	1,174
Transactions with owners
Dividends		-	-	-	-		(25)	(25)
Issue of ordinary shares		493	-	-	493		-	493
Movement in treasury shares		-	-	(361)	(361)		-	(361)
Value of employee services:
Share option schemes		-	-	34	34		-	34
Other employee award schemes		-	-	146	146		-	146
Change in non-controlling interests		-	-	-	-		(355)	(355)
Total transactions with owners		493	-	(181)	312		(380)	(68)
Balance at 30 June 2013		24,407	11,743	7,214	43,364		323	43,687

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

	Attributable to equity shareholders
	Share capital and premium	Other reserves	Retained profits	Total	Non- controlling interests		Total
	£ million	£ million	£ million	£ million		£ million	£ million

Balance at 1 January 2012
As originally reported	23,422	13,818	8,680	45,920		674	46,594
Restatement (see notes 1 and 26)	-	-	(414)	(414)		-	(414)
Restated	23,422	13,818	8,266	45,506		674	46,180
Comprehensive income
(Loss) profit for the period	-	-	(697)	(697)		35	(662)
Other comprehensive income
Post-retirement defined benefit scheme remeasurements,net of tax	-	-	302	302		-	302
Movements in revaluation reservein respect of available-for-sale financial assets, net of tax	-	17	-	17		(1)	16
Movements in cash flow hedging reserve, net of tax	-	283	-	283		-	283
Currency translation differences (tax: nil)	-	(20)	-	(20)		-	(20)
Total other comprehensive income	-	280	302	582		(1)	581
Total comprehensive income	-	280	(395)	(115)		34	(81)
Transactions with owners
Dividends	-	-	-	-		(23)	(23)
Issue of ordinary shares	492	-	-	492		-	492
Movement in treasury shares	-	-	(273)	(273)		-	(273)
Value of employee services:
Share option schemes	-	-	48	48		-	48
Other employee award schemes	-	-	146	146		-	146
Change in non-controlling interests	-	-	-	-		7	7
Total transactions with owners	492	-	(79)	413		(16)	397
Balance at 30 June 2012	23,914	14,098	7,792	45,804		692	46,496

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

	Attributable to equity shareholders
	Share capital and premium	Other reserves	Retained profits	Total	Non- controlling interests		Total
	£ million	£ million	£ million	£ million		£ million	£ million

Balance at 1 July 2012
As originally reported	23,914	14,098	7,925	45,937		692	46,629
Restatement (see notes 1 and 26)	-	-	(133)	(133)		-	(133)
Restated	23,914	14,098	7,792	45,804		692	46,496
Comprehensive income
(Loss) profit for the period	-	-	(774)	(774)		49	(725)
Other comprehensive income
Post-retirement defined benefit scheme remeasurements,net of tax	-	-	(1,947)	(1,947)		-	(1,947)
Movements in revaluation reservein respect of available-for-sale financial assets, net of tax	-	(944)	-	(944)		(1)	(945)
Movements in cash flow hedging reserve, net of tax	-	(258)	-	(258)		-	(258)
Currency translation differences (tax: nil)	-	6	-	6		-	6
Total other comprehensive income	-	(1,196)	(1,947)	(3,143)		(1)	(3,144)
Total comprehensive income	-	(1,196)	(2,721)	(3,917)		48	(3,869)
Transactions with owners
Dividends	-	-	-	-		(33)	(33)
Movement in treasury shares	-	-	(134)	(134)		-	(134)
Value of employee services:
Share option schemes	-	-	33	33		-	33
Other employee award schemes	-	-	110	110		-	110
Change in non-controlling interests	-	-	-	-		(22)	(22)
Total transactions with owners	-	-	9	9		(55)	(46)
Balance at 31 December 2012	23,914	12,902	5,080	41,896		685	42,581

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

CONSOLIDATED CASH FLOW STATEMENT

	Half-year to 30 June 2013	Half-year to 30 June 20121	Half-year to 31 Dec 20121
	£ million	£ million	£ million

Profit (loss) before tax	2,134	(456)	(150)
Adjustments for:
Change in operating assets	6,234	30,054	17,751
Change in operating liabilities	(19,518)	(8,749)	(37,404)
Non-cash and other items	(6,145)	1,668	413
Tax (paid) received	(26)	(94)	16
Net cash (used in) provided by operating activities	(17,321)	22,423	(19,374)

Cash flows from investing activities
Purchase of financial assets	(25,776)	(12,284)	(9,766)
Proceeds from sale and maturity of financial assets	19,647	14,238	23,426
Purchase of fixed assets	(1,852)	(1,416)	(1,587)
Proceeds from sale of fixed assets	1,444	1,022	1,573
Acquisition of businesses, net of cash acquired	(2)	(10)	(1)
Disposal of businesses, net of cash disposed	(586)	5	32
Net cash (used in) provided by investing activities	(7,125)	1,555	13,677

Cash flows from financing activities
Dividends paid to non-controlling interests	(25)	(23)	(33)
Interest paid on subordinated liabilities	(1,268)	(888)	(1,689)
Proceeds from issue of subordinated liabilities	1,500	-	-
Proceeds from issue of ordinary shares	350	170	-
Repayment of subordinated liabilities	(1,821)	(15)	(649)
Change in non-controlling interests	2	7	16
Net cash used in financing activities	(1,262)	(749)	(2,355)
Effects of exchange rate changes on cash and cash equivalents	(12)	(10)	2
Change in cash and cash equivalents	(25,720)	23,219	(8,050)
Cash and cash equivalents at beginning of period	101,058	85,889	109,108
Cash and cash equivalents at end of period	75,338	109,108	101,058

1	Restated - see notes 1 and 26.

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.

1. Accounting policies, presentation and estimates

These condensed consolidated half-year financial statements as at and for the period to 30 June 2013 have been prepared in accordance with the Disclosure Rules 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 2012 which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Copies of the 2012 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 British Bankers' Association's 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 2012 annual report and accounts where a glossary of terms can be found.

The directors consider that it is appropriate to continue to adopt the going concern basis in preparing the condensed consolidated half-year financial statements. In reaching this assessment, the directors have considered projections for the Group's capital and funding position and have had regard to the factors set out in Principal risks and uncertainties: Liquidity and funding on page 51.

The accounting policies are consistent with those applied by the Group in its 2012 annual report and accounts except as described below.

On 1 January 2013 the Group adopted the following new accounting standards and amendments to standards:

IFRS 10 Consolidated Financial Statements

IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation - Special Purpose Entities and establishes the principles for when the Group controls another entity and is therefore required to consolidate the other entity in the Group's financial statements. Under IFRS 10, the Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through the exercise of power. As a result, the Group consolidates certain entities that were not previously consolidated and no longer consolidates certain entities which were previously consolidated; principally in relation to Open-Ended Investment Companies.

The Group has applied IFRS 10 retrospectively and restated its comparatives in accordance with the transitional provisions included in the standard. These provisions require the Group to re-assess its control conclusions as at 1 January 2013 and restate its comparative information, applying the revised assessment in 2012 to the extent that the relevant investments were held in that year. Details of the impact of these restatements are provided in note 26.

IAS 19R: Amendments to IAS 19 Employee Benefits

IAS 19R prescribes the accounting and disclosure by employers for employee benefits. Actuarial gains and losses (remeasurements) arising from the valuation of defined benefit pension schemes are no longer permitted to be deferred using the corridor approach and must be recognised immediately in other comprehensive income. In addition, IAS 19R also replaces interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). IAS 19R has been applied retrospectively and comparative figures restated accordingly. Details of the impact of these restatements are provided in note 26.

1. Accounting policies, presentation and estimates (continued)

The Group updates the valuations of its post-retirement defined benefit schemes at 31 December each year. In addition, at each interim reporting date the Group reviews the assumptions used to calculate the net defined benefit obligation and updates its balance sheet carrying value where that value would otherwise differ materially from a valuation based on those revised assumptions.

The impact of the implementation of IAS19R on the Group's results for the half-year to 30 June 2013 has been to increase other operating expenses by £3 million and reduce profit before tax by the same amount. The impact on the balance sheet at 30 June 2013 has been to decrease the net retirement benefit asset by £1,753 million, to increase deferred tax assets by £403 million and to reduce shareholders' equity by £1,350 million.

IFRS 13 Fair value measurement

IFRS 13 has been applied with effect from 1 January 2013. IFRS 13 defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. IFRS 13 requires that the fair value of a non-financial asset is determined based on the highest and best use of the asset, and that the fair value of a liability reflects its non-performance risk. These changes had no significant impact on the measurement of the Group's assets and liabilities. The IFRS 13 disclosures required by IAS 34 are given in note 24.

Amendments to IAS 1Presentation of Financial Statements - 'Presentation of Items of Other Comprehensive Income'

The amendments to IAS 1 require entities to group items presented in other comprehensive income on the basis of whether they may potentially be reclassified to profit or loss subsequently. The statement of other comprehensive income in these condensed consolidated half-year financial statements has been revised to reflect the new requirements.

Amendments to IFRS 7 Financial Instruments: Disclosures - 'Disclosures - Offsetting Financial Assets and Financial Liabilities'

The amendments to IFRS 7 require entities to disclose information to enable users of the financial statements to evaluate the effect or potential effect of netting arrangements on the balance sheet. These disclosures will be made in the Group's financial statements for the year ended 31 December 2013.

IFRS 12 Disclosure of Interests in Other Entities

IFRS 12 requires an entity to disclose information that enables users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. These disclosures will be made in the Group's financial statements for the year ended 31 December 2013.

Future accounting developments

Details of those IFRS pronouncements which will be relevant to the Group but which will not be effective at 31 December 2013 and which have not been applied in preparing these condensed consolidated half-year financial statements are set out in note 27.

Critical accounting estimates and judgements

The preparation of the Group's financial statements requires management to make judgements, estimates and assumptions that impact the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may include amounts which differ from those estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. There have been no significant changes in the basis upon which estimates have been determined, compared to that applied at 31 December 2012.

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) has been determined to be the chief operating decision maker for the Group. The Group's operating segments reflect its organisational and management structures. GEC reviews the Group's internal reporting based around these segments in order to assess performance and allocate resources. This assessment includes a consideration of each segment's net interest revenue and consequently the total interest income and expense for all reportable segments is presented on a net basis. The segments are differentiated by the type of products provided, by whether the customers are individuals or corporate entities and by the geographical location of the customer.

The segmental results and comparatives are presented on an underlying basis, the basis reviewed by the chief operating decision maker. Previously the results of the Group's segments had been reviewed on a management basis and the Group's segmental analysis was presented accordingly. The effects of asset sales, volatile items and liability management as well as the fair value unwind line are excluded in arriving at underlying profit.

