Interim Results-Part 3

Lloyds TSB Group PLC 28 July 2000 PART 3 LLOYDS TSB GROUP INCOME Group net interest income Group net interest income decreased by £44 million, or 2 per cent, to £2,311 million reflecting the £80 million funding cost of Scottish Widows. Average interest-earning assets increased by 6 per cent to £130 billion. There was further growth in mortgages and other customer lending in the UK. The net interest margin decreased to 3.58 per cent, a reduction of 29 basis points. The impact of the funding cost of Scottish Widows represented 12 basis points of this 29 basis point reduction, with the residual 17 basis point decrease in the margin reflecting the increasingly competitive operating environment and a lower international net interest margin. Half-year to Half-year to 30 June 31 December 2000 1999 1999 £m £m £m Net interest income 2,311 2,355 2,428 Average balances Short-term liquid assets 2,176 2,050 1,921 Loans and advances 120,832 116,239 117,680 Debt securities 6,838 4,553 5,515 Total interest-earning assets 129,846 122,842 125,116 Financed by: Interest-bearing liabilities 115,909 106,471 108,772 Interest-free liabilities 13,937 16,371 16,344 Average rates % % % Gross yield on interest-earning assets 8.30 8.94 7.93 Cost of interest-bearing liabilities 5.28 5.86 4.70 Interest spread 3.02 3.08 3.23 Contribution of interest-free liabilities 0.56 0.79 0.62 Net interest margin 3.58 3.87 3.85 Note: Payments made under cash gift and discount mortgage schemes are amortised over the early redemption charge period, being a maximum of 5 years. If these incentives had been fully written off as incurred, group and domestic net interest income would have been £38 million lower in the first half of 2000 (1999: first half £16 million higher, second half £27 million lower). The deferred element of the expenditure amounting to £214 million at 30 June 2000 (30 June 1999: £149 million, 31 December 1999: £176 million) is included within prepayments and accrued income in the balance sheet. Page 24 of 39 LLOYDS TSB GROUP Domestic net interest income Domestic net interest income decreased by £47 million, or 2 per cent, to £1,990 million, largely reflecting the £80 million funding cost of Scottish Widows, and this represents 86 per cent of total group net interest income. Average interest-earning assets increased by 6 per cent to £109 billion. There was further growth in mortgages and other customer lending. The net interest margin decreased by 32 basis points to 3.68 per cent, again partly reflecting the funding cost of Scottish Widows, which caused a reduction of 15 basis points. In addition, the increasingly competitive operating environment, particularly for retail lending, and the higher cost of deposit products in a higher average interest rate environment caused an underlying reduction of 17 basis points in the net interest margin. The first half of 1999 benefited from a higher number of base rate changes. Half-year to Half-year to 30 June 31 December 2000 1999 1999 £m £m £m Net interest income 1,990 2,037 2,117 Average balances Short-term liquid assets 820 915 1,054 Loans and advances 103,247 98,870 101,082 Debt securities 4,783 2,844 3,693 Total interest-earning assets 108,850 102,629 105,829 Financed by: Interest-bearing liabilities 96,599 87,862 91,141 Interest-free liabilities 12,251 14,767 14,688 Average rates % % % Gross yield on interest-earning assets 8.02 7.81 7.57 Cost of interest-bearing liabilities 4.90 4.45 4.18 Interest spread 3.12 3.36 3.39 Contribution of interest-free liabilities 0.56 0.64 0.58 Net interest margin 3.68 4.00 3.97 Page 25 of 39 LLOYDS TSB GROUP International net interest income Net interest income from international operations increased by 1 per cent to £321 million, representing 14 per cent of total group net interest income. Average interest-earning assets on a local currency basis increased by 6 per cent, helped by strong growth in our New Zealand mortgage portfolio, but this increase was partly offset by the effect of exchange rate movements. The international net interest margin decreased by 10 basis points to 3.07 per cent. The gross yield on interest-earning assets and the cost of interest-bearing liabilities both fell significantly, from the first half of 1999, as a result of lower interest rates in Latin America which also caused the 