HBOS plc

Half-Year Management Report

For the half-year to 30 June 2012

Member of the Lloyds Banking Group

 FORWARD LOOKING STATEMENTS

This announcement contains forward looking statements with respect to the business, strategy and plans of HBOS plc,
its current goals and expectations relating to its future financial condition and performance. Statements that are not
historical facts, including statements about the HBOS Group or the HBOS Group’s management’s beliefs and
expectations, are forward looking statements. By their nature, forward looking statements involve risk and uncertainty
because they relate to events and depend on circumstances that will or may occur in the future. The HBOS Group’s
actual future business, strategy, plans and/or results may differ materially from those expressed or implied in these
forward looking statements as a result of a variety of risks, uncertainties and other factors, including UK domestic and
global economic and business conditions; the ability to derive cost savings and other benefits, including as a result of the
Lloyds Banking Group’s Simplification programme; the ability to access sufficient funding to meet the HBOS Group’s
liquidity needs; changes to HBOS plc’s, Lloyds TSB Bank plc’s or Lloyds Banking Group plc’s credit ratings; risks
concerning borrower or counterparty credit quality; instability in the global financial markets, including Eurozone
instability; changing demographic and market related trends; changes in customer preferences; changes to laws,
regulation, accounting standards or taxation, including changes to regulatory capital or liquidity requirements; the policies
and actions of governmental or regulatory authorities in the UK, the European Union, or jurisdictions outside the UK,
including other European countries and the US; the implementation of the draft EU crisis management framework
directive and banking reform following the recommendations made by the Independent Commission on Banking; the
ability to attract and retain senior management and other employees; requirements or limitations imposed on Lloyds
Banking Group plc, Lloyds TSB Bank plc and the HBOS Group as a result of HM Treasury’s investment in Lloyds
Banking Group plc; the ability to complete satisfactorily the disposal of certain assets as part of the Lloyds Banking
Group’s EC state aid obligations; the extent of any future impairment charges or write-downs caused by depressed asset
valuations, market disruptions and illiquid markets; the effects of competition and the actions of competitors, including
non-bank financial services and lending companies; exposure to regulatory scrutiny, legal proceedings, regulatory
investigations or complaints, and other factors. Please refer to Lloyds Banking Group plc’s latest Annual Report on Form
20-F filed with the US Securities and Exchange Commission for a discussion of certain factors together with examples of
forward looking statements. The forward looking statements contained in this announcement are made as at the date of
this announcement, and the HBOS Group undertakes no obligation to update any of its forward looking statements.

CONTENTS

Page
Financial review 1
Principal risks and uncertainties 3
Condensed consolidated half-year financial statements (unaudited)
Consolidated income statement 9
Consolidated statement of comprehensive income 10
Consolidated balance sheet 11
Consolidated statement of changes in equity 13
Consolidated cash flow statement 15
Notes 16
Contacts 36
HBOS PLC 2012 HALF-YEAR RESULTS

FINANCIAL REVIEW

Principal activities
HBOS plc (the Company) and its subsidiaries (together, the Group) provide a wide range of banking and financial
services in the UK and overseas.

During 2011, the Group earned revenue through interest and fees on a broad range of financial services products
including current and savings accounts, personal loans, credit cards and mortgages within the retail market; loans and
capital market products to commercial, corporate and asset finance customers; life, pensions and investment products;
general insurance; and private banking and asset management.

However, following the restructuring of the Lloyds Banking Group’s insurance entities described below, with effect from
July 2011 the Group no longer has any general insurance activities and its life, pensions and investments activities are
greatly reduced.

Review of results
In July 2011, the Lloyds Banking Group completed a restructuring of the legal ownership of its insurance businesses, as
a result of which the Group’s subsidiary, HBOS Insurance & Investment Group Limited, sold its wholly owned life,
pensions and general insurance subsidiaries to Lloyds TSB General Insurance Holdings Limited and Scottish Widows
Financial Services Holdings Limited, which are also wholly owned by Lloyds TSB Bank plc.

The Group recorded a profit before tax of £64 million for the six months to 30 June 2012 compared to a loss before tax of
£1,977 million for the six months to 30 June 2011. The loss in 2011 was partly due to a £1,155 million charge in respect
of payment protection insurance (see note 14), and there was a similar charge of £240 million in the six months to
30 June 2012 but this has been offset by a past service credit of £258 million relating to the Group’s defined benefit
pension schemes (see note 3).

Total income net of insurance claims decreased by £1,535 million to £4,125 million for the six months to 30 June 2012
from £5,660 million in the six months to 30 June 2011.

Net interest income decreased by £577 million to £3,584 million in the six months to 30 June 2012 compared to
£4,161 million in the same period in 2011. Net interest margins fell, reflecting increased funding costs, the impact of the
sale of assets which are outside of the Lloyds Banking Group’s risk appetite and strong deposit growth in an increasingly
competitive market.

Other income decreased by £2,381 million to £1,594 million in the six months to 30 June 2012, compared to
£3,975 million in the same period in 2011, largely due to a £1,618 million reduction in insurance premium income
following the disposal of the Group’s wholly owned life, pensions and general insurance subsidiaries together with losses
on the sale of assets which are outside of the Lloyds Banking Group’s risk appetite

Net trading income decreased by £290 million to £1,235 million in the six months to 30 June 2012, comprising a
decrease of £382 million in the income from insurance businesses partly offset by a £92 million increase in banking
income. The decrease of £382 million in insurance income reflects £929 million reduction in income following the sale of
the Group’s wholly owned insurance businesses partly offset by a £548 million increase in income within the Group’s
retained insurance business; largely matched by an increase in insurance claims expense. Net trading income within the
Group’s banking business was £140 million for the six months to 30 June 2012 compared with £48 million for the six
months to 30 June 2011.

There was a reduction of £1,423 million in the insurance claims expense to £1,053 million in the six months to 30 June
2012 compared to £2,476 million in the six months to 30 June 2011; £1,894 million was as a result of the sale of the
Group’s wholly owned insurance businesses, but this was partly offset by an increase of £471 million which largely
matched the improvement in net trading income driven by the impact of market conditions on the policyholder assets
within the Group’s retained insurance business, relative to the six months to 30 June 2011.

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HBOS PLC 2012 HALF-YEAR RESULTS

FINANCIAL REVIEW (continued)

Total operating expenses decreased by £1,755 million to £1,779 million in the six months to 30 June 2012 compared to
£3,534 million in the six months to 30 June 2011; this decrease largely reflects the fact that there was a £1,155 million
charge in respect of payment protection insurance in the six months to 30 June 2011, compared to £240 million in the six
months to 30 June 2012. Excluding these charges, operating expenses decreased by £840 million to £1,539 million in
the six months to 30 June 2012, compared to £2,379 million in the six months to 30 June 2011, reflecting a past service
credit in relation to the Group’s defined benefit pension schemes of £258 million (six months to 30 June 2011: nil) and
the impact of the sale of the Group’s wholly owned insurance subsidiaries together with continuing cost synergies arising
from the combination of the Lloyds TSB and HBOS businesses.

Impairment losses decreased by £1,821 million to £2,282 million in the six months to 30 June 2012 compared to
£4,103 million in the six months to 30 June 2011. The reduced charge was a result of the continued application of the
Group’s prudent risk appetite and strong risk management controls resulting in improved portfolio and business quality,
from continued low interest rates, partly offset by subdued UK economic growth and a weak commercial real estate
market; together with significantly lower charges from the Group’s wholesale Irish and Australasian portfolios.

On the balance sheet, total assets were £8,240 million higher at £576,239 million at 30 June 2012, compared to
£567,999 million at 31 December 2011, reflecting the continuing disposal of assets which are outside of the Group’s risk
appetite, customer deleveraging and de-risking and subdued demand in lending markets offset by the placing of funds
with other Lloyds Banking Group entities. Loans and advances to customers decreased by £26,775 million, or
7 per cent, from £357,110 million at 31 December 2011 to £330,335 million at 30 June 2012; debt securities held as
loans and receivables decreased by £6,104 million, or 54 per cent, from £11,276 million at 31 December 2011 to
£5,172 million at 30 June 2012, again reflecting disposals of assets outside of the Lloyds Banking Group’s risk appetite.
Trading and other financial assets at fair value through profit or loss were £10,836 million higher at £56,183 million at
30 June 2012 compared to £45,347 million at 31 December 2011. Shareholders’ equity increased by £774 million, from
£23,771 million at 31 December 2011 to £24,545 million at 30 June 2012.

