# EDGAR Filing Document

**Accession Number:** 0001160106
**File Stem:** 0000950103-23-003153
**Filing Date:** 2023-2
**Character Count:** 519123
**Document Hash:** b44163f5001ca5342b461a670de79ee1
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0000950103-23-003153.hdr.sgml**: 20230227

**ACCESSION NUMBER**: 0000950103-23-003153

**CONFORMED SUBMISSION TYPE**: 6-K

**PUBLIC DOCUMENT COUNT**: 2

**CONFORMED PERIOD OF REPORT**: 20230227

**FILED AS OF DATE**: 20230227

**DATE AS OF CHANGE**: 20230227

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Lloyds Banking Group plc
- **CENTRAL INDEX KEY:** 0001160106
- **STANDARD INDUSTRIAL CLASSIFICATION:** COMMERCIAL BANKS, NEC [6029]
- **IRS NUMBER:** 000000000
- **STATE OF INCORPORATION:** X0

**FILING VALUES:**
- **FORM TYPE:** 6-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-15246
- **FILM NUMBER:** 23673904

**BUSINESS ADDRESS:**
- **STREET 1:** 25 GRESHAM STREET
- **CITY:** LONDON
- **STATE:** X0
- **ZIP:** EC2V 7HN
- **BUSINESS PHONE:** 44 0 20 7626 1500

**MAIL ADDRESS:**
- **STREET 1:** 25 GRESHAM STREET
- **CITY:** LONDON
- **STATE:** X0
- **ZIP:** EC2V 7HN

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** LLOYDS TSB GROUP PLC
- **DATE OF NAME CHANGE:** 20010926

**FORM 6-K**

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**Report of Foreign Private Issuer Pursuant to Rule** **13a-16 OR 15d-16 UNDER the Securities Exchange Act of 1934**

For February 27, 2023

Commission File Number: 001-15246

**LLOYDS BANKING GROUP PLC**

5<sup>th</sup> Floor<br> 25 Gresham Street

London EC2V 7HN<br> United Kingdom

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F __<u>X</u>__ Form 40-F _____

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

**EXPLANATORY NOTE**

On February 22, 2023, Lloyds Banking Group plc sent its annual report for fiscal year 2022 to its shareholders, which is attached hereto as Exhibit 99.1.

**Exhibit List**

---

| | |
|:---|:---|
| **Exhibit <br> No.** | **Description** |
| 99.1 | Annual Report, dated as of February 22, 2023. |

---

**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

---

| | | | | |
|:---|:---|:---|:---|:---|
| | | LLOYDS BANKING GROUP PLC<br> (Registrant) | LLOYDS BANKING GROUP PLC<br> (Registrant) | LLOYDS BANKING GROUP PLC<br> (Registrant) |
| Dated: | February 27, 2023 | By: | /s/ William Chalmers | /s/ William Chalmers |
|  |  |  | Name: | William Chalmers |
|  |  |  | Title: | Chief Financial Officer |

---

### Attached PDF Documents

**Attachment 1:** `dp189682_ex9901.pdf`

**Lloyds Banking Group**

Annual Report and Accounts 2022

![img-0.jpeg](img-0.jpeg)

# Our purpose is
Helping Britain
Prosper

We're creating a more
sustainable and inclusive
future for people and
businesses, shaping finance
as a force for good.

Discover how we're Helping Britain Prosper on pages 4 to 7

Our performance

Robust financial
performance with
continued business
momentum and good
strategic progress

£5.6bn

Statutory profit after tax down 6 per
cent, with higher net income, more than
offset by higher impairment charges

50.4%

Cost: income ratio remains strong

£3.6bn

Total capital return including an
ordinary dividend of 2.40 pence per
share, up 20 per cent and share
buyback of up to £2 billion

75%

Employee engagement index increased,
6 points higher than the UK average

Alternative performance measures

To supplement our statutory results, we
use a number of alternative performance
measures. Unless otherwise stated,
commentary within the strategic report
is given an underlying basis. Further
information is set out on pages 67.