Following a reorganisation during the second half of 2012, the Group's activities are now organised into four financial reporting segments: Retail; Commercial Banking; Wealth, Asset Finance and International; and Insurance. The impact of this reorganisation was as follows:

- The Group's Wholesale and Commercial divisions have been combined to form Commercial Banking.

- The Group's Continental European wholesale business and the wholesale Australian business have been transferred from Wealth, Asset Finance and International to Commercial Banking.

Comparative figures have been restated accordingly for all of the above changes, as well as for the accounting policy changes explained in note 1.

Retail offers a broad range of retail financial service products in the UK, including current accounts, savings, personal loans, credit cards and mortgages. It is also a major general insurance and bancassurance distributor, selling a wide range of long-term savings, investment and general insurance products.

Commercial Banking provides banking and related services for all UK and multinational business clients, from small and medium-sized enterprises to major corporate and financial institutions.

Wealth, Asset Finance and International gives increased focus and momentum to the Group's private banking and asset management activities, closely co-ordinates the management of its international businesses and also encompasses the Asset Finance business in the UK and Australia. Wealth comprises the Group's private banking, wealth and asset management businesses in the UK and overseas. International comprises retail businesses, principally in Continental Europe.

Insurance provides long-term savings, protection and investment products distributed through bancassurance, intermediary and direct channels in the UK. It is also a distributor of home insurance in the UK with products sold through the retail branch network, direct channels and strategic corporate partners. The business consists of Life, Pensions and Investments UK; Life, Pensions and Investments Europe; and General Insurance.

Other includes the costs of managing the Group's technology platforms, branch and head office property estate, operations (including payments, banking operations and collections) and sourcing, the costs of which are predominantly recharged to the other divisions. It also reflects other items not recharged to the divisions, including hedge ineffectiveness, UK bank levy, Financial Services Compensation Scheme costs, gains on liability management, volatile items such as hedge accounting volatility managed centrally, and other gains from the structural hedging of interest rate risk.

2. Segmental analysis (continued)

Inter-segment services are generally recharged at cost, with the exception of the internal commission arrangements between the UK branch and other distribution networks and the insurance product manufacturing businesses within the Group, where a profit margin is also charged. Inter-segment lending and deposits are generally entered into at market rates, except that non-interest bearing balances are priced at a rate that reflects the external yield that could be earned on such funds.

For the majority of those derivative contracts entered into by business units for risk management purposes, the business unit recognises the net interest income or expense on an accrual accounting basis and transfers the remainder of the movement in the fair value of the derivative to the central group segment where the resulting accounting volatility is managed where possible through the establishment of hedge accounting relationships. Any change in fair value of the hedged instrument attributable to the hedged risk is also recorded within the central group segment. This allocation of the fair value of the derivative and change in fair value of the hedged instrument attributable to the hedged risk avoids accounting asymmetry in segmental results and leads to accounting volatility in the central group segment where it is managed.

Half-year to 30 June 2013	Net interest income	Other income	Insurance claims		Total income, net of insurance claims		Profit (loss) before tax		External revenue	Inter- segment revenue
	£m	£m		£m		£m		£m	£m	£m

Underlying basis
Retail	3,590	728		-		4,318		1,636	5,920	(1,602)
Commercial Banking	1,196	1,426		-		2,622		634	2,193	429
Wealth, Asset Finance and International	431	951		-		1,382		(101)	1,062	320
Insurance	(45)	1,111		(148)		918		564	1,361	(443)
Other	34	190		-		224		169	(1,072)	1,296
Group	5,206	4,406		(148)		9,464		2,902	9,464	-
Reconciling items:
Insurance grossing adjustment	(1,700)	13,360		(11,539)		121		-
Asset sales, volatile items and liability management1	12	558		-		570		376
Volatility arising in insurance businesses	7	478		-		485		485
Simplification costs	-	-		-		-		(409)
EC mandated retail business disposal costs	-	-		-		-		(377)
Payment protection insurance provision	-	-		-		-		(500)
Other regulatory provisions	-	-		-		-		(75)
Past service cost	-	-		-		-		(104)
Amortisation of purchased intangibles	-	-		-		-		(200)
Fair value unwind	(255)	-		-		(255)		36
Group - statutory	3,270	18,802		(11,687)		10,385		2,134

Includes (i) gains or losses on disposals of assets, including centrally held government bonds, which are not part of normal business operations; (ii) the net effect of banking volatility, changes in the fair value of the equity conversion feature of the Group's Enhanced Capital Notes and net derivative valuation adjustments; and (iii) the results of liability management exercises.

2. Segmental analysis (continued)

Half-year to 30 June 20121	Net interest income	Other income	Insurance claims	Total income, net of insurance claims	Profit (loss) before tax		External revenue	Inter- segment revenue
	£m	£m	£m	£m		£m	£m	£m

Underlying basis
Retail	3,553	766	-	4,319		1,472	5,392	(1,073)
Commercial Banking	1,111	1,496	-	2,607		(83)	2,066	541
Wealth, Asset Finance and International	415	1,006	-	1,421		(706)	1,813	(392)
Insurance	(37)	1,156	(233)	886		502	1,086	(200)
Other	173	(160)	-	13		(141)	(1,111)	1,124
Group	5,215	4,264	(233)	9,246		1,044	9,246	-
Reconciling items:
Insurance grossing adjustment	(721)	7,862	(7,055)	86		-
Asset sales, volatile items and liability management2	80	(136)	-	(56)		(56)
Volatility arising in insurance businesses	2	(23)	-	(21)		(21)
Simplification costs	-	-	-	-		(274)
EC mandated retail business disposal costs	-	-	-	-		(239)
Past service pensions credit	-	-	-	-		250
Payment protection insurance provision	-	-	-	-		(1,075)
Amortisation of purchased intangibles	-	-	-	-		(242)
Fair value unwind	(312)	25	-	(287)		157
Group - statutory	4,264	11,992	(7,288)	8,968		(456)

1	Restated - see notes 1 and 26.
2	Includes (i) gains or losses on disposals of assets, including centrally held government bonds, which are not part of normal business operations; (ii) the net effect of banking volatility, changes in the fair value of the equity conversion feature of the Group's Enhanced Capital Notes and net derivative valuation adjustments; and (iii) the results of liability management exercises.

2. Segmental analysis (continued)

Half-year to 31 December 20121	Net interest income	Other income	Insurance claims	Total income, net of insurance claims	Profit (loss) before tax		External revenue	Inter- segment revenue
	£m	£m	£m	£m		£m	£m	£m

Underlying basis
Retail	3,642	696	-	4,338		1,716	5,559	(1,221)
Commercial Banking	1,095	1,436	-	2,531		(241)	2,004	527
Wealth, Asset Finance and International	384	1,037	-	1,421		(223)	1,022	399
Insurance	(41)	1,138	(132)	965		605	1,411	(446)
Other	40	(155)	-	(115)		(336)	(856)	741
Group	5,120	4,152	(132)	9,140		1,521	9,140	-
Reconciling items:
Insurance grossing adjustment	(1,866)	12,929	(10,976)	87		-
Asset sales, volatile items and liability management2	119	1,827	-	1,946		1,626
Volatility arising in insurance businesses	6	327	-	333		333
Simplification costs	-	-	-	-		(402)
EC mandated retail business disposal costs	-	-	-	-		(331)
Payment protection insurance provision	-	-	-	-		(2,500)
Amortisation of purchased intangibles	-	-	-	-		(240)
Fair value unwind	75	18	-	93		493
Other regulatory provisions	-	(50)	-	(50)		(650)
Group - statutory	3,454	19,203	(11,108)	11,549		(150)

1	Restated - see notes 1 and 26.
2	Includes (i) gains or losses on disposals of assets, including centrally held government bonds, which are not part of normal business operations; (ii) the net effect of banking volatility, changes in the fair value of the equity conversion feature of the Group's Enhanced Capital Notes and net derivative valuation adjustments; and (iii) the results of liability management exercises.

2. Segmental analysis (continued)

Segment external assets	At 30 June 2013	At 31 Dec 20121
	£m	£m

Retail	343,400	346,030
Commercial Banking	278,920	314,090
Wealth, Asset Finance and International	45,240	77,884
Insurance	157,410	152,583
Other	51,809	43,634
Total Group	876,779	934,221

Segment customer deposits
Retail	263,220	260,838
Commercial Banking	121,409	114,115
Wealth, Asset Finance and International	48,914	51,885
Other	16	74
Total Group	433,559	426,912

Segment external liabilities
Retail	286,137	287,631
Commercial Banking	234,325	249,097
Wealth, Asset Finance and International	53,428	92,686
Insurance	151,114	143,695
Other	108,088	118,531
Total Group	833,092	891,640

1	Restated - see notes 1 and 26.

3. Other income

	Half-year to 30 June 2013	Half-year to 30 June 20121	Half-year to 31 Dec 20121
	£m	£m	£m

Fee and commission income:
Current account fees	485	512	496
Credit and debit card fees	475	463	478
Other fees and commissions	1,234	1,378	1,323
	2,194	2,353	2,297
Fee and commission expense	(730)	(751)	(693)
Net fee and commission income	1,464	1,602	1,604
Net trading income	11,015	4,546	10,459
Insurance premium income	3,851	4,183	4,101
Gains on sale of available-for-sale financial assets	711	792	2,755
Liability management2	(97)	59	(397)
Other3, 4, 5	1,858	810	681
Other operating income	2,472	1,661	3,039
Total other income	18,802	11,992	19,203

1	Restated - see notes 1 and 26.
2	Losses of £97 million arose in the half-year to 30 June 2013 on transactions undertaken as part of the Group's management of wholesale funding and capital; this compares to a gain of £59 million relating to the exchange of certain capital securities for other subordinated debt instruments in the half-year to 30 June 2012 (when a related gain of £109 million was also recognised in net interest income) and losses of £397 million on the buy-back of other debt securities in the half-year to 31 December 2012.
3	On 15 March 2013 the Group completed the sale of 102 million shares in St James's Place plc, reducing the Group's holding in that company to approximately 37 per cent. As a result of that reduction in holding the Group no longer consolidates St James's Place plc in its accounts, instead accounting for the residual investment as an associate. The Group realised a gain of £394 million on the sale of those shares and the fair valuation of the Group's residual stake. Subsequently, on 29 May 2013 the Group completed the sale of a further 77 million shares, generating a profit of £39 million and further reducing the Group's holding to approximately 21 per cent.
4	In the first half of 2013 the Group disposed of its Spanish retail banking operations, including Lloyds Bank International S.A.U and Lloyds Investment España SGIIC S.A.U, to Banco Sabadell, S.A. realising a loss of £256 million. The Group has also recognised a loss of £10 million relating to the sale of its International Private Banking operations which is expected to complete by early in 2014.
5	During the first half of 2013, the Group completed the sale of a portfolio of US RMBS (residential mortgage backed securities) for a cash consideration of £3.3 billion, realising a profit of £538 million.