At 30 June 2012, the Group’s core tier 1 capital ratio increased to 11.5 per cent compared to 10.8 per cent at
31 December 2011, principally driven by a reduction in risk-weighted assets of £15,198 million. The total capital ratio
improved to 16.9 per cent (compared to 16.0 per cent at 31 December 2011). Risk-weighted assets reduced by
8 per cent to £184,126 million at 30 June 2012 compared to £199,324 million at 31 December 2011 due to the asset
disposals and subdued demand for new lending noted above, together with continued improvements to the overall
quality of the Group’s portfolios, partially offset by the application of revised regulatory rules relating to the Group’s
private equity (including venture capital) investments which are now risk-weighted rather than being deducted from total
capital. The removal of this deduction from total capital contributed to the improvement in the total capital ratio.

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HBOS PLC 2012 HALF-YEAR RESULTS

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties facing the Group in the second half of 2012 are:

Economy
Global economic growth deteriorated in the first half of 2012. Emerging markets, having been the mainstay of global
growth since the financial crisis broke, slowed as last year’s monetary policy tightening designed to tackle rising inflation
took effect. In the Eurozone, some countries with particularly high government debt or deficit levels have struggled to
achieve the necessary fiscal tightening to bring their public finances onto a sustainable trajectory, and their growth
prospects weakened significantly as more tightening was planned and their costs of sovereign borrowing rose. In the
US, public finance concerns are less immediate, but the unsustainable long-term trajectory of debt on current policies
has led to political stalemate, raising the risk of sudden fiscal tightening at the start of 2013 as previous loosening
measures expire.

Whilst initial GDP estimates are unreliable, current data suggests the UK economy entered a ‘double-dip’ recession in
the first quarter of 2012, on the technical definition of two consecutive quarters of falling GDP. The declines in GDP
across the two quarters are small, however, and generally consistent with a broadly stagnant economy rather than one
falling into a deepening contraction.

The Irish economy appears to have grown in 2011 for the first time since 2007. Strict austerity measures in recent years
targeted at improving international competitiveness are beginning to pay off – weak domestic demand is now being more
than offset by increasing net exports.

Future economic developments in the UK and Ireland are highly contingent on how successful political leaders are at
stemming the Eurozone crisis, to what extent the private sector can offset shrinking of the public sector, and how the
implementation of new regulation on banks impacts their ability to supply credit whilst meeting tighter capital and liquidity
criteria. The recent weakening in the Eurozone economy and the balance of risks make recession there through 2012
the most likely scenario.

Liquidity and funding risk

Liquidity and funding is managed at a Lloyds Banking Group level and continues to remain a key area of focus for the
Group and the industry as a whole. Like all major banks, the Group is dependent on maintaining confidence in the short
and long-term wholesale funding markets. Should the Group, due to exceptional circumstances, be unable to continue to
source sustainable funding, its ability to fund its financial obligations could be impacted.

During the first half of 2012 there has been good investor demand across a range of term products, notwithstanding fears
over the Eurozone and the threat of credit rating downgrades. Lloyds Banking Group took advantage of this demand and
completed its full year 2012 term funding requirement in the first half. The stock of primary liquid assets increased during
the half and the Group continued to meet its regulatory liquidity ratios at all times.

Lloyds Banking Group has entered into a number of EU state aid related obligations to achieve reductions in certain
parts of its balance sheet by the end of 2014. These are assumed within the Group’s funding plan. The requirement to
meet this deadline may result in the Group having to provide funding to support these asset reductions and/or disposals
and may also result in a lower price being achieved.

The combination of right-sizing the balance sheet and continued development of the retail deposit base has seen the
Group’s wholesale funding requirement reduced materially in the past three years. The progress the Group has made to
date in diversifying its funding sources has further strengthened its funding base with further significant progress during
the first half of 2012.

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HBOS PLC 2012 HALF-YEAR RESULTS

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

Credit risk
Lloyds Banking Group achieved a significant reduction in its impairment charge, due primarily to lower impairments in the
non-core Irish and Australasian portfolios, together with strong Retail performance and lower charges on leveraged
acquisition finance exposures within Wholesale. Prudent credit policies and procedures are in place throughout the
Group, focusing on development of enduring client relationships through the cycle. As a result of this approach, the
credit quality of new lending remains strong.

These lower charges were supported by the continued application of our conservative risk appetite and strong risk
management controls resulting in an improved portfolio overall and good new business quality, continued low interest
rates, and broadly stable UK retail property prices, partly offset by subdued UK economic growth, high unemployment
and a weak commercial real estate market. The Group’s exposure to Ireland is being closely managed, with a dedicated
UK-based business support team in place to manage the winding down of the book.

Lloyds Banking Group continues to proactively manage down sovereign as well as banking and trading book exposure to
selected Eurozone countries.

Regulatory
Regulatory exposure is driven by the significant volume of current legislation and regulation within the UK and overseas
with which Lloyds Banking Group has to comply, along with new or proposed legislation and regulation which needs to
be reviewed, assessed and embedded into day-to-day operational and business practices across the Group. This is
particularly the case in the current market environment, which continues to witness high levels of government and
regulatory intervention in the banking sector. Lloyds Banking Group faces increased political and regulatory scrutiny as a
result of its size and systemic importance.

Independent Commission on Banking and White Paper on banking reform

The Government appointed an Independent Commission on Banking (ICB) to review possible measures to reform the
banking system and promote stability and competition. The ICB published its final report on the 12 September 2011
putting forward recommendations to require ring-fencing of the retail activities of banks from their investment banking
activities and additional capital requirements beyond those required under current drafts of the Capital Requirements
Directive IV. The report also makes recommendations in relation to the competitiveness of the UK banking market,
including enhancing the competition remit of the new Financial Conduct Authority (FCA), implementing a new industry-
wide switching solution by September 2013, and improving transparency. The ICB, which following the final report
completed its mandate, had the authority only to make recommendations, which the Government could choose to accept
or reject.

The ICB specifically recommended in relation to the Group’s European Commission mandated branch disposal (Project
Verde), that to create a strong challenger in the UK banking market, the entity which results from the divestment should
have, or have the capability to achieve, a share of the personal current account (PCA) market of at least 6 per cent
(although this does not need to arise solely from the current accounts acquired from the Group) and a funding position at
least as strong as its peers.

The Government supported the recommendation that an entity with a larger share of the PCA market than the
4.6 per cent originally proposed might produce a more effective competitor. In relation to the Group’s announcement that
it was to pursue exclusive negotiations with The Co-operative Group, the Government commented that such a
transaction would deliver a significant enhancement of the PCA market share, with the share divested by the Group
combining with The Co-operative Group’s existing share to create a competitor with approximately 7-8 per cent share of
the PCA market. The Government also stated that the execution of the divestment is a commercial matter, and that it
has no intention of using its shareholding to deliver an enhancement.

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PRINCIPAL RISKS AND UNCERTAINTIES (continued)

The Government published its response to the ICB recommendations on 19 December 2011 and a White Paper in June
2012. The Government has endorsed the ICB’s proposals to ring-fence retail banking operations as part of a wider
regulatory framework including capital and liquidity and effective macro- and micro-prudential supervision, which aims to
remove any implicit tax-payers’ guarantee for the ring-fenced entities. The White Paper suggests that a broader range of
customers, products and geographies could be allowed inside the ring-fenced bank and recommends 2019 as an
implementation deadline. The Government no longer considers it necessary to give authorities the power to impose a
separate resolution buffer to ensure that banks have adequate loss-absorbing capacity. Given that the Group is
predominantly a retail and commercial bank, it would expect to be less affected by the implementation of a retail ring-
fence, but believes it will be important for any transition period to be flexible in order to minimise any impact on economic
growth, and for banks to implement the required structural changes.

The ICB also recommended that ring-fenced banks should hold a common equity capital base of at least 10 per cent and
primary loss-absorbing capacity of at least 17 per cent to absorb the impact of potential losses or financial crises.

New regulatory regime

On 27 January 2012, the Government published the Financial Services Bill. The proposed new UK regulatory
architecture will see the transition of regulatory and supervisory powers from the FSA to the new Financial Conduct
Authority (FCA) and Prudential Regulation Authority (PRA). The PRA will be responsible for supervising banks, building
societies and other large firms. The FCA will focus on consumer protection and market regulation. The Bill is also
proposing new responsibilities and powers for the FCA. The most noteworthy are the proposed greater powers for the
FCA in relation to competition and the proposal to widen its scope to include consumer credit. The Bill is expected to
take effect in early 2013.

On 2 April 2012 the FSA introduced a new ‘twin peaks’ model and the intention is to move the FSA as close as possible
to the new style of regulation outlined in the Bill. There will be two independent groups of supervisors for banks, insurers
and major investment firms covering prudential and conduct. (All other firms (ie those not dual regulated) will be solely
supervised by the conduct supervisors).

In addition, the European Banking Authority, the European Insurance and Occupational Pensions Authority and the
European Securities and Markets Authority as new EU Supervisory Authorities are likely to have greater influence on
regulatory matters across the EU.