41 basis point reduction in the contribution of interest-free liabilities. Half-year to Half-year to 30 June 31 December 2000 1999 1999 £m £m £m Net interest income 321 318 311 Average balances Short-term liquid assets 1,356 1,135 867 Loans and advances 17,585 17,369 16,598 Debt securities 2,055 1,709 1,822 Total interest-earning assets 20,996 20,213 19,287 Financed by: Interest-bearing liabilities 19,310 18,609 17,631 Interest-free liabilities 1,686 1,604 1,656 Average rates % % % Gross yield on interest-earning assets 9.71 14.69 9.93 Cost of interest-bearing liabilities 7.22 12.51 7.36 Interest spread 2.49 2.18 2.57 Contribution of interest-free liabilities 0.58 0.99 0.63 Net interest margin 3.07 3.17 3.20 Page 26 of 39 LLOYDS TSB GROUP Other income Other income increased by £360 million, or 23 per cent, to £1,955 million. This represented 46 per cent of total income. Scottish Widows contributed £112 million of this increase. Excluding short-term fluctuations in investment returns in our insurance businesses and changes in the economic assumptions applied to our long-term assurance business, other income increased by £304 million, or 19 per cent, to £1,887 million. Fees and commissions receivable increased by 9 per cent reflecting increased business volumes and strong growth in income from insurance broking. Other UK fees and commissions increased by 16 per cent, as a result of growth in all core UK businesses and the impact of the acquisition of Scottish Widows. International fees and commissions increased by 5 per cent. Fees and commissions payable increased by £9 million against the first half of 1999, largely as a result of higher interchange fees for card services and increased costs associated with a number of new products. Income from long-term assurance business increased by £210 million, as a result of the impact of the acquisition of Scottish Widows and the one-off benefit arising from changes in the economic assumptions applied to our long-term assurance business offset by a reduction caused by short-term fluctuations in investment returns. General insurance premium income increased by £10 million, or 5 per cent, against the first half of 1999. Half-year to Half-year to 30 June 31 December 2000 1999 1999 £m £m £m Fees and commissions receivable: UK current account fees 319 338 325 Other UK fees and commissions 565 485 493 Insurance broking 191 150 177 Card services 140 137 142 International fees and commissions 133 127 123 1,348 1,237 1,260 Fees and commissions payable (223) (214) (212) Dealing profits (before expenses): Foreign exchange trading income 71 66 67 Securities and other gains 29 41 41 100 107 108 Income from long-term assurance business Income before pension provision 371 161 168 Pension provision - - (102) 371 161 66 General insurance premium income 200 190 200 Other operating income 159 114 128 Total other income 1,955 1,595 1,550 Page 27 of 39 LLOYDS TSB GROUP OPERATING EXPENSES Operating expenses Half-year to Half-year to 30 June 31 December 2000 1999 1999 £m £m £m Administrative expenses: Staff: Salaries and profit sharing 799 729 771 National insurance 65 63 62 Pensions (51) (56) (52) Restructuring 13 13 7 Other staff costs 84 85 95 910 834 883 Premises and equipment: Rent and rates 121 130 120 Hire of equipment 13 16 17 Repairs and maintenance 53 57 50 Other 47 52 48 234 255 235 Other expenses: Communications and external data processing 199 210 196 Advertising and promotion 77 57 56 Professional fees 30 46 44 Other 150 159 165 456 472 461 Administrative expenses 1,600 1,561 1,579 Exceptional restructuring costs 74 - - E-commerce investment costs 42 - - Total administrative expenses 1,716 1,561 1,579 Depreciation 154 127 138 Amortisation of goodwill 6 6 6 Total operating expenses 1,876 1,694 1,723 Efficiency ratio 44.0% 42.9% 43.3% Efficiency ratio* 42.9% 43.0% 42.4% * excluding short-term fluctuations in investment returns, changes in economic assumptions, exceptional restructuring costs and pension provision. Total operating expenses increased by £182 million, or 11 per cent, compared with the first half of 1999. Exceptional restructuring costs in the first half of the year totalled £74 million and e-commerce investment costs were £42 million. On a like-for-like basis, excluding exceptional restructuring costs, additional e-commerce investment