67.7pts

All-channel net promoter score
remained strong

19.8m

Digitally active customers continued
to increase as we remain the largest
digital bank in the UK

# Inside this report

## Strategic report

| Our unique business model | 02 |
| --- | --- |
| Delivering value for all our stakeholders | 04 |
| Chair's statement | 08 |
| Governance in action (section 172(l) statement) | 10 |
| Group Chief Executive's review | 12 |
| Our external environment | 16 |
| Our strategy | 22 |
| Progress and performance (including key performance indicators) | 32 |
| Risk overview | 38 |
| Viability statement and going concern | 44 |
| Non-financial information statement | 45 |

![img-1.jpeg](img-1.jpeg)

## Financial results

| Results for the full year | 47 |
| --- | --- |
| Divisional results | 58 |
| Other financial information | 66 |
| Alternative performance measures | 67 |

## Governance - Directors' report

| Chair's introduction | 72 |
| --- | --- |
| Corporate governance report | 73 |
| Committee reports | 92 |
| Directors' remuneration report | 105 |
| Other statutory and regulatory information | 134 |

![img-2.jpeg](img-2.jpeg)

## Risk management

| The Group's approach to risk | 139 |
| --- | --- |
| Risk governance | 142 |
| Stress testing | 144 |
| Full analysis of risk categories | 147 |

## Financial statements

| Independent auditors' report | 197 |
| --- | --- |
| Consolidated financial statements | 210 |
| Parent company financial statements | 340 |

## Other information

| Shareholder information | 350 |
| --- | --- |
| Subsidiaries and related undertakings | 352 |
| Forward-looking statements | 361 |

![img-3.jpeg](img-3.jpeg)

## Our reporting

Our reporting is designed to facilitate better communication to a range of stakeholders.

Our annual report and accounts provides disclosures relating to our strategic, financial, operational, environmental and social performance and provides detail on our strategy.

It also contains forward-looking statements relating to the Group's future financial condition, performance, results, strategic initiatives and objectives. For further details, please refer to our forward-looking statements disclaimer on page 361.

Supplementary information and disclosures are provided in the following documents, and referenced throughout this report.

| Environmental sustainability report | ↗ |
| --- | --- |
| Social sustainability report | ↗ |
| Form 20-F | ↗ |
| Pillar 3 disclosures | ↗ |

To access more content on a mobile device, point your camera at the QR codes seen throughout this report.

See our full reporting network suite at www.lloydsbankinggroup.com/investors.

The 2022 annual report and accounts incorporates the strategic report and the consolidated financial statements, both of which have been approved by the Board of directors.

## On behalf of the Board

**Robin Budenberg**
Chair, Lloyds Banking Group
21 February 2023

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 01

# Our unique business model

# Our purpose is Helping Britain Prosper

**We Help Britain Prosper by creating a more sustainable and inclusive future for people and businesses, shaping finance as a force for good.**

To deliver on our purpose, we have identified four focus areas where we are best placed to provide significant positive change, enabling us to create a more inclusive society and sustainable future:

View our environmental sustainability report here.

View our social sustainability report here.

- Creating a more inclusive future
- Improving access to quality housing
- Enabling regional development
- Greening the built environment

# Our vision

**UK customer-focused digital leader and integrated financial services provider, capitalising on new opportunities, at scale.**

We will achieve our vision through our purpose-driven strategic pillars:

# Grow

Drive revenue growth and diversification

See pages 24 to 27

# Focus

Strengthen cost and capital efficiency

See pages 28 and 29

# Change

Maximise the potential of people, technology and data

See pages 30 and 31

# Our values

guide how we work together and make decisions to deliver our strategy:

See pages 84 and 85

# People-first

We put people first to go further for customers

# Bold

We're bold and take action

# Inclusive

We're inclusive to value everyone

# Sustainable

We champion sustainability to care for our planet

# Trust

We trust each other to achieve more together

02 Lloyds Banking Group Annual Report and Accounts 2022

## Our competitive advantages

We have a number of distinct competitive strengths that collectively differentiate our proposition.

