Interim Results - Part 2

RNS Number : 1681A

Lloyds TSB Group PLC

30 July 2008

 



CONDENSED INTERIM FINANCIAL STATEMENTS (unaudited)

CONSOLIDATED INCOME STATEMENT

	Half-year  to 30 June  2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
		£m		£m		£m
Interest and similar income		8,713		7,982		8,892
Interest and similar expense		(5,066)		(5,136)		(5,639)
Net interest income		3,647		2,846		3,253
Fee and commission income		1,582		1,597		1,627
Fee and commission expense		(351)		(301)		(299)
Net fee and commission income		1,231		1,296		1,328
Net trading income		(4,817)		2,366		757
Insurance premium income		2,914		2,535		2,895
Other operating income		309		668		284
Other income		(363)		6,865		5,264
Total income		3,284		9,711		8,517
Insurance claims		1,344		(4,121)		(3,401)
Total income, net of insurance claims		4,628		5,590		5,116
Operating expenses		(2,930)		(2,760)		(2,807)
Trading surplus		1,698		2,830		2,309
Impairment		(1,099)		(837)		(959)
Profit on sale of businesses		-		-		657
Profit before tax		599		1,993		2,007
Taxation		(11)		(433)		(246)
Profit for the period		588		1,560		1,761
Profit attributable to minority interests		12		20		12
Profit attributable to equity shareholders		576		1,540		1,749
Profit for the period		588		1,560		1,761
Basic earnings per share		10.2p		27.3p		31.0p
Diluted earnings per share		10.1p		27.1p		30.8p
Dividend per share for the period*		11.4p		11.2p		24.7p
Dividend for the period*		£648m		£632m		£1,394m

*The dividend for the half-year to 30 June 2008 represents the interim dividend for 2008 which will be paid and accounted for on 1 October 2008 (the dividends shown for the half-year to 30 June 2007 and the half-year to 31 December 2007 represent the interim and final dividends for 2007 which were paid and accounted for on 3 October 2007 and 7 May 2008 respectively). 

  CONDENSED INTERIM FINANCIAL STATEMENTS (unaudited)

CONSOLIDATED balance sheet

	30 June  2008			30 June  2007		31 Dec  2007
		£m			£m		£m
Assets
Cash and balances at central banks		3,616			1,255		4,330
Items in course of collection from banks		1,883			1,727		1,242
Trading and other financial assets at fair value through profit or loss		52,037			68,424		57,911
Derivative financial instruments		9,914			6,640		8,659
Loans and advances to banks		29,319			33,599		34,845
Loans and advances to customers		229,621			200,181		209,814
Available-for-sale financial assets		25,032			21,994		20,196
Investment property		3,366			5,177		3,722
Goodwill		2,358			2,377		2,358
Value of in-force business		2,101			2,890		2,218
Other intangible assets		182			141		149
Tangible fixed assets		2,856			3,220		2,839
Other assets		5,497			5,470		5,063
Total assets		367,782			353,095		353,346
Equity and liabilities
Deposits from banks		40,207			40,017		39,091
Customer accounts		162,129			144,654		156,555
Items in course of transmission to banks		835			727		668
Trading and other financial liabilities at fair value through profit or loss			3,572		2,866		3,206
Derivative financial instruments		9,931			6,890		7,582
Debt securities in issue		58,437			49,812		51,572
Liabilities arising from insurance contracts and
participating investment contracts		35,780			41,985		38,063
Liabilities arising from non-participating
investment contracts		16,331			25,609		18,197
Unallocated surplus within insurance businesses		433			628		554
Other liabilities		11,306			12,072		9,690
Retirement benefit obligations		1,925			2,332		2,144
Current tax liabilities		108			946		484
Deferred tax liabilities		632			1,236		948
Other provisions		381			233		209
Subordinated liabilities		14,694			11,378		11,958
Total liabilities		356,701			341,385		340,921
Equity
Share capital		1,441			1,430		1,432
Share premium account		1,396			1,284		1,298
Other reserves		(685)			351		(60)
Retained profits		8,645			8,308		9,471
Shareholders' equity		10,797			11,373		12,141
Minority interests		284			337		284
Total equity		11,081			11,710		12,425
Total equity and liabilities		367,782			353,095		353,346

  CONDENSED INTERIM FINANCIAL STATEMENTS (unaudited)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Attributable to equity shareholders
	Share capital  and premium				Other  reserves		Retained  profits		Minority  interests		Total
			£m		£m		£m		£m		£m
Balance at 1 January 2007			2,695		336		8,124		352		11,507
Movements in available-for-sale financial assets, net of tax:
- change in fair value			-		14		-		-		14
- transferred to income statement in respect   of disposals			-		(1)		-		-		(1)
Movement in cash flow hedges, net of tax			-		(2)		-		-		(2)
Currency translation differences			-		4		-		(1)		3
Net income recognised directly in equity			-		15		-		(1)		14
Profit for the period			-		-		1,540		20		1,560
Total recognised income for the period			-		15		1,540		19		1,574
Dividends			-		-		(1,325)		(4)		(1,329)
Purchase/sale of treasury shares			-		-		(36)		-		(36)
Employee share option schemes:
- value of employee services			-		-		5		-		5
- proceeds from shares issued			19		-		-		-		19
Repayment of capital to minority shareholders			-		-		-		(30)		(30)
Balance at 30 June 2007			2,714		351		8,308		337		11,710
Movements in available-for-sale financial assets, net of tax:
- change in fair value			-		(450)		-		-		(450)
- transferred to income statement in respect   of disposals			-		(4)		-		-		(4)
- transferred to income statement in respect   of impairment			-		49		-		-		49
- disposal of businesses			-		(6)		-		-		(6)
Movement in cash flow hedges, net of tax			-		(13)		-		-		(13)
Currency translation differences			-		13		-		-		13
Net income recognised directly in equity			-		(411)		-		-		(411)
Profit for the period			-		-		1,749		12		1,761
Total recognised income for the period			-		( 411)		1,749		12		1,350
Dividends			-		-		(632)		(15)		(647)
Purchase/sale of treasury shares			-		-		35		-		35
Employee share option schemes:
- value of employee services			-		-		11		-		11
- proceeds from shares issued			16		-		-		-		16
Repayment of capital to minority shareholders			-		-		-		(50)		(50)
Balance at 31 December 2007			2,730		(60)		9,471		284		12,425

  CONDENSED INTERIM FINANCIAL STATEMENTS (unaudited)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

		Attributable to equity shareholders
	Share capital  and premium				Other  reserves		Retained  profits		Minority  interests		Total
			£m		£m		£m		£m		£m
Balance at 31 December 2007			2,730		(60)		9,471		284		12,425
Movements in available-for-sale financial assets, net of tax:
- change in fair value			-		(674)		-		-		(674)
- transferred to income statement in respect   of disposals			-		(18)		-		-		(18)
- transferred to income statement in respect   of impairment			-		44		-		-		44
Movement in cash flow hedges, net of tax			-		(5)		-		-		(5)
Currency translation differences			-		28		-		-		28
Net income recognised directly in equity			-		(625)		-		-		(625)
Profit for the period			-		-		576		12		588
Total recognised income for the period			-		(625)		576		12		(37)
Dividends			-		-		(1,394)		(10)		(1,404)
Purchase/sale of treasury shares			-		-		(6)		-		(6)
Employee share option schemes:
- value of employee services			-		-		(2)		-		(2)
- proceeds from shares issued			107		-		-		-		107
Repayment of capital to minority shareholders			-		-		-		(2)		(2)
Balance at 30 June 2008			2,837		(685)		8,645		284		11,081

