Lloyds TSB Bank PLC: Report and Accounts 2002
Lloyds TSB Bank PLC: Report and Accounts 2002
Contents
Directors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Balance sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Other statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Registered office:
To 27 March 2003, 71 Lombard Street, London EC3P 3BS.
From 28 March 2003, 25 Gresham Street, London EC2V 7HN.
Registered in England no 2065
Lloyds TSB Bank plc
Directors’ report
Results and dividends £99 million, or 9 per cent. There was strong growth in
The consolidated profit and loss account on page 5 personal loans, up 15 per cent, and in credit card
shows a profit attributable to shareholders for the year lending, up 27 per cent. Current account and savings
ended 31 December 2002 of £1,785 million. An and investment account balances increased by
interim dividend of £597 million for the year ended 10 per cent. Costs remained tightly controlled and
31 December 2002 was paid on 27 September asset quality generally remains satisfactory,
2002. A second interim dividend of £1,311 million notwithstanding the general slowdown in activity
will be paid on 28 March 2003. within the UK. In the mortgage business, gross new
lending increased by 36 per cent to a record
Principal activities £19.0 billion, compared with £14.0 billion a year
The Bank and its subsidiaries provide a wide range of ago. Net new lending was £5.9 billion, compared
banking and financial services through branches and with £3.9 billion in 2001. This resulted in an
offices in the UK and overseas. estimated market share of net new lending of
7.5 per cent. Profit before tax from Insurance and
Business review Investments decreased by £190 million, or
Profit before tax for the Lloyds TSB Bank Group was 13 per cent, to £1,231 million, partly as a result of a
£2,638 million in 2002, compared with £135 million increase in provisions for redress to past
£3,219 million in 2001. Total income decreased by purchasers of endowment and pension products and
£20 million to £8,870 million, whilst operating a reduction of £55 million in benefits from experience
expenses increased by £157 million, or 3 per cent, to variances and assumption changes, largely reflecting
£4,876 million. The substantial turmoil surrounding the implementation of revised actuarial mortality
the operating and stockmarket environment in which assumptions. Overall weighted sales in the Group’s
we operate has been unprecedented in recent times life, pensions and unit trust businesses were
and a number of issues have adversely affected the £767.6 million compared to £754.7 million last year,
profit and loss account in 2002. The Group an increase of 2 per cent. This increase in weighted
experienced a reduction in profit of £952 million as a sales reflected a 7 per cent increase in weighted sales
result of the adverse investment variance following the from life and pensions, partly offset by a 13 per cent
24 per cent fall in the FTSE All Share Index. We have reduction in weighted sales from unit trusts. Weighted
increased the general provision by £50 million in sales from independent financial advisors rose by
respect of our business in Argentina and significantly 25 per cent. There was strong profit growth from the
increased our corporate provisions in respect of certain Group’s general insurance operations. A 19 per cent
US customers as a result of their accounting and other growth in the combined premium income from
irregularities. In addition the Group has absorbed underwriting and commissions from insurance
provisions totalling £205 million for redress to past broking led to an increase in profit before tax of
purchasers of pensions and Abbey Life endowment £103 million, or 16 per cent, to £754 million. In
and long-term savings products. There was however Wholesale Markets pre-tax profit decreased by
good market share growth in many key areas; £226 million, or 27 per cent, to £626 million, partly
customer lending increased by 9 per cent and as a result of the substantial increase in provisions for
customer deposits increased by 7 per cent. The bad and doubtful debts. In International Banking pre-
Group’s efficiency programmes further improved the tax profit was £22 million, or 6 per cent, higher at
Group’s focus on cost control, and were a major £379 million largely as a result of an increase of
contributing factor to the net reduction in the Group’s 32 per cent in pre-tax profits from The National Bank
staff headcount of over 4,000 after adjusting for of New Zealand, as a result of good growth in all core
acquisitions made during the year. businesses, particularly small business banking.
Pre-tax profit from UK Retail Banking and The total Group charge for bad and doubtful
Mortgages decreased by £30 million to debts was 38 per cent higher at £1,029 million,
£1,175 million, compared to £1,205 million in compared with £747 million in 2001. In UK Retail
2001. Excluding the impact of a reduction of Banking and Mortgages the provisions charge
£57 million in profits from the sale and leaseback of increased by £148 million to £563 million, as a result
premises and the non-recurrence of certain provision of volume related asset growth in the personal loan
releases in 2001, profit before tax increased by and credit card portfolios and a lower level of
1
Lloyds TSB Bank plc
Directors’ report
Business review (continued) people with disabilities. This recognises the need for
recoveries and releases than in 2001. Overall the ensuring fair employment practices in recruitment and
arrears position remains stable. In Wholesale Markets selection, and the retention, training and career
the provisions charge increased by £156 million to development of disabled staff.
£311 million, reflecting the higher corporate Employees are kept closely involved in major
provisions. The Group’s charge for bad and doubtful changes affecting them through such measures as
debts, expressed as a percentage of average lending, team meetings, briefings, internal communications
was 0.77 per cent, compared with 0.62 per cent in and opinion surveys. There are well established
2001. Non-performing lending increased to procedures, including regular meetings with
£1,414 million, compared with £1,222 million in recognised unions, to ensure that the views of
December 2001, largely reflecting higher levels of employees are taken into account in reaching
non-performing lending in the Group’s corporate decisions.
portfolio, and general portfolio growth throughout the Schemes offering share options or the
Group. Non-performing lending as a percentage of acquisition of shares are available for most staff, to
total lending was unchanged at 1.0 per cent. encourage their financial involvement in the Lloyds
Profit attributable to shareholders was TSB Group.
19 per cent lower at £1,785 million. Shareholders’
equity decreased by £2,457 million to £9,085 million Policy and practice on payment of creditors
following a reduction of £2,331 million in the value of The Bank follows ‘The Better Payment Practice Code’
the Group’s pension schemes, largely caused by the published by the Department of Trade and Industry
significant reduction in equity market values. These regarding the making of payments to suppliers. A copy
pension scheme related movements are ignored for of the code and information about it may be obtained
regulatory capital purposes and, excluding these from The DTI Publications Orderline 0870 1502 500,
market movements, shareholders’ equity decreased quoting ref URN 01/621.
by £126 million. Risk-weighted assets increased by The Bank’s policy is to agree terms of payment
13 per cent to £122.4 billion. At the end of 2002, the with suppliers and these normally provide for
risk asset ratios, the international standard for settlement within 30 days after the date of the invoice,
measuring capital adequacy, were 9.4 per cent for except where other arrangements have been
total capital and 8.7 per cent for tier I capital. negotiated. It is the policy of the Bank to abide by the
agreed terms of payment, provided the supplier
Directors performs according to the terms of the contract.
The names of the directors of the Bank are shown on The number of days required to be shown in this
page 3. report, to comply with the provisions of the Companies
Mr Urquhart left the board on 17 April 2002 Act 1985, is 30. This bears the same proportion to the
and Mr Atkinson, Mr Butler, Miss Forbes and number of days in the year as the aggregate of the
Mr Moore will leave the board on 16 April 2003. amounts owed to trade creditors at 31 December
Mr Gemmell became a director on 17 April 2002 bears to the aggregate of the amounts invoiced
2002. by suppliers during the year.
Mr Hampton was appointed director from
1 June 2002 and Mr Targett will join the board on On behalf of the board
10 March 2003.
Employees A J Michie
The Bank is committed to employment policies which Secretary
follow best practice, based on equal opportunities for 13 February 2003
all employees irrespective of sex, race, national origin,
religion, colour, disability, sexual orientation, age or
marital status.
In the UK, the Bank supports Opportunity Now
and Race for Opportunity, campaigns to improve
opportunities for women and ethnic minorities in the
work place. The Bank is a member of the Employers’
Forum on Disability in support of employment of
2
Lloyds TSB Bank plc
Directors
G J N Gemmell CBE
C S Gibson-Smith
P R Hampton
D S Julius CBE
A G Kane
D P Pritchard
(Deputy Chairman from 16 April 2003)
M D Ross CBE
S C Targett
(from 10 March 2003)
3
Lloyds TSB Bank plc
We have audited the financial statements which We report to you our opinion as to whether the
comprise the consolidated profit and loss account, the financial statements give a true and fair view and are
balance sheets, the statement of total recognised gains properly prepared in accordance with the United
and losses and related notes which have been Kingdom Companies Act 1985. We also report to
prepared under the accounting policies set out on you if, in our opinion, the directors’ report is not
pages 9 to 12. consistent with the financial statements, if the Bank
has not kept proper accounting records, if we have
Respective responsibilities of directors and auditors not received all the information and explanations
The directors are responsible for preparing the annual we require for our audit, or if information specified
report including, as described below, the financial by law regarding directors’ remuneration and
statements. The United Kingdom Companies Act transactions is not disclosed.
1985 requires the directors to prepare financial We read the directors’ report contained in the annual
statements for each financial year which give a true report and consider the implications for our report if we
and fair view of the state of affairs of the Bank and the become aware of any apparent misstatements or
Group as at the end of the year and of the profit or loss material inconsistencies with the financial statements.
for that year. In preparing those financial statements,
the directors are required to: Basis of audit opinion
– select suitable accounting policies and then apply We conducted our audit in accordance with Auditing
them consistently; Standards issued by the Auditing Practices Board.