4. Operating expenses

	Half-year to 30 June 2013		Half-year to 30 June 20121		Half-year to 31 Dec 20121
	£m		£m		£m

Administrative expenses
Staff costs:
Salaries	1,927		1,975		1,831
Social security costs	202		211		172
Pensions and other post-retirement benefit schemes:
Past service costs (credits)2		104		(250)		-
Other		329		293		296
	433		43		296
Restructuring costs	82		164		53
Other staff costs	364		356		390
	3,008		2,749		2,742
Premises and equipment:
Rent and rates	229		248		240
Hire of equipment	7		10		7
Repairs and maintenance	92		80		94
Other	162		140		130
	490		478		471
Other expenses:
Communications and data processing	581		505		577
Advertising and promotion	140		156		158
Professional fees	215		217		333
UK bank levy	-		-		179
Other	590		464		644
	1,526		1,342		1,891
	5,024		4,569		5,104
Depreciation and amortisation	969		1,052		1,074
Total operating expenses, excluding regulatory provisions	5,993		5,621		6,178
Regulatory provisions:
Payment protection insurance provision (note 22)	500		1,075		2,500
Other regulatory provisions (note 22)	75		-		600
	575		1,075		3,100
Total operating expenses	6,568		6,696		9,278

Restated - see notes 1 and 26.

The Group has agreed certain changes to early retirement and commutation factors in two of its principal defined benefit pension schemes, resulting in a cost of £104 million recognised in the Group's income statement in the half-year to 30 June 2013.

During 2012, following a review of policy in respect of discretionary pension increases in relation to the Group's defined benefit pension schemes, increases in certain schemes are now linked to the Consumer Price Index rather than the Retail Price Index. The impact of this change was a reduction in the Group's defined benefit obligation of £258 million, recognised in the Group's income statement in the half-year to 30 June 2012, net of a charge of £8 million in respect of one of the Group's smaller schemes.

5. Impairment

	Half-year to 30 June 2013	Half-year to 30 June 2012	Half-year to 31 Dec 2012
	£m	£m	£m

Impairment losses on loans and receivables:
Loans and advances to customers	1,680	2,672	2,453
Debt securities classified as loans and receivables	1	9	(13)
Impairment losses on loans and receivables (note 12)	1,681	2,681	2,440
Impairment of available-for-sale financial assets	2	28	9
Other credit risk provisions	-	19	(28)
Total impairment charged to the income statement	1,683	2,728	2,421

6. Taxation

A reconciliation of the tax (charge) credit that would result from applying the standard UK corporation tax rate to the profit (loss) before tax, to the actual tax charge, is given below:

	Half-year to 30 June 2013	Half-year to 30 June 20121	Half-year to 31 Dec 20121
	£m	£m	£m

Profit (loss) before tax	2,134	(456)	(150)

Tax (charge) credit thereon at UK corporation tax rate of 23.25 per cent (2012: 24.5 per cent)	(496)	112	37
Factors affecting tax (charge) credit:
UK corporation tax rate change	-	(126)	(194)
Disallowed and non-taxable items	(9)	(20)	74
Overseas tax rate differences	19	13	62
Gains exempted or covered by capital losses	82	32	4
Policyholder tax	(216)	(8)	(136)
Further factors affecting the life business:2
Derecognition of deferred tax on policyholder tax credit	-	(252)	(331)
Taxation of certain insurance assets arising on transition to new tax regime	-	-	(221)
Changes to the taxation of pension business:
Policyholder tax cost	-	-	(182)
Shareholder tax benefit	-	-	206
Tax losses where no deferred tax recognised	-	(25)	-
Deferred tax on losses not previously recognised	43	-	12
Adjustments in respect of previous years	20	53	82
Effect of results of joint ventures and associates	2	9	14
Other items	(1)	6	(2)
Tax charge	(556)	(206)	(575)

1	Restated - see notes 1 and 26.
2	The Finance Act 2012 introduced a new UK tax regime for the taxation of life insurance companies which took effect from 1 January 2013. The new regime, combined with current economic forecasts, has had a number of impacts on the tax charge. The impacts are analysed above.

6. Taxation (continued)

In accordance with IAS 34, the Group's income tax expense for the half-year to 30 June 2013 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.

The Finance Act 2013 (the "Act") was substantively enacted on 2 July 2013. The Act further reduces the rate of corporation tax to 21 per cent with effect from 1 April 2014 and 20 per cent with effect from 1 April 2015. The impact of the corporation tax reductions to 21 and 20 per cent will be accounted for in the second half of 2013. The effect of these rate reductions on the Group's deferred tax balance is estimated to be a reduction in the net deferred tax asset of approximately £0.5 billion.

7. Earnings (loss) per share

	Half-year to 30 June 2013	Half-year to 30 June 20121	Half-year to 31 Dec 20121

Basic
Profit (loss) attributable to equity shareholders	£1,560m	£(697)m	£(774)m
Weighted average number of ordinary shares in issue	70,672m	69,348m	70,329m
Earnings (loss) per share	2.2p	(1.0)p	(1.1)p

Fully diluted
Profit (loss) attributable to equity shareholders	£1,560m	£(697)m	£(774)m
Weighted average number of ordinary shares in issue	71,514m	69,348m	70,329m
Earnings (loss) per share	2.2p	(1.0)p	(1.1)p

1	Restated - see notes 1 and 26.

8. Disposal groups

Disposal groups are classified as held for sale if the Group will recover the carrying amount principally through a sale transaction rather than through continuing use and a sale is considered highly probable. The Group expects to complete the sales of its branch business in Uruguay, its international private banking operations and its joint venture interest in Sainsbury's Bank in the next 12 months. The assets and liabilities associated with these operations are therefore classified as held-for-sale disposal groups at 30 June 2013 and included within other assets and other liabilities respectively.

	At 30 June 2013	At 31 Dec 2012
	£m	£m
Other assets
Assets of disposal groups classified as held for sale	1,110	194

Other liabilities
Liabilities of disposal groups classified as held for sale	2,051	214

Disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. The Group has recognised a loss of £10 million within other income relating to disposal groups classified as held for sale during the half-year to 30 June 2013.

At 31 December 2012, the Group's Uruguayan branch business, its branch remittance business in Japan and its portfolio management business in Luxembourg were classified as held-for-sale. The sales of the Japan branch remittance business and the Luxembourg portfolio management business completed in the first half of 2013.

8. Disposal groups (continued)

The major classes of assets and liabilities of the disposal groups are as follows:

	At 30 June 2013	At 31 Dec 2012
	£m	£m

Assets
Cash and balances at central banks	97	82
Loans and advances to banks	14	7
Loans and advances to customers	772	84
Available-for-sale financial assets	72	27
Other	186	20
Provision for impairment of the disposal groups	(31)	(26)
	1,110	194

Liabilities
Customer deposits	2,026	185
Other	25	29
	2,051	214

9. Trading and other financial assets at fair value through profit or loss

	At 30 June 2013	At 31 Dec 20121
	£m	£m

Trading assets	31,349	23,345

Other financial assets at fair value through profit or loss:
Treasury and other bills	59	56
Loans and advances to customers	29	34
Debt securities	40,496	47,738
Equity shares	68,725	89,447
	109,309	137,275
Total trading and other financial assets at fair value through profit or loss	140,658	160,620

1	Restated - see notes 1 and 26.

Included in the above is £104,867 million (31 December 2012: £134,537 million) of assets relating to the insurance businesses.

10. Derivative financial instruments

	30 June 2013			31 December 20121
	Fair value of assets	Fair value of liabilities		Fair value of assets	Fair value of liabilities
	£m		£m	£m	£m

Hedging
Derivatives designated as fair value hedges	5,175		1,467	6,903	2,128
Derivatives designated as cash flow hedges	2,144		2,551	4,668	4,470
	7,319		4,018	11,571	6,598
Trading and other
Exchange rate contracts	5,252		5,036	3,712	3,887
Interest rate contracts	27,607		26,472	37,785	36,537
Credit derivatives	167		137	94	343
Embedded equity conversion feature	1,279		-	1,421	-
Equity and other contracts	1,816		938	1,974	1,311
	36,121		32,583	44,986	42,078
Total recognised derivative assets/liabilities	43,440		36,601	56,557	48,676

1	Restated - see notes 1 and 26.

The Group reduces exposure to credit risk by using master netting agreements and by obtaining cash collateral. Of the derivative assets of £43,440 million at 30 June 2013 (31 December 2012: £56,557 million), £28,934 million (31 December 2012: £38,158 million) are available for offset under master netting arrangements. These do not meet the criteria under IAS 32 to enable derivative assets to be presented net of these balances. Of the remaining derivative assets of £14,506 million (31 December 2012: £18,399 million), cash collateral of £2,206 million (31 December 2012: £5,429 million) was held and a further £2,158 million (31 December 2012: £1,387 million) was due from Organisation for Economic Co-operation and Development (OECD) banks.

The embedded equity conversion feature of £1,279 million (31 December 2012: £1,421 million) reflects the value of the equity conversion feature contained in the Enhanced Capital Notes issued by the Group in 2009; the loss of £142 million arising from the change in fair value in the half-year to 30 June 2013 (half-year to 30 June 2012: loss of £152 million; half-year to 31 December 2012: gain of £401 million) is included within net trading income.

11. Loans and advances to customers

	At 30 June 2013	At 31 Dec 2012
	£m	£m

Agriculture, forestry and fishing	5,852	5,531
Energy and water supply	3,006	3,321
Manufacturing	8,520	8,530
Construction	7,599	7,526
Transport, distribution and hotels	24,014	26,568
Postal and communications	1,585	1,397
Property companies	50,289	52,388
Financial, business and other services	46,779	49,190
Personal:
Mortgages	334,702	337,879
Other	26,736	28,334
Lease financing	5,829	6,477
Hire purchase	5,478	5,334
	520,389	532,475
Allowance for impairment losses on loans and advances (note 12)	(14,605)	(15,250)
Total loans and advances to customers	505,784	517,225

Loans and advances to customers include advances securitised under the Group's securitisation and covered bond programmes. Further details are given in note 13.

12. Allowance for impairment losses on loans and receivables

	Half-year to 30 June 2013	Half-year to 30 June 2012	Half-year to 31 Dec 2012
	£m	£m	£m

Opening balance	15,459	19,022	18,159
Exchange and other adjustments	429	(451)	63
Adjustment on disposal of business	(104)	-	-
Advances written off	(2,833)	(3,202)	(5,578)
Recoveries of advances written off in previous years	303	310	548
Unwinding of discount	(191)	(201)	(173)
Charge to the income statement (note 5)	1,681	2,681	2,440
Balance at end of period	14,744	18,159	15,459

In respect of:
Loans and advances to banks	3	3	3
Loans and advances to customers (note 11)	14,605	17,908	15,250
Debt securities (note 14)	136	248	206
Balance at end of period	14,744	18,159	15,459

13. Securitisations and covered bonds

The Group's principal securitisation and covered bond programmes, together with the balances of the loans subject to these arrangements and the carrying value of the notes in issue, are listed in the table below.