  CONDENSED INTERIM FINANCIAL STATEMENTS (unaudited)

CONSOLIDATED CASH FLOW STATEMENT

	Half-year  to 30 June  2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
		£m		£m		£m
Profit before tax		599		1,993		2,007
Adjustments for:
Change in operating assets		(16,664)		(4,602)		(12,380)
Change in operating liabilities		15,042		9,888		11,653
Non-cash and other items		(1,535)		1,081		1,703
Tax paid		(531)		(394)		(465)
Net cash (used in) provided by operating activities		(3,089)		7,966		2,518
Cash flows from investing activities
Purchase of available-for-sale financial assets		(12,864)		(12,133)		(9,534)
Proceeds from sale and maturity of available-for-sale financial assets		7,908		8,946		10,522
Purchase of fixed assets		(561)		(874)		(460)
Proceeds from sale of fixed assets		250		388		594
Acquisition of businesses, net of cash acquired		(1)		(5)		(3)
Disposal of businesses, net of cash disposed		-		(26)		1,502
Net cash (used in) provided by investing activities		(5,268)		(3,704)		2,621
Cash flows from financing activities
Dividends paid to equity shareholders		(1,394)		(1,325)		(632)
Dividends paid to minority interests		(10)		(4)		(15)
Interest paid on subordinated liabilities		(321)		(342)		(367)
Proceeds from issue of subordinated liabilities		2,551		-		-
Proceeds from issue of ordinary shares		107		19		16
Repayment of subordinated liabilities		-		(300)		-
Repayment of capital to minority shareholders		(2)		(30)		(50)
Net cash provided by (used in) financing activities		931		(1,982)		(1,048)
Effects of exchange rate changes on cash and cash equivalents		180		(9)		91
Change in cash and cash equivalents		(7,246)		2,271		4,182
Cash and cash equivalents at beginning of period		31,891		25,438		27,709
Cash and cash equivalents at end of period		24,645		27,709		31,891

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.

  CONDENSED INTERIM FINANCIAL STATEMENTS (unaudited)

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

		Page
1	Accounting policies, presentation and estimates	36
2	Segmental analysis	37
3	Balance sheet information	39
4	Credit market positions in Corporate Markets	40
5	Profit on sale of businesses	42
6	Legal and regulatory matters	43
7	Taxation	44
8	Principal risks and uncertainties	45

  1.    Accounting policies, presentation and estimates

These condensed interim financial statements as at and for the half-year to 30 June 2008 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with International Accounting Standard ('IAS') 34, 'Interim Financial Reporting', as adopted by the European Union. 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 2007 ('2007 Annual Report and Accounts'), which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union. Copies of the 2007 Annual Report and Accounts can be found on the Group's website or are available upon request from the Company Secretary's Department, Lloyds TSB Group plc, 25 Gresham Street, London EC2V 7HN.

As required by IAS 34, the Group's income tax expense for the six months ended 30 June 2008 is based on the best estimate of the weighted-average annual income tax rate expected for the full financial year. With this exception, the accounting policies, significant judgements made by management in applying them, and key sources of estimation uncertainty applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its 2007 Annual Report and Accounts. The preparation of interim 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 expense. Actual results may differ from these estimates. There have been no significant changes in the bases upon which estimates have been determined, compared to those applied at 31 December 2007. The Group has reviewed the valuation of its pension schemes and has concluded that no adjustment is required at 30 June 2008. In accordance with IAS 19' Employee Benefits', the valuations will be formally updated at the year end. Goodwill held in the Group's balance sheet is tested (at least) annually for impairment in the second half of the year. No circumstances have arisen during the half-year to 30 June 2008 to require additional impairment testing.

The Group has had no material or unusual related party or share-based payment transactions during the half-year to 30 June 2008. Related party and share-based payment transactions for the half-year to 30 June 2008 are similar in nature to those for the year ended 31 December 2007. No significant events, other than those disclosed within this document, have occurred between 30 June 2008 and the date of approval of these condensed interim financial statements. A variety of contingent liabilities and commitments arise in the ordinary course of the Group's banking business; there has been no significant change in the volume or nature of such transactions during the half-year to 30 June 2008. Full details of the Group's related party transactions for the year to 31 December 2007, share-based payment schemes and contingent liabilities and commitments entered into in the normal course of business can be found in the Group's 2007 Annual Report and Accounts.

  2.    Segmental analysis

Lloyds TSB Group is a leading UK-based financial services group, providing a wide range of banking and financial services in the UK and in certain locations overseas. The Group's activities are organised into three segments: UK Retail Banking, Insurance and Investments and Wholesale and International Banking. Central group items includes the funding cost of certain acquisitions less earnings on capital, central costs and accruals for payment to the Lloyds TSB Foundations. 

Services provided by UK Retail Banking encompass the provision of banking and other financial services to personal customers, private banking and mortgages. Insurance and Investments offers life assurance, pensions and savings products, general insurance and asset management services. Wholesale and International Banking provides banking and related services for major UK and multinational companies, banks and financial institutions, and small and medium-sized UK businesses. It also provides asset finance to personal and corporate customers, manages the Group's activities in financial markets and provides banking and financial services overseas.

As part of Lloyds TSB Group's transition to Basel II on 1 January 2008, the Group has updated its capital and liquidity pricing methodology. The main difference in this approach is to allocate a greater share of certain funding costs, previously allocated to the Central group items segment, to individual divisions. To enable meaningful period-on-period comparisons, the segmental analyses for the half-years to 30 June 2007 and 31 December 2007 have been restated to reflect these changes.

Half-year to  30 June 2008	UK  Retail  Banking	General  insurance		Life,  pensions  and asset  management		Insurance  and  Investments		Wholesale  and  International   Banking			Central  group  items*		Total
	£m		£m		£m		£m		£m		£m		£m
Interest and similar income*	4,324		12		491		503		5,516		(1,630)		8,713
Interest and similar expense*	(2,334)		(9)		(209)		(218)		(4,066)		1,552		(5,066)
Net interest income	1,990		3		282		285		1,450		(78)		3,647
Other income (net of fee and commission expense)	862		278		(1,958)		(1,680)		489		(34)		(363)
Total income	2,852		281		(1,676)		(1,395)		1,939		(112)		3,284
Insurance claims	-		(90)		1,434		1,344		-		-		1,344
Total income, net of insurance claims	2,852		191		(242)		(51)		1,939		(112)		4,628
Operating expenses	(1,286)		(79)		(233)		(312)		(1,300)		(32)		(2,930)
Trading surplus (deficit)	1,566		112		(475)		(363)		639		(144)		1,698
Impairment	(655)		-		-		-		(444)		-		(1,099)
Profit (loss) before tax	911		112		(475)		(363)		195		(144)		599
External revenue	4,838		594		(1,043)		(449)		4,393		(81)		8,701
Inter-segment revenue*	570		34		12		46		1,706		(2,322)		-
Segment revenue	5,408		628		(1,031)		(403)		6,099		(2,403)		8,701

*Central group items on this and the following page includes inter-segment consolidation adjustments within interest and similar income and within interest and similar expense as follows: interest and similar income £(2,475) million (2007H1: £(1,495) million; 2007H2: £(1,806) million); interest and similar expense £2,475 million (2007H1: £1,495 million; 2007H2: £1,806 million). There is no impact on net interest income. Similarly, Central group items includes inter-segment revenue adjustments of £(3,121) million (2007H1: £(2,011) million; 2007H2: £(2,255) million).