– make judgements and estimates that are An audit includes examination, on a test basis, of
reasonable and prudent; evidence relevant to the amounts and disclosures in
– state whether applicable accounting standards the financial statements. It also includes an
have been followed, subject to any material assessment of the significant estimates and
departures disclosed and explained in the financial judgements made by the directors in the preparation
statements; and of the financial statements, and of whether the
– prepare the financial statements on the going accounting policies are appropriate to the Bank and
concern basis unless it is inappropriate to presume the Group’s circumstances, consistently applied and
that the Bank and the Group will continue in adequately disclosed.
business. We planned and performed our audit so as to
The directors are responsible for keeping accounting obtain all the information and explanations which
records which disclose with reasonable accuracy at we considered necessary in order to provide us with
any time the financial position of the Bank and which sufficient evidence to give reasonable assurance that
enable them to ensure that the financial statements the financial statements are free from material
comply with the United Kingdom Companies Act misstatement, whether caused by fraud or other
1985. They are also responsible for safeguarding the irregularity or error. In forming our opinion we also
assets of the Bank and hence for taking reasonable evaluated the overall adequacy of the presentation of
steps for the prevention and detection of fraud and information in the financial statements.
other irregularities.
Our responsibility is to audit the financial statements Opinion
in accordance with relevant legal and regulatory In our opinion the financial statements give a true
requirements and United Kingdom Auditing Standards and fair view of the state of affairs of the Bank and
issued by the Auditing Practices Board. the Group as at 31 December 2002 and of the profit
Our report, including the opinion, has been of the Group for the year then ended and have been
prepared for and only for the Bank’s members as a properly prepared in accordance with the United
body in accordance with Section 235 of the United Kingdom Companies Act 1985.
Kingdom Companies Act 1985 and for no other
purpose. We do not, in giving this opinion, accept or PricewaterhouseCoopers LLP
assume responsibility for any other purpose or to any Chartered Accountants and Registered Auditors
other person to whom this report is shown or in to Southampton
whose hands it may come save where expressly 13 February 2003
agreed by our prior consent in writing.
4
Lloyds TSB Bank plc
2002 2001*
Note £ million £ million
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Interest receivable:
Interest receivable and similar income arising from debt securities 567 530
Other interest receivable and similar income 9,957 10,829
Interest payable 5,364 6,439
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5
Lloyds TSB Bank plc
Balance sheets
at 31 December 2002
Group Bank
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Assets
Cash and balances at central banks 1,140 1,240 1,005 1,112
Items in course of collection from banks 1,757 1,664 1,708 1,595
Treasury bills and other eligible bills 11 2,409 4,412 2,372 4,087
Loans and advances to banks 12 17,528 15,224 64,163 56,918
Loans and advances to customers 136,289 124,834 60,777 53,876
Non-returnable finance (24) (124) – –
13 136,265 124,710 60,777 53,876
Debt securities 16 29,314 24,225 22,585 20,926
Equity shares 17 206 225 45 27
Interests in joint ventures:
– share of gross assets 336 281
– share of gross liabilities (291) (242)
19 45 39 45 39
Shares in group undertakings 20 – – 18,181 16,944
Intangible fixed assets 22 2,627 2,566 8 11
Tangible fixed assets 23 4,095 3,365 1,237 1,304
Other assets 26 5,236 4,441 4,291 3,597
Prepayments and accrued income 27 2,315 2,298 1,776 1,922
Post-retirement benefit asset 44 – 356 – –
Long-term assurance business attributable to
the shareholder 28 6,228 6,366 – –
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6
Lloyds TSB Bank plc
Balance sheets
at 31 December 2002
Group Bank
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Liabilities
Deposits by banks 30 25,443 24,310 32,868 32,082
Customer accounts 31 116,658 109,302 89,068 82,091
Items in course of transmission to banks 775 534 699 450
Debt securities in issue 32 30,255 24,420 25,570 20,389
Other liabilities 33 8,200 6,629 6,714 5,386
Accruals and deferred income 34 3,696 3,563 2,326 2,397
Post-retirement benefit liability 44 2,077 75 – –
Provisions for liabilities and charges:
Deferred tax 35 1,330 1,425 (284) (194)
Other provisions for liabilities and charges 36 361 292 59 69
Subordinated liabilities:
Undated loan capital 37 5,499 4,102 5,925 4,511
Dated loan capital 37 5,055 4,391 4,235 3,618
Minority interests:
Equity 37 37 – –
Non-equity 38 694 509 – –
731 546 – –
Called-up share capital 39 1,542 1,542 1,542 1,542
Share premium account 40 2,960 2,960 2,960 2,960
Revaluation reserve 40 – – 2,001 2,048
Profit and loss account 40 4,583 7,040 4,510 5,009
Shareholders’ funds (equity) 9,085 11,542 11,013 11,559
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Memorandum items 45
Contingent liabilities:
Acceptances and endorsements 1,879 2,243 1,880 2,244
Guarantees and assets pledged as collateral
security 5,927 3,789 5,865 3,739
Other contingent liabilities 2,540 1,931 2,542 1,890
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7
Lloyds TSB Bank plc
2002 2001*
£ million £ million
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Total recognised gains and losses relating to the year (549) 115
Prior year adjustment at 1 January 2002 in respect of current year changes
in accounting policy (note 1) (404) –
Prior year adjustment in respect of the adoption of FRS 18 – 248
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Total gains and losses recognised during the year (953) 363
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There was no material difference between the results as reported and the results that would have been reported
on an unmodified historical cost basis. Accordingly, no note of historical cost profits and losses has been
included.
2002 2001*
£ million £ million
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8
Lloyds TSB Bank plc
9
Lloyds TSB Bank plc
10
Lloyds TSB Bank plc
q Derivatives
Derivatives are used in the Group’s trading activities to meet the financial needs
of customers, for proprietary purposes and to manage risk in the Group’s trading
portfolios. Such instruments include exchange rate forwards and futures,
currency swaps and options together with interest rate swaps, forward rate
agreements, interest rate options and futures. These derivatives are carried at fair
value and all changes in fair value are reported within dealing profits in the profit
and loss account. Fair values are normally determined by reference to quoted
market prices; internal models are used to determine fair value in instances
where no market price is available. The unrealised gains and losses on trading
12
Lloyds TSB Bank plc
13
Lloyds TSB Bank plc
4 Administrative expenses 2002 2001* 7 Profit on ordinary activities before tax 2002 2001*
£m £m £m £m
1114 44 1114 44 1114 44 1114 44
Salaries and profit sharing 2,064 2,066
Profit on ordinary activities before tax is stated
Social security costs 134 140
after taking account of:
Other pension costs (note 44) 318 347
11144 4 11144 4
Staff costs 2,516 2,553 Income from:
Other administrative expenses 1,659 1,616 Aggregate amounts receivable, including capital
repayments, in respect of assets leased to customers
11144 4 11144 4
4,175 4,169 and banks under:
qqqrr r qqqrr r
Finance leases and hire purchase contracts 3,290 3,250
*restated (see note 1)
Operating leases 440 329
The average number of persons on a headcount basis Profit less losses on disposal of investment securities 160 160
employed by the Group during the year was as follows:
2002 2001
1114 44 1114 44 Charges:
UK 71,134 71,184 Rental of premises 220 203
Overseas 11,491 11,768 Hire of equipment 18 18
11144 4 11144 4
Interest on subordinated liabilities (loan capital) 521 510
82,625 82,952
qqqrr r qqqrr r *restated (see note 1)
The above staff numbers exclude 5,870 (2001: 5,450) staff employed in the
long-term assurance business. Costs of £209 million (2001: £168 million) in
relation to those staff are reflected in the valuation of the long-term assurance 8 Tax on profit on ordinary activities
business. a Analysis of charge for the year 2002 2001*
£m £m
Details of directors’ emoluments, pensions and interests are given in note 42. 1114 44 1114 44
The auditors’ remuneration was £5 million (2001: £4 million), of which UK corporation tax
£1.4 million (2001: £1.2 million) related to Lloyds TSB Bank plc. Fees paid Current tax on profits for the year 812 844
to the auditors in respect of non-audit services were £6 million (2001: Adjustments in respect of prior years 12 (14)
£14 million). Non-audit fees comprise regulatory and other advisory work. 824 830
Double taxation relief (129) (87)
11144 4 11144 4
5 Amounts written off fixed asset investments 2002 2001 695 743
£m £m Foreign tax
11144 4 11144 4
Current tax on profits for the year 216 179
Debt securities 84 58 Adjustments in respect of prior years (15) (17)
Equity shares 111434 4 111424 4
201 162
87 60 11144 4 11144 4
qqqrr r qqqrr r Current tax charge 896 905
Deferred tax (107) 45
Associated undertakings and joint ventures 2 1
11144 4 11144 4
6 Profit before tax on sale of businesses
791 951
On 3 October 2001 the Group announced the sale of its Brazilian fund qqqrr r qqqrr r
management and private banking business, including its subsidiary, Lloyds
*restated (see note 1)
TSB Asset Management S.A.. This resulted in a profit on sale of £39 million
(tax: £11 million). The charge for tax on the profit for the year is based on a UK corporation tax
rate of 30 per cent (2001: 30 per cent).
In addition to the tax charge in the profit and loss account detailed above,
£968 million (2001: £863 million) of deferred tax has been credited to the
statement of total recognised gains and losses in respect of actuarial losses
recognised in post-retirement benefit schemes (note 44).