	30 June 2013			31 December 2012
	Loans and advances securitised		Notes in issue	Loans and advances securitised	Notes in issue
Securitisation programmes1		£m	£m	£m	£m

UK residential mortgages		60,509	41,671	80,125	57,285
US residential mortgage-backed securities		-	-	185	221
Commercial loans		14,953	13,331	15,024	14,110
Irish residential mortgages		5,372	3,598	5,189	3,509
Credit card receivables		5,998	2,889	6,974	3,794
Dutch residential mortgages		4,630	4,756	4,547	4,682
Personal loans		3,732	750	4,412	2,000
PPP/PFI and project finance loans		641	109	688	104
Motor vehicle loans		715	762	1,039	1,086
		96,550	67,866	118,183	86,791
Less held by the Group			(44,524)		(58,732)
Total securitisation programmes (note 17)			23,342		28,059

Covered bond programmes
Residential mortgage-backed		85,170	61,745	91,420	64,593
Social housing loan-backed		2,747	1,800	2,927	2,400
		87,917	63,545	94,347	66,993
Less held by the Group			(25,810)		(26,320)
Total covered bond programmes (note 17)			37,735		40,673

Total securitisation and covered bond programmes			61,077		68,732

1	Includes securitisations utilising a combination of external funding and credit default swaps.

Securitisation programmes

Loans and advances to customers and debt securities classified as loans and receivables include loans securitised under the Group's securitisation programmes, the majority of which have been sold by subsidiary companies to bankruptcy remote special purpose entities (SPEs). As the SPEs are funded by the issue of debt on terms whereby the majority of the risks and rewards of the portfolio are retained by the subsidiary, the SPEs are consolidated fully and all of these loans are retained on the Group's balance sheet, with the related notes in issue included within debt securities in issue (note 17).

Covered bond programmes

Certain loans and advances to customers have been assigned to bankruptcy remote limited liability partnerships to provide security to issues of covered bonds by the Group. The Group retains all of the risks and rewards associated with these loans and the partnerships are consolidated fully with the loans retained on the Group's balance sheet and the related covered bonds in issue included within debt securities in issue (note 17).

Cash deposits of £17,684 million (31 December 2012: £19,691 million) held by the Group are restricted in use to repayment of the debt securities issued by the SPEs, the term advances relating to covered bonds and other legal obligations.

Asset-backed conduits

In addition to the SPEs detailed above, the Group sponsors three asset-backed conduits: Argento, Cancara and Grampian, which invest in debt securities (notes 14 and 15) and client receivables (note 11).

14. Debt securities classified as loans and receivables

Debt securities classified as loans and receivables comprise:

	At 30 June 2013	At 31 Dec 2012
	£m	£m

Asset-backed securities:
Mortgage-backed securities	381	3,927
Other asset-backed securities	994	1,150
Corporate and other debt securities	451	402
	1,826	5,479
Allowance for impairment losses (note 12)	(136)	(206)
Total	1,690	5,273

15. Available-for-sale financial assets

	At 30 June 2013	At 31 Dec 2012
	£m	£m

Asset-backed securities	2,163	2,284
Other debt securities:
Bank and building society certificates of deposit	204	188
Government securities	31,077	25,555
Corporate and other debt securities	1,649	1,848
	32,930	27,591
Equity shares	517	528
Treasury and other bills	885	971
Total	36,495	31,374

16. Customer deposits

	At 30 June 2013	At 31 Dec 2012
	£m	£m

Sterling:
Non-interest bearing current accounts	37,976	35,430
Interest bearing current accounts	65,162	58,953
Savings and investment accounts	241,161	239,767
Other customer deposits	46,554	48,893
Total sterling	390,853	383,043
Currency	42,706	43,869
Total	433,559	426,912

Included above are liabilities of £2,991 million (31 December 2012: £4,433 million) in respect of securities sold under repurchase agreements.

17. Debt securities in issue

	30 June 2013							31 December 20121
		At fair value through profit or loss		At amortised cost		Total	At fair value through profit or loss		At amortised cost	Total
			£m		£m	£m		£m	£m	£m

Medium-term notes issued			5,246		24,887	30,133		5,700	29,537	35,237
Covered bonds (note 13)			-		37,735	37,735		-	40,673	40,673
Certificates of deposit			-		12,400	12,400		-	11,087	11,087
Securitisation notes (note 13)			-		23,342	23,342		-	28,059	28,059
Commercial paper			-		7,983	7,983		-	7,897	7,897
			5,246		106,347	111,593		5,700	117,253	122,953

1	Restated - see notes 1 and 26.

18. Post-retirement defined benefit schemes

The Group's post-retirement defined benefit scheme obligations are comprised as follows:

	At 30 June 2013	At 31 Dec 20121
	£m	£m

Defined benefit pension schemes:
- Fair value of scheme assets	32,203	30,367
- Present value of funded obligations	(31,915)	(31,324)
- Net pension scheme liability	288	(957)
Other post-retirement defined benefit schemes	(209)	(207)
Net retirement benefit asset (liability)	79	(1,164)

Recognised on the balance sheet as:
Retirement benefit assets	859	741
Retirement benefit obligations	(780)	(1,905)
Net retirement benefit asset (liability)	79	(1,164)

1	Restated - see notes 1 and 26.

The movement in the Group's net post-retirement defined benefit scheme assets (liabilities) during the period was as follows:

				£m

At 1 January 2013
As previously reported				1,567
Restatement (see notes 1 and 26)				(2,731)
Restated				(1,164)
Exchange and other adjustments				(1)
Income statement charge				(322)
Employer contributions				585
Remeasurement				981
At 30 June 2013				79

18. Post-retirement defined benefit schemes (continued)

The charge to the income statement in respect of pensions and other post-retirement benefit schemes for the half-year to 30 June 2013 is comprised as follows:

				£m

Past service cost				104
Other				218
Defined benefit pension schemes				322
Defined contribution schemes				111
Total charge to the income statement (note 4)				433

The principal assumptions used in the valuations of the defined benefit pension scheme were as follows:

	At 30 June 2013	At 31 Dec 2012
	%	%

Discount rate	4.90	4.60
Rate of inflation:
Retail Prices Index	3.30	2.90
Consumer Price Index	2.30	2.00
Rate of salary increases	2.00	2.00
Rate of increase for pensions in payment	3.10	2.70

The application of the revised assumptions as at 30 June 2013 to the Group's principal post-retirement defined benefit schemes has resulted in a remeasurement of £981 million which has been recognised directly in equity, net of deferred tax.

19. Subordinated liabilities

The Group's subordinated liabilities are comprised as follows:

	At 30 June 2013	At 31 Dec 2012
	£m	£m

Preference shares	1,406	1,385
Preferred securities	4,545	4,394
Undated subordinated liabilities	1,983	1,927
Enhanced Capital Notes	9,152	8,947
Dated subordinated liabilities	17,149	17,439
Total subordinated liabilities	34,235	34,092

The movement in subordinated liabilities during the period was as follows:

	Half-year to 30 June 2013	Half-year to 30 June 2012	Half-year to 31 Dec 2012
	£m	£m	£m

Opening balance	34,092	35,089	34,752
New issues during the period	1,500	128	-
Repurchases and redemptions during the period	(1,821)	(208)	(649)
Foreign exchange and other movements	464	(257)	(11)
At end of period	34,235	34,752	34,092

20. 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 2013	70,343	7,034
Issued in the period (see below)	988	99
At 30 June 2013	71,331	7,133

Limited voting ordinary shares of 10p each
At 1 January and 30 June 2013	81	8
Total share capital		7,141

Of the shares issued in the period, 713 million shares were issued in relation to the payment of coupons on certain hybrid capital securities; the remaining 275 million shares issued were in respect of employee share schemes.

21. Reserves

		Other reserves
	Share premium		Available- for-sale	Cash flow hedging	Merger and other	Total	Retained profits
	£m		£m	£m	£m	£m	£m

At 1 January 2013
As previously reported	16,872		399	350	12,153	12,902	7,183
Restatement (see notes 1 and 26)	-		-	-	-	-	(2,103)
Restated	16,872		399	350	12,153	12,902	5,080
Issue of ordinary shares	394		-	-	-	-	-
Profit for the period	-		-	-	-	-	1,560
Post-retirement defined benefit scheme remeasurements(net of tax)	-		-	-	-	-	755
Movement in treasury shares	-		-	-	-	-	(361)
Value of employeeservices:
Share option schemes	-		-	-	-	-	34
Other employee award schemes	-		-	-	-	-	146
Change in fair value of available-for-sale assets (net of tax)	-		(419)	-	-	(419)	-
Change in fair value of hedging derivatives(net of tax)	-		-	95	-	95	-
Transfers to income statement (net of tax)	-		(539)	(321)	-	(860)	-
Exchange and other	-		-	-	25	25	-
At 30 June 2013	17,266		(559)	124	12,178	11,743	7,214

22. Provisions for liabilities and charges

Payment protection insurance

Following the unsuccessful legal challenge by the British Bankers' Association against the FSA and the Financial Ombudsman Service, the Group held discussions with the FSA with a view to seeking clarity around the detailed implementation of the FSA Policy Statement which set out evidential provisions and guidance on the fair assessment of a complaint and the calculation of redress in respect of payment protection insurance (PPI) sales standards. As a result, the Group concluded that there are certain circumstances where customer redress will be appropriate. Accordingly the Group made provisions totalling £6,775 million during 2011 and 2012 in respect of the anticipated costs of such redress, including administrative expenses.

The volume of PPI complaints has continued to fall in line with expectations, with monthly complaint volumes in the first half of 2013 on average 40 per cent below the level experienced in the second half of 2012. However, costs have been higher than expected due to the acceleration of the settlement of cases currently held with the Financial Ombudsman Service, a VAT ruling and higher uphold and settlement rates. The Group has also increased its estimate of future administration costs. In view of this, the Group is increasing the provision by £450 million with approximately £250 million relating to redress costs and approximately £200 million to additional administration costs.

In addition the Group has been informed that it has been referred to the Enforcement Team of the Financial Conduct Authority for investigation over the governance of a third party supplier and failings in the PPI complaint handling process. A provision of £50 million has been made in respect of the likely administration costs of this exercise.

These provisions will bring the total amount provided to £7,275 million (of which £1,510 million relates to administration costs). In the first half of 2013 total costs incurred were £1,280 million including approximately £380 million of administration costs, leaving approximately £1,650 million of the provision unutilised at 30 June 2013. This represents the Group's current best estimate of the likely future costs, but a number of risks and uncertainties remain and it is possible that the eventual outcome may differ materially from the current estimate resulting in a further provision being required.