  2.    Segmental analysis (continued)

Half-year to 30 June 2007	UK  Retail  Banking	General  Insurance		Life,  pensions  and asset  management		Insurance  and  Investments		Wholesale  and  International   Banking			Central  group  items*		Total
	£m		£m		£m		£m		£m		£m		£m
Interest and similar income*	3,729		10		459		469		4,617		(833)		7,982
Interest and similar expense*	(1,931)		(9)		(387)		(396)		(3,488)		679		(5,136)
Net interest income	1,798		1		72		73		1,129		(154)		2,846
Other income (net of fee and commission expense)	883		286		4,497		4,783		1,017		182		6,865
Total income	2,681		287		4,569		4,856		2,146		28		9,711
Insurance claims	-		(152)		(3,969)		(4,121)		-		-		(4,121)
Total income, net of insurance claims	2,681		135		600		735		2,146		28		5,590
Operating expenses	(1,297)		(79)		(256)		(335)		(1,125)		(3)		(2,760)
Trading surplus	1,384		56		344		400		1,021		25		2,830
Impairment	(627)		-		-		-		(210)		-		(837)
Profit before tax	757		56		344		400		811		25		1,993
External revenue	4,361		639		5,037		5,676		4,995		116		15,148
Inter-segment revenue*	415		22		97		119		882		(1,416)		-
Segment revenue	4,776		661		5,134		5,795		5,877		(1,300)		15,148

Half-year to 31 December 2007	UK  Retail  Banking	General  Insurance		Life,  pensions  and asset  management		Insurance  and  Investments		Wholesale  and  International   Banking			Central  group  items*		Total
	£m	£m		£m		£m		£m			£m		£m
Interest and similar income*	4,235		13		581		594		5,145		(1,082)		8,892
Interest and similar expense*	(2,338)		(9)		(295)		(304)		(3,865)		868		(5,639)
Net interest income	1,897		4		286		290		1,280		(214)		3,253
Other income (net of fee and commission expense)	914		268		3,146		3,414		756		180		5,264
Total income	2,811		272		3,432		3,704		2,036		(34)		8,517
Insurance claims	-		(150)		(3,251)		(3,401)		-		-		(3,401)
Total income, net of insurance claims	2,811		122		181		303		2,036		(34)		5,116
Operating expenses	(1,327)		(75)		(245)		(320)		(1,157)		(3)		(2,807)
Trading surplus (deficit)	1,484		47		(64)		(17)		879		(37)		2,309
Impairment	(597)		-		-		-		(362)		-		(959)
Profit on sale of businesses	-		-		272		272		385		-		657
Profit (loss) before tax	887		47		208		255		902		(37)		2,007
External revenue	4,771		596		3,817		4,413		5,087		184		14,455
Inter-segment revenue*	543		27		84		111		605		(1,259)		-
Segment revenue	5,314		623		3,901		4,524		5,692		(1,075)		14,455

  3.    Balance sheet information

		30 June  2008		30 June  2007		31 Dec  2007
		£m		£m		£m
Deposits - customer accounts
Sterling:
Non-interest bearing current accounts		3,328		3,610		3,155
Interest bearing current accounts		43,515		42,426		42,858
Savings and investment accounts		73,460		66,436		70,003
Other customer deposits		22,941		19,059		24,671
Total sterling		143,244		131,531		140,687
Currency		18,885		13,123		15,868
Total deposits - customer accounts		162,129		144,654		156,555
Loans and advances to customers
Agriculture, forestry and fishing		3,373		2,928		3,226
Energy and water supply		2,203		2,258		2,102
Manufacturing		9,832		8,023		8,385
Construction		3,151		2,548		2,871
Transport, distribution and hotels		12,613		10,970		11,573
Postal and communications		1,261		924		946
Property companies		20,937		16,062		17,576
Financial, business and other services		35,246		26,082		29,707
Personal    : mortgages		109,783		100,140		102,739
: other		23,932		22,473		22,988
Lease financing		4,726		4,948		4,686
Hire purchase		5,157		5,063		5,423
		232,214		202,419		212,222
Allowance for impairment losses on loans and advances		(2,593)		(2,238)		(2,408)
Total loans and advances to customers		229,621		200,181		209,814

Total loans and advances to customers in our international businesses totalled £7,963 million (30 June 2007: £5,635 million; 31 December 2007: £6,291 million).

  4.    Credit market positions in Corporate Markets

Lloyds TSB's high quality business model means that the Group has relatively limited exposure to assets affected by current capital markets uncertainties. The following table shows credit market positions in Corporate Markets, on both a gross and net basis.

Credit market positions - 30 June 2008	30 June 2008				2008 H1		31 Dec 2007
	Net  exposure		Gross  exposure		Write-  down		Net  exposure		Gross  exposure
	£m		£m		£m		£m		£m
US sub-prime ABS-direct	-		-		-		-		-
ABS CDOs
- unhedged	70		70		62		130		130
- monoline hedged	-		297		170		-		470
- major global bank cash collateralised	-		1,382		-		-		1,861
Structured investment vehicles
- capital notes	35		35		43		78		78
- liquidity backup facilities	85		85		3		370		370
Trading portfolio
- ABS trading book	417		417		97		474		474
- secondary loan trading	479		836		40		665		863
- other assets*	3,622		3,622		170		3,895		3,895
					585

*Primarily high quality senior bank and corporate assets; also includes £173 million of indirect exposure to US sub-prime mortgages and ABS CDOs. This super senior exposure is protected by note subordination.

Available-for-sale assets		30 June  2008		31 Dec  2007		Reserves  adjustment  2008 H1
		£m		£m		£m
Cancara		7,645		8,268		(448)
- US sub-prime - nil
- Alt-A - £424 million (100% AAA/Aaa)
- CMBS - £1,231 million (100% AAA/Aaa)
Student Loan ABS		3,231		3,164		(139)
- US Government guaranteed
Treasury assets		8,342		4,142		(6)
- Government bond and short-dated bank commercial paper
Other assets		5,196		4,088		(52)
- Predominantly major bank senior paper and high quality ABS
Total - Corporate Markets		24,414		19,662		(645)
Other businesses		618		534		15
Total - Group		25,032		20,196		(630)

  4.    Credit market positions in Corporate Markets (continued)

Valuation of financial instruments

The fair values of financial instruments are determined by reference to observable market prices where these are available and the market is active. Where market prices are not available or are unreliable because of poor liquidity, fair values are determined using valuation techniques including cash flow models which, to the extent possible, use observable market parameters. The process of calculating the fair value using valuation techniques may necessitate the estimation of certain pricing parameters, assumptions or model characteristics.

At 30 June 2008, the fair values of £756 million (31 December 2007: £874 million) of Corporate Markets' trading and other financial assets classified as fair value through profit or loss were valued using unobservable inputs. In respect of these assets, during the six months to 30 June 2008, negative £117 million (six months to 31 December 2007: negative £105 million) was recognised in the income statement relating to the change in their fair values.

The fair values of the Group's venture capital investments in Corporate Markets which at 30 June 2008 amounted to £841 million (31 December 2007: £696 million) and are included within trading and other financial assets classified at fair value through profit or loss are determined using valuation techniques which follow British Venture Capital Association (BVCA) guidelines.

Other valuations use indicative price quotes received from brokers or lead managers, as appropriate, or techniques commonly used by market participants such as discounted cash flow analysis and pricing models.

There are no individually significant assumptions used within those models.

Cancara

Cancara is the Group's hybrid Asset Backed Commercial Paper conduit. At 30 June 2008, the carrying amount of Cancara's assets comprised £7,645 million ABS (31 December 2007: £8,268 million) and £4,008 million client receivables transactions (31 December 2007: £3,723 million). Cancara is fully consolidated in the Group's accounts and represents the Group's only significant conduit.