14
Lloyds TSB Bank plc
8 Tax on profit on ordinary activities (continued) 11 Treasury bills and other 2002 2002 2001 2001
b Factors affecting the tax charge for the year 13 eligible bills Balance Balance
sheet Valuation sheet Valuation
A reconciliation of the charge that would result from applying the standard UK £m £m £m £m
11144 4 11144 4 11144 4 11144 4
corporation tax rate to profit before tax to the current tax charge and total tax
Group
charge for the year is given below:
Investment securities:
2002 2001* Treasury bills and similar securities 257 258 748 748
£m £m
1114 44 1114 44 Other eligible bills 1,622 1,620 2,034 2,032
11144 4 11144 4 11144 4 11144 4
Profit on ordinary activities before tax 2,638 3,219
qqqrr r qqqrr r 1,879 1,878 2,782 2,780
qqqrr r qqqrr r
Tax charge thereon at UK corporation tax rate of 30% 791 966
Factors affecting charge: Other securities:
Goodwill amortisation 9 8 Treasury bills and similar securities 530 1,630
11144 4 11144 4
Overseas tax rate differences 24 12 2,409 4,412
Non-allowable and non-taxable items (30) 7 qqqrr r qqqrr r
Gains exempted or covered by capital losses (23) (39) Geographical analysis by issuer:
Tax deductible coupons on non-equity minority interests (12) (12) United Kingdom 1,726 2,620
Capital allowances in excess of depreciation 7 (48) Latin America 567 1,412
Other timing differences 100 3 Other 116 380
Life company rate differences 44 21 11144 4 11144 4
Other items (14) (13) 2,409 4,412
11144 4 11144 4 qqqrr r qqqrr r
Current tax charge 896 905 Included above:
Deferred tax – capital allowances in excess of Unamortised discounts
depreciation (7) 48 net of premiums on
Deferred tax – other timing differences (100) (3) investment securities 5 6
Associated undertakings and joint ventures 2 1
11144 4 11144 4
11144 4 11144 4 Movements in investment Premiums
Tax on profit on ordinary activities 791 951 securities comprise: and
11144 4 11144 4 Cost discounts Total
Effective rate 30.0% 29.5% £m £m £m
11144 4 11144 4 1114 44
qqqrr r qqqrr r
At 1 January 2002 2,777 5 2,782
*restated (see note 1) Exchange and other adjustments (3) – (3)
c Factors that may affect the future tax charge Additions 30,402 – 30,402
The current tax charge includes a credit of £46 million (2001: charge of Bills sold or matured (31,301) (76) (31,377)
£11 million) in respect of notional tax on the shareholder’s interest in the Amortisation of premiums and discounts – 75 75
11144 4 11144 4 11144 4
movement in value of the long-term assurance business. Since this derives At 31 December 2002 1,875 4 1,879
from the use of a combination of tax rates it can give rise to a higher or lower qqqrr r qqqrr r qqqrr r
charge compared to an expected 30 per cent rate, depending upon the
reported investment returns. 2002 2002 2001 2001
Balance Balance
In December 2002 the Inland Revenue announced its intention to introduce sheet Valuation sheet Valuation
£m £m £m £m
legislation which may affect the tax treatment of certain transfers from Scottish 11144 4 11144 4 11144 4 1114 44
Widows plc’s long term business fund to its shareholder’s fund. The precise Bank
impact of these proposals is yet to be determined, however it is possible that Investment securities:
these transfers will be subject to a higher tax charge than was previously Treasury bills and similar securities 257 258 748 748
anticipated. Other eligible bills 1,615 1,614 2,021 2,020
11144 4 11144 4 11144 4 11144 4
Factors that may affect the future deferred tax charge are dealt with in note 35. 1,872 1,872 2,769 2,768
qqqrr r qqqrr r
Other securities:
9 Profit for the financial year attributable to shareholders Treasury bills and similar securities 500 1,318
11144 4 11144 4
The profit attributable to shareholders includes a profit of £1,463 million
2,372 4,087
(2001: £1,608 million*) dealt with in the accounts of the parent company, for qqqrr r qqqrr r
which no profit and loss account is shown as permitted by Section 230 of the
Geographical analysis by issuer:
Companies Act 1985.
United Kingdom 1,726 2,620
*restated (see note 1) Latin America 533 1,350
Other 113 117
11144 4 11144 4
10 Dividends 2002 2001 2,372 4,087
£m £m qqqrr r qqqrr r
1114 44 1114 44
First interim 597 566
Second interim 1,311 1,306
11144 4 11144 4
1,908 1,872
qqqrr r qqqrr r
15
Lloyds TSB Bank plc
11 Treasury bills and other 2002 2001 13 Loans and advances to Group Bank
13
11111114 4444444 11111114 4444444
eligible bills (continued) Balance Balance customers 2002 2001 2002 2001
sheet sheet
£m £m £m £m
£m £m 11144 4 11144 4 1114 44 1114 44
11144 4 11144 4
Included above: Lending to customers 124,798 113,316 62,236 55,018
Unamortised discounts Hire purchase debtors 5,990 5,345 – –
net of premiums on Equipment leased to customers 7,300 7,585 1 1
11144 4 11144 4 11144 4 11144 4
investment securities 5 6
Total loans and advances to
11144 4 11144 4
Movements in investment Premiums customers 138,088 126,246 62,237 55,019
securities comprise: and
Cost discounts Total
Provisions for bad and
£m £m £m doubtful debts (1,766) (1,466) (1,425) (1,101)
Interest held in suspense (57) (70) (35) (42)
11144 4 11144 4 11144 4
At 1 January 2002 2,764 5 2,769 11144 4 11144 4 11144 4 11144 4
Additions 30,396 – 30,396 136,265 124,710 60,777 53,876
Bills sold or matured (31,292) (76) (31,368) qqqrr r qqqrr r qqqrr r qqqrr r
Amortisation of premiums and discounts – 75 75 Loans and advances
11144 4 11144 4 11144 4
by residual maturity repayable:
At 31 December 2002 1,868 4 1,872
qqqrr r qqqrr r qqqrr r 3 months or less 25,721 23,108 30,010 26,472
1 year or less but over 3 months 10,357 8,867 6,654 5,192
Investment securities are those intended for use on a continuing basis in the 5 years or less but over 1 year 30,651 27,925 14,837 12,632
activities of the Group and not for dealing purposes. Over 5 years 71,359 66,346 10,736 10,723
The difference between the cost of other securities and market value, where the Provisions for bad and
market value is higher than the cost, is not disclosed as its determination is not doubtful debts (1,766) (1,466) (1,425) (1,101)
practicable. Interest held in suspense (57) (70) (35) (42)
11144 4 11144 4 11144 4 11144 4
It is expected that tax of £1 million (2001: £1 million) would be recoverable if 136,265 124,710 60,777 53,876
the Group’s investment securities were sold at their year end valuation. qqqrr r qqqrr r qqqrr r qqqrr r
Of which repayable on
demand or at short notice 13,415 11,661 15,110 12,735
qqqrr r qqqrr r qqqrr r qqqrr r
12 Loans and advances Group Bank
11114 4 4 4 4 4 411144 11114 4 4 4 4 4 411144 Included above:
to banks 2002 2001 2002 2001 Due from group undertakings
£m £m £m £m
11144 4 11144 4 11144 4 11144 4 – all unsubordinated 18,610 14,345
Lending to banks 2,212 1,616 50,134 44,517 Due from fellow group undertakings
Deposits placed with banks 15,317 13,610 14,030 12,403 – subordinated 14 15 – –
– unsubordinated 1,777 1,760 656 637
11144 4 11144 4 11144 4 11144 4
Total loans and advances to banks 17,529 15,226 64,164 56,920
Provisions for bad and The cost of assets acquired during the year for letting to customers under
doubtful debts (1) (2) (1) (2) finance leases and hire purchase contracts amounted to £3,752 million
11144 4 11144 4 11144 4 11144 4
(2001: £3,166 million).
17,528 15,224 64,163 56,918
qqqrr r qqqrr r qqqrr r qqqrr r Securitisations
Repayable on demand 4,313 2,443 29,512 21,398 Certain instalment credit receivables have been securitised and are subject to
Other loans and advances non-returnable financing arrangements. In accordance with Financial Reporting
by residual maturity repayable: Standard 5, these items have been shown under the linked presentation method.
3 months or less 8,511 8,995 10,361 10,335
The Group’s subsidiary, Black Horse Limited (formerly Chartered Trust plc),
1 year or less but over 3 months 2,624 2,698 8,249 8,877
entered into transactions whereby it disposed of its interest in portfolios of
5 years or less but over 1 year 1,700 708 13,800 15,070
motor vehicle and caravan instalment credit agreements for a total of
Over 5 years 381 382 2,242 1,240
£980 million to Cardiff Automobile Receivables Securitisation (UK) No 4 plc
Provisions for bad and
(CARS 4). CARS Trustee (UK) No 4 Limited is responsible for the collection and
doubtful debts (1) (2) (1) (2)
11144 4 11144 4 11144 4 11144 4 onward payment of all amounts falling due under the terms of the receivables
17,528 15,224 64,163 56,918 sold to CARS 4. Principal receipts up to 10 December 2000 were used to
qqqrr r qqqrr r qqqrr r qqqrr r purchase further receivables; subsequent to this date they are being used to
Included above: redeem floating rate notes. Income receipts are applied in the following order
Due from group undertakings of priority: interest due on the floating rate notes; credit manager fees; payments
– unsubordinated 47,728 42,763 under swaps; amounts due to third parties; dividends; and residual income to
– subordinated 201 151 Black Horse Limited. Black Horse Limited has been appointed by CARS Trustee
(UK) No 4 Limited as credit manager and receives a fee for fulfilling this
function. It has no liability to the noteholders or any creditor of CARS 4 or CARS
Trustee (UK) No 4 Limited other than through failure to meet its obligations as
credit manager or for breach of warranties given. Black Horse Limited has no
interest in the share capital of CARS 4 or CARS Trustee (UK) No 4 Limited.
Black Horse Limited and CARS 4 have also entered into interest rate swaps in
respect of this transaction, the interest rates payable and receivable under these
swaps are set by reference to market rates of interest on an arm’s length basis.
At 31 December 2002 CARS 4 held £24 million (2001: £124 million) of
receivables, matched by non-returnable finance of the same amount.