costs and the increased costs following the acquisition of Scottish Widows, costs increased by £49 million against the first half of 1999 and increased by £20 million against the second half of 1999. Reduced costs in many areas were offset by higher staff costs, partly Page 28 of 39 LLOYDS TSB GROUP Operating expenses (continued) reflecting an increased accrual for profit sharing and millennium weekend overtime costs, increased advertising costs and a higher depreciation charge. The exceptional restructuring costs of £74 million comprise mainly severance, software and consultancy costs and the write- down of equipment. In 2000 we expect these restructuring costs to be about £200 million. Overall, the individual programmes associated with these costs are expected to achieve payback within three years. The efficiency ratio was 44.0 per cent compared to 42.9 per cent a year ago. Excluding short-term fluctuations in investment returns, changes in the economic assumptions applied to our long-term assurance business, exceptional restructuring costs and pension provision, the efficiency ratio improved slightly to 42.9 per cent, from 43.0 per cent in the first half of 1999. Number of employees (full-time equivalent) Staff numbers increased by 2,038 to 78,094 in the first half of the year. Within UK Retail Banking staff numbers increased by 134 as we continue planned improvements to customer service and increase our call centre capacity. In Insurance and Investments numbers of staff increased to reflect the acquisition of Scottish Widows, in Wholesale Markets staff numbers decreased by 85 and in International Banking there were lower staff numbers in Brazil and New Zealand. Excluding an increase of 3,061 staff following the acquisition of Scottish Widows and a reduction of 584 on the disposal of the new business capacity of Abbey Life, staff numbers decreased by 439. Since the merger of Lloyds Bank and TSB Group at the end of 1995, there has been an underlying reduction of 17,747 staff of which 5,407 relate to staff employed in businesses sold and 12,340 to reductions in our ongoing businesses. 30 June 31 December 2000 1999 UK Retail Banking* 45,893 45,759 Mortgages 3,709 3,669 Insurance and Investments 7,558 5,204 Wholesale Markets 6,988 7,073 International Banking 12,816 13,223 Other 1,130 1,128 Total number of employees (full-time equivalent) 78,094 76,056 *Although the costs of distributing mortgages and insurance through the Lloyds TSB network are allocated to the mortgage and insurance businesses, the number of employees involved in these activities in the network is included under UK Retail Banking. Page 29 of 39 LLOYDS TSB GROUP CREDIT QUALITY Charge for bad and doubtful debts Half-year to Half-year to 30 June 31 December 2000 1999 1999 £m £m £m Domestic: UK Retail Banking 202 206 222 Mortgages (5) 4 (7) Wholesale Markets 34 50 25 Total domestic 231 260 240 International Banking 16 55 33 Total charge 247 315 273 Specific provisions 246 315 273 General provisions 1 - - Total charge 247 315 273 Charge as % of average lending % % % (annualised): Domestic 0.51 0.61 0.53 International 0.21 0.75 0.44 Total charge 0.46 0.63 0.52 The total charge for bad and doubtful debts decreased to £247 million from £315 million. The domestic charge decreased to £231 million from £260 million, and provisions overseas decreased to £16 million from £55 million, mainly as a result of a reduced provisions charge from the Losango Consumer Finance business in Brazil and higher Emerging Market Debt provision releases. Non-performing loans were £1,143 million compared with £1,151 million in June 1999 and £1,088 million in December 1999 and represented 1.0 per cent of total lending, compared with 1.1 per cent in June 1999 and 1.0 per cent in December 1999. Page 30 of 39 LLOYDS TSB GROUP Movements in provisions for bad and doubtful debts Half-year to Half-year to Half-year to 30 June 2000 30 June 1999 31 December 1999 Specific General Specific General Specific General £m £m £m £m £m £m At beginning of period 1,762 361 1,792 365 1,864 365 Exchange and other adjustments 99 - 38 - (42) (4) Advances written off (346) - (342) - (402) - Recoveries of advances written off in previous years 78 - 61 - 69 - Charge (release) to profit and loss account: New and additional provisions 470 8 543 - 544 7 Releases and recoveries (224) (7) (228) - (271) (7) 246 1 315 - 273 - At end of period 1,839 362 1,864 365 1,762 361 2,201 2,229 2,123 Closing provisions as % of lending (excluding unapplied interest) Specific: Domestic 762 (0.8%) 795 (0.9%) 773 (0.9%) International 1,077 (6.8%) 1,069 (7.0%) 989 (6.6%) 1,839 (1.7%) 1,864 (1.8%) 1,762 (1.7%) General 362 (0.3%) 365 (0.4%) 361 (0.3%) Total 2,201 (2.0%) 2,229 (2.2%) 2,123 (2.0%) At the end of June 2000 provisions for bad and doubtful debts totalled £2,201 million. This represented 2.0 per cent of total lending. The level of specific provisions decreased to £1,839 million. Non-performing lending increased to £1,143 million from £1,088 million in December 1999. At the end of the half-year, specific provisions represented over 160 per cent of non- performing loans. Page 31 of 39 LLOYDS TSB GROUP CAPITAL RATIOS Risk asset ratios 30 June 31 December 2000 1999* £m £m Capital Tier 1 (page 38, note 11 8,089 8,348 Tier 2 7,101 6,838 15,190 15,186 Supervisory deductions (6,881) (2,588) Total capital 8,309 12,598 £bn £bn Risk-weighted assets UK Retail Banking 16.7 15.7 Mortgages 25.3 24.0 Insurance and Investments 0.2 0.1 UK Retail Financial Services 42.2 39.8 Wholesale Markets 32.1 31.6 International Banking 11.7 11.6 Central group items 1.0 1.1 Total risk-weighted assets 87.0 84.1 Risk asset ratios Total capital 9.5% 15.0% Tier 1 9.3% 9.9% Half-year Half-year 30 June 31 December 2000 1999 Post-tax return on average risk-weighted assets 3.50% 2.86% * restated (page 34, note 1) At the end of June 2000 the risk asset ratios were 9.5 per cent for total capital and 9.3 per cent for tier 1 capital. The 9.3 per cent tier 1 capital ratio appears higher than would perhaps be expected for the Group. This reflects the higher level of supervisory deductions resulting from Lloyds TSB's significantly increased investment in life assurance following the acquisition of Scottish Widows. In the first half of 2000, following the acquisition of Scottish Widows, total capital for regulatory purposes fell by £4,289 million to £8,309 million. Tier 1 capital was reduced by £259 million, as retained profits and the raising of the necessary capital required to complete the purchase of Scottish Widows was offset by the £1.8 billion goodwill arising on the acquisition of Scottish Widows. Tier 2 capital increased by £263 million and supervisory deductions increased by £4,293 million, largely resulting from the acquisition of the Scottish Widows insurance business. Risk-weighted assets increased to £87.0 billion and the post-tax return on average risk-weighted assets, a key measure of efficient use of capital, improved to 3.50 per cent, from 3.19 per cent in the first half of 1999 and 2.86 per cent in the second half of 1999. Page 32 of 39 LLOYDS TSB GROUP BALANCE SHEET INFORMATION Total assets Total assets increased by £34 billion, or 19 per cent, from the end of 1999 of which £23 billion represented an increase in long- term assurance liabilities to policyholders following the acquisition of Scottish Widows (page 9). Over the last 12 months, loans and advances to customers increased by £8 billion, or 8 per cent, to £107 billion. 30 June 30 June 31 December 2000 1999 1999 Deposits - customer accounts £m £m £m Sterling: Non-interest bearing current accounts 5,860 6,199 6,012 Interest bearing current accounts 18,368 16,618 17,461 Savings and investment accounts 43,376 40,741 41,330 Other customer deposits 15,621 17,080 14,696 Total sterling 83,225 80,638 79,499 Currency 13,776 13,861 13,352 Total deposits - customer accounts 97,001 94,499 92,851 Loans and advances to customers Domestic: Agriculture, forestry and fishing 2,161 2,101 2,183 Manufacturing 3,395 3,142 3,262 Construction 943 764 754 Transport, distribution and hotels 3,804 3,422 3,540 Property companies 2,183 2,242 2,303 Financial, business and other services 7,698 6,361 6,614 Personal : mortgages 50,153 45,755 47,451 : other 10,311 9,763 10,092 Lease financing 8,020 8,136 8,369 Hire purchase 3,535 3,741 3,674 Other 1,803 1,553 1,698 Total domestic 94,006 86,980 89,940 International: Latin America 2,672 2,850 2,558 New Zealand 7,437 7,921 7,659 Rest of the world 4,995 3,822 4,159 Total international 15,104 14,593 14,376 109,110 101,573 104,316 Provisions for bad and doubtful debts* (2,142) (2,168) (2,067) Interest held in