Capital and liquidity

Evolving capital and liquidity requirements continue to be a priority for the Group. The Basel Committee on Banking
Supervision has put forward proposals for a reform package which changes the regulatory capital and liquidity standards,
the definition of ‘capital’, introduces new definitions for the calculation of counterparty credit risk and leverage ratios,
additional capital buffers and development of a global liquidity standard. Implementation of these changes is expected to
be phased in between 2013 and 2021.

Solvency II
The Solvency II Directive will introduce enhanced capital adequacy and risk management requirements for insurers, with
the ultimate aim of increasing policyholder protection. It is now expected to be implemented in January 2014. It sets out
a harmonised, risk-based framework for managing insurance business and calculating capital requirements and also
introduces improved disclosure and reporting requirements. It will give the regulators enhanced powers and
responsibilities.

Anti bribery
The Bribery Act 2010 came fully into force on 1 July 2011. It enhances previous laws on bribery and is supported by
some detailed guidance issued by the Ministry of Justice on the steps a business needs to take to embed ‘adequate
procedures’ to prevent bribery. A company convicted of failing to have ‘adequate procedures’ to prevent bribery could
receive an unlimited fine.

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HBOS PLC 2012 HALF-YEAR RESULTS

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

US regulation
Significant regulatory initiatives from the US impacting the Group include the Dodd-Frank Act (which imposes specific
requirements for systemic risk oversight, securities market conduct and oversight, bank capital standards, arrangements
for the liquidation of failing systemically significant financial institutions and restrictions to the ability of banks to engage in
proprietary trading activities known as the ‘Volcker Rule’). Furthermore, under the so-called swap ‘push-out’ provisions
of the Dodd-Frank Act, the derivatives activities of US banks and US branch offices of foreign banks will be restricted,
which may necessitate a restructuring of how the Group conducts its derivatives activities. Entities that are swap
dealers, security-based swap dealers, major swap participants or major security-based swap participants will be required
to register with the SEC or the US Commodity Futures Trading Commission, or both, and will become subject to the
requirements as to capital, margin, business conduct, recordkeeping and other requirements applicable to such entities.

The Dodd-Frank Act also grants the SEC discretionary rule-making authority to impose a new fiduciary standard on
brokers, dealers and investment advisers, and expands the extraterritorial jurisdiction of US courts over actions brought
by the SEC or the United States with respect to violations of the antifraud provisions of the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. The details of these regulations will depend
on the final regulations ultimately adopted by various US regulatory authorities. In addition the Foreign Account Tax
Compliance Act (FATCA) requires non-US financial institutions to enter into disclosure agreements with the US Treasury
and all non-financial non-US entities to report and/or certify their ownership of US assets in foreign accounts or be
subject to 30 per cent withholding tax.

European regulation
At a European level, the pace of regulatory reform has increased with a number of new directives or changes to existing
directives planned in the next 12 months including a revised Markets in Financial Instruments Directive, Transparency
Directive, European Markets Infrastructure Regulations, Insurance Mediation Directive and a Fifth Undertakings in
Collective Investments in Transferable Securities Directive as well as a proposed Directive regulating Packaged Retail
Investment Products. Despite opposition from the UK Government, a proposed Financial Transaction Tax is a possibility
for EU-wide implementation.

Market risk
There is a risk to the Group’s banking income arising from the level of interest rates and the margin of interbank rates
over central bank rates. A further banking risk arises from competitive pressures on product terms in existing loans and
deposits, which sometimes restrict the Group in its ability to change interest rates applying to customers in response to
changes in interbank and central bank rates.

Equity market movements and changes in credit spreads impact the Group’s results.

 The main equity market risks arise in the life assurance companies and staff pension schemes.
 Credit spread risk arises in the life assurance companies, pension schemes and banking businesses.

Continuing concerns about the fiscal position in Eurozone countries resulted in increased credit spreads in the areas
affected, and fears of contagion affected the euro and widened spreads between central bank and interbank rates.

Customer treatment
Customer treatment and how the Group manages its customer relationships affect all aspects of the Group’s operations
and are closely aligned with achievement of the Group’s strategic vision to be the best bank for customers. As a provider
of a wide range of financial services products across different brands and numerous distribution channels to an
extremely broad and varied customer base, we face significant conduct risks, such as: products or services not meeting
the needs of our customers; sales processes which could result in selling products to customers which do not meet their
needs; and failure to deal with a customer’s complaint effectively where we have got it wrong and not met customer
expectations.

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PRINCIPAL RISKS AND UNCERTAINTIES (continued)

There remains a high level of scrutiny regarding the treatment of customers by financial institutions from regulatory
bodies, the press, and politicians. The FSA in particular continues to drive focus on conduct of business activities
through its supervision activity.

There is a risk that certain aspects of the Group’s business may be determined by regulatory bodies or the courts as not
being conducted in accordance with applicable laws or regulations, or fair and reasonable treatment in their opinion. The
Group may also be liable for damages to third parties harmed by the conduct of its business.

People risk
The quality and effectiveness of the Group’s people are fundamental to its success. Consequently, the Group’s
management of material people risks is critical to its capacity to deliver against its long-term strategic objectives. Over
the next six months the Group’s ability to manage people risks successfully may continue to be affected by the following
key drivers:

 the Group’s continuing structural consolidation and the sale of part of our branch network under Project Verde may
result in disruption to our ability to lead and manage our people effectively;
 the continually changing, more rigorous regulatory environment, may impact our people strategy, remuneration
practices and retention; and
 macroeconomic conditions and negative media attention on the banking sector may impact retention, colleague
sentiment and engagement.

Insurance risk
The major sources of insurance risk are within the insurance businesses and the Group’s defined benefit staff pension
schemes (pension schemes). Insurance risk is inherent in the insurance business and can be affected by customer
behaviour. Insurance risks accepted relate primarily to mortality, longevity, morbidity, persistency, expenses, property
and unemployment. The primary insurance risk carried by the Group’s pension schemes is related to longevity.

Insurance risk within the insurance businesses has the potential to significantly impact the earnings and capital position
of the Insurance Division of the Group. For the Group’s pension schemes, insurance risk could significantly increase the
cost of pension provision and impact the balance sheet of the Group.

State funding and state aid

HM Treasury currently holds 39.2 per cent of Lloyds Banking Group’s ordinary share capital. United Kingdom Financial
Investments Limited (UKFI) as manager of HM Treasury's shareholding continues to operate in line with the framework
document between UKFI and HM Treasury managing the investment in Lloyds Banking Group on a commercial basis
without interference in day-to-day management decisions. There is a risk that a change in Government priorities could
result in the framework agreement currently in place being replaced leading to interference in the operations of the
Group, although there have been no indications that the Government intends to change the existing operating
arrangements.

Lloyds Banking Group made a number of undertakings to HM Treasury arising from the capital and funding support,
including the provision of additional lending to certain mortgage and business sectors for the two years to 28 February
2011, and other matters relating to corporate governance and colleague remuneration. The lending commitments were
subject to prudent commercial lending and pricing criteria, the availability of sufficient funding and sufficient demand from
creditworthy customers. These lending commitments were delivered in full in the second year.

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HBOS PLC 2012 HALF-YEAR RESULTS

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

The subsequent agreement (known as Merlin) between five major UK banks (including Lloyds Banking Group) and the
Government in relation to gross business lending capacity in the 2011 calendar year was subject to a similar set of
criteria. Lloyds Banking Group delivered in full its share of the commitments by the five banks, both in respect of lending
to SMEs and in respect of overall gross business lending. The Group has made a unilateral lending pledge for 2012 as
part of its publicly announced SME charter.

In addition, Lloyds Banking Group is subject to European state aid obligations in line with the Restructuring Plan agreed
with HM Treasury and the EU College of Commissioners in November 2009, which is designed to support the long-term
viability of Lloyds Banking Group and remedy any distortion of competition and trade in the European Union (EU) arising
from the state aid given to Lloyds Banking Group. This has placed a number of requirements on Lloyds Banking Group
including an asset reduction target from a defined pool of assets by the end of 2014, known as Project Atlantic, and the
disposal of certain portions of its Retail business by the end of November 2013, known as Project Verde. In June 2011
the Group issued an Information Memorandum to potential bidders, covering this retail banking business, which the
European Commission confirmed met the requirements to commence the formal sale process for the sale no later than
30 November 2011. On 14 December 2011 Lloyds Banking Group announced that, having reviewed the formal offers
made, its preferred option was for a direct sale and that it was entering exclusive discussions with The Co-operative
Group. On 19 July 2012 Lloyds Banking Group announced that it has agreed non-binding heads of terms with The
Co-operative Group for the Verde business. Lloyds Banking Group will continue to work with the Co-operative to agree a
sale and purchase agreement, with completion of the divestment expected by the end of November 2013.
Lloyds Banking Group continues to work closely with the FSA, EU Commission, HM Treasury and the Monitoring Trustee
appointed by the EU Commission to ensure the successful implementation of the Restructuring Plan and will now seek
formal approval for the terms of the divestment. Lloyds Banking Group is also continuing to progress an Initial Public
Offering (IPO) in parallel as a fall back option.