### Leading UK customer franchise with deep customer insight

Our scale and reach across the UK means that our franchise extends to 26 million customers with 19.8 million digitally active. Extensive customer data and analysis ensures we can meet the needs of these customers more effectively.

### Dedicated colleagues with strong values

We have a highly engaged, customer-focused, diverse workforce with significant expertise and experience.

### Operating at scale with cost discipline

Our scale and efficiency enable us to operate more effectively.

### Differentiated business model

A unique customer proposition, serving all our customers' banking and insurance needs in one place through a comprehensive product range.

### All-channel distribution focus with digital leadership and trusted brands

Operating through a range of distribution channels ensures our customers can interact with us when and how they want.

### Financial strength and disciplined risk management

We have a strong capital position and continue to take a disciplined approach to risk, as reflected through the quality of our portfolio and underwriting criteria.

## Our structure

We have three core divisions and, in line with our new strategy launched in 2022, we have restructured our business to optimise synergies and efficiencies to best serve our customers' needs.

See Group structure and ring-fencing arrangements page 86

![img-4.jpeg](img-4.jpeg)

## Our trusted brands

Our products and services are made available to our customers through our trusted brands, which enables us to address the needs of different customer segments more effectively.

![img-5.jpeg](img-5.jpeg)

## Our external drivers, risks and opportunities

We've built our business and strategy to manage the fluctuations in our external environment and to adapt to ever-changing stakeholder needs. This helps ensure the Group remains sustainable over the longer term and is able to manage risks and opportunities as they emerge.

See risk overview pages 38 to 43

We regularly review the associated risk implications to ensure the right choices are being made for customers, colleagues and the Group. As a large, UK-focused financial services provider our business model is influenced by a number of external factors:

Customers

Economy

Technology and data

Society and environment

Competitor

Regulation

See external environment pages 16 to 21

Lloyds Banking Group Annual Report and Accounts 2022 03

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Delivering value
for all our stakeholders

# How
we're
Helping
Britain
Prosper

For over 325 years we have
supported Britain through the
good times and the bad. Today
is no different.

During 2022, we have continued
to work hard to Help Britain Prosper.
This is in the best interests of all
our stakeholders.

![img-6.jpeg](img-6.jpeg)

## We provide
financial
services to
26 million
customers
in the UK

We're helping our millions of customers - individuals, families
and businesses - to spend, save, borrow and invest.

We support our customers in many ways. Given the
increasing impact of cost of living on our customers, in July
2022 we launched our cost of living hub across our mobile
banking apps and websites. Through the hub customers can
get access to free and independent advice with support to
help them manage their finances. Since the launch of the
app, we've seen over 875,000 customers visit the hub.

How we're supporting
customers through the
cost of living crisis.

04 Lloyds Banking Group Annual Report and Accounts 2022

# We have the largest shareholder base in the UK

Given the Group's performance and strong capital position, the Board has recommended a total ordinary dividend of 2.40 pence per share. This represents an increase of 20 per cent on 2021, in line with our progressive and sustainable ordinary dividend policy.

We have also announced a further share buyback of up to £2 billion, marking 2022 as a very strong year of capital return to shareholders.

## 2.3m

shareholders, including most of our employees

## £3.6bn

returned to shareholders for 2022

# We are listening to and supporting over 63,000 colleagues

We have been engaging with colleagues in shaping our journey and co-creating our new Group values to make sure that every colleague is motivated and excited by the role they can play in Helping Britain Prosper.

We have also been conscious of the impact that the increased cost of living has continued to have on our colleagues. In August 2022, the Group gave the vast majority of colleagues a £1,000 one-off payment to help with the rising cost of bills.

In addition, we made significant changes to our reward approach which reflect our continued desire to support our colleagues, particularly those that are lower paid, during these extraordinary times and over the longer term. The 2023 pay award has a cash value typically in the range of 8 per cent to 13 per cent for our lowest paid colleagues.