The provision has been based on a number of subjective assumptions, which are discussed below including the effect on the provision if actual future experience differs from that assumed:

- The scope of the proactive mailing exercise covers 2.5 million policies, and approximately half of these have either been mailed or the customer has already contacted the Group. If the scope of the proactive mailing was 0.1 million higher than that assumed in the provision, the additional provision would be approximately £30 million;

- The response rate from customers covered by the proactive mailing exercise to date is approximately 27 per cent. If the future response rate was 1 per cent higher than the 27 per cent assumed in the provision, the additional provision would be approximately £10 million;

- The number of customer initiated complaints received to date, where a PPI policy existed, is 2.3 million. If the future level of complaints was 0.1 million higher than that assumed in the provision, the additional provision would be approximately £170 million;

- The average uphold rate per policy in the last six months, excluding those customers with no PPI policy, is 61 per cent. If the future uphold rate was 1 per cent higher than the 73 per cent assumed in the provision, the additional provision would be approximately £10 million; and

- The average redress rate per policy in the last six months was £1,700. If the future average redress was £100 higher than the £1,440 assumed in the provision, (which is lower than the average over the last six months due to the expected mix of future complaints), the additional provision would be approximately £70 million.

The Group will reassess the continued appropriateness of the assumptions underlying its analysis at each reporting date in light of current experience and other relevant evidence.

22. Provisions for liabilities and charges (continued)

Other regulatory provisions

Litigation in relation to insurance branch business in Germany

Clerical Medical Investment Group Limited (CMIG) has received a number of claims in the German courts, relating to policies issued by CMIG but sold by independent intermediaries in Germany, principally during the late 1990s and early 2000s. Following decisions in July 2012 from the Federal Court of Justice in Germany the Group recognised a further provision of £150 million in its accounts for the year ended 31 December 2012 bringing the total amount provided to £325 million. During the half-year to 30 June 2013 the Group has charged a further £75 million with respect to this litigation increasing the total provision to £400 million. The total provision remaining as at 30 June 2013 was £320 million.

However, there are still a number of uncertainties as to the full impact of the FCJ's decisions, and the implications with respect to the claims facing CMIG. As a result the ultimate financial effect, which could be significantly different to the provision, will only be known once there is further clarity with respect to a range of legal issues involved in these claims and/or all relevant claims have been resolved.

Interest rate hedging products

In June 2012, a number of banks, including the Group, reached agreement with the FSA (now FCA) to carry out a review of sales made since 1 December 2001 of interest rate hedging products (IRHP) to certain small and medium-sized businesses. The Group agreed that on conclusion of this review it would provide redress to any of these customers where appropriate.

Following the completion of a pilot review of a sample of IRHP sales to small and medium-sized businesses and a supplemental agreement reached with the FSA on 30 January 2013 on the principles to be adopted during the course of the wider review, the Group provided £400 million in its accounts for the year ended 31 December 2012 for the estimated cost of redress and related administration costs. At 31 December 2012, £20 million of the provision had been utilised; a further £53 million has been utilised in the half-year to 30 June 2013. A number of uncertainties remain as to the eventual costs given the inherent difficulties in determining the number of customers within the scope of the review and the amount of any redress to be provided to customers.

Other regulatory matters

In the course of its business, the Group is engaged in discussions with the PRA, FCA and other regulators in relation to a range of matters. In 2012 a provision of £100 million was made in respect of certain UK retail and other matters; this provision has remained unchanged during the first half of the year. The ultimate impact on the Group of these discussions can only be known at the conclusion of such discussions.

23. Contingent liabilities and commitments

Interchange fees

On 24 May 2012, the General Court of the European Union (the General Court) upheld the European Commission's 2007 decision that an infringement of EU competition law had arisen from arrangements whereby MasterCard issuers charged a uniform fallback multilateral interchange fee (MIF) in respect of cross border transactions in relation to the use of a MasterCard or Maestro branded payment card.

MasterCard has appealed the General Court's judgment to the Court of Justice of the European Union. MasterCard is supported by several card issuers, including the Group. Judgment is not expected until late 2013 or later.

In parallel:

- the European Commission is also considering further action, and has proposed legislation to regulate interchange fees, following its 2012 Green Paper (Towards an integrated European market for cards, internet and mobile payments) consultation;

- the European Commission has consulted on commitments proposed by VISA to settle an investigation into whether arrangements adopted by VISA for the levying of the MIF in respect of cross-border credit card payment transactions also infringe European Union competition laws. VISA has proposed inter alia to reduce the level of interchange fees on cross-border credit card transactions to the interim level (30 basis points) also agreed by Mastercard. VISA has previously reached an agreement (which expires in 2014) with the European Commission to reduce the level of interchange fees for cross-border debit card transactions to the interim levels agreed by MasterCard;

- the Office of Fair Trading (OFT) has placed on hold its examination of whether the levels of interchange fees paid by retailers in respect of MasterCard and VISA credit cards, debit cards and charge cards in the UK infringe competition law. The OFT has placed the investigation on hold pending the outcome of the Mastercard appeal to the Court of Justice of the European Union; and

- the UK Government held a consultation in 2013, Opening Up UK Payments. The consultation included a proposal to legislate to introduce a new economic regulator with responsibility for payment systems, including three and four party card schemes, and a role in setting or approving interchange fees.

The ultimate impact of the investigations and any regulatory developments on the Group can only be known at the conclusion of these investigations and any relevant appeal proceedings and once regulatory or legislative proposals are more certain.

Interbank offered rate setting investigations

A number of government agencies in the UK, US and elsewhere, including the UK Financial Conduct Authority, the US Commodity Futures Trading Commission, the US Securities and Exchange Commission, the US Department of Justice and a number of State Attorneys General, as well as the European Commission, are conducting investigations into submissions made by panel members to the bodies that set various interbank offered rates including the BBA London Interbank Offered Rates (LIBOR) and the European Banking Federation's Euribor. Certain Group companies were (at the relevant times) and remain members of various panels whose members make submissions to these bodies including the BBA LIBOR panels. No Group company is or was a member of the Euribor panel. Certain Group companies have received subpoenas and requests for information from certain government agencies and the Group is co-operating with their investigations. In addition certain Group companies, together with other panel banks, have been named as defendants in private lawsuits, including purported class action suits in the US with regard to the setting of LIBOR. It is currently not possible to predict the scope and ultimate outcome of the various regulatory investigations or private lawsuits, including the timing and scale of the potential impact of any investigations and private lawsuits on the Group.

23. Contingent liabilities and commitments (continued)

Financial Services Compensation Scheme

The Financial Services Compensation Scheme(FSCS) is the UK's independent statutory compensation fund of last resort for customers of authorised financial services firms and pays compensation if a firm is unable or likely to be unable to pay claims against it. The FSCS is funded by levies on the authorised financial services industry. The levies raised may comprise a management expenses levy and a compensation costs levy.

Following the default of a number of deposit takers in 2008, the FSCS borrowed funds from HM Treasury to meet the compensation costs for customers of those firms. The interest rate on the borrowings with HM Treasury, which totalled approximately £17 billion at 31 March 2013, is 12 month LIBOR plus 100 basis points. Each deposit-taking institution contributes towards the FSCS levies in proportion to their share of total protected deposits on 31 December of the year preceding the scheme year, which runs from 1 April to 31 March.

The substantial majority of the principal balance of the £17 billion loan between the FSCS and HM Treasury will be repaid from funds the FSCS receives from asset sales, surplus cash flow or other recoveries in relation to the assets of the firms that defaulted. In July 2013, the FSCS confirmed that it expects to raise compensation costs levies of approximately £1.1 billion on all deposit-taking participants over a three year measurement period from 2012 to 2014 to enable it to repay an HM Treasury loan which matures in 2016. The amount of future compensation costs levies payable by the Group depends on a number of factors including participation in the market at 31 December, the level of protected deposits and the population of deposit-taking participants.

Investigation into Bank of Scotland and report on HBOS

The FSA's enforcement investigation into Bank of Scotland plc's Corporate division between 2006 and 2008 concluded with the publication of a Final Notice on 9 March 2012. No financial penalty was imposed on the Group or Bank of Scotland plc. On 12 September 2012 the FSA confirmed it was starting work on a public interest report on HBOS. Thatreport is expected to be published in 2013.

Shareholder complaints

In November 2011 the Group and two former members of the Group's Board of Directors were named as defendants in a purported securities class action filed in the United States District Court for the Southern District of New York. The complaint asserted claims under the Securities Exchange Act of 1934 in connection with alleged material omissions from statements made in 2008 in connection with the acquisition of HBOS. No quantum is specified. In October 2012 the court dismissed the complaint. An appeal against this decision has been filed. The Group continues to consider that the allegations are without merit.

Other legal actions and regulatory matters

In addition, during the ordinary course of business the Group is subject to other threatened and actual legal proceedings (which may include class action lawsuits brought on behalf of customers, shareholders or other third parties), and regulatory 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 to settle the obligation at the relevant balance sheet date. In some cases it will not be possible to form a view, either because the facts are unclear or because further time is needed properly to assess the merits of the case and no provisions are held against such matters. 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.

23. Contingent liabilities and commitments (continued)

Contingent liabilities and commitments arising from the banking business

	At 30 June 2013	At 31 Dec 2012
	£m	£m

Contingent liabilities
Acceptances and endorsements	64	107
Other:
Other items serving as direct credit substitutes	691	523
Performance bonds and other transaction-related contingencies	2,114	2,266
	2,805	2,789
Total contingent liabilities	2,869	2,896

Commitments
Documentary credits and other short-term trade-related transactions	80	11
Forward asset purchases and forward deposits placed	368	546

Undrawn formal standby facilities, credit lines and other commitments to lend:
Less than 1 year original maturity:
Mortgage offers made	9,892	7,404
Other commitments	55,832	53,196
	65,724	60,600
1 year or over original maturity	41,320	40,794
Total commitments	107,492	101,951

Of the amounts shown above in respect of undrawn formal standby facilities, credit lines and other commitments to lend, £58,096 million (31 December 2012: £52,733 million) was irrevocable.

24. 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 the fair values.

Level 1 portfolios

Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities. Products classified as level 1 predominantly comprise equity shares, treasury bills and other government securities.

Level 2 portfolios

Level 2 valuations are those where quoted market prices are not available, for example where the instrument is traded in a market that is not considered to be active or valuation techniques are used to determine fair value and where these techniques use inputs that are based significantly on observable market data. Examples of such financial instruments include most over-the-counter derivatives, financial institution issued securities, certificates of deposit and certain asset-backed securities.

Level 3 portfolios

Level 3 portfolios are those where at least one input which could have a significant effect on the instrument's valuation is not based on observable market data. Such instruments would include the Group's venture capital and unlisted equity investments which are valued using various valuation techniques that require significant management judgement in determining appropriate assumptions, including earnings multiples and estimated future cash flows. Certain of the Group's asset-backed securities and derivatives, principally where there is no trading activity in such securities, are also classified as level 3.