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HBOS PLC 2012 HALF-YEAR RESULTS

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED INCOME STATEMENT

Half-year Half-year
to 30 June to 30 June
2012 2011
Note £ million £ million
Interest and similar income 8,032 8,310
Interest and similar expense (4,448) (4,149)
Net interest income 3,584 4,161
Fee and commission income 828 936
Fee and commission expense (252) (438)
Net fee and commission income1 576 498
Net trading income 1,235 1,525
Insurance premium income 17 1,635
Other operating income (234) 317
Other income 2 1,594 3,975
Total income 5,178 8,136
1
Insurance claims (1,053) (2,476)
Total income, net of insurance claims 4,125 5,660
Payment protection insurance provision 14 (240) (1,155)
Other operating expenses (1,539) (2,379)
Total operating expenses 3 (1,779) (3,534)
Trading surplus 2,346 2,126
Impairment 4 (2,282) (4,103)
Profit (loss) before tax 64 (1,977)
Taxation 5 (53) 387
Profit (loss) for the period 11 (1,590)

Profit attributable to non-controlling interests 10 12

Profit (loss) attributable to equity shareholders 1 (1,602)
Profit (loss) for the period 11 (1,590)
1
See note 2.

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

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Half-year Half-year
to 30 June to 30 June
2012 2011
£ million £ million

Profit (loss) for the period 11 (1,590)

Other comprehensive income
Movements in revaluation reserve in respect of available-for-sale financial assets:
Change in fair value 268 153
Income statement transfers in respect of disposals (140) (6)
Income statement transfers in respect of impairment 333 509
Other income statement transfers 68 50
Taxation (132) (175)
397 531
Movements in cash flow hedging reserve:
Effective portion of changes in fair value 409 459
Net income statement transfers 29 290
Taxation (94) (207)
344 542
Currency translation differences (tax: nil) 32 (60)
Other comprehensive income for the period, net of tax 773 1,013
Total comprehensive income for the period 784 (577)

Total comprehensive income attributable to non-controlling interests 10 12

Total comprehensive income attributable to equity shareholders 774 (589)
Total comprehensive income for the period 784 (577)

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HBOS PLC 2012 HALF-YEAR RESULTS

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

CONSOLIDATED BALANCE SHEET

As at As at
30 June 31 Dec
2012 2011
Note £ million £ million
Assets
Cash and balances at central banks 6,179 3,075
Items in course of collection from banks 339 379
Trading and other financial assets at fair value through profit or loss 6 56,183 45,347
Derivative financial instruments 36,270 36,253
Loans and receivables:
Loans and advances to banks 119,522 91,210
Loans and advances to customers 7 330,335 357,110
Debt securities 5,172 11,276
455,029 459,596
Available-for-sale financial assets 7,474 10,498
Investment properties 1,529 1,686
Goodwill 859 859
Value of in-force business 144 147
Other intangible assets 88 76
Tangible fixed assets 2,304 2,372
Current tax recoverable 235 338
Deferred tax assets 3,759 3,977
Retirement benefit assets 753 394
Other assets 5,094 3,002
Total assets 576,239 567,999

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HBOS PLC 2012 HALF-YEAR RESULTS

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

CONSOLIDATED BALANCE SHEET

As at As at
30 June 31 Dec
2012 2011
Note £ million £ million
Equity and liabilities
Liabilities
Deposits from banks 156,810 150,042
Customer deposits 218,485 217,048
Items in course of transmission to banks 728 332
Trading liabilities 30,238 20,805
Derivative financial instruments 32,522 33,385
Notes in circulation 1,090 1,145
Debt securities in issue 10 60,039 75,457
Liabilities arising from insurance contracts and participating
investment contracts 399 385
Liabilities arising from non-participating investment contracts 24,068 22,207
Other liabilities 12,700 8,184
Retirement benefit obligations 122 107
Current tax liabilities 37 54
Deferred tax liabilities 3 1
Other provisions 740 1,064
Subordinated liabilities 11 13,302 13,613
Total liabilities 551,283 543,829

Equity
Share capital 12 3,763 3,763
Share premium account 13 18,655 18,655
Other reserves 13 11,296 10,523
Retained profits 13 (9,169) (9,170)
Shareholders’ equity 24,545 23,771
Non-controlling interests 411 399
Total equity 24,956 24,170
Total equity and liabilities 576,239 567,999

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HBOS PLC 2012 HALF-YEAR RESULTS

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

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity shareholders

Share capital Non-
and Other Retained controlling
premium reserves profits Total interests Total
£ million £ million £ million £ million £ million £ million
Balance at 1 January 2012 22,418 10,523 (9,170) 23,771 399 24,170
Comprehensive income
(Loss) profit for the period – – 1 1 10 11
Other comprehensive income
Movements in revaluation reserve in
respect of available-for-sale financial
assets, net of tax – 397 – 397 – 397
Movements in cash flow hedging
reserve, net of tax – 344 – 344 – 344
Currency translation differences (tax: nil) – 32 – 32 – 32
Total other comprehensive income – 773 – 773 – 773
Total comprehensive income – 773 1 774 10 784
Transactions with owners
Dividends paid – – – – (10) (10)
Change in non-controlling interests – – – – 12 12
Total transactions with owners – – – – 2 2
Balance at 30 June 2012 22,418 11,296 (9,169) 24,545 411 24,956

Page 13 of 36
HBOS PLC 2012 HALF-YEAR RESULTS

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

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

Attributable to equity shareholders

Share capital Non-
and Other Retained controlling
premium reserves profits Total interests Total
£ million £ million £ million £ million £ million £ million
Balance at 1 January 2011 22,418 8,857 (5,415) 25,860 550 26,410
Comprehensive income
(Loss) profit for the period – – (1,602) (1,602) 12 (1,590)
Other comprehensive income
Movements in revaluation reserve in
respect of available-for-sale financial
assets, net of tax – 531 – 531 – 531
Movements in cash flow hedging
reserve, net of tax – 542 – 542 – 542
Currency translation differences (tax: nil) – (60) – (60) – (60)
Total other comprehensive income – 1,013 – 1,013 – 1,013
Total comprehensive income – 1,013 (1,602) (589) 12 (577)
Transactions with owners
Dividends – – – – (8) (8)
Value of employee services:
Share option schemes – – 4 4 – 4
Change in non-controlling interests – – – – (197) (197)
Total transactions with owners – – 4 4 (205) (201)
Balance at 30 June 2011 22,418 9,870 (7,013) 25,275 357 25,632
Comprehensive income
(Loss) profit for the period – – (2,161) (2,161) 30 (2,131)
Other comprehensive income
Movements in revaluation reserve in
respect of available-for-sale financial
assets, net of tax – (135) – (135) – (135)
Movements in cash flow hedging
reserve, net of tax – 734 – 734 – 734
Currency translation differences (tax: nil) – 54 – 54 – 54
Total other comprehensive income – 653 – 653 – 653
Total comprehensive income – 653 (2,161) (1,508) 30 (1,478)
Transactions with owners
Dividends – – – – (7) (7)
Value of employee services: –
Share option schemes – – 4 4 – 4
Change in non-controlling interests – – – – 19 19
Total transactions with owners – – 4 4 12 16
Balance at 31 December 2011 22,418 10,523 (9,170) 23,771 399 24,170

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HBOS PLC 2012 HALF-YEAR RESULTS

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

CONSOLIDATED CASH FLOW STATEMENT

Half-year Half-year
to 30 June to 30 June
2012 2011
£ million £ million
Profit (loss) before tax 64 (1,977)
Adjustments for:
Change in operating assets (7,142) 1,865
Change in operating liabilities 8,108 (3,564)
Non-cash and other items (1,174) (379)
Tax paid (6) (66)
Net cash used in operating activities (150) (4,121)

Cash flows from investing activities

Purchase of available-for-sale financial assets (1,724) (3,867)
Proceeds from sale and maturity of available-for-sale financial assets 4,819 8,046
Purchase of fixed assets (272) (372)
Proceeds from sale of fixed assets 484 916
Acquisition of businesses, net of cash acquired (10) (59)
Disposal of businesses, net of cash disposed 5 238
Net cash provided by investing activities 3,302 4,902

Cash flows from financing activities

Dividends paid to non-controlling interests (10) (8)
Interest paid on subordinated liabilities (326) (405)
Repayment of subordinated liabilities – (92)
Change in non-controlling interests 12 (12)
Net cash used in financing activities (324) (517)
Effects of exchange rate changes on cash and cash equivalents (38) 2
Change in cash and cash equivalents 2,790 266
Cash and cash equivalents at beginning of period 6,642 9,543
Cash and cash equivalents at end of period 9,432 9,809

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.