At 30 June 2008, 92 per cent of the ABS bonds in Cancara were Aaa/AAA rated by Moody's and Standard & Poor's respectively, and there was no exposure either directly or indirectly to sub-prime US mortgages within the ABS portfolio. At 30 June 2008 the client receivables portfolio included no US sub-prime mortgage exposure (31 December 2007: £115 million). At 30 June 2008, Alt-A exposures within the conduit were £424 million (31 December 2007: £619 million).

During the six months to 30 June 2008, an adjustment of £448 million (six months to 31 December 2007: £237 million) was made against the available-for-sale reserve in respect of ABS.

Credit default swap exposure to monolines

At 30 June 2008, Corporate Markets had fair value exposure to two monoline financial guarantors in the form of credit default swap (CDS) protection bought against a CDO of ABS of £500 million and a £200 million CLO. At 30 June 2008, Corporate Markets' exposure to these CDS was £342 million. During the six months to 30 June 2008, adverse credit valuation adjustments relating to these CDS in the amount of £183 million (six months to 31 December 2007: £25 million) were recognised in the income statement.

  4.    Credit market positions in Corporate Markets (continued)

Leveraged finance - underwriting commitments

At 30 June 2008, Corporate Markets' not-yet-syndicated leveraged loan underwriting commitments amounted to £1,023 million of which £756 million were originated before the market dislocation (31 December 2007: £756 million). All of the underlying assets are performing satisfactorily.

Impairment of available-for-sale financial assets

Impairment losses in respect of available-for-sale financial assets transferred from reserves to the income statement for the six months to 30 June 2008 totalled £62 million (six months to 31 December 2007: £70 million).

In determining whether an impairment loss has been incurred in respect of an available-for-sale financial asset, the Group performs an objective review of the current financial circumstances and future prospects of the issuer and considers whether there has been a significant or prolonged decline in the fair value of that asset below its cost. This consideration requires management judgement. Among factors considered by the Group is whether the decline in fair value is a result of a change in the quality of the asset or a downward movement in the market as a whole. An assessment is performed of the future cash flows expected to be realised from the asset, taking into account, where appropriate, the quality of underlying security and credit protection available.

For impaired debt instruments which are classified as available-for-sale financial assets, additional impairment losses are recognised when it is determined there has been a further negative impact on expected future cash flows. A reduction in fair value caused by general widening of credit spreads would not, of itself, result in additional impairment.

5.    Profit on sale of businesses

During the second half of 2007, the Group disposed of Lloyds TSB Registrars, its share registration business; Abbey Life, the UK life operation which was closed to new business in 2000; and Dutton-Forshaw, its medium-size car dealership. In addition, provision was made for payments under an indemnity given in relation to a business sold in an earlier year. A breakdown is provided below:

		Half-year  to 30 June  2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
		£m		£m		£m
Lloyds TSB Registrars		-		-		407
Abbey Life		-		-		272
Other		-		-		(22)
		-		-		657

  6.    Legal and regulatory matters

During the ordinary course of business the Group is subject to threatened or actual legal proceedings.  All such material cases 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.  No provisions are held against such cases; however the Group does not currently expect the final outcome of these cases to have a material adverse effect on its financial position.

In the UK and elsewhere, there is continuing political and regulatory scrutiny of financial services. On 5 June 2008 the Competition Commission published its provisional findings and remedies notice in the Payment Protection Insurance Inquiry and, following consultation, is expected to report by December 2008.  The UK Office of Fair Trading ('OFT') is carrying out an investigation into certain current account charges which are also subject to a legal test case (see below). In addition, on 16 July 2008 the OFT published a market study report on personal current accounts. The OFT is now engaging in a period of consultation until 31 October 2008. At the conclusion of the consultation period, the OFT will publish a summary of the responses received, and then aims to publish a further report in early 2009 which will contain recommendations for the banking industry. The OFT is also investigating interchange fees charged by some card networks in parallel with the European Commission's own investigation into Visa cross-border interchange fees, the European Commission having issued its decision in the MasterCard cross-border interchange case, which decision is now under appeal to the European Court of First Instance. At the same time regulators are considering the review of retail distribution and UK financial stability and depositor protection proposals. It is not presently possible to assess the cost or income impact of these inquiries or any connected matters on the Group until the outcome is known.

In addition, a number of EU directives, including the Unfair Commercial Practices Directive and Payment Services Directive are currently being implemented in the UK. The EU is also considering regulatory proposals for, inter alia, Consumer Credit, Mortgage Credit, Single European Payments Area, Retail Financial Services Review and capital adequacy requirements for insurance companies (Solvency II). 

On 27 July 2007, following agreement between the OFT and a number of UK financial institutions, the OFT issued High Court legal proceedings against seven institutions, including Lloyds TSB Bank plc, to determine the legal status and enforceability of certain of the charges applied to their personal customers in relation to requests for unplanned overdrafts. On 24 April 2008 the High Court determined, in relation to the current terms and conditions of those financial institutions (including Lloyds TSB Bank plc), that the relevant charges are not capable of amounting to penalties but that they are assessable for fairness. On 23 May 2008 Lloyds TSB Bank plc, along with the other relevant financial institutions, was given permission to appeal the finding that the relevant charges are assessable for fairness. A further hearing was held on 7 to 9 July 2008 to consider the position in relation to those financial institutions' (including Lloyds TSB Bank plc's) historic terms and conditions and judgment is currently awaited. It is likely that further hearings will be required and, if appeals are pursued, the proceedings may take a number of years to conclude. The Financial Services Authority ('FSA') has agreed, subject to certain conditions, that the handling of customer complaints on this issue can be suspended until the earlier of either conclusion of the proceedings or 26 January 2009, subject to any renewal or extension which the FSA may agree. Cases before the Financial Ombudsman Service and the County Courts are also generally currently stayed, pending the outcome of the legal proceedings initiated by the OFT.  

  6.    Legal and regulatory matters (continued)

The Group intends to continue to defend its position strongly.  Accordingly, no provision in relation to the outcome of this litigation has been made.  Depending on the Court's determinations, a range of outcomes is possible, some of which could have a significant financial impact on the Group.  The ultimate impact of the litigation on the Group can only be known at its conclusion. 

There has been increased scrutiny of the financial institutions sector, especially in the US, with respect to combating money laundering and terrorist financing and enforcing compliance with economic sanctions.  The Office of Foreign Assets Control ('OFAC') administers US laws and regulations in relation to US economic sanctions against designated foreign countries, nationals and others and the Group has been conducting a review of its conduct with respect to historic US dollar payments involving countries, persons or entities subject to those sanctions.  The Group has provided information relating to its review of such historic payments to a number of authorities including OFAC, the US Department of Justice and the New York County District Attorney's office which, along with other authorities, have been reported to be conducting a broader review of sanctions compliance by non-US financial institutions.  The Group is involved in ongoing discussions with these and other authorities with respect to agreeing a resolution of their investigations.  Discussions have advanced towards resolution since the year end and the Group has provided £180 million in respect of this matter in the first half of 2008.