![img-7.jpeg](img-7.jpeg)

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 05

Delivering value for our all stakeholders continued

# We've lent c£35 billion to businesses and proactively offered support

We've proactively contacted more than 550,000 businesses to offer support and through our financial wellbeing tools, we're monitoring those clients who may be at risk of falling into financial difficulty.

We have been working with these clients to offer bespoke support such as temporary payment plans and 30-day holds which can stop interest or product fees continuing to build.

How we're supporting British businesses, from entrepreneurs to SMEs.

# Helping UK society with ongoing financial education and support

We continue to offer help to children and young adults across the UK to better understand the value of money and manage their finances day-to-day as they transition to financial independence. Our activity is primarily delivered face-to-face by colleague volunteers in classrooms, but we also have a range of resources that are available for download via the Lloyds Bank Academy site.

In addition, we donated £22.4 million to our four Foundations which cover England and Wales, Scotland, Northern Ireland and the Channel Islands. They provide an invaluable contribution by partnering with hundreds of small and local charities in their area. The Foundations provide funding and other forms of support to help people overcome complex social issues such as mental health, domestic abuse, addiction and homelessness.

Working with charities and community groups across the UK is a key part of our purpose of Helping Britain Prosper.

>£22m

donated to our Foundations in 2022, taking our total donations to over £110 million since 2018

06 Lloyds Banking Group Annual Report and Accounts 2022

Read more on our commitment to reduce our supply chain emissions.

# Working to reduce the carbon footprint in our **supply chain**

Our suppliers and supply chains are integral to how we fulfil our customers' needs. We rely on around 2,600 suppliers for important aspects of our operations and customer service provision.

Recognising the emissions we generate through the purchase of goods and services and working collaboratively with our suppliers to reduce the Group's supply chain emissions are integral to our net zero strategy.

In October 2022, we announced our ambition to achieve a 50 per cent reduction in the carbon emissions we generate through our supply chain by 2030 on the path to net zero by 2050 or sooner.

Why our approach to tax matters to us and our stakeholders.

# £3.9 billion of cash taxes paid to the **UK Government**

We regularly engage in open discussion with our regulators and other government authorities (including HMRC) to ensure the Group operates in line with current and developing legislation.

Lloyds Banking Group is proud to be one of the UK's largest tax payers, helping finance public services.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 07

Chair's statement

# We are becoming truly purpose driven

**Robin Budenberg** Chair

## Overview

During 2022 the Group has continued to make significant progress, effectively supporting our customers through what are clearly uncertain and challenging times, whilst launching a more purpose-driven strategy, accelerating our investment in the business and establishing a culture to support long-term sustainable success.

We are acutely aware that the current environment, and the increased cost of living in particular, is a challenge for many of our customers, colleagues and society more widely. We remain committed to supporting our customers and colleagues proactively and I am immensely proud of the role this organisation plays in Helping Britain Prosper.

Against this backdrop, the Group has continued to deliver good business momentum and robust financial performance, enabling support for our customers, the investment required for our strategy as well as a further increase to the ordinary dividend and excess capital return.

## Our purpose and strategy

We are clear that our purpose as a Group is to Help Britain Prosper. This means not only providing outstanding service to our customers, but also responding to the UK's social, environmental and economic issues which we believe we are well placed to address. We are enormously proud of this role which includes helping build a more inclusive society and supporting the UK's transition to a low carbon economy.

08 Lloyds Banking Group Annual Report and Accounts 2022

In February 2022, we announced an ambitious strategy to transform our business in pursuit of this purpose to generate a stronger growth trajectory and to deliver higher, more sustainable returns. While the world has changed significantly since that time, our strategic focus remains clear and disciplined and we have made good initial progress with a new organisational structure and leadership team in place, a new operating model for change implemented, and increased investment particularly in our technology capabilities.

We want to be a leader in accelerating the UK's transition to a low carbon economy and have continued to expand our targets and plans to deliver our net zero ambitions in our own operations, supply chain and financed emissions. With our full year results, we have published our second dedicated environmental sustainability report which also includes our first Group climate transition plan. We also continue to implement the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosures.