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HBOS PLC 2012 HALF-YEAR RESULTS

NOTES

Page
1 Accounting policies, presentation and estimates 17
2 Other income 19
3 Operating expenses 19
4 Impairment 20
5 Taxation 20
6 Trading and other financial assets at fair value through profit or loss 21
7 Loans and advances to customers 21
8 Allowance for impairment losses on loans and receivables 22
9 Securitisations and covered bonds 23
10 Debt securities in issue 24
11 Subordinated liabilities 24
12 Share capital 24
13 Reserves 24
14 Provisions for liabilities and charges 25
15 Contingent liabilities and commitments 26
16 Capital ratios 29
17 Related party transactions 30
18 Future accounting developments 32
19 Ultimate parent undertaking 33
20 Other information 33

Page 16 of 36
HBOS PLC 2012 HALF-YEAR RESULTS

1. Accounting policies, presentation and estimates

These condensed consolidated half-year financial statements as at and for the period to 30 June 2012 have been
prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority (FSA) and with
International Accounting Standard 34 (IAS 34), Interim Financial Reporting as adopted by the European Union and
comprise the results of HBOS plc (the Company) together with its subsidiaries (the Group). They do not include all of the
information required for full annual financial statements and should be read in conjunction with the Group’s consolidated
financial statements as at and for the year ended 31 December 2011 which were prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European Union. Copies of the 2011 annual
report and accounts are available on the Lloyds Banking Group’s website and are available upon request from Investor
Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN.

The directors consider that it is appropriate to continue to adopt the going concern basis in preparing the condensed
consolidated half-year financial statements. In reaching this assessment, the directors have considered projections for
the Group’s capital and funding position and have had regard to the factors set out in Principal risks and uncertainties:
Liquidity and funding on page 3.

The Group had previously included annual management charges on non-participating investment contracts within
insurance claims; during the second half of 2011, in light of developing industry practice, the Group changed its
treatment and these amounts (half-year to 30 June 2012: £232 million; half-year to 30 June 2011: £251 million) are now
included within net fee and commission income.

As the Group’s share of results of joint ventures and associates is no longer significant, this is now included within other
operating income and the related asset reported within other assets; comparatives have been re-presented on a
consistent basis.

Accounting policies
The accounting policies are consistent with those applied by the Group in its 2011 annual report and accounts.

In accordance with IAS 34, the Group’s income tax expense for the half-year to 30 June 2012 is based on the best
estimate of the weighted-average annual income tax rate expected for the full financial year. The tax effects of one-off
items are not included in the weighted-average annual income tax rate, but are recognised in the relevant period.

In accordance with IAS 19 Employee Benefits and the Group’s normal practice, the valuation of the Group’s pension
schemes will be formally updated at the year end. No adjustment has been made to the valuation at 30 June 2012.

Critical accounting estimates and judgements

The preparation of the Group’s financial statements requires management to make judgements, estimates and
assumptions that impact the application of accounting policies and the reported amounts of assets, liabilities, income and
expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may include
amounts which differ from those estimates. Estimates, judgements and assumptions are continually evaluated and are
based on historical experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. There have been no significant changes in the basis upon which estimates have
been determined, compared to that applied at 31 December 2011.

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HBOS PLC 2012 HALF-YEAR RESULTS

1. Accounting policies, presentation and estimates (continued)

Payment protection insurance

During 2011 and the first half of 2012, the Group has charged a total provision of £1,395 million in respect of payment
protection insurance (PPI) policies as a result of discussions with the FSA and a judgment handed down by the UK High
Court (see note 14 for more information). The provision represents management’s best estimate of the anticipated costs
of related customer contact and/or redress, including administration expenses. However, there are still a number of
uncertainties as to the eventual costs from any such contact and/or redress given the inherent difficulties in assessing
the impact of detailed implementation of the FSA Policy Statement of 10 August 2010.

The provision requires significant judgement by management in determining appropriate assumptions, which include the
level of complaints, uphold rates, proactive contact and response rates, Financial Ombudsman Service (FOS) referral
and uphold rates as well as redress costs for each of the many different populations of customers identified by the Group
in its analyses used to determine the best estimate of the anticipated costs of redress. Following an increase in the
volume of complaints received, the Group decided to increase the provision by £240 million in the first half of 2012.
Going forward, if the level of policies complained about was one percentage point higher (lower) than estimated for all
policies open within the last seven years then the provision would increase (decrease) by approximately £15 million.
There are a large number of inter-dependent assumptions underpinning the provision; this sensitivity assumes that all
assumptions, other than the level of complaints, remain constant.

The Group will re-evaluate the assumptions underlying its analysis at each reporting date as more information becomes
available. As noted above, there is inherent uncertainty in making estimates; actual results in future periods may differ
from the amount provided.

New accounting pronouncements

The Group has adopted the following new standards and amendments to standards which became effective for financial
years beginning on or after 1 January 2012. Neither of these standards or amendments to standards has had a material
impact on these financial statements.

(i) Disclosures – Transfers of Financial Assets (Amendments to IFRS 7)

This Amendment to IFRS 7 requires disclosures in respect of all transferred financial assets that are not
derecognised in their entirety and transferred assets that are derecognised in their entirety but with which there is
continuing involvement. Where appropriate, these disclosures will be made in the Group’s financial statements for
the year ended 31 December 2012.

(ii) Deferred Tax: Recovery of Underlying Assets (Amendment to IAS 12)

Introduces a rebuttable presumption that investment property measured at fair value is recovered entirely through
sale and that deferred tax in respect of such investment property is recognised on that basis. Although this
Amendment has not yet been endorsed by the EU, the Group’s existing practices are consistent with this
Amendment.

Details of those IFRS pronouncements which will be relevant to the Group but which will not be effective at 31 December
2012 and which have not been applied in preparing these financial statements are given in note 18.

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HBOS PLC 2012 HALF-YEAR RESULTS

2. Other income
Half-year Half-year
to 30 June 30 June
2012 2011
£m £m
Fee and commission income:
Current account fees 149 184
Credit and debit card fees 131 96
Other fees and commissions1 548 656
828 936
Fee and commission expense (252) (438)
Net fee and commission income 576 498
Net trading income 1,235 1,525
Insurance premium income 17 1,635
Other operating income (234) 317
Total other income 1,594 3,975
1
In previous years the Group has included annual management charges on non-participating investment contracts within insurance claims. In
light of developing industry practice, these amounts (half-year to 30 June 2012: £232 million; half-year to 30 June 2011: £251 million) are now
included within net fee and commission income.

3. Operating expenses
Half-year Half-year
to 30 June to 30 June
2012 2011
£m £m
Administrative expenses:
Staff costs excluding past service pensions credit 945 1,202
1
Past service pensions credit (258) –
Total staff costs 687 1,202
Premises and equipment 192 259
Other expenses 521 626
1,400 2,087
Depreciation and amortisation 139 227
Impairment of tangible fixed assets – 65
Total operating expenses, excluding payment protection insurance provision 1,539 2,379
Payment protection insurance provision (note 14) 240 1,155
Total operating expenses 1,779 3,534
1
Following a review of policy in respect of discretionary pension increases in relation to the Group’s defined benefit pension schemes,
increases in certain schemes are now linked to the Consumer Price Index rather than the Retail Price Index. The impact of this change is a
reduction in the Group’s defined benefit obligation of £258 million, recognised in the Group’s income statement in the half-year to 30 June
2012.

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HBOS PLC 2012 HALF-YEAR RESULTS

4. Impairment
Half-year Half-year
to 30 June to 30 June
2012 2011
£m £m
Impairment losses on loans and receivables:
Loans and advances to customers 2,221 4,048
Debt securities classified as loans and receivables 33 24
Impairment losses on loans and receivables (note 8) 2,254 4,072
Impairment of available-for-sale financial assets 28 32
Other credit risk provisions – (1)
Total impairment charged to the income statement 2,282 4,103

5. Taxation

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

Half-year Half-year
to 30 June to 30 June
2012 2011
£m £m
Profit (loss) before tax 64 (1,977)

Tax (charge) credit thereon at UK corporation tax rate of 24.5 per cent
(2011: 26.5 per cent) (16) 524
Factors affecting tax (charge) credit:
UK corporation tax rate change (142) (154)
Disallowed and non-taxable items 55 41
Overseas tax rate differences 43 2
Gains exempted or covered by capital losses 2 27
Policyholder tax – 61
Tax losses where no deferred tax recognised (25) (135)
Deferred tax on losses not previously recognised – 16
Adjustments in respect of previous periods 24 4
Effect of results in joint ventures and associates 3 3
Other items 3 (2)
Tax (charge) credit (53) 387

In accordance with IAS 34, the Group’s income tax expense for the half-year to 30 June 2012 is based on the best
estimate of the weighted-average annual income tax rate expected for the full financial year. The tax effects of one-off
items are not included in the weighted-average annual income tax rate, but are recognised in the relevant period. The
impact of the reduction in the main rate of corporation tax to 24 per cent that passed into legislation on 26 March 2012 on
the Group’s deferred tax asset was accounted for in the first half of 2012.