7.    Taxation

A reconciliation of the charge that would result from applying the standard UK corporation tax rate to profit before tax to the tax charge is given below:

		Half-year  to 30 June  2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
		£m		£m		£m
Profit before tax		599		1,993		2,007
Tax charge thereon at UK corporation tax rate of 28.5% (2007: 30%)		171		598		602
Factors affecting charge:
Disallowed and non-taxable items		25		(3)		5
Overseas tax rate differences		3		(5)		1
Gains exempted or covered by capital losses		(2)		(36)		(238)
Policyholder interests		(207)		(51)		(122)
Corporation tax rate change		-		(89)		(21)
Other items		21		19		19
Tax charge		11		433		246

  8.    Principal risks and uncertainties

The most significant risks likely to be faced by the Group in the second half of the year are:

• Credit risk, reflecting the risk inherent in our lending businesses that is exacerbated at a time when the UK economy is experiencing a marked slowdown which in turn could lead to a recession.  In mortgages, a reduction in house price indices is expected to lead to an increase in impairment levels.  Wholesale credit markets remain volatile and dislocated.  The market dislocation is beginning to impact the real economy, which could result in a further worsening of the business environment and a consequent increase in impairment levels, and in further mark-to-market adjustments in the Group's portfolio of trading and available-for-sale assets.  

• Market risk arising in the Insurance and Investments division, the Wholesale and International Banking division and the Group's pension schemes with respect to adverse movements in equity markets, credit markets and interest rates which has a consequent effect upon the value of assets.  The value of pension scheme liabilities is exposed to real interest rates and credit spreads.  These asset and liability risks could impact the Group adversely.

• Legal and regulatory risk, reflecting the legal and regulatory environment in which the Group operates and the volume and pace of change from within the UK and the rest of the world.  This impacts the Group, both operationally in terms of cost of compliance with uncertainty about legal and regulatory expectations, and strategically through pressure on key earnings streams.  The latter could potentially result in changes to business and pricing models, particularly in the UK retail market.  Our business planning processes continue to reflect changes in the legal and regulatory environment. 

  STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors listed below (being all the directors of Lloyds TSB Group plc) confirm that to the best of their knowledge this condensed set of financial statements has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

• an indication of important events that have occurred during the six months ended 30 June 2008 and their impact on the condensed interim 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 2008 and any material changes in the related party transactions described in the last annual report.

Signed on behalf of the board by 

J. Eric Daniels

Group Chief Executive

29 July 2008

Lloyds TSB Group plc board of directors
Non-Executive Directors	Executive Directors
Sir Victor Blank	J Eric Daniels
Wolfgang C G Berndt	Archie G Kane
Ewan Brown CBE FRSE	G Truett Tate
Jan P du Plessis	Helen A Weir CBE
Philip N Green
Sir Julian Horn-Smith
Lord Leitch
Sir David Manning GCMG CVO

  INDEPENDENT REVIEW REPORT TO LLOYDS TSB GROUP PLC

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008, which comprises the income statement, balance sheet, statement of changes in equity, cash flow statement and related notes 1 to 8.  We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services 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 set of financial statements included in this half-yearly financial report has 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 set of financial statements in the half-yearly financial report based on our review.  This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services 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 set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

Southampton, England

29 July 2008

  ADDITIONAL INFORMATION

		Page
9	Volatility	49
10	Mortgage lending	50
11	Group net interest income	51
12	Other income	52
13	General insurance income	52
14	Operating expenses	53
15	Number of employees (full-time equivalent)	54
16	Impairment losses by division	54
17	Retirement benefit obligations	55
18	Capital ratios (Basel II)	55
19	Total assets by division	56
20	Discontinued businesses	56
21	Economic profit	57
22	Earnings per share	57
23	Scottish Widows - realistic balance sheet information	58
24	European Embedded Value reporting - results for the half-year to 30 June 2008	59
25	Scottish Widows - weighted sales (Annual Premium Equivalent)	63
26	Dividend	63
27	Other information	63

  9.    Volatility

Insurance volatility

The Group's insurance businesses have liability products that are supported by substantial holdings of investments, including equities, property and fixed interest investments, all of which are subject to variations in their value. The value of the liabilities does not move exactly in line with changes in the value of the investments, yet IFRS requires that the changes in both the value of the liabilities and investments be reflected within the income statement. As these investments are substantial and movements in their value can have a significant impact on the profitability of the Insurance and Investments division, management believes that it is appropriate to disclose the division's results on the basis of an expected return in addition to the actual return. The difference between the actual return on these investments and the expected return based upon economic assumptions made at the beginning of the year is included within insurance volatility.

Changes in market variables also affect the realistic valuation of the guarantees and options embedded within products written in the Scottish Widows With Profits Fund, the value of the in-force business and the value of shareholders' funds. Fluctuations in these values caused by changes in market variables, including market spreads reflecting credit risk premia, are also included within insurance volatility. These market credit spreads represent the gap between the yield on corporate bonds and the yield on government bonds, and reflect the market's assessment of credit risk. Changes in the credit spreads affect the value of the in-force business asset in respect of the annuity portfolio.

The expected investment returns used to determine the normalised profit of the business, which are based on prevailing market rates and published research into historic investment return differentials, are set out below:

						2008		2007
						%		%
Gilt yields (gross)						4.55		4.62
Equity returns (gross)						7.55		7.62
Dividend yield						3.00		3.00
Property return (gross)						7.55		7.62
Corporate bonds in unit linked and with-profits funds (gross)						5.15		5.22
Fixed interest investments backing annuity liabilities (gross)						5.56		5.09

During the six months to 30 June 2008, profit before tax included negative insurance volatility of £505 million, being a credit of £5 million to net interest income and a charge of £510 million to other income (2007H1: positive volatility of £9 million, being a credit of £2 million to net interest income and a credit of £7 million to other income; 2007H2: negative volatility of £286 million, being a credit of £5 million to net interest income and a charge of £291 million to other income).

This charge mainly reflects the significant falls in global equities markets in the first half of the year, which resulted in total returns some 15 per cent lower than expected, and falls in the UK bond market, which resulted in returns some 6 per cent lower than expected. These lower than expected returns reduced the value of in-force business held on the balance sheet. The widening of corporate bond credit spreads further reduced the market consistent value of the annuity portfolio. Lower equities and bond prices also affected the valuation of the Group's investments held within the funds attributable to the shareholder; there was no exposure to assets held at fair value through profit or loss valued using unobservable market inputs.

  9.    Volatility (continued)

Policyholder interests volatility

The application of accounting standards results in the introduction of other sources of significant volatility into the pre-tax profits of the life and pensions business. In order to provide a clearer representation of the performance of the business and consistent with the way in which it is managed, equalisation adjustments are made to remove this volatility from underlying profits. The effect of these adjustments is separately disclosed as policyholder interests volatility; there is no impact upon profit attributable to equity shareholders.  

The most significant of these additional sources of volatility is policyholder tax. Accounting standards require that tax on policyholder investment returns should be included in the Group's tax charge rather than being offset against the related income. The impact is, therefore, to either increase or decrease profit before tax with a corresponding change in the tax charge. Other sources of volatility include the minorities' share of the profits earned by investment vehicles which are not wholly owned by the long-term assurance funds.  

During the six months to 30 June 2008, profit before tax included negative policyholder interests volatility of £289 million, being a charge to other income (2007H1: negative volatility of £63 million, being a charge to other income; 2007H2: negative volatility of £159 million, being a charge to other income). In the first half of 2008, substantial policyholder tax losses have been generated as a result of a fall in property, gilt, bond and equity values. These losses reduce future policyholder tax liabilities and have led to a policyholder tax credit during the half-year.  