suspense* (92) (109) (100) Total loans and advances to customers 106,876 99,296 102,149 * Figures exclude provisions and interest held in suspense relating to loans and advances to banks Page 33 of 39 LLOYDS TSB GROUP NOTES 1. Accounting policies and presentation During the first half of the year, the Group implemented the requirements of Financial Reporting Standard 15, 'Tangible Fixed Assets'; this has resulted in two changes. The Group's freehold and long leasehold premises were previously included in the balance sheet at the last valuation on the basis of existing use value. Following the implementation of the new standard the Group's premises will no longer be revalued, and a prior year adjustment has been made to restate the carrying value to historical cost. This has resulted in the carrying value of tangible fixed assets as at 1 January 1999 being reduced by £112 million and an equivalent adjustment being made against reserves. The effect of this change upon the Group's profit and loss account is not significant. In addition, the Group has reassessed the useful economic lives and residual values of its freehold and long leasehold premises and with effect from 1 January 2000, the cost of these properties, after deducting the value of land, is being depreciated over 50 years. Previously it was considered that the residual values were such that depreciation was not significant. The effect of this change has been to increase the depreciation charge in the first half of 2000 by £5 million. The Group has also changed its presentation of assets held for leasing to customers under operating lease agreements. These assets are now included within tangible fixed assets and depreciation charged over their estimated useful economic lives. Rental income received from customers is included within other operating income. Operating lease assets were previously included within loans and advances and the related income within net interest income. This change has no effect on profit before tax. The effect of this change on the balance sheet has been to increase tangible fixed assets by £630 million and reduce loans and advances to customers by an equivalent amount (30 June 1999: £324 million; 31 December 1999: £479 million). Comparative figures have been restated. 2. Economic profit In pursuit of our aim to maximise shareholder value, we use a system of value based management as a framework to identify and measure value in order to help us to make better business decisions. Accounting profit is of limited use as a measure of value creation and performance as it ignores the cost of the equity capital that has to be invested to generate the profit. We choose economic profit as a measure of performance because it captures both growth in investment and return. Economic profit represents the difference between the earnings on the equity invested in a business and the cost of the equity. Our calculation of economic profit uses average equity for the half-year and is based on a cost of equity of 9 per cent (1999: 9 per cent). Economic profit instils a rigorous financial discipline in determining investment decisions throughout the Group. It enables us to evaluate alternative strategies objectively, with a clear understanding of the value created by each strategy, and then to select the strategy which creates the greatest value. Page 34 of 39 LLOYDS TSB GROUP 3. Earnings per share Half-year to Half-year to 30 June 31 December 2000 1999 1999 Basic Profit attributable to shareholders £1,469m £1,315m £1,199m Weighted average number of ordinary shares in issue 5,476m 5,429m 5,460m Earnings per share 26.8p 24.2p 22.0p Fully diluted Profit attributable to shareholders £1,469m £1,315m £1,199m Weighted average number of ordinary shares in issue 5,536m 5,544m 5,549m Earnings per share 26.5p 23.7p 21.6p 4. Tax The effective rate of tax was 28 per cent (1999 first half: 29 per cent). The lower effective rate of tax, compared with the standard tax rate of 30 per cent, is largely due to: tax relief claimed in respect of the group's vacant property provisions where previously no relief has been claimed, tax relief on payments to the QUEST to satisfy Save As You Earn options, and gains on disposals of investments and properties sheltered by capital losses. 