16
Lloyds TSB Bank plc
14 Provisions for bad and 2002 2002 2001 2001 15 Concentrations of exposure Group
1144 4 4 1Bank
16
1144 4 4 1 111144 4 4 111144 4 4
doubtful debts and Specific General Specific General
2002 2001 2002 2001
£m £m £m £m
non-performing lending 11144 4 11144 4 11144 4 11144 4 £m
11144 4 £m
11144 4 £m
1114 44 £m
1114 44
Group
At 1 January 1,099 369 1,069 357 Loans and advances to customers:
Exchange and other adjustments (55) (3) (15) 1 Domestic:
Adjustments on acquisition – 3 – – Agriculture, forestry and fishing 2,076 2,074 712 727
Advances written off (878) – (885) – Manufacturing 3,373 3,321 2,862 2,855
Recoveries of advances Construction 1,482 1,309 1,358 1,210
written off in previous years 203 – 194 – Transport, distribution and hotels 4,696 4,440 4,052 3,698
Charge to profit and loss account: Property companies 4,008 2,907 3,588 2,711
New and additional provisions 1,544 64 1,310 64
Financial, business and other
Releases and recoveries (579) – (574) (53)
services 8,352 8,736 6,129 6,757
965 64 736 11 Personal: mortgages 62,467 56,578 353 562
11144 4 11144 4 11144 4 11144 4 Personal: other 14,931 12,784 14,244 11,922
At 31 December 1,334 433 1,099 369 Lease financing 7,285 7,552 – –
Hire purchase 5,990 5,345 – –
qqqrr r qqqrr r qqqrr r qqqrr r
1,767 1,468 Due from fellow group
qqqrr r qqqrr r
In respect of: undertakings 1,791 1,775 19,266 14,982
Loans and advances to banks 1 2 Other 3,397 2,992 3,039 2,599
11144 4 11144 4 11144 4 11144 4
Loans and advances to customers 1,766 1,466
11144 4 11144 4 Total domestic 119,848 109,813 55,603 48,023
1,767 1,468 International:
qqqrr r qqqrr r Latin America 1,591 2,347 982 1,572
Bank New Zealand 10,447 8,435 – –
At 1 January 801 302 744 258
Rest of the world 6,202 5,651 5,652 5,424
Exchange and other adjustments (33) – (5) –
Adjustments on acquisition 1 – 5 – Total international 18,240 16,433 6,634 6,996
Advances written off (653) – (618) – 11144 4 11144 4 11144 4 11144 4
Recoveries of advances 138,088 126,246 62,237 55,019
written off in previous years 136 – 119 –
Provisions for bad and doubtful
Charge to profit and loss account:
New and additional provisions 1,289 68 1,028 61 debts* (1,766) (1,466) (1,425) (1,101)
Releases and recoveries (485) – (472) (17) Interest held in suspense* (57) (70) (35) (42)
11144 4 11144 4 11144 4 11144 4
804 68 556 44 136,265 124,710 60,777 53,876
11144 4 11144 4 11144 4 11144 4 qqqrr r qqqrr r qqqrr r qqqrr r
At 31 December 1,056 370 801 302 *Figures exclude provisions and interest held in suspense relating to loans and
qqqrr r qqqrr r qqqrr r qqqrr r
advances to banks.
1,426 1,103
qqqrr r qqqrr r
In respect of: The classification of lending as domestic or international is based on the location
Loans and advances to banks 1 2 of the office recording the transaction, except for certain lending of the
Loans and advances to customers 1,425 1,101 international business booked in London.
11144 4 11144 4
1,426 1,103
qqqrr r qqqrr r
Group Bank
11111114 4444444 11111114 4444444
2002 2001 2002 2001
£m £m £m £m
11144 4 11144 4 1114 44 1114 44
Non-performing lending comprises:
Accruing loans on which interest is
being placed in suspense 752 843 473 494
Loans accounted for on a
non-accrual basis 662 379 603 361
11144 4 11144 4 11144 4 11144 4
1,414 1,222 1,076 855
Provisions (992) (829) (758) (588)
Interest held in suspense (57) (70) (35) (42)
11144 4 11144 4 11144 4 11144 4
365 323 283 225
11144 4 11144 4 11144 4 11144 4
17
Lloyds TSB Bank plc
18
Lloyds TSB Bank plc
16 Debt securities (continued) 2002 2002 2001 2001 17 Equity shares 2002 2002 2001 2001
Balance Balance Balance Balance
sheet Valuation sheet Valuation sheet Valuation sheet Valuation
£m £m £m £m £m £m £m £m
11144 4 11144 4 11144 4 11144 4 11144 4 11144 4 11144 4 11144 4
Investment securities: Group
Listed 1,141 1,150 3,171 3,365 Investment securities:
Unlisted 4,667 4,670 4,771 4,777 Listed 5 5 4 14
11144 4 11144 4 11144 4 11144 4 Unlisted 33 62 34 52
11144 4 11144 4 11144 4 11144 4
5,808 5,820 7,942 8,142
qqqrr r qqqrr r qqqrr r qqqrr r 38 67 38 66
qqqrr r qqqrr r
Other securities:
Listed 15,623 15,623 11,916 11,916 Other securities:
Unlisted 1,154 1,154 1,068 1,068 Listed 168 187
11144 4 11144 4 11144 4 11144 4 11144 4 11144 4
16,777 16,777 12,984 12,984 206 225
qqqrr r qqqrr r qqqrr r qqqrr r qqqrr r qqqrr r
Investment securities are those intended for use on a continuing basis in the
activities of the Group and not for dealing purposes.
The difference between the cost of other securities and market value, where the
market value is higher than the cost, is not disclosed as its determination is not
practicable.
If the Group’s investment securities were sold at their year end valuation no tax
is expected to be payable as any such gains would be covered by available
capital losses.
19
Lloyds TSB Bank plc
18 Assets transferred under sale and repurchase transactions 20 Shares in group undertakings Bank
Included in the balance sheet are assets subject to sale and repurchase £m
1114 44
agreements as follows: At 1 January 2002 16,944
Group
1111114 4 414 4 4 4 Bank
1111214 4 4 4 411 Additions 2,323
2002 2001 2002 2001 Capital repayments (646)
£m £m £m £m Disposals (408)
1114 44 1114 44 1114 44 1114 44
Treasury bills and other Revaluations (32)
11144 4
eligible bills 588 1,036 484 929
At 31 December 2002 18,181
Debt securities 5,651 4,498 4,517 3,180 qqqrr r
11144 4 11144 4 11144 4 11144 4
6,239 5,534 5,001 4,109 2002 2001
qqqrr r qqqrr r qqqrr r qqqrr r £m £m
1114 44 1114 44
These investments have been sold to third parties but, since the Group is Shares in banks 4,713 4,518
committed to reacquire them at a future date and at a predetermined price, they Shares in other group undertakings 13,468 12,426
11144 4 11144 4
are shown in the balance sheet.
Total – all unlisted 18,181 16,944
qqqrr r qqqrr r
On a historical cost basis, shares in group undertakings
19 Interests in joint ventures would have been included as follows:
Group Bank Cost Provisions Book value
£m £m £m £m £m
1114 44 1114 44 1114 44 11144 4 11144 4
At 1 January 2002 39 39 At 1 January 2002 14,907 15 14,892
Additions 21 21 Additions 2,323 – 2,323
Losses for the year (15) (15) Capital repayments (646) – (646)
11144 4 11144 4
Disposals (408) – (408)
At 31 December 2002 45 45 11144 4 11144 4 11144 4
qqqrr r qqqrr r At 31 December 2002 16,176 15 16,161
The Group’s and the Bank’s principal investments are in two joint ventures: qqqrr r qqqrr r qqqrr r
Group
1114interest
4 4 111 Nature of business
111111111 No deferred tax provision has been made against the liability which could arise
iPSL 19.5% of issued Cheque processing if group undertakings were disposed of at their balance sheet carrying value
because of surplus capital losses and the exemptions for disposals of substantial
ordinary share capital
shareholding investments.
Goldfish Holdings Limited 25.0% of issued Financial services
The principal group undertakings, all of which have prepared accounts to
ordinary share capital
31 December and whose results are included in the consolidated accounts of
During 2002 the Group contributed a further £21 million of capital to Goldfish Lloyds TSB Bank plc, are:
Holdings Limited. Percentage
of equity
In the year ended 31 December 2002 £31 million (2001: £27 million) of fees share
payable to iPSL have been included in the Group’s administrative expenses and Country of capital
registration / and voting
£6 million (2001: £6 million) of charges to iPSL have been included in the incorporation rights held Nature of business
Group’s income. The Group has also prepaid £6 million (2001: £8 million) of 23111144 4 112144 4 11111441112424 4 4
Cheltenham & Gloucester plc England *100% Mortgage lending and
fees in respect of 2003 and this amount is included in prepayments and retail investments
accrued income. Lloyds TSB Commercial England 100% Credit factoring
In the year ended 31 December 2002 £25 million (2001: £1 million) of interest Finance Limited
Lloyds TSB Leasing Limited England 100% Financial leasing
receivable from Goldfish Bank Limited and £12 million (2001: £22 million) of
The Agricultural Mortgage England 100% Long-term agricultural
charges to Goldfish Bank Limited in respect of administrative costs have been Corporation PLC finance
included in the Group’s income. At 31 December 2002 Goldfish Bank Limited The National Bank of New *100% Banking and financial
owed £430 million (2001: £611 million) to the Group, which is included in New Zealand Limited Zealand services
loans and advances to banks. In addition, at 31 December 2002, the Group had Lloyds TSB Bank (Jersey) Jersey *100% Banking and financial
made facilities available for Goldfish Bank Limited to borrow a further Limited services
Lloyds TSB Asset Finance England 100% Consumer credit, leasing
£420 million (2001: £239 million); these facilities are included in undrawn Division Limited and related services
commitments (note 45). Black Horse Limited England *100% Consumer credit, leasing
On a historical cost basis, the Bank’s interests in associated undertakings and and related services
Lloyds TSB Private Banking England 100% Private banking
joint ventures would have been included at £74 million (2001: £53 million). Limited
Included in the gross assets disclosed on the balance sheet is an investment of Lloyds TSB Scotland plc Scotland 100% Banking and financial
£8 million (2001: £5 million) in associated undertakings. services
Lloyds TSB General Insurance England *100% General insurance
Limited
Scottish Widows Investment England *100% Investment
Partnership Group Limited management
Abbey Life Assurance England *100% Life assurance
Company Limited
Lloyds TSB Insurance Services England *100% Insurance broking
Limited
Lloyds TSB Life Assurance England *100% Life assurance and
Company Limited other financial services
Scottish Widows plc Scotland *100% Life assurance
Scottish Widows Annuities Scotland *100% Life assurance
Limited
*Indirect interest.