10.    Mortgage lending

		Half-year  to 30 June   2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
Gross new mortgage lending		£16.8bn		£16.0bn		£13.4bn
Market share of gross new mortgage lending		11.3%		9.0%		7.2%
Redemptions		£9.5bn		£11.2bn		£11.5bn
Market share of redemptions		7.9%		9.1%		8.7%
Net new mortgage lending		£7.3bn		£4.8bn		£1.9bn
Market share of net new mortgage lending		24.4%		8.9%		3.5%
Mortgages outstanding (period end)*		£109.3bn		£100.1bn		£102.0bn
Market share of mortgages outstanding		9.0%		8.8%		8.5%

*Excluding the effect of IFRS related adjustments in order to conform with industry statistics.

In Cheltenham & Gloucester, the average indexed loan-to-value ratio on the mortgage portfolio was 47 per cent (31 December 2007: 43 per cent), and the average loan-to-value ratio for new mortgages and further advances written during the first half of 2008 was 63 per cent (2007: 63 per cent). At 30 June 2008, only 4 per cent of balances had an indexed loan-to-value ratio in excess of 95 per cent.

  11.    Group net interest income

		Half-year  to 30 June  2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
		£m		£m		£m
Banking margin
Net interest income		2,803		2,458		2,690
Average interest-earning assets, excluding reverse repos		200,109		180,754		189,066
Net interest margin		2.82%		2.74%		2.82%
Statutory basis
Net interest income		3,647		2,846		3,253
Average interest-earning assets, excluding reverse repos		274,471		244,463		251,942
Net interest margin		2.67%		2.35%		2.56%

The Group's net interest income includes certain amounts attributable to policyholders, in addition to the interest earnings on shareholders' funds held in the Group's insurance businesses. In addition, the Group's net interest margin is significantly affected by the accounting treatment of a number of Products and Markets and other products, principally those where funding costs are treated as an interest expense and related revenues are recognised within other income. In order to enhance comparability in the Group's banking net interest margin these items have been excluded in determining both net interest income and average interest-earning assets.

A reconciliation of banking net interest income to Group net interest income follows:

		Half-year  to 30 June  2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
		£m		£m		£m
Banking net interest income		2,803		2,458		2,690
Products and Markets, and other products		526		239		214
Volatility and insurance grossing adjustment		318		102		326
Discontinued businesses		-		47		23
Group net interest income		3,647		2,846		3,253

  12.    Other income

		Half-year  to 30 June  2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
		£m		£m		£m
Fee and commission income:
UK current account fees		361		345		348
Other UK fees and commissions		588		524		570
Insurance broking		280		335		313
Card services		282		250		286
International fees and commissions		71		65		67
		1,582		1,519		1,584
Fee and commission expense		(351)		(292)		(293)
Net fee and commission income		1,231		1,227		1,291
Net trading income		(4,302)		2,003		1,081
Insurance premium income		2,914		2,388		2,810
Other operating income		593		591		386
Total other income*		436		6,209		5,568
Insurance claims		1,344		(3,614)		(3,303)
Total other income, net of insurance claims*		1,780		2,595		2,265
Volatility
- Insurance		(510)		7		(291)
- Policyholder interests		(289)		(63)		(159)
Discontinued businesses		-		205		48
Total other income, net of insurance claims		981		2,744		1,863

*Excluding volatility and discontinued businesses. For statutory reporting purposes, volatility totalling £(799) million in the first half of 2008 (2007H1: £(56)million; 2007H2: £(450)million) is included in total other income; comprising net trading income of £(515) million (2007H1: £(79) million; 2007H2: £(367)million) and other operating income of £(284) million (2007H1: £23 million; 2007H2: £(83)million).

In the second half of 2007 certain fees payable by the Group's asset finance business were reclassified from other income to net interest income as part of the effective yield of the related lending. Comparative figures for the six months ended 30 June 2007 have been restated accordingly.

13.    General insurance income

		Half-year  to 30 June  2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
		£m		£m		£m
Premium income from underwriting
Creditor		82		84		80
Home		228		216		225
Health		4		5		4
Reinsurance premiums		(11)		(11)		(12)
		303		294		297
Commissions from insurance broking
Creditor		181		219		175
Home		21		22		27
Health		5		7		5
Other		73		87		106
		280		335		313

  14.    Operating expenses

		Half-year  to 30 June  2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
		£m		£m		£m
Administrative expenses
Staff:
Salaries		1,080		1,014		1,058
National insurance		87		80		82
Pensions		117		120		114
Other staff costs		158		150		204
		1,442		1,364		1,458
Premises and equipment:
Rent and rates		156		152		149
Hire of equipment		6		7		9
Repairs and maintenance		79		77		75
Other		70		69		67
		311		305		300
Other expenses:
Communications and external data processing		229		235		209
Advertising and promotion		96		103		87
Professional fees		114		108		150
Other		233		193		191
		672		639		637
Administrative expenses		2,425		2,308		2,395
Depreciation and amortisation		325		310		317
Total operating expenses*		2,750		2,618		2,712
Settlement of overdraft claims		-		36		40
Provision in respect of certain historic US dollar payments		180		-		-
Discontinued businesses		-		106		55
Total operating expenses		2,930		2,760		2,807
Cost:income ratio  -  statutory basis†		63.3%		49.4%		54.9%
Cost:income ratio  -  continuing businesses basis*†		46.6%		48.6%		47.8%

* Continuing businesses, excluding volatility, the impact of market dislocation, a provision in respect of certain historic US dollar payments, profit on disposal of businesses and the settlement of overdraft claims.

† Total operating expenses divided by total income, net of insurance claims.

  15.    Number of employees (full-time equivalent)

		30 June  2008		30 June  2007		31 Dec  2007
Continuing businesses
UK Retail Banking		30,193		30,624		30,037
Insurance and Investments		5,777		5,823		5,276
Wholesale and International Banking		16,057		15,830		15,995
Other, largely IT and Operations		10,057		10,395		10,019
		62,084		62,672		61,327
Agency staff (full-time equivalent)		(3,591)		(3,226)		(3,249)
Total number of employees (full-time equivalent)		58,493		59,446		58,078

In addition, at 30 June 2007 2,885 employees (full-time equivalent) and 455 agency staff (full-time equivalent) were engaged in the businesses sold in the second half of 2007.

16.    Impairment losses by division

		Half-year  to 30 June  2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
		£m		£m		£m
Impairment losses by division
UK Retail Banking
Personal loans/overdrafts		359		352		327
Credit cards		252		270		257
Mortgages		44		5		13
		655		627		597
Wholesale and International Banking
Excluding market dislocation and 2007 Finance Act		340		184		263
Market dislocation		46		-		22
2007 Finance Act		-		28		-
		386		212		285
Impairment losses on loans and advances		1,041		839		882
Other credit risk provisions		(4)		(2)		7
Impairment of available-for-sale financial assets		62		-		70
Total impairment charge		1,099		837		959
Charge as % of average lending:
Personal loans/overdrafts		5.43		5.60		5.05
Credit cards		7.84		8.14		7.79
Mortgages		0.09		0.01		0.03
UK Retail Banking		1.12		1.15		1.05
Wholesale and International Banking*		0.68		0.43		0.58
Total charge*		0.89		0.82		0.82

*Excluding impact of market dislocation and 2007 Finance Act.

  17.    Retirement benefit obligations

The recognised liability has reduced by £219 million, from £2,144 million at 31 December 2007 to £1,925 million at 30 June 2008, as contributions to the Group's defined benefit schemes exceeded the regular cost.