5. Sale and closure of businesses Half-year to Half-year to 30 June 31 December 2000 1999 1999 £m £m £m Provision for closure of Lloyds TSB Securities Services (tax: nil) - - (28) Provision for sale of Abbey Life new business capability (tax: nil) (including £80 million in respect of goodwill previously written off to reserves, and other asset write-offs) - - (98) - - (126) 6. Scottish Widows On 3 March 2000, the Group completed the transfer of the business of Scottish Widows' Fund and Life Assurance Society to its wholly owned subsidiaries Scottish Widows plc and Scottish Widows Annuities Limited. The consideration for the transfer of £5.8 billion will be paid to policyholders in August. Goodwill of £1.8 billion has been capitalised and included in the Group's balance sheet. In view of the strength of the Scottish Widows brand and the position of the business as one of the leading providers of life, pensions, unit trust and fund management products, in the opinion of the directors the useful economic life of the goodwill is indefinite and, consequently, no amortisation charge has been included in the Group's results. Page 35 of 39 LLOYDS TSB GROUP 7. Short-term fluctuations in investment returns In accordance with generally accepted accounting practice in the UK, it is the Group's accounting policy to carry the investments comprising the reserves held by its life companies at market value. In the past, this has not had a significant impact upon the Group's results because of the limited reserves necessary to support the predominantly unit linked business of Lloyds TSB Life Assurance and Abbey Life. However, the reserves held to support the with-profits business of Scottish Widows are substantial and changes in market values will result in significant volatility in the Group's embedded value earnings. Consequently, in order to provide a clearer representation of the underlying performance, the results of the Life and Pensions business have been analysed between an operating profit, which includes investment earnings calculated using longer-term investment rates of return, and a profit before tax, separately identifying the short-term fluctuations in investment returns and other one-off items. This approach is already established practice amongst listed insurance companies in the UK. The longer-term rates of return for the period are consistent with those used by the Group in the calculation of the embedded value at the beginning of the period, which were 8.00 per cent for equities and 5.25 per cent for gilts. These are based upon a long-term view of economic activity and are therefore not adjusted for market movements which are considered to be short term. This approach is considered the most appropriate given the long-term nature of the portfolio of products and achieves consistency in reporting from one period to the next. Lloyds TSB General Insurance also holds investments to support its underwriting business; these are carried at market value and gains and losses included within dealing profits. Consistent with the approach adopted for the Life and Pensions business, an operating profit for the general insurance business has been calculated including investment earnings normalised using the same long-term rates of return. 8. Changes in the economic assumptions applied to our long-term assurance business The shareholders' interest in the long-term assurance business ('embedded value') is calculated on the basis of a series of economic and actuarial assumptions. Following the acquisition of the business of Scottish Widows, a detailed review of the economic assumptions used in the embedded value calculation has been carried out, to ensure that these assumptions remain appropriate for the enlarged Life and Pensions business in the context of forecast long-term economic trends. As a result of this review certain assumptions have been amended, including the risk-adjusted discount rate which has been reduced from 10 per cent to 8.5 per cent. The revised assumptions, which have been used with effect from 1 January 2000 for Abbey Life and the bancassurance operation of Lloyds TSB Life, have resulted in a one-off credit to the profit and loss account of £127 million. The same assumptions have been used for the Scottish Widows business from the date of acquisition. Page 36 of 39 LLOYDS TSB GROUP 9. Efficiency programme In February 2000 the Group