The country of registration/incorporation is also the principal area of operation
for each of the above group undertakings except that the National Bank of New
Zealand Limited also operates through representative offices in the UK and
Hong Kong.
20
Lloyds TSB Bank plc
21
Lloyds TSB Bank plc
24 Lease commitments
Annual commitments under non-cancellable operating leases were:
2002 2002 2001 2001
Premises Equipment Premises Equipment
£m £m £m £m
11144 4 11144 4 11144 4 11144 4
Group
Leases on which the commitment
is due to expire in:
1 year or less 10 2 7 5
5 years or less but over 1 year 29 1 33 3
Over 5 years 188 – 181 –
11144 4 11144 4 11144 4 11144 4
227 3 221 8
qqqrr r qqqrr r qqqrr r qqqrr r
Bank
Leases on which the commitment
is due to expire in:
1 year or less 7 2 4 5
5 years or less but over 1 year 16 1 26 3
Over 5 years 158 – 156 –
11144 4 11144 4 11144 4 11144 4
181 3 186 8
qqqrr r qqqrr r qqqrr r qqqrr r
25 Capital commitments
Capital expenditure contracted but not provided for at 31 December 2002
amounted to £117 million for the Group and £9 million for the Bank (2001:
Group £137 million; Bank £10 million). Of the capital commitments of the
Group, £107 million (2001: £125 million) relates to assets to be leased to
customers under operating leases.
22
Lloyds TSB Bank plc
23
Lloyds TSB Bank plc
• The effect of future interest rate and mortality trends on the cost of annuities; As published 6,228 413
and Effect of a 1% increase in the discount rate (152) (27)
Effect of a 1% reduction in the discount rate 166 32
• The future investment performance of the With Profits Funds.
Effect of a 1% reduction in the return on equities (70) (12)
24
Lloyds TSB Bank plc
25
Lloyds TSB Bank plc
26
Lloyds TSB Bank plc
The deferred tax balance at 31 December 2002 for the Group does not include
any amounts in respect of the Group’s post-retirement benefit liability which is
shown on the balance sheet after deduction of a deferred tax asset of
£854 million (2001: a net post-retirement benefit asset of £281 million after
deduction of a deferred tax liability of £152 million) (note 44).
27
Lloyds TSB Bank plc
28
Lloyds TSB Bank plc
Notes
37 Subordinated liabilities 1114 4444 1114Group
4 4 4 411144 4 3333 1114Bank
4 4 4 411144 4 3333
2002 2001* 2002 2001*
£m £m £m £m
**Undated loan capital: 11144 4 11144 4 1114 44 1114 44
Primary Capital Undated Floating Rate Notes: a
Series 1 (US$750 million) 466 516 466 516
Series 2 (US$500 million) 311 344 311 344
Series 3 (US$600 million) 373 412 373 412
113⁄4% Perpetual Subordinated Bonds 100 100 – –
6.625% Perpetual Capital Securities (€750 million) b 482 451 482 451
6.90% Perpetual Capital Securities callable 2007 (US$1,000 million) c, j 610 – 610 –
55⁄8% Undated Subordinated Step-up Notes callable 2009 (€1,250 million) g 807 757 807 757
Undated Step-up Floating Rate Notes callable 2009 (€150 million) a 97 91 97 91
65⁄8% Undated Subordinated Step-up Notes callable 2010 e 406 406 406 406
7.375% Undated Subordinated Step-up Notes callable 2012 (€430 million) – – 278 261
6.35% Step-up Perpetual Capital Securities callable 2013 (€500 million) d, g, j 322 – 322 –
7.834% Undated Subordinated Step-up Notes callable 2015 – – 248 248
5.57% Undated Subordinated Step-up Coupon Notes callable 2015 (¥20 billion) h 104 105 104 105
61⁄2% Undated Subordinated Step-up Notes callable 2019 e 267 266 267 266
8% Undated Subordinated Step-up Notes callable 2023 e 199 199 199 199
61⁄2% Undated Subordinated Step-up Notes callable 2029 e 455 455 455 455
6% Undated Subordinated Step-up Guaranteed Bonds callable 2032 e, j 500 – 500 –
11144 4 11144 4 11144 4 11144 4
5,499 4,102 5,925 4,511
qqqrr r qqqrr r qqqrr r qqqrr r
Dated loan capital:
Eurocurrency Zero Coupon Bonds 2003 (¥3 billion) 14 15 – –
Subordinated Fixed Rate Bonds 2003 (NZ$151 million) f 48 43 – –
Subordinated Floating Rate Notes 2004 a 10 15 – –
73⁄8% Subordinated Bonds 2004 400 399 400 399
Subordinated Floating Rate Notes 2004 a, i 100 100 100 100
Subordinated Floating Rate Notes 2007 200 200 – –
73⁄4% Subordinated Bonds 2007 299 299 299 299
Subordinated Fixed Rate Bonds 2007 (NZ$150 million) f – 43 – –
Subordinated Floating Rate Notes 2008 150 150 – –
51⁄4% Subordinated Notes 2008 (DM750 million) 249 234 249 234
105⁄8% Guaranteed Subordinated Loan Stock 2008 110 112 110 112
91⁄2% Subordinated Bonds 2009 99 99 99 99
Subordinated Step-up Floating Rate Notes 2009 callable 2004 (US$500 million) a 310 343 310 343
Subordinated Fixed Rate Bonds 2010 (NZ$100 million) f 33 29 – –
61⁄4% Subordinated Notes 2010 (€400 million) 259 244 259 244
Subordinated Floating Rate Notes 2010 (US$400 million) a 248 274 248 274
12% Guaranteed Subordinated Bonds 2011 118 121 118 121
43⁄4% Subordinated Notes 2011 (€850 million) 532 498 532 498
Subordinated Floating Rate Notes 2011 150 150 – –
Subordinated Fixed Rate Bonds 2011 (NZ$100 million) f 33 28 – –
Subordinated Floating Rate Notes 2011 100 100 – –
Subordinated Fixed Rate Bonds 2012 (NZ$125 million) f, j 41 – – –
Subordinated Fixed Rate Bonds 2012 (NZ$125 million) f, j 41 – – –
Subordinated Floating Rate Notes 2014 j 464 – 464 –
57⁄8 % Subordinated Notes 2014 j 148 – 148 –
65⁄8% Subordinated Notes 2015 344 343 344 343
Subordinated Floating Rate Notes 2020 (€100 million) a 65 61 65 61
95⁄8% Subordinated Bonds 2023 340 341 340 341
Subordinated Non-Interest Bearing Loan on rolling 6 year notice 150 150 150 150
qqqrr r qqqrr r qqqrr r qqqrr r
5,055 4,391 4,235 3,618
qqqrr r qqqrr r qqqrr r qqqrr r
Total subordinated liabilities 10,554 8,493 10,160 8,129
qqqrr r qqqrr r qqqrr r qqqrr r
*restated (see note 1)
These liabilities will, in the event of the winding-up of the issuer, be subordinated to the claims of depositors and all other creditors of the issuer.
**In certain circumstances, these notes and bonds would acquire the characteristics of preference share capital.
a) These notes bear interest at rates fixed periodically in advance based on London interbank rates.
b) In certain circumstances the interest payments on these securities can be deferred although in this case neither Lloyds TSB Bank plc nor Lloyds TSB Group plc can
declare or pay a dividend until any deferred payments have been made. In the event of a winding up of Lloyds TSB Bank plc, these securities will acquire the
characteristics of preference shares. The securities can be redeemed at par at the option of Lloyds TSB Bank plc on or after 25 October 2006.
c) In certain circumstances the interest payments on these securities can be deferred although in this case neither Lloyds TSB Bank plc nor Lloyds TSB Group plc can
declare or pay a dividend until payments are resumed. Any deferred payments will be made good on redemption of the securities. In the event of a winding up of
Lloyds TSB Bank plc, these securities will acquire the characteristics of preference shares. The securities can be redeemed at par at the option of Lloyds TSB Bank
plc on or after 22 November 2007.
d) In certain circumstances the interest payments on these securities can be deferred although in this case neither Lloyds TSB Bank plc nor Lloyds TSB Group plc can
declare or pay a dividend until any deferred payments have been made. In the event of a winding up of Lloyds TSB Bank plc, these securities will acquire the
characteristics of preference shares. The securities can be redeemed at par at the option of Lloyds TSB Bank plc on or after 25 February 2013.
e) At the callable date, the coupon on these Notes will be reset by reference to the applicable five year benchmark gilt rate.
f) These bonds bear interest, to be reset 5 years before redemption date, at a fixed margin over New Zealand Government stocks.
g) In the event that these Notes are not redeemed at the callable date, the coupon will be reset to a floating rate.
h) In the event that these Notes are not redeemed at the callable date, the coupon will be reset to a fixed margin over the then 5 year yen swap rate.
i) Exchangeable at the election of the Group for further subordinated floating rate notes.
j) Issued during 2002 primarily to finance the general business of the Group.