The Finance Act 2012 (the Act) was substantively enacted on 3 July 2012. The Act further reduces the rate of
corporation tax to 23 per cent with effect from 1 April 2013. This change will be accounted for in the second half of 2012.

The proposed further reduction in the rate of corporation tax by 1 per cent to 22 per cent by 1 April 2014 is expected to
be enacted next year. The effect of this further change upon the Group’s deferred tax balances and leasing business
cannot be reliably quantified at this stage.

Page 20 of 36
HBOS PLC 2012 HALF-YEAR RESULTS

6. Trading and other financial assets at fair value through profit or loss
As at As at
30 June 31 Dec
2012 2011
£m £m
Trading assets 30,576 21,840

Other financial assets at fair value through profit or loss:

Loans and advances to customers 53 54
Debt securities 4,755 4,300
Equity shares 20,799 19,153
25,607 23,507
Total trading and other financial assets at fair value through profit or loss 56,183 45,347

Included in the above is £25,464 million (31 December 2011: £23,474 million) of assets relating to the insurance
businesses.

7. Loans and advances to customers

As at As at
30 June 31 Dec
2012 2011
£m £m
Agriculture, forestry and fishing 592 588
Energy and water supply 1,431 1,670
Manufacturing 2,271 2,946
Construction 5,879 6,818
Transport, distribution and hotels 17,737 20,135
Postal and communications 505 357
Property companies 36,952 42,418
Financial, business and other services 18,673 33,077
Personal:
Mortgages 238,673 243,222
Other 13,775 12,920
Lease financing 3,374 3,840
Hire purchase 797 772
Due from fellow Group undertakings 10,872 11,698
Total loans and advances to customers before allowance for impairment losses 351,531 380,461
Allowance for impairment losses on loans and advances (note 8) (21,196) (23,351)
Total loans and advances to customers 330,335 357,110

Loans and advances to customers include advances securitised under the Group’s securitisation and covered bond
programmes. Further details are given in note 9.

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HBOS PLC 2012 HALF-YEAR RESULTS

8. Allowance for impairment losses on loans and receivables

Half-year Year
to 30 June to 31 Dec
2012 2011
£m £m
Balance at 1 January 24,499 26,607
Exchange and other adjustments (402) (374)
Advances written off (4,038) (8,650)
Recoveries of advances written off in previous years 153 66
Unwinding of discount (177) (171)
Charge for the half-year to 30 June (note 4) 2,254 4,072
Charge for the half-year to 31 December – 2,949
Charge to the income statement 2,254 7,021
Balance at end of period 22,289 24,499

In respect of:
Loans and advances to customers (note 7) 21,196 23,351
Debt securities 1,093 1,148
Balance at end of period 22,289 24,499

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HBOS PLC 2012 HALF-YEAR RESULTS

9. Securitisation and covered bonds

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

As at 30 June 2012 As at 31 December 2011

Loans and Loans and
advances Notes in advances Notes in
securitised issue securitised issue
£m £m £m £m
Securitisation programmes
UK residential mortgages 48,241 35,517 91,246 68,425
US residential mortgage–backed securities 4,337 5,178 4,659 6,351
Irish residential mortgages 5,233 3,562 5,531 5,661
Credit card receivables 6,649 5,283 6,792 4,810
Dutch residential mortgages 4,732 4,856 4,960 4,817
Commercial loans 968 946 680 631
Motor vehicle loans 1,468 1,546 1,573 1,341
71,628 56,888 115,441 92,036
Less held by the Group (34,694) (65,118)
Total securitisation programmes (note 10) 22,194 26,918

Covered bond programmes

Residential mortgage-backed 45,531 34,529 48,521 38,882
Social housing loan-backed 3,307 2,638 3,370 2,605
48,838 37,167 51,891 41,487
Less held by the Group (10,373) (13,515)
Total covered bond programmes (note 10) 26,794 27,972
Total securitisation and covered bond programmes 48,988 54,890

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

Covered bond programmes

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

Cash deposits of £6,756 million (31 December 2011: £13,381 million) held by the Group are restricted in use to
repayment of the debt securities issued by the SPEs and other legal obligations.

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HBOS PLC 2012 HALF-YEAR RESULTS

10. Debt securities in issue

As at As at
30 June 31 Dec
2012 2011
£m £m
Medium-term notes issued 8,916 12,489
Covered bonds (note 9) 26,794 27,972
Certificates of deposit 411 350
Securitisation notes (note 9) 22,194 26,918
Commercial paper 847 6,169
59,162 73,898
Amounts due to fellow Group undertakings 877 1,559
Total debt securities in issue 60,039 75,457

11. Subordinated liabilities

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

£m

At 1 January 2012 13,613

Foreign exchange and other movements (311)
At 30 June 2012 13,302

12. Share capital

Ordinary share capital in issue is as follows:

Number
of shares
Ordinary shares of 25 pence each (millions) £m

At 1 January and 30 June 2012 15,053 3,763

13. Reserves

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

At 1 January 2012 18,655 (498) 859 10,162 10,523 (9,170)

Loss for the period – – – – – 1
Change in fair value of
available-for-sale assets
(net of tax) – 225 – – 225 –
Change in fair value of
hedging derivatives
(net of tax) – – 322 – 322 –
Transfers to income
statement (net of tax) – 172 22 – 194 –
Exchange and other
adjustments – – – 32 32 –
At 30 June 2012 18,655 (101) 1,203 10,194 11,296 (9,169)

Page 24 of 36
HBOS PLC 2012 HALF-YEAR RESULTS

14. Provisions for liabilities and charges

Payment protection insurance

There has been extensive scrutiny of the Payment Protection Insurance (PPI) market in recent years. The FSA
published its Policy Statement on 10 August 2010, setting out evidential provisions and guidance on the fair assessment
of a complaint and the calculation of redress, as well as a requirement for firms to reassess historically rejected
complaints which had to be implemented by 1 December 2010.

On 8 October 2010, the British Bankers’ Association (BBA), the principal trade association for the UK banking and
financial services sector, filed an application for permission to seek judicial review against the FSA and the FOS. The
BBA sought an order quashing the FSA Policy Statement and an order quashing the decision of the FOS to determine
PPI sales in accordance with the guidance published on its website in November 2008. On 20 April 2011 judgment was
handed down by the High Court dismissing the BBA’s application. On 9 May 2011, the BBA confirmed that the banks
and the BBA did not intend to appeal the judgment.

After publication of the judgment, the Group entered into discussions with the FSA with a view to seeking clarity around
the detailed implementation of the Policy Statement. As a result, and given the initial analysis that the Group conducted
of compliance with applicable sales standards, which is continuing, the Group concluded that there are certain
circumstances where customer contact and/or redress will be appropriate. Accordingly the Group made a provision in its
income statement for the year ended 31 December 2011 of £1,155 million in respect of the anticipated costs of such
contact and/or redress, including administration expenses. During 2012 there has been an increase in the volume of
complaints being received, although other assumptions continue to be broadly in line with expectations. As a result the
Group has increased its provision by a further £240 million during the first half of 2012 to cover the anticipated redress in
relation to these increased volumes. This increases the total estimated cost of redress to £1,395 million; redress
payments made and expenses incurred to the end of June 2012 amounted to £943 million. However, there are still a
number of uncertainties as to the eventual costs from any such contact and/or redress given the inherent difficulties of
assessing the impact of the detailed implementation of the Policy Statement for all PPI complaints, uncertainties around
the ultimate emergence period for complaints, the availability of supporting evidence and the activities of claims
management companies, all of which will significantly affect complaints volumes, uphold rates and redress costs.

Interest rate hedging products

In June 2012, a number of banks, including Lloyds Banking Group, reached agreement with the FSA to carry out a
thorough assessment of sales made since 1 December 2001 of interest rate hedging products to certain small and
medium-sized businesses. The Group has also agreed that on conclusion of this review it will provide redress to any of
these customers where appropriate. Not all customers will be owed redress, and the exact redress will vary from
customer to customer.

The estimated cost of redress and related administration costs based upon the results of the work performed on the
portfolio to date have been provided. This work is not yet complete and the results are still subject to the FSA review
process; consequently the ultimate cost to the Group may vary. However, based on the analysis to date, the total cost is
not expected to be material.

Page 25 of 36
HBOS PLC 2012 HALF-YEAR RESULTS

15. Contingent liabilities and commitments

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

Following the judgment, MasterCard has announced its intention to appeal, and that it intends to continue to apply cross-
border MIFs at the rate at which they were ‘settled’ prior to the judgment. It is possible that the Commission may seek to
reduce this.