announced that additional opportunities have been identified that will enable the Group to reduce its overall cost base. The cost reductions, together with the expected revenue growth, are such that by 2002 we expect that the Group's efficiency ratio will be below 35 per cent, and we forecast further progress thereafter. The start of this efficiency programme will require a restructuring charge of about £200 million in 2000. Overall, the individual programmes associated with these costs are expected to achieve payback within three years. The extensive programme will result in lower overall staffing levels, but the impact of this will be mitigated by our natural staff turnover. The main features of the efficiency programme, which is primarily focused on non-customer facing activities, will be: - the centralisation of computer operations - the further consolidation of all our large scale processing operations and support functions including the complete removal of all back office processing from branches - the introduction of internet and intranet technology to further automate processing activities - the further streamlining of the branch network, combined with the expansion of lower cost delivery channels such as telephone banking and internet operations - the further reduction of our purchasing costs - the rationalisation of non-personal banking activities, through the progressive sharing and consolidation of operational functions. 10.Dividend The interim dividend for 2000 will be 9.3p per share (1999: 8.1p), an increase of 15 per cent. Shareholders who have already joined the dividend reinvestment plan will automatically receive shares instead of the cash dividend. Shareholders who have not joined the plan and wish to do so may obtain an application form from Lloyds TSB Registrars, The Causeway, Worthing, West Sussex, BN99 6DA (telephone 0870 6003990). Key dates for the payment of the interim dividend are: Shares quoted ex-dividend. Shares purchased before this date qualify for the dividend 7 August Record date. Shareholders on the register on this date are entitled to the dividend 11 August Final date for joining or leaving the dividend reinvestment plan 13 September Interim dividend paid 11 October Page 37 of 39 LLOYDS TSB GROUP 11.Review of interim profits The interim profits in 2000 were reviewed and reported upon, without qualification, by the Company's auditors PricewaterhouseCoopers, in accordance with the conditions set out in the Financial Services Authority's Guide to Banking Supervisory Policy (chapter CA Definition of Capital, section 5) thereby enabling the retained profit to be included in tier 1 capital shown on page 32. 12.Other information The results for the half-year ended 30 June 2000 were approved by the directors on 27 July 2000. Statutory accounts for the year ended 31 December 1999 were delivered to the registrar of companies. The auditors' report on these accounts was unqualified and did not include a statement under sections 237(2) (accounting records or returns inadequate or accounts not agreeing with records and returns) or 237(3) (failure to obtain necessary information and explanations) of the Companies Act 1985. Results for the year ending 31 December 2000 will be announced on 16 February 2001. Page 38 of 39 LLOYDS TSB GROUP CONTACTS For further information please contact:- Kent Atkinson Group Finance Director Lloyds TSB Group plc 020 7356 1436 E-mail: kent.atkinson@ltsb-finance.co.uk Michael Oliver Director of Investor Relations Lloyds TSB Group plc 020 7356 2167 E-mail: michael.oliver@ltsb-finance.co.uk Geraldine Davies Director of Corporate Communications Lloyds TSB Group plc 020 7356 2078 E-mail: daviesg1@lloydstsb.co.uk Copies of this news release may be obtained from Investor Relations, Lloyds TSB Group plc, 71 Lombard Street, London EC3P 3BS (telephone 020 7356 1273). A summary will appear as an advertisement in The Times and The Scotsman on 29 July 2000. Information about the Group's role in the community and copies of the Group's code of business conduct and its environmental report may be obtained by writing to Public Affairs, Lloyds TSB Group plc, 71 Lombard Street, London EC3P 3BS. The full news release can also be found on the Internet at http://www.lloydstsb.com. Page 39 of 39

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