29
Lloyds TSB Bank plc
30
Lloyds TSB Bank plc
defined contribution and defined benefit pension schemes were 0 and 9 Defined contribution schemes 25 18
respectively (2001: 0 and 8). Defined benefit schemes 293 329
aaaaaffffffffff aaaaaffffffffff
The total for the highest paid director (Mr Daniels), was £1,263,000.
318
The amount of his accrued pension at the year end was £31,250, being his affffffffff aff347
ffffffff
pension entitlement based on pensionable service with the Group to The majority of the Group’s employees are members of the defined benefit
31 December 2002 but payable at normal retirement age. (The total for the
sections of Lloyds TSB Group Pension Schemes No’s 1 and 2. During the years
highest paid director in 2001 (Mr Fairey), was £882,000).
ended 31 December 2001 and 2002, the Group made no contributions to
these schemes. Since the defined benefit sections of these schemes are now
closed to new members and the age profile of the active members is
43 Related party transactions increasing, under the projected unit method, the current service cost will
a Transactions, arrangements and agreements involving directors and others increase as the members of the schemes approach retirement.
At 31 December 2002, transactions, arrangements and agreements entered
The latest full valuations of the schemes were carried out as at 30 June 2002;
into by the Group’s banking subsidiaries with directors and connected persons
these have been updated to 31 December 2002 by qualified independent
and with officers included:
2002 2002 2001 2001 actuaries. The last full valuations of other group schemes were carried out on
Number of Total Number of Total a number of different dates; these have been updated to 31 December 2002
persons4 4 £0004 4 persons4 4 £0004 4
1114 1114 1114 1114 by qualified independent actuaries or, in the case of the Scottish Widows
Loans and credit card transactions: Retirement Benefits Scheme, by a qualified actuary employed by Scottish
Directors and connected persons 4 3,334 7 1,343 Widows.
Officers 31 3,930 28 4,113
The principal assumptions used in the scheme valuations were as follows:
During the year three officers purchased cars from the Group for a total
31 December 31 December
consideration of £37,000. 2002 2001
% %
b Group undertakings aaaaaffffffffff aaaaaffffffffff
Details of the principal group undertakings are given in note 20. In accordance Rate of inflation 2.30 2.50
with FRS 8, transactions or balances with group entities that have been Rate of salary increases 3.83 4.04
eliminated on consolidation are not reported. Rate of increase for pensions in payment and
c Joint ventures deferred pensions 2.30 2.50
Details of the Group’s joint ventures are provided in note 19. Information Discount rate 5.60 6.00
relating to transactions entered into between Group undertakings and the joint In addition, the Group operates a number of schemes which provide post-
ventures and details of outstanding balances at retirement healthcare benefits to certain employees, retired employees and
31 December 2002 are also shown in note 19. their dependent relatives. The principal scheme relates to former Lloyds Bank
d Long-term assurance business staff and under this scheme the Group has undertaken to meet the cost of post-
retirement healthcare for all eligible former employees (and their dependants)
The Group enters into certain transactions with its long-term assurance who retired prior to 1 January 1996. For retirements subsequent to this date,
businesses, which cannot be eliminated in the consolidated accounts the Group will meet a reducing proportion of the cost until 31 December 2004,
because of the basis of accounting used for the Group’s long-term assurance after which date the only obligation will be in respect of the pre 1 January
businesses. After taking into account legally enforceable netting agreements, at 1996 retirements.
31 December 2002 Group entities owed £1,372 million (2001:
£1,186 million) and were owed £145 million (2001: £299 million); these Included within other finance income is an interest cost of £4 million (2001:
amounts are included in customer accounts and loans and advances to £3 million) in respect of these defined benefit post-retirement healthcare
customers respectively. In addition, fees of £76 million (2001: £62 million) schemes.
were received, and fees of £35 million (2001: £28 million) were paid, in
For the principal post-retirement healthcare scheme, the latest actuarial
respect of asset management services.
valuation of the liability was carried out at 31 December 2000; this valuation
Certain administrative properties used by Scottish Widows are owned by the has been updated to 31 December 2002 by qualified independent actuaries.
long-term assurance funds. During 2002 Scottish Widows paid rent to the The principal assumptions used were as set out above, except that the rate of
long-term assurance funds amounting to £5 million (2001: £4 million). In increase in healthcare premiums has been assumed at 4.86 per cent.
addition, at 31 December 2002, the long-term assurance funds owned
31 million ordinary shares in the Bank’s parent company Lloyds TSB Group
plc (2001: 31 million shares).
e Pension funds
Group entities provide a number of banking and other services to the Group ’s
pension funds, which are conducted on similar terms to third party transactions.
At 31 December 2002, the Group’s pension funds had call deposits with Lloyds
TSB Bank plc amounting to £89 million (2001: £572 million).
31
Lloyds TSB Bank plc
44 Pensions and other post-retirement benefits (continued) 44 Pensions and other post-retirement benefits (continued)
a The Group accounts (continued) a The Group accounts (continued)
The assets of the Group’s defined benefit schemes and the expected rates of The amounts reported on the Group’s balance sheet are comprised of:
return are summarised as follows: 2002 2001
Expected Expected £m £m
aaaaaffffffffff aaaaaffffffffff
long-term long-term
Fair value rate of Fair value rate of Market value of assets 9,083 11,126
at return at at return at Present value of scheme liabilities (12,014) (10,693)
31 December 31 December 31 December 31 December aaaaaffffffffff aaaaaffffffffff
2002 2002 2001 2001
£m % £m % (Deficit) surplus in the schemes (2,931) 433
Related deferred tax asset (liability) 854 (152)
aaaaaffffffffff aaaaaffffffffff aaaaaffffffffff aaaaaffffffffff
affffffffff aff281
(2,077)
af fffffffff af fffffffff
Other finance income is comprised of:
ffffffff
2002 2001 The movements in the (deficit) surplus in the schemes over the year have been
£m £m as follows:
aaaaaffffffffff aaaaaffffffffff
32
Lloyds TSB Bank plc
33
Lloyds TSB Bank plc
46 Derivatives and other financial instruments (continued) 46 Derivatives and other financial instruments (continued)
risk segments is controlled through a tiered hierarchy of delegated Lloyds TSB Group Balance Sheet Management (GBSM) specifically focuses on
sanctioning authorities. Approval requirements for each decision are based the management of interest rate risk in the Group’s retail portfolios, including
on the transaction amount, the customer’s aggregate facilities, credit risk mortgages, and in the Group’s capital funds. GBSM reports to an Asset and
ratings and the nature and term of the risk. Liability Committee. The Group’s policy is to optimise the stability of future net
interest income, which is achieved by entering into hedging transactions using
• Control of bank exposures. In-house proprietary rating systems are used to
interest rate swaps and other financial instruments.
approve bank facilities on a group basis.
• Monitoring of scorecards. The Group utilises statistically-based decisioning Liquidity risk
techniques (primarily credit scoring and performance scoring) for its principal A Group Liquidity Policy is in place which requires a common methodology for
consumer lending portfolios. Lloyds TSB Group Risk reviews and monitors measuring liquidity across the Group. The methodology derives a liquidity ratio
new and material changes to scorecards. calculated by taking the sum of liquid assets, five-day wholesale inflows and
back-up lines, and then dividing this by the sum of five-day wholesale outflows
• Control of cross-border exposures. Country limits are authorised and and a percentage of retail maturities and contingent claims drawable over the
managed by a dedicated unit, using an in-house rating system which takes next five days.
into account economic and political factors.
The Liquidity Policy requires all authorised local treasury operations to
• Maintenance of a centralised facilities database. Lloyds TSB Group Risk maintain a liquidity ratio of over 100 per cent, in addition to ensuring
operates a centralised database of large corporate, sovereign and bank compliance with local regulatory requirements.
facilities designed to ensure that a consistent aggregation policy is
maintained throughout the Group. It is the responsibility of local line management to ensure that the Liquidity
Policy is met, and the sources and maturities of assets and liabilities are
• Formulation of concentration limits on certain industries and sectors. Lloyds
continually managed and appropriately diversified to avoid any undue
TSB Group Risk sets sector caps that reflect risk appetite and monitors
concentration as market conditions evolve. Compliance is monitored by regular
exposures to prevent excessive concentration of risk.
liquidity returns to Group Risk Management.
• Portfolio analysis. In conjunction with Lloyds TSB Group Risk, group
Operational risk
businesses identify and define portfolios of credit and related risk exposures
Operational risk is the risk of loss resulting from inadequate or failed internal
and the key benchmarks, behaviours and characteristics by which those
processes, people and systems, or from external events. For internal purposes,
portfolios are managed in terms of credit risk exposure. This entails the
reputational impact is also included.
production and analysis of regular portfolio monitoring reports for review by
Lloyds TSB Group Risk. Business units have primary responsibility for identifying and managing their
• Communication and provision of general guidance on all credit-related risk operational risks. They employ internal control techniques to reduce their
issues, including regulatory changes and environmental risk policy, to likelihood or impact to tolerable levels within the Group’s risk appetite. Where
promote consistent and best practice throughout the Group. appropriate, risk is mitigated by way of insurance.