Valuation control framework

Key elements of the valuation control framework, which covers processes for all levels in the fair value hierarchy including level 3 portfolios, include model validation (incorporating pre-trade and post-trade testing), product implementation review and independent price verification. Formal committees meet quarterly to discuss and approve valuations in more judgemental areas.

Transfers into and out of level 3 portfolios

Transfers out of level 3 portfolios arise when inputs that could have a significant impact on the instrument's valuation become market observable; conversely, transfers into the portfolios arise when consistent sources of data cease to be available.

Valuation methodology

Loans and advances and debt securities measured at fair value through profit or loss and classified as level 2 are valued by discounting expected cash flows using an observable credit spread applicable to the particular instrument. The fair value of non-derivative liabilities measured at fair value through profit or loss and classified as level 2 is calculated in a similar way.

For other level 2 and level 3 portfolios, there is no significant change to what was disclosed in the Group's 2012 annual report and accounts in respect of the valuation methodology (techniques and inputs) applied to such portfolios.

24. Fair values of financial assets and liabilities (continued)

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 2013		31 December 20121
	Carrying value	Fair value	Carrying value	Fair value
	£m	£m	£m	£m

Financial assets
Cash and balances at central banks	60,555	60,555	80,298	80,298
Items in the course of collection from banks	1,581	1,581	1,256	1,256
Trading and other financial assets at fair value through profit or loss	140,658	140,658	160,620	160,620
Derivative financial instruments	43,440	43,440	56,557	56,557
Loans and receivables:
Loans and advances to banks	32,593	32,339	32,757	32,746
Loans and advances to customers	505,784	495,786	517,225	506,418
Debt securities	1,690	1,468	5,273	5,402
Available-for-sale financial instruments	36,495	36,495	31,374	31,374
Financial liabilities
Deposits from banks	14,226	14,407	38,405	38,738
Customer deposits	433,559	434,856	426,912	428,749
Items in course of transmission to banks	1,300	1,300	996	996
Trading and other financial liabilities at fair value through profit or loss	40,673	40,673	33,392	33,392
Derivative financial instruments	36,601	36,601	48,676	48,676
Notes in circulation	1,354	1,354	1,198	1,198
Debt securities in issue	106,347	109,978	117,253	122,847
Liabilities arising from non-participating investment contracts	27,298	27,298	54,372	54,372
Financial guarantees	49	49	48	48
Subordinated liabilities	34,235	36,493	34,092	36,382

1	Restated - see notes 1 and 26.

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 table provides 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.

24. Fair values of financial assets and liabilities (continued)

Valuation hierarchy

	Level 1	Level 2	Level 3	Total
	£m	£m	£m	£m

At 30 June 2013
Trading and other financial assets at fair valuethrough profit or loss:
Loans and advances to customers	-	17,562	-	17,562
Loans and advances to banks	-	5,502	-	5,502
Debt securities:
Government securities	18,216	-	-	18,216
Other public sector securities	25	2,600	-	2,625
Bank and building society certificates of deposit	41	3,436	-	3,477
Asset-backed securities:
Mortgage-backed securities	311	368	-	679
Other asset-backed securities	286	723	-	1,009
Corporate and other debt securities	8,561	12,214	1,917	22,692
	27,440	19,341	1,917	48,698
Equity shares	66,740	12	1,973	68,725
Treasury and other bills	112	59	-	171
Total trading and other financial assets at fair value through profit or loss	94,292	42,476	3,890	140,658
Available-for-sale financial assets:
Debt securities:
Government securities	31,077	-	-	31,077
Bank and building society certificates of deposit	-	204	-	204
Asset-backed securities:
Mortgage-backed securities	-	1,323	-	1,323
Other asset-backed securities	-	765	75	840
Corporate and other debt securities	65	1,584	-	1,649
	31,142	3,876	75	35,093
Equity shares	71	79	367	517
Treasury and other bills	519	366	-	885
Total available-for-sale financial assets	31,732	4,321	442	36,495
Derivative financial instruments	140	40,320	2,980	43,440
Total financial assets carried at fair value	126,164	87,117	7,312	220,593
Trading and other financial liabilities at fair valuethrough profit or loss
Liabilities held at fair value through profit or loss(debt securities)	-	5,246	-	5,246
Trading liabilities:
Liabilities in respect of securities sold under repurchase agreements	-	31,458	-	31,458
Short positions in securities	2,473	283	-	2,756
Other	-	1,213	-	1,213
	2,473	32,954	-	35,427
Total trading and other financial liabilities at fair value through profit or loss	2,473	38,200	-	40,673
Derivative financial instruments	108	35,566	927	36,601
Financial guarantees	-	-	49	49
Total financial liabilities carried at fair value	2,581	73,766	976	77,323

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

24. Fair values of financial assets and liabilities (continued)

Movements in level 3 portfolio

The table below analyses movements in the level 3 financial assets portfolio.

	Trading and other financial assets at fair value through profit or loss		Available-for-sale financial assets	Derivative assets	Total financial assets carried at fair value
		£m	£m	£m	£m

At 1 January 2013		3,306	567	2,358	6,231
Exchange and other adjustments		4	21	10	35
Gains (losses) recognised in the income statement within other income		173	(1)	55	227
Gains recognised in other comprehensive income within the revaluation reserve in respect of available-for-sale financial assets		-	34	-	34
Purchases		301	27	200	528
Sales		(159)	(207)	(9)	(375)
Transfers into the level 3 portfolio		265	1	415	681
Transfers out of the level 3 portfolio		-	-	(49)	(49)
At 30 June 2013		3,890	442	2,980	7,312
Gains recognised in the income statement within other income attributable to the change in unrealised gains (losses) relating to those assets held at 30 June 2013		152	2	52	206

The table below analyses movements in the level 3 financial liabilities portfolio.

	Derivative liabilities	Financial guarantees	Total financial liabilities carried at fair value
	£m	£m	£m

At 1 January 2013	543	48	591
Exchange and other adjustments	3	-	3
(Gains) losses recognised in the income statement within other income	(44)	2	(42)
Additions	203	-	203
Redemptions	(25)	(1)	(26)
Transfers into the level 3 portfolio	248	-	248
Transfers out of the level 3 portfolio	(1)	-	(1)
At 30 June 2013	927	49	976
Gains (losses) recognised in the income statement within other income attributable to the change in unrealised gains (losses) relating to those liabilities held at 30 June 2013	43	(2)	41

24. Fair values of financial assets and liabilities (continued)

Sensitivity of level 3 valuations

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 below reflects such relationships.

The following information relates to significant unobservable inputs in respect of derivatives and debt investments shown in the table that follows:

- Interest rates and inflation rates are referenced in some derivatives where the payoff that the holder of the derivative receives depends on the behaviour of those underlying references through time.

- Credit spreads represent the premium above the benchmark reference instrument required to compensate for lower credit quality; higher spreads lead to a lower fair value.

- Volatility parameters represent key attributes of option behaviour; higher volatilities typically denote a wider range of possible outcomes.

The fair values of certain equity investments, mainly those in the Group's venture capital businesses, are determined by identifying the earnings multiple for comparable companies and applying this multiple to the earnings of the entity whose value is being estimated; a higher earnings multiple will result in a higher fair value.

Reasonably possible alternative assumptions

The following information relates to reasonably possible alternative assumptions shown in the table that follows.

Debt securities

Reasonably possible alternative assumptions have been determined in respect of the Group's structured credit investment by flexing credit spreads to a range between 685 basis points and 1,016 basis points.

Derivatives

(i) In respect of the embedded equity conversion feature of the Enhanced Capital Notes, the sensitivity was based on the absolute difference between the actual price of the Enhanced Capital Note and the closest, alternative broker quote available plus the impact of applying a 10 basis points increase/decrease in the market yield used to derive a market price for similar bonds without the conversion feature. The effect of interdependency of the assumptions is not material to the effect of applying reasonably possible alternative assumptions to the valuations of derivative financial instruments.

(ii) Uncollateralised inflation swaps are valued using appropriate discount spreads for such transactions. These spreads are not generally observable for longer maturities. The reasonably possible alternative valuations reflect flexing of the spreads for the differing maturities to alternative values of between 75 basis points and 230 basis points.

(iii) Swaptions are priced using industry standard option pricing models. Such models require interest rate volatilities which may be unobservable at longer maturities. To derive reasonably possible alternative valuations these volatilities have been flexed within a range of 1 per cent to 118 per cent.

Equity and venture capital investments

The valuation techniques used for unlisted equities and venture capital investments vary depending on the nature of the investment. Reasonably possible alternative valuations for these investments have been calculated as follows:

- for valuations derived from earnings multiples, a 10 per cent increase/decrease in the earnings multiple has been applied; and

- for fund investment portfolios, the values of underlying investments have been flexed in line with International Private Equity and Venture Capital Guidelines.

24. Fair values of financial assets and liabilities (continued)

				At 30 June 2013
					Effect of reasonably possible alternative assumptions2
	Valuation technique(s)	Significant unobservable inputs	Range1	Carrying value	Favourable changes	Unfavourable changes
				£m	£m		£m
Trading and other financial assets at fair value through profit or loss
Debt securities	Discounted cash flow	Credit spreads (bps)	n/a3	243	17		(6)
Equity and venture capital investments	Market approach	Earnings multiple	0.9/14.4	2,172	82		(84)
	Underlying asset/net asset value (incl. property prices)4	n/a	n/a	191	41		(20)
Unlisted equitiesand propertypartnerships in the life funds	Underlying asset/net asset value (incl. property prices)4	n/a	n/a	1,284	-		-
				3,890
Available-for-sale financial assets
Asset-backedsecurities	Lead manageror broker quote/consensus pricing	n/a	n/a	75	-		-
Equity and venture capital investments	Underlying asset/net asset value (incl. property prices)4	n/a	n/a	367	19		(10)
				442
Derivative financial assets
Embedded equity conversion feature	Lead manager or broker quote	Equity conversion feature spread (bps)	328/532	1,279	60		(60)
Interest ratederivatives	Discounted cash flow	Inflation swap rate - funding component (bps)	54/189	1,263	127		(46)
	Option pricing model	Interest ratevolatility	26%/121%	438	10		(5)
				2,980
Financial assets carried at fair value				7,312
Derivative financial liabilities
Interest ratederivatives	Discounted cash flow	Inflation swap rate - funding component (bps)	54/189	664	-		-
	Option pricing model	Interest ratevolatility	26%/121%	263	-		-
				927
Financial guarantees				49
Financial liabilities carried at fair value				976

1	The range represents the highest and lowest inputs used in the level 3 valuations.
2	Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table.
3	A single pricing source is used.
4	Underlying asset/net asset values represent fair value.