In parallel:

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

(2) the European Commission is pursuing an investigation with a view to deciding whether arrangements adopted by VISA
for the levying of the MIF in respect of cross-border payment transactions also infringe European Union competition
laws. In this regard VISA reached an agreement (which expires in 2014) with the European Commission to reduce the
level of interchange for cross-border debit card transactions to the interim levels agreed by MasterCard; and

(3) now that the General Court judgment has been handed down, the Office of Fair Trading (OFT) may decide to renew
its ongoing examination of whether the levels of interchange paid by retailers in respect of MasterCard and VISA
credit cards, debit cards and charge cards in the UK infringe competition law. The OFT had placed the investigation
on hold pending the outcome of the MasterCard appeal.

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

Interbank offered rate setting investigations

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

Financial Services Compensation Scheme (FSCS)

The FSCS is the UK's independent statutory compensation fund for customers of authorised financial services firms and
pays compensation if a firm is unable to pay claims against it. The FSCS is funded by levies on the industry (and
recoveries and borrowings where appropriate). The levies raised comprise both management expenses levies and,
where necessary, compensation levies on authorised firms.

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15. Contingent liabilities and commitments (continued)

Following the default of a number of deposit takers in 2008, the FSCS borrowed funds from HM Treasury to meet the
compensation costs for customers of those firms. The interest rate on the borrowings with HM Treasury, which total
circa £20 billion, increased from 12 month LIBOR plus 30 basis points to 12 month LIBOR plus 100 basis points on
1 April 2012. Whilst it is expected that the substantial majority of the principal will be repaid from funds the FSCS
receives from asset sales, surplus cash flow or other recoveries in relation to the assets of the firms that defaulted, to the
extent that there remains a shortfall, the FSCS will raise compensation levies on all deposit-taking participants. The
amount of any future compensation levies payable by the Group also depends on a number of factors including
participation in the market at 31 December, the level of protected deposits and the population of deposit-taking
participants. As such, although the Group’s share of such compensation levies could be significant, the Group has not
recognised a provision in respect of them in these financial statements.

FSA investigation into Bank of Scotland

In 2009, the FSA commenced a supervisory review into HBOS. The supervisory review was superseded when the FSA
commenced an enforcement investigation into Bank of Scotland plc in relation to its Corporate Division between 2006
and 2008. These proceedings have now concluded. The FSA published its Final Notice on 9 March 2012. No financial
penalty was imposed on the Group or Bank of Scotland plc. The FSA has indicated that it intends to produce a report
into HBOS. The scope and timing of such a report remain uncertain.

Shareholder complaints
Lloyds Banking Group plc and two former members of its Board of Directors have been named as defendants in
a purported securities class action pending in the United States District Court for the Southern District of New York. The
complaint, dated 23 November 2011, asserts claims under the Securities Exchange Act of 1934 in connection with
alleged material omissions from statements made in 2008 in connection with the acquisition of HBOS. No quantum is
specified. The Lloyds Banking Group has applied to dismiss the complaint.

In addition, a UK-based shareholder action group has threatened multi-claimant claims on a similar basis against Lloyds
Banking Group plc and two former directors in the UK. No claim has yet been issued.

Lloyds Banking Group plc considers that the claims are without merit and will defend them vigorously. The claims have
not been quantified and it is not possible to estimate any potential financial impact on the Lloyds Banking Group at this
early stage.

Other regulatory matters

In the course of its business, the Group is engaged in discussions with the FSA in relation to a range of conduct of
business matters, including complaints handling, packaged bank accounts, savings accounts, product terms and
conditions, interest-only mortgages, sales processes and remuneration schemes. The Group is keen to ensure that
regulatory concerns are understood and addressed. The ultimate impact on the Group of these discussions can only be
known at the conclusion of such discussions.

Other legal actions and regulatory matters

In addition, during the ordinary course of business the Group is subject to other threatened and actual legal proceedings
(which may include class action lawsuits brought on behalf of customers, shareholders or other third parties), regulatory
investigations, regulatory challenges and enforcement actions, both in the UK and overseas. All such material matters
are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the
likelihood of the Group incurring a liability. In those instances where it is concluded that it is more likely than not that a
payment will be made, a provision is established to management's best estimate of the amount required to settle the
obligation at the relevant balance sheet date. In some cases it will not be possible to form a view, either because the
facts are unclear or because further time is needed properly to assess the merits of the case and no provisions are held
against such matters. However the Group does not currently expect the final outcome of any such case to have a
material adverse effect on its financial position.

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15. Contingent liabilities and commitments (continued)

Contingent liabilities and commitments arising from the banking business

As at As at
30 June 31 Dec
2012 2011
£m £m
Contingent liabilities
Acceptances and endorsements 2 3
Other:
Other items serving as direct credit substitutes 76 110
Performance bonds and other transaction-related contingencies 677 674
753 784
Total contingent liabilities 755 787

Commitments
Documentary credits and other short-term trade-related transactions 8 8
Undrawn formal standby facilities, credit lines and other commitments to lend:
Less than 1 year original maturity:
Mortgage offers made 6,899 6,311
Other commitments 21,581 22,851
28,480 29,162
1 year or over original maturity 5,473 16,442
Total commitments 33,961 45,612

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16. Capital ratios

As at As at
30 June 31 Dec
Capital resources 2012 2011
£m £m
Core tier 1
Shareholders’ equity per balance sheet 24,545 23,771
Non-controlling interests per balance sheet 411 399
Regulatory adjustments to non-controlling interests (345) (333)
Regulatory adjustments:
Defined benefit pension adjustment (565) (296)
Unrealised reserve on available-for-sale debt securities 402 840
Unrealised reserve on available-for-sale equity investments (301) (342)
Cash flow hedging reserve (1,203) (859)
Other items – (16)
22,944 23,164
Less: deductions from core tier 1
Goodwill (847) (883)
Intangible assets (78) (76)
50 per cent excess of expected losses over impairment (817) (684)
50 per cent of securitisation positions (68) (84)
Core tier 1 capital 21,134 21,437

Preferred securities1 3,032 3,070

Less: deductions from tier 1
50 per cent of material holdings (36) (80)
Total tier 1 capital 24,130 24,427

Tier 2
Undated subordinated debt 646 664
Dated subordinated debt 6,132 6,602
Unrealised gains on available-for-sale equity investments 301 342
Eligible provisions 1,161 1,203
Less: deductions from tier 2
50 per cent excess of expected losses over impairment (817) (684)
50 per cent of securitisation positions (68) (84)
50 per cent of material holdings (36) (80)
Total tier 2 capital 7,319 7,963

Supervisory deductions
Unconsolidated investments – life (344) (359)
– general insurance and other (58) (101)
Total supervisory deductions (402) (460)
Total capital resources 31,047 31,930
2
Risk-weighted assets 184,126 199,324
Core tier 1 capital ratio2 11.5% 10.8%
2
Tier 1 capital ratio 13.1% 12.3%
2
Total capital ratio 16.9% 16.0%
1
Covered by grandfathering provisions issued by FSA.
2
Not within the scope of PricewaterhouseCoopers LLP’s review opinion as set out on page 35.

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17. Related party transactions

Balances and transactions with Lloyds Banking Group plc and fellow Group undertakings
The Company and its subsidiaries have balances due to and from the Company’s ultimate parent company,
Lloyds Banking Group plc, and fellow Group undertakings. These are included on the balance sheet as follows:

As at As at
30 June 31 Dec
2012 2011
£m £m

Assets
Derivative financial instruments 5,041 4,196
Loans and advances to banks 114,250 85,800
Loans and advances to customers 10,872 11,698
Trading and other financial assets as fair value through profit or loss 12,969 7,515
Other 3,560 2,681

Liabilities
Deposits from banks 149,814 144,502
Customer deposits 14,659 16,460
Derivative financial instruments 6,781 6,703
Trading liabilities 5,671 6,690
Subordinated liabilities 442 272
Other 1,243 1,559

During the half-year to 30 June 2012 the Group earned £688 million (half-year to 30 June 2011: £399 million) of interest
income and incurred £1,340 million (half-year to 30 June 2011: £891 million) of interest expense on balances and
transactions with Lloyds Banking Group plc and fellow Group undertakings.

UK Government
In January 2009, the UK Government through HM Treasury became a related party of Lloyds Banking Group plc, the
Company’s ultimate parent company, following its subscription for ordinary shares issued under a placing and open offer.
As at 30 June 2012, HM Treasury held a 39.2 per cent (31 December 2011: 40.2 per cent) interest in Lloyds Banking
Group plc’s ordinary share capital and consequently HM Treasury remained a related party of Lloyds Banking Group plc,
and therefore of the Group, during the half-year to 30 June 2012.

From 1 January 2011, in accordance with IAS 24, UK Government-controlled entities became related parties of the Group.
The Group regards the Bank of England and entities controlled by the UK Government, including The Royal Bank of
Scotland Group plc, Northern Rock (Asset Management) plc and Bradford & Bingley plc, as related parties.