18.    Capital ratios (Basel II)

			30 June  2008		31 Dec  2007
			£m		£m
Tier 1
Share capital and reserves			11,295		12,663
Regulatory post-retirement benefit adjustments			546		704
Other items			(40)		-
Available-for-sale revaluation reserve and cash flow hedging reserve			1,059		402
Goodwill			(2,358)		(2,358)
Other deductions			(980)		(929)
Core tier 1 capital			9,522		10,482
Preference share capital			1,597		1,589
Innovative tier 1 capital instruments			2,578		1,474
Less: restriction in amount eligible			(531)		-
Total tier 1 capital			13,166		13,545
Tier 2
Undated loan capital			4,552		4,457
Dated loan capital			4,702		3,441
Innovative capital restricted from tier 1			531		-
Collectively assessed provisions			8		12
Available-for-sale revaluation reserve in respect of equities			10		12
Other deductions			(979)		(928)
Total tier 2 capital			8,824		6,994
			21,990		20,539
Supervisory deductions
Life and pensions businesses			(4,018)		(4,373)
Other deductions			(601)		(491)
Total supervisory deductions			(4,619)		(4,864)
Total capital			17,371		15,675
Risk-weighted assets			£bn		£bn
Credit risk			136.6		127.2
Market and counterparty risk			5.7		5.3
Operational risk			11.6		10.1
Total risk-weighted assets			153.9		142.6
Risk asset ratios
Core tier 1			6.2%		7.4%
Tier 1			8.6%		9.5%
Total capital			11.3%		11.0%

  19.    Total assets by division

		30 June  2008		30 June  2007		31 Dec  2007
		£m		£m		£m
UK Retail Banking		122,466		112,705		115,012
Insurance and Investments		71,318		88,183		73,377
Wholesale and International Banking		172,752		151,371		163,294
Central group items		1,246		836		1,663
Total assets		367,782		353,095		353,346

20.    Discontinued businesses

Whilst not meeting the definition of a discontinued operation contained in International Financial Reporting Standard 5 'Non-Current Assets Held for Sale and Discontinued Operations', to improve comparability of figures, the trading results of the businesses sold during 2007 have been excluded from the comparative results in the commentaries provided in this document. The impact of these businesses on the segmental analysis is set out below.

	Insurance  and  Investments		Wholesale  and  International  Banking		Total
	£m		£m		£m
Half-year to 30 June 2007
Net interest income	27		20		47
Other income	589		86		675
Total income	616		106		722
Insurance claims	(507)		-		(507)
Total income, net of insurance claims	109		106		215
Operating expenses	(22)		(84)		(106)
Profit before tax, excluding volatility	87		22		109
Volatility   - insurance	32		-		32
- policyholder interests	5		-		5
Profit before tax	124		22		146
Half-year to 31 December 2007
Net interest income	14		9		23
Other income	141		43		184
Total income	155		52		207
Insurance claims	(98)		-		(98)
Total income, net of insurance claims	57		52		109
Operating expenses	(9)		(46)		(55)
Profit before tax, excluding volatility	48		6		54
Volatility   - insurance	(22)		-		(22)
- policyholder interests	(16)		-		(16)
Profit before tax	10		6		16

  21.    Economic profit

		Half-year  to 30 June  2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
		£m		£m		£m
Statutory basis
Average shareholders' equity		11,573		11,504		11,855
Profit attributable to equity shareholders		576		1,540		1,749
Less: notional charge		(518)		(513)		(538)
Economic profit		58		1,027		1,211
Continuing businesses, excluding volatility, a provision in respect of certain historic US dollar payments, profit on sale of businesses and the settlement of overdraft claims
Average shareholders' equity		11,072		11,281		11,261
Profit attributable to equity shareholders		1,109		1,454		1,285
Less: notional charge		(496)		(503)		(511)
Economic profit		613		951		774

Economic profit represents the difference between the earnings on the equity invested in a business and the cost of the equity. The notional charge has been calculated by multiplying average shareholders' equity by the cost of equity used by the Group of 9 per cent (2007: 9 per cent).  

22.    Earnings per share

		Half-year  to 30 June  2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
Statutory basis
Basic
Profit attributable to equity shareholders		£576m		£1,540m		£1,749m
Weighted average number of ordinary shares in issue		5,649m		5,634m		5,640m
Earnings per share		10.2p		27.3p		31.0p
Fully diluted
Profit attributable to equity shareholders		£576m		£1,540m		£1,749m
Weighted average number of ordinary shares in issue		5,685m		5,685m		5,681m
Earnings per share		10.1p		27.1p		30.8p
Continuing businesses, excluding volatility, a provision in respect of certain historic US dollar payments, profit on sale of businesses and the settlement of overdraft claims
Profit attributable to equity shareholders		£1,109m		£1,454m		£1,285m
Weighted average number of ordinary shares in issue		5,649m		5,634m		5,640m
Earnings per share		19.6p		25.8p		22.8p

  23.    Scottish Widows - realistic balance sheet information

Financial Services Authority (FSA) returns for large with-profits companies include realistic balance sheet information. The information included in FSA returns concentrates on the position of the With Profit Fund. However, under the Scottish Widows demutualisation structure, which was court approved, the fund is underpinned by certain assets outside the With Profit Fund and it is more appropriate to consider the long-term fund position as a whole to measure the realistic capital position of Scottish Widows. The estimated position at 30 June 2008 is shown below, together with the actual position at 31 December 2007.

30 June 2008 (estimated)		With Profit  Fund		Long Term  Fund
		£bn		£bn
Available assets, including support arrangement assets		15.6		18.6
Realistic value of liabilities		(14.7)		(14.9)
Working capital for fund		0.9		3.7
Working capital ratio		5.6%		19.9%
31 December 2007		With Profit  Fund		Long Term  Fund
		£bn		£bn
Available assets, including support arrangement assets		17.8		21.0
Realistic value of liabilities		(16.9)		(17.0)
Working capital for fund		0.9		4.0
Working capital ratio		5.3%		19.2%

The Risk Capital Margin (RCM) is the capital buffer that the FSA requires to be held to cover prescribed adverse shocks. At 30 June 2008, the RCM was estimated to be £77 million for the With Profit Fund and £99 million for the Long Term Fund (covered 11 times and 37 times respectively by the working capital for the fund). At 31 December 2007, the RCM was £76 million for the With Profit Fund and £101 million for the Long Term Fund (covered 12 times and 40 times respectively).

  24.    European Embedded Value reporting - results for half-year to 30 June 2008

This section provides further details of the Scottish Widows EEV financial information. 

Composition of EEV balance sheet 

		30 June  2008		30 June  2007		31 Dec  2007
		£m		£m		£m
Value of in-force business (certainty equivalent)		2,607		2,975		2,779
Value of financial options and guarantees		(67)		(50)		(53)
Cost of capital		(196)		(220)		(178)
Non-market risk		(65)		(66)		(61)
Total value of in-force business		2,279		2,639		2,487
Shareholders' net assets		2,624		2,782		2,878
EEV of covered business - continuing businesses		4,903		5,421		5,365
EEV of Abbey Life		-		941		-
Total EEV of covered business		4,903		6,362		5,365

Reconciliation of opening EEV balance sheet to closing EEV balance sheet on covered business

	Shareholders' net assets			Value of  in-force  business		Total
		£m		£m		£m
As at 1 January 2007		3,572		2,841		6,413
Total profit after tax - Continuing businesses		192		253		445
- Discontinued businesses		55		37		92
Dividends		(588)		-		(588)
As at 30 June 2007		3,231		3,131		6,362
Total profit (loss) after tax - Continuing businesses		388		(151)		237
- Discontinued businesses		26		(32)		(6)
Profit on disposal of Abbey Life (EEV basis)
Sale proceeds		985		-		985
Assets disposed		(474)		(461)		(935)
		511		(461)		50
Dividends		(1,278)		-		(1,278)
As at 31 December 2007		2,878		2,487		5,365
Total loss after tax		(34)		(208)		(242)
Dividends		(220)		-		(220)
As at 30 June 2008		2,624		2,279		4,903