25. Related party transactions

UK Government

In January 2009, the UK Government through HM Treasury became a related party of the Company following its subscription for ordinary shares issued under a placing and open offer. As at 30 June 2013, HM Treasury held a 38.7 per cent (31 December 2012: 39.2 per cent) interest in the Company's ordinary share capital and consequently HM Treasury remained a related party of the Company during the half-year to 30 June 2013.

In accordance with IAS 24, UK Government-controlled entities are related parties of the Group. The Group regards the Bank of England and entities controlled by the UK Government, including The Royal Bank of Scotland Group plc, Northern Rock (Asset Management) plc and Bradford & Bingley plc, as related parties.

The Group has participated in a number of schemes operated by the UK Government and central banks and made available to eligible banks and building societies.

National Loan Guarantee Scheme

The Group is participating in the UK Government's National Loan Guarantee Scheme, which was launched on 20 March 2012. Through the scheme, the Group is providing eligible UK businesses with discounted funding, subject to continuation of the scheme and its financial benefits, and based on the Group's existing lending criteria. Eligible businesses who take up the funding benefit from a 1 per cent discount on their funding rate for a certain period of time.

Business Growth Fund

In May 2011 the Group agreed, together with The Royal Bank of Scotland plc (and three other non-related parties), to commit up to £300 million of equity investment by subscribing for shares in the Business Growth Fund plc which is the company created to fulfil the role of the Business Growth Fund as set out in the British Bankers' Association's Business Taskforce Report of October 2010. At 30 June 2013, the Group had invested £54 million (31 December 2012: £50 million) in the Business Growth Fund and carried the investment at a fair value of £44 million (31 December 2012: £44 million).

Big Society Capital

In January 2012 the Group agreed, together with The Royal Bank of Scotland plc (and two other non-related parties), to commit up to £50 million each of equity investment into the Big Society Capital Fund. The Fund, which was created as part of the Project Merlin arrangements, is a UK social investment fund. The Fund was officially launched on 3 April 2012 and the Group had invested £12 million in the Fund by 31 December 2012 and invested a further £4 million during the half-year to 30 June 2013.

Funding for Lending

In August 2012 the Group announced its support for the UK Government's Funding for Lending Scheme and confirmed its intention to participate in the scheme; and in June 2013 the Group accepted the UK Government's invitation to take part in the extension of the scheme until the end of January 2015. The Funding for Lending Scheme represents a further source of cost effective secured term funding available to the Group. The initiative supports a broad range of UK based customers, providing householders with more affordable housing finance and businesses with cheaper finance to invest and grow. The Group drew down £3.0 billion during the year ended 31 December 2012; there have been no further drawings in the half-year to 30 June 2013.

Central bank facilities

In the ordinary course of business, the Group may from time to time access market-wide facilities provided by central banks.

Other government-related entities

There were no significant transactions with other UK Government-controlled entities (including UK Government-controlled banks) during the period that were not made in the ordinary course of business or that were unusual in their nature or conditions.

25. Related party transactions (continued)

Other related party transactions

During the half-year to 30 June 2013, the Group sold at fair value certain securitisation notes to Lloyds TSB Group Pension Trust (No. 1) Limited for a consideration of approximately £340 million. Subsequently, the Group entered into a commercially negotiated agreement with Lloyds TSB Group Pension Trust (No.1) Limited to jointly sell a portfolio of US Residential Mortgage-Backed Securities with a book value of £3.5 billion. As a result of selling the portfolio together a price premium was achieved compared to selling the notes separately. Under the terms of the agreement the Group and Lloyds TSB Group Pension Trust (No.1) Limited agreed to share any price premium achieved above an agreed minimum threshold amount.

In March 2013 the Group sold 102 million shares in St. James's Place plc; fees totalling some £5 million in relation to the sale were settled by St. James's Place plc.

Other related party transactions for the half-year to 30 June 2013 are similar in nature to those for the year ended 31 December 2012.

26. Restatement of prior period information

As explained in note 1, the Group has adopted IFRS 10 Consolidated Financial Statements and Amendments to IAS 19 Employee Benefits (IAS 19R) on 1 January 2013.

The Group has restated information for the preceding comparative periods.

The following tables summarise the adjustments arising on the adoption of IAS 19R and IFRS 10 to the Group's:

- income statement, statement of comprehensive income and statement of cash flows for the half-year to 30 June 2012 and the half-year to 31 December 2012;

- balance sheet at 31 December 2012; and

- equity at 1 January 2012.

Consolidated income statement - half-year to 30 June 2012

	As previously reported	IFRS 10	IAS 19 Revised	Restated
	£m	£m	£m	£m

Interest and similar income	12,734	-	-	12,734
Interest and similar expense	(8,076)	(394)	-	(8,470)
Net interest income	4,658	(394)	-	4,264
Fee and commission income	2,394	(41)	-	2,353
Fee and commission expense	(748)	(3)	-	(751)
Net fee and commission income	1,646	(44)	-	1,602
Net trading income	4,105	441	-	4,546
Insurance premium income	4,183	-	-	4,183
Other operating income	1,661	-	-	1,661
Other income	11,595	397	-	11,992
Total income	16,253	3	-	16,256
Insurance claims	(7,288)	-	-	(7,288)
Total income, net of insurance claims	8,965	3	-	8,968
Regulatory provisions	(1,075)	-	-	(1,075)
Other operating expenses	(5,601)	-	(20)	(5,621)
Total operating expenses	(6,676)	-	(20)	(6,696)
Trading surplus	2,289	3	(20)	2,272
Impairment	(2,728)	-	-	(2,728)
(Loss) profit before tax	(439)	3	(20)	(456)
Taxation	(202)	(3)	(1)	(206)
Loss for the period	(641)	-	(21)	(662)

Profit attributable to non-controlling interests	35	-	-	35
Loss attributable to equity shareholders	(676)	-	(21)	(697)
Loss for the period	(641)	-	(21)	(662)

Basic loss per share	(1.0)p			(1.0)p
Diluted loss per share	(1.0)p			(1.0)p

26. Restatement of prior period information (continued)

Consolidated income statement - half-year to 31 December 2012

	As previously reported	IFRS 10	IAS 19 Revised	Restated
	£m	£m	£m	£m

Interest and similar income	10,801	13	-	10,814
Interest and similar expense	(6,384)	(976)	-	(7,360)
Net interest income	4,417	(963)	-	3,454
Fee and commission income	2,337	(40)	-	2,297
Fee and commission expense	(690)	(3)	-	(693)
Net fee and commission income	1,647	(43)	-	1,604
Net trading income	9,449	1,010	-	10,459
Insurance premium income	4,101	-	-	4,101
Other operating income	3,039	-	-	3,039
Other income	18,236	967	-	19,203
Total income	22,653	4	-	22,657
Insurance claims	(11,108)	-	-	(11,108)
Total income, net of insurance claims	11,545	4	-	11,549
Regulatory provisions	(3,100)	-	-	(3,100)
Other operating expenses	(6,155)	(1)	(22)	(6,178)
Total operating expenses	(9,255)	(1)	(22)	(9,278)
Trading surplus	2,290	3	(22)	2,271
Impairment	(2,421)	-	-	(2,421)
(Loss) profit before tax	(131)	3	(22)	(150)
Taxation	(571)	(3)	(1)	(575)
Loss for the period	(702)	-	(23)	(725)

Profit attributable to non-controlling interests	49	-	-	49
Loss attributable to equity shareholders	(751)	-	(23)	(774)
Loss for the period	(702)	-	(23)	(725)

Basic loss per share	(1.1)p			(1.1)p
Diluted loss per share	(1.1)p			(1.1)p

26. Restatement of prior period information (continued)

Consolidated statement of comprehensive income - half-year to 30 June 2012

	As previously reported	IFRS 10	IAS 19 Revised	Restated
	£m	£m	£m	£m

Loss for the period	(641)	-	(21)	(662)
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements:
Remeasurements before taxation	-	-	398	398
Taxation	-	-	(96)	(96)
	-	-	302	302
Items that may subsequently be reclassified to profit or loss:
Movements in revaluation reserve in respect of available-for-sale financial assets:
Change in fair value	738	-	-	738
Income statement transfers in respect of disposals	(792)	-	-	(792)
Income statement transfers in respect of impairment	28	-	-	28
Taxation	42	-	-	42
	16	-	-	16
Movements in cash flow hedging reserve:
Effective portion of changes in fair value	128	-	-	128
Net income statement transfers	238	-	-	238
Taxation	(83)	-	-	(83)
	283	-	-	283
Currency translation differences (tax: nil)	(20)	-	-	(20)
Other comprehensive income for the period, net of tax	279	-	302	581
Total comprehensive income for the period	(362)	-	281	(81)

Total comprehensive income attributable to non-controlling interests	34	-	-	34
Total comprehensive income attributable to equity shareholders	(396)	-	281	(115)
Total comprehensive income for the period	(362)	-	281	(81)

26. Restatement of prior period information (continued)

Consolidated statement of comprehensive income - half-year to 31 December 2012

	As previously reported	IFRS 10	IAS 19 Revised	Restated
	£m	£m	£m	£m

Loss for the period	(702)	-	(23)	(725)
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements:
Remeasurements before taxation	-	-	(2,534)	(2,534)
Taxation	-	-	587	587
	-	-	(1,947)	(1,947)
Items that may subsequently be reclassified to profit or loss:
Movements in revaluation reserve in respect of available-for-sale financial assets:
Adjustment on transfer from held-to maturity portfolio	1,168	-	-	1,168
Change in fair value	162	-	-	162
Income statement transfers in respect of disposals	(2,755)	-	-	(2,755)
Income statement transfers in respect of impairment	14	-	-	14
Other income statement transfers	169	-	-	169
Taxation	297	-	-	297
	(945)	-	-	(945)
Movements in cash flow hedging reserve:
Effective portion of changes in fair value	(12)	-	-	(12)
Net income statement transfers	(330)	-	-	(330)
Taxation	84	-	-	84
	(258)	-	-	(258)
Currency translation differences (tax: nil)	6	-	-	6
Other comprehensive income for the period, net of tax	(1,197)	-	(1,947)	(3,144)
Total comprehensive income for the period	(1,899)	-	(1,970)	(3,869)

Total comprehensive income attributable to non-controlling interests	48	-	-	48
Total comprehensive income attributable to equity shareholders	(1,947)	-	(1,970)	(3,917)
Total comprehensive income for the period	(1,899)	-	(1,970)	(3,869)

26. Restatement of prior period information (continued)

Consolidated cash flow statement - half-year to 30 June 2012

	As previously reported1	IFRS 10	IAS 19 Revised	Restated
	£m	£m	£m	£m

(Loss) profit before tax	(439)	3	(20)	(456)
Adjustments for:
Change in operating assets	29,831	223	-	30,054
Change in operating liabilities	(8,543)	(206)	-	(8,749)
Non-cash and other items	1,668	(20)	20	1,668
Tax paid	(94)	-	-	(94)
Net cash provided by operating activities	22,423	-	-	22,423