Day-to-day credit management and asset quality within each business unit is Lloyds TSB Group Risk’s responsibilities in relation to operational risk include
the primary responsibility of the business unit directors. Each business unit has defining high-level operational risk policies to ensure a comprehensive and
in place established credit processes which are consistent with corresponding consistent approach to the identification and management of operational risk;
Group policies. Authority to delegate lending authorities within business units implementation of a Group-wide standard methodology to ensure consistency
rests with officers holding divisional delegated lending authority. All material in the identification, assessment and management of operational risk;
authorities are advised to Lloyds TSB Group Risk. communication and provision of general guidance on operational risk related
issues, including regulatory changes and developments in the measurement
Specialist units are established within group business units to provide, for and management of operational risk, to promote best practice throughout the
example: intensive management and control; security perfection, maintenance Group; continuous review and improvement of all aspects of operational risk
and retention; expertise in documentation for lending and associated products; management to reflect developments in industry best practice and regulatory
sector-specific expertise; and legal services applicable to the particular market requirements, e.g. the New Basel Accord; approval from a risk perspective of
place and product range offered by the business unit. all new products launched throughout the Group, to ensure their risks are
Market risk understood by the business and managed appropriately; and identification of
Market risk is the risk of losses being incurred as a result of adverse risk through formal risk reviews, covering specific risks, activities, business
movements in interest or exchange rates or other market variables. Market risk sectors or products, and ensuring that prompt and pre-emptive action is taken
arises in all areas of the Group’s activities and is managed by a variety of to address any actual or perceived risks that may emerge, whether specific to
different techniques. the Group or to the industry generally.
Trading activities are restricted to a few highly specialist trading centres and the Insurance risk
level of exposure is strictly controlled and monitored within approved limits The Group offers insurance products to its customers, and actively reviews the
locally and centrally. extent to which the associated risk is underwritten internally, or reinsured with
external underwriters.
A variety of techniques are used to quantify the market risk arising from the
Group’s banking and trading activities. These reflect the nature of the business The Financial Services Authority sets down minimum requirements for
activity, and include simple interest rate gapping, open exchange positions, solvency and reserving for all classes of insurance, which are carefully
sensitivity analysis and Value at Risk (VaR). Stress testing and scenario monitored by the relevant business units within the Group. The retained risk
analysis are also used in certain portfolios, and at Group level, to simulate level is carefully controlled and monitored, with close attention being paid to
extreme conditions to supplement these core measures. the analysis of underwriting experience, product design, policy wordings,
adequacy of reserves, solvency management and regulatory requirements.
Various parameters are used to calculate the value at risk on a given portfolio
of positions, thus avoiding undue reliance on a single measure. Based on the Investment strategy is determined by the term and nature of the underwriting
commonly quoted 95 per cent confidence level, assuming positions are held liabilities and asset/liability matching positions are actively monitored. General
overnight and using observation periods with greater emphasis given to more insurance exposure to accumulations of risk and possible catastrophes is
recent data, during 2002 the value at risk on the Group’s global trading mitigated by reinsurance arrangements which are broadly spread over different
averaged £1.26 million (2001: £1.17 million) with a maximum of £2.07 reinsurers. Appropriate reinsurance arrangements also apply within the life and
million (2001: £1.62 million) and a minimum of £0.93 million (2001: pensions businesses.
£0.78 million). The figure at 31 December 2002 was £1.02 million (2001:
£1.62 million).
34
Lloyds TSB Bank plc
46 Derivatives and other financial instruments (continued) 46 Derivatives and other financial instruments (continued)
Derivatives a Derivatives (continued)
Derivatives are used to meet the financial needs of customers, as part of the Notional Fair values
Group’s trading activities and to reduce its own exposure to fluctuations in principal 11111111144
amount Assets Liabilities
interest and exchange rates. The principal derivatives used by the Group are 31 December 2001 £m £m £m
interest rate and exchange rate contracts; particular attention is paid to the 11144 4 1114 44 1114 44
liquidity of the markets and products in which the Group trades to ensure that Exchange rate contracts:
there are no undue concentrations of activity and risk. Spot, forwards and futures 95,895 1,035 1,038
Currency swaps 6,737 223 152
Interest rate related contracts include interest rate swaps, forward rate Options purchased 3,825 11 –
agreements and options. An interest rate swap is an agreement between two Options written 3,492 – 9
parties to exchange fixed and floating interest payments, based upon interest 11144 4 11144 4 11144 4
rates defined in the contract, without the exchange of the underlying principal 109,949 1,269 1,199
amounts. Forward rate agreements are contracts for the payment of the qqqrr r qqqrr r qqqrr r
difference between a specified rate of interest and a reference rate, applied to Interest rate contracts:
a notional principal amount at a specific date in the future. Interest rate swaps 287,017 4,085 4,607
Forward rate agreements 54,171 78 84
Exchange rate related contracts include forward foreign exchange contracts, Options purchased 8,887 73 –
currency swaps and options. A forward foreign exchange contract is an Options written 3,993 – 58
agreement to buy or sell a specified amount of foreign currency on a specified Futures 35,112 – –
future date at an agreed rate. Currency swaps generally involve the exchange 11144 4 11144 4 11144 4
of interest payment obligations denominated in different currencies; the 389,180 4,236 4,749
exchange of principal can be notional or actual.
qqqrr r qqqrr r qqqrr r
Equity contracts 4,580 428 255
Equity derivatives are also used by the Group as part of its equity based retail qqqrr r qqqrr r qqqrr r
product activity, whereby index-linked equity options are purchased to Effect of netting (3,843) (3,843)
eliminate the Group’s exposure to fluctuations in various international stock 11144 4 11144 4
exchange indices. Balances arising from off-balance sheet
financial instruments 2,090 2,360
a Derivatives qqqrr r qqqrr r
Group Non-trading
Trading Through intra company and intra group transactions, Group companies
The notional principal amounts and fair values (which, after netting, are the establish non-trading derivatives positions with the Group’s independent
carrying values) of trading instruments entered into with third parties were as trading operations, which then enter into similar positions with third parties.
follows: The notional principal amounts and fair values of non-trading instruments
entered into with third parties were as follows:
Notional Fair values
principal 11111111144 Notional Fair values
amount Assets Liabilities principal 11111111144
31 December 2002 £m4 4 £m4 4 £m4 4 amount Positive Negative
1114 1114 1114 31 December 2002 1114 £m4 4 1114 £m4 4 £m4 4
1114
Exchange rate contracts:
Exchange rate contracts:
Spot, forwards and futures 94,250 2,064 2,735 Spot, forwards and futures 146 16 4
Currency swaps 9,019 232 310 Currency swaps 59 4 1
Options purchased 4,468 87 8 11144 4 11144 4 11144 4
Options written 4,303 – 103 205 20 5
11144 4 11144 4 11144 4 qqqrr r qqqrr r qqqrr r
112,040 2,383 3,156 Interest rate contracts:
qqqrr r qqqrr r qqqrr r Interest rate swaps 17,261 129 223
Interest rate contracts: Forward rate agreements 1,279 2 2
Interest rate swaps 259,911 5,473 5,999 Options written 41 – 1
Forward rate agreements 41,768 35 37 11144 4 11144 4 11144 4
Options purchased 8,248 105 – 18,581 131 226
qqqrr r qqqrr r qqqrr r
Options written 4,899 – 152
Effect of netting (36) (36)
Futures 18,963 – – 11144 4 11144 4
11144 4 11144 4 11144 4
333,789 5,613 6,188 115 195
qqqrr r qqqrr r qqqrr r qqqrr r qqqrr r
Equity contracts 5,662 608 491
qqqrr r qqqrr r qqqrr r Notional Fair values
Effect of netting (5,176) (5,176) principal 11111111144
11144 4 11144 4 amount Positive Negative
31 December 2001 £m4 4 £m4 4 £m4 4
Balances arising from off-balance sheet 1114 1114 1114
Exchange rate contracts:
financial instruments 3,428 4,659
qqqrr r qqqrr r Spot, forwards and futures 146 3 1
Currency swaps 70 9 1
11144 4 11144 4 11144 4
216 12 2
qqqrr r qqqrr r qqqrr r
Interest rate contracts:
Interest rate swaps 2,919 164 68
Forward rate agreements 62 – –
11144 4 11144 4 11144 4
2,981 164 68
qqqrr r qqqrr r qqqrr r
Effect of netting (39) (39)
11144 4 11144 4
137 31
qqqrr r qqqrr r
35
Lloyds TSB Bank plc
46 Derivatives and other financial instruments (continued) 46 Derivatives and other financial instruments (continued)
a Derivatives (continued) a Derivatives (continued)
The aggregate carrying value of non-trading derivatives with a positive fair value Bank
was an asset of £54 million (2001: an asset of £18 million) and with a Trading
negative fair value was an asset of £9 million (2001: an asset of £1 million). The notional principal amounts and fair values (which, after netting, are the
carrying values) of trading instruments entered into with third parties were as
The maturity of the notional principal amounts and replacement cost of both
follows:
trading and non-trading instruments entered into with third parties was:
Notional Fair values
Under 1 to 5 Over 5 principal 1111111144444
1 year years years Total amount Assets Liabilities
£m £m £m £m 31 December 2002 £m £m £m
11144 4 11144 4 11144 4 11144 4 11144 4 11144 4 1114 44
31 December 2002 Exchange rate contracts:
Exchange rate contracts: Spot, forwards and futures 88,728 1,976 2,429
Notional principal amount 102,559 6,888 2,798 112,245 Currency swaps 8,004 208 296
Replacement cost 2,209 108 86 2,403 Options purchased 2,326 57 11
Options written 1,535 – 43
Interest rate contracts: 11144 4 11144 4 11144 4
Notional principal amount 150,883 149,631 51,856 352,370 100,593 2,241 2,779
Replacement cost 850 2,682 2,212 5,744 qqqrr r qqqrr r qqqrr r
Interest rate contracts:
Equity contracts: Interest rate swaps 255,331 5,750 6,096
Notional principal amount 1,130 3,714 818 5,662 Forward rate agreements 40,533 34 37
Replacement cost 3 531 74 608 Options purchased 8,309 106 –
Options written 4,873 – 152
Total: Futures 16,645 – –
Notional principal amount 254,572 160,233 55,472 470,277
11144 4 11144 4 11144 4
Replacement cost 3,062 3,321 2,372 8,755 325,691 5,890 6,285
qqqrr r qqqrr r qqqrr r
31 December 2001 Equity contracts 8,038 608 578
Exchange rate contracts:
qqqrr r qqqrr r qqqrr r
Notional principal amount 102,130 6,260 1,775 110,165 Effect of netting (5,176) (5,176)
11144 4 11144 4
Replacement cost 1,087 152 42 1,281
Balances arising from off-balance sheet
financial instruments 3,563 4,466
Interest rate contracts: qqqrr r qqqrr r
Notional principal amount 187,570 155,329 49,262 392,161
Replacement cost 1,300 1,796 1,304 4,400
Notional Fair values
Equity contracts: principal 1111111144444
Notional principal amount 738 3,394 448 4,580 amount Assets Liabilities
31 December 2001 £m £m £m
Replacement cost 75 330 23 428 11144 4 11144 4 1114 44
Exchange rate contracts:
Total: Spot, forwards and futures 90,637 969 969
Notional principal amount 290,438 164,983 51,485 506,906 Currency swaps 5,757 116 147
Replacement cost 2,462 2,278 1,369 6,109 Options purchased 1,564 10 –
Options written 1,030 – 8
11144 4 11144 4 11144 4
The notional principal amount does not represent the Group’s real exposure to
credit risk, which is limited to the current cost of replacing contracts at current 98,988 1,095 1,124
qqqrr r qqqrr r qqqrr r
market rates should the counterparties default. Interest rate contracts:
Net replacement cost represents the total positive fair value of all derivative Interest rate swaps 286,145 4,453 4,716
contracts at the balance sheet date, after allowing for the offset of all negative Forward rate agreements 52,687 77 83
fair values where the Group has a legal right of set-off with the counterparty Options purchased 8,888 74 –
concerned. Options written 3,956 – 58
An analysis of the net replacement cost of both trading and non-trading Futures 33,954 – –
11144 4 11144 4 11144 4
instruments entered into with third parties by counterparty type is set out
385,630 4,604 4,857
below; the Group’s exposure is further reduced by qualifying collateral held. qqqrr r qqqrr r qqqrr r
2002 2001 Equity contracts 6,757 428 409
£m £m qqqrr r qqqrr r qqqrr r
1114 44 1114 44
Effect of netting (3,843) (3,843)
OECD banks 1,939 1,425 11144 4 11144 4
Other 1,604 802 Balances arising from off-balance sheet
11144 4 11144 4
financial instruments 2,284 2,547
Net replacement cost 3,543 2,227 qqqrr r qqqrr r
Qualifying collateral held (521) (339)
11144 4 11144 4
Potential credit risk exposure 3,022 1,888
qqqrr r qqqrr r
36
Lloyds TSB Bank plc
46 Derivatives and other financial instruments (continued) 46 Derivatives and other financial instruments (continued)
a Derivatives (continued) a Derivatives (continued)
Non-trading The maturity of the notional principal amounts and replacement cost of both
The notional principal amounts and fair values of non-trading instruments trading and non-trading instruments entered into with third parties was:
entered into with third parties were as follows: Under 1 to 5 Over 5
Notional Fair values 1 year years years Total
principal 1111111144444 £m £m £m £m
11144 4 11144 4 11144 4 1114 44
amount Positive Negative
31 December 2002
31 December 2002 £m £m £m
11144 4 1114 44 1114 44 Exchange rate contracts:
Exchange rate contracts: Notional principal amount 92,138 6,124 2,818 101,080
Spot, forwards and futures 141 46 – Replacement cost 2,152 83 86 2,321
Currency swaps 346 34 1
11144 4 11144 4 11144 4 Interest rate contracts:
487 80 1 Notional principal amount 145,510 144,218 55,118 344,846
qqqrr r qqqrr r qqqrr r Replacement cost 849 2,666 2,509 6,024
Interest rate contracts:
Interest rate swaps 17,816 132 343 Equity contracts:
Forward rate agreements 1,339 2 3 Notional principal amount 1,307 5,095 1,636 8,038
11144 4 11144 4 11144 4 Replacement cost 3 531 74 608
19,155 134 346
qqqrr r qqqrr r qqqrr r Total:
Notional principal amount 238,955 155,437 59,572 453,964
Effect of netting (36) (36)
11144 4 11144 4 Replacement cost 3,004 3,280 2,669 8,953
178 311
qqqrr r qqqrr r 31 December 2001
Exchange rate contracts:
Notional Fair values
principal 1111111144444 Notional principal amount 92,365 5,327 1,751 99,443
amount Positive Negative Replacement cost 972 93 42 1,107
31 December 2001 £m £m £m
11144 4 11144 4 11144 4 Interest rate contracts:
Exchange rate contracts: Notional principal amount 184,434 151,411 53,434 389,279
Spot, forwards and futures 131 2 1 Replacement cost 1,314 1,782 1,724 4,820
Currency swaps 324 10 16
11144 4 11144 4 11144 4 Equity contracts:
455 12 17 Notional principal amount 1,256 4,606 895 6,757
qqqrr r qqqrr r qqqrr r Replacement cost 75 330 23 428
Interest rate contracts:
Total:
Interest rate swaps 3,610 216 73
Forward rate agreements 39 – – Notional principal amount 278,055 161,344 56,080 495,479
11144 4 11144 4 11144 4 Replacement cost 2,361 2,205 1,789 6,355
3,649 216 73
qqqrr r qqqrr r qqqrr r
An analysis of the net replacement cost of both trading and non-trading
Effect of netting (39) (39)
11144 4 11144 4 instruments entered into with third parties by counterparty type is set out below;
the Bank’s exposure is further reduced by qualifying collateral held.
189 51
qqqrr r qqqrr r 2002 2001
£m £m
1114 44 1114 44
OECD banks 2,277 1,870
Other 1,464 603
11144 4 11144 4
Net replacement cost 3,741 2,473
Qualifying collateral held (521) (339)
11144 4 11144 4
Potential credit risk exposure 3,220 2,134
qqqrr r qqqrr r
37
Lloyds TSB Bank plc
38
Lloyds TSB Bank plc
46 Derivatives and other financial instruments (continued) 46 Derivatives and other financial instruments (continued)
c Fair value analysis e Unrecognised gains and losses on hedging instruments
The table below shows a comparison by category of book values and fair values The Group uses a variety of financial instruments to hedge exposures in its
of the Group’s on-balance sheet financial assets and liabilities: banking book; these hedges are accounted for on an accruals basis, in line
with the underlying instruments being hedged. Any gains or losses that would
As at 31 December 2002 144 4 1Trading
1144 4 book
11144 4 14Non-trading
4 4 11144 4 1book
1144 4 occur if these instruments were carried at market value are therefore not
Book Fair Book Fair recognised.
value value value value
Assets: £m4 4
1114 £m4 4
1114 £m4 4
1114 £m4 4
1114 At 31 December 2002, the unrecognised gains on financial instruments used
Treasury bills and other for hedging were £518 million (2001: £242 million) and unrecognised losses
were £744 million (2001: £820 million).
eligible bills 530 530 1,879 1,878
Loans and advances to The net losses arising in 2001 and earlier years and recognised in 2002
banks and customers 2,032 2,032 151,761 153,316 amounted to £344 million. Net losses of £6 million arose in 2002 but were
not recognised in the year.
Debt securities and equity shares 17,620 17,620 11,900 11,932
Liabilities: Of the net losses of £226 million at 31 December 2002, £38 million of net
Deposits by banks and customers 2,927 2,927 139,174 138,752 losses are expected to be recognised in the year ending 31 December 2003 and
£188 million of net losses in later years.
Debt securities in issue 1,122 1,122 29,133 29,005
Subordinated liabilities – – 10,554 11,410
39
Lloyds TSB Bank plc
47 Acquisitions (continued)
An initial cash payment of £47 million has been made, however following the
preparation of the completion accounts it is believed that this should be subject
to a downward adjustment of £5 million. Accordingly a receivable of this
amount has been recognised in the Group’s balance sheet. The fair value
adjustments principally reflect adjustments to the carrying value of operating
lease assets and related taxation. Negotiations regarding the completion of this
acquisition are still ongoing and, whilst no further significant adjustments to
consideration or fair value adjustments are expected, in accordance with the
requirements of paragraph 27 of Financial Reporting Standard 6, it is noted
that the fair value of the net assets of the acquired businesses and the goodwill
arising shown above are provisional.
b) On 16 December 2002 the Group’s subsidiary, Lloyds TSB Asset Finance
Division Limited, completed the purchase of the business of the Dutton-
Forshaw Group, a motor dealer which has a network of 38 franchised
dealerships representing 14 motor vehicle manufacturers. The consideration
for the purchase was £49 million which was settled in cash. The premium on
acquisition of £10 million has been capitalised and will be written off to the
profit and loss account over its estimated useful life of 20 years. Fair value
adjustments were made to the carrying value of tangible fixed assets and in
respect of certain liabilities. Negotiations regarding the completion of this
acquisition are still ongoing and, whilst no further significant adjustments to
consideration or fair value adjustments are expected, in accordance with the
requirements of paragraph 27 of Financial Reporting Standard 6, it is noted
that the goodwill arising stated above is provisional. The results of this business
have been consolidated in full from the date of acquisition, the effect on the
results of the Group is not material.
40
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