  24.    European Embedded Value reporting - results for half-year to 30 June 2008 (continued)

Analysis of shareholders' net assets on an EEV basis on covered business

		Required  capital		Free  surplus	Shareholders'  net assets
		£m		£m		£m
As at 1 January 2007		2,207		1,365		3,572
Total profit (loss) after tax - Continuing businesses		26		166		192
- Discontinued businesses		(38)		93		55
Dividends		-		(588)		(588)
As at 30 June 2007		2,195		1,036		3,231
Total (loss) profit after tax - Continuing businesses		(240)		628		388
- Discontinued businesses		14		12		26
Disposal of Abbey Life (EEV basis)		(232)		743		511
Dividends		-		(1,278)		(1,278)
As at 31 December 2007		1,737		1,141		2,878
Total (loss) profit after tax		(61)		27		(34)
Dividends		-		(220)		(220)
As at 30 June 2008		1,676		948		2,624

Summary income statement on an EEV basis - Continuing businesses

		Half-year  to 30 June  2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
		£m		£m		£m
New business profit		160		180		146
Existing business profit
- Expected return		158		146		150
- Experience variances		-		3		38
- Assumption changes		24		(8)		(24)
		182		141		164
Expected return on shareholders' net assets		75		94		93
Profit before tax, excluding volatility and other items*		417		415		403
Volatility		(774)		3		(290)
Other items*		19		38		20
Total (loss) profit before tax		(338)		456		133
Taxation		96		(137)		108
Impact of Corporation tax rate change		-		126		(4)
Total (loss) profit after tax - continuing businesses		(242)		445		237

*Other items represent amounts not considered attributable to the underlying performance of the business.  

  24.    European Embedded Value reporting - results for half-year to 30 June 2008 (continued)

Breakdown of income statement between life and pensions, and OEICs - Continuing businesses

		Life and  pensions		OEICS		Total
		£m		£m		£m
Half-year to 30 June 2008
New business profit		138		22		160
Existing business
- Expected return		130		28		158
- Experience variances		(7)		7		-
- Assumption changes		(3)		27		24
		120		62		182
Expected return on shareholders' net assets		71		4		75
Profit before tax*		329		88		417
New business margin (PVNBP)		3.6%		1.4%		3.0%
Post-tax return on embedded value*						11.7%
Half-year to 30 June 2007
New business profit		141		39		180
Existing business
- Expected return		122		24		146
- Experience variances		(9)		12		3
- Assumption changes		(45)		37		(8)
		68		73		141
Expected return on shareholders' net assets		90		4		94
Profit before tax*		299		116		415
New business margin (PVNBP)		3.6%		2.6%		3.4%
Post-tax return on embedded value*						10.8%
Half-year to 31 Dec 2007
New business profit		129		17		146
Existing business
- Expected return		123		27		150
- Experience variances		7		31		38
- Assumption changes		(47)		23		(24)
		83		81		164
Expected return on shareholders' net assets		89		4		93
Profit before tax*		301		102		403
New business margin (PVNBP)		3.4%		1.3%		2.9%
Post-tax return on embedded value*						10.4%

*Excluding volatility and other items.

  24.    European Embedded Value reporting - results for half-year to 30 June 2008 (continued)

Economic assumptions

A bottom up approach is used to determine the economic assumptions for valuing the business in order to determine a market consistent valuation.

The risk-free rate assumed in valuing in-force business is 10 basis points over the 15 year gilt yield. In valuing financial options and guarantees the risk-free rate is derived from gilt yields plus 10 basis points, in line with Scottish Widows' FSA realistic balance sheet assumptions. The table below shows the range of resulting yields and other key assumptions.

		30 June  2008		30 June  2007		31 Dec  2007
		%		%		%
Risk-free rate (value of in-force)		5.28		5.44		4.65
Risk-free rate (financial options and guarantees)		4.24 to 5.37		4.39 to 6.29		4.28 to 4.81
Retail price inflation		3.99		3.44		3.28
Expense inflation		4.89		4.34		4.18

Non-economic assumptions

Future mortality, morbidity, lapse and paid-up rate assumptions are reviewed each year and are based on an analysis of past experience and on management's view of future experience. These assumptions are intended to represent a best estimate of future experience.

For OEIC business, recent lapse assumption experience has been collected over a period that has coincided with favourable investment conditions. Management have used a best estimate of the long-term lapse assumption which is higher than indicated by this experience. In management's view, the approach and lapse assumption are both reasonable.

Non-market risk

An allowance for non-market risk is made through the choice of best estimate assumptions based upon experience, which generally will give the mean expected financial outcome for shareholders and hence no further allowance for non-market risk is required. However, in the case of operational risk and the With Profit Fund these are asymmetric in the range of potential outcomes for which an explicit allowance is made.

  25.    Scottish Widows - weighted sales (Annual Premium Equivalent)

		Half-year  to 30 June  2008		Half-year  to 30 June  2007		Half-year  to 31 Dec  2007
		£m		£m		£m
Weighted sales (regular + 1/10 single)
Life and pensions:
Savings and investments		25		50		39
Protection		64		60		57
Individual pensions		163		143		130
Corporate and other pensions		203		167		185
Retirement income		50		51		50
Managed fund business		13		34		13
Life and pensions		518		505		474
OEICs		167		160		137
Life, pensions and OEICs		685		665		611
Bancassurance		260		239		219
Independent financial advisers		388		370		363
Direct		37		56		29
Life, pensions and OEICs		685		665		611

26.    Dividend

An interim dividend for 2008 of 11.4p (2007: 11.2p), representing an increase of 2 per cent, will be paid on 1 October 2008. The total amount of this dividend is £648 million.

Shareholders who have already joined the dividend reinvestment plan will automatically receive shares instead of the cash dividend. Key dates for the payment of the dividend are: 

Shares quoted ex-dividend	6 August 2008
Record date	8 August 2008
Final date for joining or leaving the dividend reinvestment plan	3 September 2008
Interim dividend paid	1 October 2008

On 7 May 2008, a final dividend for 2007 of 24.7p per share was paid to shareholders. This dividend totalled £1,394 million.

27.    Other information

The financial information included in this news release does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 December 2007 were delivered to the Registrar of Companies following publication on 29 March 2008. The auditors' report on these accounts was unqualified and did not include a statement under sections 237(2) (accounting records or returns inadequate or accounts not agreeing with records and returns) or 237(3) (failure to obtain necessary information and explanations) of the Companies Act 1985.

contacts

For further information please contact:-

Michael Oliver

Director of Investor Relations

Lloyds TSB Group plc

020 7356 2167

email: [e-mail]

Douglas Radcliffe

Senior Manager, Investor Relations

Lloyds TSB Group plc

020 7356 1571

email: [e-mail]

Leigh Calder

Senior Manager, Media Relations

Lloyds TSB Group plc

020 7356 1347

email: [e-mail]

Amy Mankelow

Senior Manager, Media Relations

020 7356 1497

email: [e-mail]

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

A copy of the Group's corporate responsibility report may be obtained by writing to Corporate Responsibility, Lloyds TSB Group plc, 25 Gresham Street, London EC2V 7HN. This information together with the Group's code of business conduct is also available on the Group's website. 

Registered office: Lloyds TSB Group plc, Henry Duncan House, 120 George Street, Edinburgh, EH2 4LH. Registered in Scotland no. 95000.

 

END

 

 

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