Cash flows from investing activities
Purchase of financial assets	(12,284)	-	-	(12,284)
Proceeds from sale and maturity of financial assets	14,238	-	-	14,238
Purchase of fixed assets	(1,416)	-	-	(1,416)
Proceeds from sale of fixed assets	1,022	-	-	1,022
Acquisition of businesses, net of cash acquired	(10)	-	-	(10)
Disposal of businesses, net of cash disposed	5	-	-	5
Net cash provided by investing activities	1,555	-	-	1,555

Cash flows from financing activities
Dividends paid to non-controlling interests	(23)	-	-	(23)
Interest paid on subordinated liabilities	(888)	-	-	(888)
Proceeds from issue of ordinary shares	170	-	-	170
Repayment of subordinated liabilities	(15)	-	-	(15)
Change in non-controlling interests	7	-	-	7
Net cash used in financing activities	(749)	-	-	(749)
Effects of exchange rate changes on cash and cash equivalents	(10)	-	-	(10)
Change in cash and cash equivalents	23,219	-	-	23,219
Cash and cash equivalents at beginning of period	85,889	-	-	85,889
Cash and cash equivalents at end of period	109,108	-	-	109,108

1	Adjusted for minor reclassifications.

26. Restatement of prior period information (continued)

Consolidated cash flow statement - half-year to 31 December 2012

	As previously reported	IFRS 10	IAS 19 Revised	Restated
	£m	£m	£m	£m

(Loss) profit before tax	(131)	3	(22)	(150)
Adjustments for:
Change in operating assets	18,502	(751)	-	17,751
Change in operating liabilities	(38,138)	734	-	(37,404)
Non-cash and other items	377	14	22	413
Tax paid	16	-	-	16
Net cash used in operating activities	(19,374)	-	-	(19,374)

Cash flows from investing activities
Purchase of financial assets	(9,766)	-	-	(9,766)
Proceeds from sale and maturity of financial assets	23,426	-	-	23,426
Purchase of fixed assets	(1,587)	-	-	(1,587)
Proceeds from sale of fixed assets	1,573	-	-	1,573
Acquisition of businesses, net of cash acquired	(1)	-	-	(1)
Disposal of businesses, net of cash disposed	32	-	-	32
Net cash provided by investing activities	13,677	-	-	13,677

Cash flows from financing activities
Dividends paid to non-controlling interests	(33)	-	-	(33)
Interest paid on subordinated liabilities	(1,689)	-	-	(1,689)
Repayment of subordinated liabilities	(649)	-	-	(649)
Change in non-controlling interests	16	-	-	16
Net cash used in financing activities	(2,355)	-	-	(2,355)
Effects of exchange rate changes on cash and cash equivalents	2	-	-	2
Change in cash and cash equivalents	(8,050)	-	-	(8,050)
Cash and cash equivalents at beginning of period	109,108	-	-	109,108
Cash and cash equivalents at end of period	101,058	-	-	101,058

26. Restatement of prior period information (continued)

Consolidated balance sheet at 31 December 2012

	As previously reported	IFRS 10	IAS 19 Revised	Restated
Assets	£m	£m	£m	£m

Cash and balances at central banks	80,298	-	-	80,298
Items in course of collection from banks	1,256	-	-	1,256
Trading and other financial assets at fair value through profit or loss	153,990	6,630	-	160,620
Derivative financial instruments	56,550	7	-	56,557
Loans and receivables:
Loans and advances to banks	29,417	3,340	-	32,757
Loans and advances to customers	517,225	-	-	517,225
Debt securities	5,273	-	-	5,273
	551,915	3,340	-	555,255
Available-for-sale financial assets	31,374	-	-	31,374
Investment properties	5,405	-	-	5,405
Goodwill	2,016	-	-	2,016
Value of in-force business	6,800	-	-	6,800
Other intangible assets	2,792	-	-	2,792
Tangible fixed assets	7,342	-	-	7,342
Current tax recoverable	354	-	-	354
Deferred tax assets	4,285	-	628	4,913
Retirement benefit assets	1,867	-	(1,126)	741
Other assets	18,308	190	-	18,498
Total assets	924,552	10,167	(498)	934,221

26. Restatement of prior period information (continued)

Consolidated balance sheet at 31 December 2012 (continued)

	As previously reported	IFRS 10	IAS 19 Revised	Restated
	£m	£m	£m	£m
Equity and liabilities
Liabilities
Deposits from banks	38,405	-	-	38,405
Customer deposits	426,912	-	-	426,912
Items in course of transmission to banks	996	-	-	996
Trading and other financial liabilities at fair value through profit or loss	35,972	(2,580)	-	33,392
Derivative financial instruments	48,665	11	-	48,676
Notes in circulation	1,198	-	-	1,198
Debt securities in issue	117,369	(116)	-	117,253
Liabilities arising from insurance contracts andparticipating investment contracts	82,953	-	-	82,953
Liabilities arising from non-participating investment contracts	54,372	-	-	54,372
Unallocated surplus within insurance businesses	267	-	-	267
Other liabilities	33,941	12,852	-	46,793
Retirement benefit obligations	300	-	1,605	1,905
Current tax liabilities	138	-	-	138
Deferred tax liabilities	327	-	-	327
Other provisions	3,961	-	-	3,961
Subordinated liabilities	34,092	-	-	34,092
Total liabilities	879,868	10,167	1,605	891,640

Equity
Share capital	7,042	-	-	7,042
Share premium account	16,872	-	-	16,872
Other reserves	12,902	-	-	12,902
Retained profits	7,183	-	(2,103)	5,080
Shareholders' equity	43,999	-	(2,103)	41,896
Non-controlling interests	685	-	-	685
Total equity	44,684	-	(2,103)	42,581
Total equity and liabilities	924,552	10,167	(498)	934,221

26. Restatement of prior period information (continued)

Equity at 1 January 2012

	As previously reported	IFRS 10	IAS 19 Revised	Restated
	£m	£m	£m	£m

Share capital	6,881	-	-	6,881
Share premium account	16,541	-	-	16,541
Other reserves	13,818	-	-	13,818
Retained profits	8,680	-	(414)	8,266
Shareholders' equity	45,920	-	(414)	45,506
Non-controlling interests	674	-	-	674
Total equity	46,594	-	(414)	46,180

27. Future accounting developments

The following pronouncements may have a significant effect on the Group's financial statements but are not applicable for the year ending 31 December 2013 and have not been applied in preparing these condensed consolidated half-year financial statements. Save as disclosed below, the full impact of these accounting changes is being assessed by the Group.

Pronouncement	Nature of change	IASB effective date
Amendments to IAS 32 Financial Instruments: Presentation - 'Offsetting Financial Assets and Financial Liabilities'	Provides additional application guidance to address inconsistencies identified in applying the offsetting criteria used in the standard. Some gross settlement systems may qualify for offsetting where they exhibit certain characteristics akin to net settlement.	Annual periods beginning on or after 1 January 2014.
IFRS 9 Financial Instruments1	Replaces those parts of IAS 39 Financial Instruments: Recognition and Measurement relating to the classification, measurement and derecognition of financial assets and liabilities. IFRS 9 requires financial assets to be classified into two measurement categories, fair value and amortised cost, on the basis of the objectives of the entity's business model for managing its financial assets and the contractual cash flow characteristics of the instruments and eliminates the available-for-sale financial asset and held-to-maturity investment categories in IAS 39. The requirements for derecognition are broadly unchanged from IAS 39. The standard also retains most of the IAS 39 requirements for financial liabilities except for those designated at fair value through profit or loss whereby that part of the fair value change attributable to the entity's own credit risk is recorded in other comprehensive income.	Annual periods beginning on or after 1 January 2015.

As at 31 July 2013, this pronouncement is awaiting EU endorsement. IFRS 9 is the initial stage of the project to replace IAS 39. Future stages are expected to result in amendments to IFRS 9 to deal with changes to the impairment of financial assets measured at amortised cost and hedge accounting, as well as a reconsideration of classification and measurement. Until all stages of the replacement project are complete, it is not possible to determine the overall impact on the financial statements of the replacement of IAS 39.

28. Other information

The financial information in these condensed consolidated half-year financial statements does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2012 have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include an emphasis of matter paragraph and did not include a statement under section 498 of the Companies Act 2006.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors listed below (being all the directors of Lloyds 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 2013 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 2013 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

31 July 2013

Lloyds Banking Group plc board of directors:

Executive directors:

António Horta-Osório (Group Chief Executive)

George Culmer (Group Finance Director)

Non-executive directors:

Sir Winfried Bischoff (Chairman)

David Roberts (Deputy Chairman)

Lord Blackwell

Carolyn Fairbairn

Anita Frew

Nicholas Luff

Anthony Watson CBE

Sara Weller

INDEPENDENT REVIEW REPORT TO LLOYDS BANKING GROUP PLC

Introduction

We have been engaged by the Company to review the condensed consolidated half-year financial statements in the half-year results for the six months ended 30 June 2013, which comprise the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated cash flow statement and related notes. We have read the other information contained in the half-year results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated half-year financial statements.

Directors' responsibilities

The half-year results are the responsibility of, and have been approved by, the directors. The directors are responsible for preparing the half-year results in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed consolidated half-year financial statements included in the half-year results have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated half-year financial statements in the 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 the Disclosure Rules and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in producing this report, 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.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated half-year financial statements in the half-year results for the six months ended 30 June 2013 are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

London

31 July 2013

Notes:

a) The maintenance and integrity of the Lloyds Banking Group plc website is the responsibility of the Group directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

CONTACTS

For further information please contact:

INVESTORS AND ANALYSTS

Charles King

Investor Relations Director

020 7356 3537

[email protected]

CORPORATE AFFAIRS

Matthew Young

Group Corporate Affairs Director

020 7356 2231

[email protected]

Ed PetterGroup Media Relations Director

020 8936 5655

[email protected]

Copies of this news release may be obtained from Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN. The full news release can also be found on the Group's website - www.lloydsbankinggroup.com.

Registered office: Lloyds Banking Group plc, The Mound, Edinburgh, EH1 1YZ

Registered in Scotland no. 95000

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR LFFVVDFILVIV

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2013 HALF-YEAR RESULTS NEWS RELEASE - PART 2

Total liabilities

Total equity

Balance at 1 January 2013

As previously reported

Restated

Balance at 30 June 2013

Balance at 1 January 2012

As originally reported

Restated

Balance at 30 June 2012

Balance at 1 July 2012

As originally reported

Restated

Total transactions with owners

Balance at 31 December 2012

Total liabilities

Total equity

Total equity