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

Credit guarantee scheme

HM Treasury launched the Credit Guarantee Scheme in October 2008. The drawdown window for the Credit Guarantee
Scheme closed for new issuance at the end of February 2010. At 30 June 2012, the Lloyds Banking Group had
£4.9 billion of debt in issue under the Credit Guarantee Scheme (31 December 2011: £23.5 billion). During the half-year
to 30 June 2012, fees of £51 million paid to HM Treasury in respect of guaranteed funding were included in the Lloyds
Banking Group’s income statement (half-year to 30 June 2011: £160 million).

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17. Related party transactions (continued)

National Loan Guarantee Scheme

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

Business Growth Fund

In May 2011 the Lloyds Banking Group agreed, together with The Royal Bank of Scotland plc (and three other non-
related parties), to commit up to £300 million of equity investment by subscribing for shares in the Business Growth Fund
plc which is the company created to fulfil the role of the Business Growth Fund as set out in the British Bankers’
Association’s Business Taskforce Report of October 2010. As at 30 June 2012, the Lloyds Banking Group had invested
£37 million (31 December 2011: £20 million) in the Business Growth Fund and carried the investment at a fair value of
£33 million (31 December 2011: £16 million).

Big Society Capital

In January 2012 the Lloyds Banking Group agreed, together with The Royal Bank of Scotland plc (and two other non-
related parties), to commit up to £50 million each of equity investment into the Big Society Capital Fund. The Fund,
which was created as part of the Project Merlin arrangements, is a UK social investment fund. The Fund was officially
launched on 3 April 2012 and the Lloyds Banking Group had invested £8 million in the Fund by the end of June 2012.

Central bank facilities

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

Other government-related entities

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

Other related party transactions

Other related party transactions for the half-year to 30 June 2012 are similar in nature to those for the year ended
31 December 2011.

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18. Future accounting developments

The following pronouncements may have a significant effect on the Group’s financial statements but are not applicable
for the year ending 31 December 2012 and have not been applied in preparing these financial statements. Save as
disclosed below, the full impact of these accounting changes is being assessed by the Group.

Pronouncement Nature of change IASB effective date

Amendments to IAS 1 Requires entities to group items presented in other Annual periods
Presentation of Financial comprehensive income on the basis of whether they are beginning on or after
Statements – ‘Presentation of potentially reclassified to profit or loss subsequently. 1 July 2012.
Items of Other Comprehensive
Income’
Amendments to IFRS 7 Requires an entity to disclose information to enable users of its Annual and interim
Financial Instruments: financial statements to evaluate the effect or potential effect of periods beginning on or
Disclosures – ‘Disclosures- netting arrangements on the entity’s balance sheet. after 1 January 2013.
Offsetting Financial Assets and
Financial Liabilities’ 1
IFRS 10 Consolidated Supersedes IAS 27 Consolidated and Separate Financial Annual periods
1
Financial Statements Statements and SIC-12 Consolidation – Special Purpose beginning on or after
Entities and establishes principles for the preparation of 1 January 2013.
consolidated financial statements when an entity controls one
or more entities.
IFRS 12 Disclosure of Interests Requires an entity to disclose information that enables users of Annual periods
1
in Other Entities financial statements to evaluate the nature of, and risks beginning on or after
associated with, its interests in other entities and the effects 1 January 2013.
of those interests on its financial position, financial
performance and cash flows.
IFRS 13 Fair Value The standard defines fair value, sets out a framework for Annual and interim
1
Measurement measuring fair value and requires disclosures about fair value periods beginning on or
measurements. It applies to IFRSs that require or permit fair after 1 January 2013.
value measurements or disclosures about fair value
measurements.
IAS 19 Employee Benefits Prescribes the accounting and disclosure by employers for Annual periods
employee benefits. Actuarial gains and losses beginning on or after
(remeasurements) in respect of defined benefit pension 1 January 2013.
schemes can no longer be deferred using the corridor
approach and must be recognised immediately in other
comprehensive income. At 31 December 2011, unrecognised
actuarial losses for Lloyds Banking Group were approximately
£550 million. The income statement charge for 2011 would
have been approximately £50 million lower under the revised
standard.
Amendments to IAS 32 Inserts application guidance to address inconsistencies Annual periods
Financial Instruments: identified in applying the offsetting criteria used in the standard. beginning on or after
Presentation – ‘Offsetting Some gross settlement systems may qualify for offsetting 1 January 2014.
Financial Assets and Financial where they exhibit certain characteristics akin to net
1
Liabilities’ settlement.
IFRS 9 Financial Instruments1,2 Replaces those parts of IAS 39 Financial Instruments: Annual periods
Recognition and Measurement relating to the classification, beginning on or after
measurement and derecognition of financial assets and 1 January 2015.
liabilities. IFRS 9 requires financial assets to be classified into
two measurement categories, fair value and amortised cost, on
the basis of the objectives of the entity’s business model for
managing its financial assets and the contractual cash flow
characteristics of the instruments and eliminates the available-
for-sale financial asset and held-to-maturity investment
categories in IAS 39. The requirements for financial liabilities
and derecognition are broadly unchanged from IAS 39.
1
As at 25 July 2012, these pronouncements were awaiting EU endorsement.
2
IFRS 9 is the initial stage of the project to replace IAS 39. Future stages are expected to result in amendments to IFRS 9 to deal with changes
to the impairment of financial assets measured at amortised cost and hedge accounting, as well as a reconsideration of classification and
measurement. Until all stages of the replacement project are complete, it is not possible to determine the overall impact on the financial
statements of the replacement of IAS 39.

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19. Ultimate parent undertaking

HBOS plc's ultimate parent undertaking and controlling party is Lloyds Banking Group plc which is incorporated in
Scotland. Lloyds Banking Group plc has published consolidated accounts for the year to 31 December 2011 and copies
may be obtained from Investor Relations, Lloyds Banking Group, 25 Gresham Street, London EC2V 7HN and available
for download from www.lloydsbankinggroup.com.

20. Other information

The financial information included in these condensed consolidated half-year financial statements does not constitute
statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended
31 December 2011 have been delivered to the Registrar of Companies following publication in March 2012. The
auditors’ report on those accounts was unqualified and did not include a statement under sections 498(2) (accounting
records or returns inadequate or accounts not agreeing with records and returns) or 498(3) (failure to obtain necessary
information and explanations) of the Companies Act 2006.

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HBOS PLC 2012 HALF-YEAR RESULTS

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The directors listed below (being all the directors of HBOS plc) confirm that to the best of their knowledge these
condensed consolidated half-year financial statements have been prepared in accordance with International Accounting
Standard 34, Interim Financial Reporting, as adopted by the European Union, and that the half-year management report
herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

 an indication of important events that have occurred during the six months ended 30 June 2012 and their impact on
the condensed consolidated half-year financial statements, and a description of the principal risks and uncertainties
for the remaining six months of the financial year; and
 material related party transactions in the six months ended 30 June 2012 and any material changes in the related
party transactions described in the last annual report.

Signed on behalf of the board by

António Horta-Osório
Group Chief Executive
25 July 2012

HBOS plc board of directors:

Sir Winfried Bischoff (Chairman)
António Horta-Osório (Chief Executive)
George Culmer (Finance Director)
Lord Blackwell
Carolyn J Fairbairn
Anita Frew
David L Roberts
T Timothy Ryan, Jr
Martin A Scicluna
Anthony Watson
Sara V Weller

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HBOS PLC 2012 HALF-YEAR RESULTS

INDEPENDENT REVIEW REPORT TO HBOS PLC

Introduction
We have been engaged by the Company to review the condensed consolidated half-year financial statements in the half-
year management report for the six months ended 30 June 2012, which comprise the consolidated income statement,
consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in
equity, consolidated cash flow statement and related notes. We have read the other information contained in the half-
year management report and considered whether it contains any apparent misstatements or material inconsistencies
with the information in the condensed consolidated half-year financial statements.

Directors’ responsibilities
The half-year management report is the responsibility of, and has been approved by, the directors. The directors are
responsible for preparing the half-year management 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 consolidated half-year financial
statements included in the half-year management report have been prepared in accordance with International
Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union.

Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed consolidated half-year financial
statements in the half-year management 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 consolidated half-
year financial statements in the half-year management report for the six months ended 30 June 2012 are 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
London
25 July 2012

Notes:

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

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

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CONTACTS

For further information please contact:

INVESTORS AND ANALYSTS

Kate O'Neill
Managing Director, Investor Relations
020 7356 3520
kate.o'neill@ltsb-finance.co.uk

Charles King
Director of Investor Relations
020 7356 3537
charles.king@ltsb-finance.co.uk

CORPORATE AFFAIRS
Matthew Young
Group Corporate Affairs Director
020 7356 2231
matt.young@lloydsbanking.com

Ed Petter
Group Media Relations Director
020 8936 5655
ed.petter@lloydsbanking.com

Registered office: HBOS plc, The Mound, Edinburgh EH1 1YZ

Registered in Scotland no. SC218813

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