We are committed to Helping Britain Prosper by creating a more sustainable and inclusive future for people and businesses, shaping finance as a force for good. Further detail on our strategy can be found on pages 22 to 31.

## Our culture

The Board and senior management have a vital role to play in shaping and embedding the right corporate culture in order to progress our purpose and implement our strategy. Our new Group values will guide behaviour but also the way we make decisions, from small everyday choices to big strategic decisions. Further detail on our new Group values can be found on pages 84 and 85.

## Directors

We review the Board's composition and diversity regularly and are committed to ensuring we have the right balance of skills and experience within the Board. Aligned to this I am pleased to say we meet the Parker Review recommendations, and that we are aiming to meet all recommendations set out by the FTSE Women Leaders Review. The Board supports the focus on improving gender diversity and will give due consideration to this with future appointments. During 2022, there have been a number of changes to the Board and further detail can be found in our governance report on page 72.

## Remuneration

During the year the Remuneration Committee has carefully considered how best to support our colleagues in the current challenging economic conditions, recognising the support and dedication of our staff and that the increase in living costs is impacting our lowest paid colleagues the most.

To help with increasing household costs, the Group was one of the first large UK companies to make a one-off payment (£1,000) to our colleagues (except senior leaders) in August. This amounted to a total value of £67 million. In addition, we have now agreed a pay package for our staff for 2023 which was approved by both our recognised unions by votes of their members. This was again focused on our more junior staff with an 8 per cent to 13 per cent increase for our 43,000 lowest paid colleagues (equivalent to a c.6.3 per cent increase on the overall pay bill).

The Group is also looking to implement a new remuneration policy this year to align executive remuneration more closely with our longer-term strategic objectives. This will include a return to a long term incentive plan aimed at ensuring executive remuneration is more closely aligned with our shareholder interests.

## Summary

Looking ahead we know that the current outlook is uncertain and, as with the pandemic, the current challenges around cost of living will be another crucial test for the banking sector and its ability to support and to protect its customers. I remain confident that Lloyds Banking Group will support our customers and make sure that those who are most at risk of getting into financial difficulty have access to the help that they need.

I also remain confident that our strategy and commitment to become a truly purpose-driven business will enhance the long-term future of the Group and benefit all our stakeholders. We will continue to ensure that the Group is at the heart of the UK recovery and of Helping Britain Prosper.

**Robin Budenberg**
Chair

Back in 2016, our colleagues chose Mental Health UK as the Group's official charity partner. Initially, the partnership was meant to be for two years, with the aim for Lloyds Banking Group to raise £4 million to help Mental Health UK set up a service to support people experiencing mental health and money problems. Six years and £16 million later, the partnership has revolutionised mental health support and understanding.

For 2023 and 2024, our colleagues voted for our new charity partner to be Crisis (working alongside Simon Community in Northern Ireland). By bringing our organisations together we aim to create the perfect partnership for a housing-led solution to end homelessness. We will help by increasing access to affordable housing, supporting more people to rebuild their lives and become more financially secure and equip the nation with the solutions to prevent homelessness.

>220k

families and individuals across the UK
are facing homelessness

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

![img-0.jpeg](img-0.jpeg)

**Our charity partner:**
**Crisis and Simon Community**
Together we will provide vital help so that people can rebuild their lives and are supported out of homelessness for good.

Lloyds Banking Group Annual Report and Accounts 2022 09

# Governance in action (section 172(1) statement)

## Overview

Given the scale of the Group, significant stakeholder engagement takes place at all levels within the organisation. Managing stakeholder interests is an important focus for the Board, and forms a key part of the Board's delegation of the day-to-day management of the business to the Executive.

In addition to the direct engagement of Board members with stakeholders discussed on **pages 82 and 83**, the Board requires stakeholder implications to be considered within all proposals submitted to it from across the organisation. Stakeholder interests are identified by the Executive in proposals, both within the papers and as part of the accompanying presentations.

Through their regular business updates, and in their other interactions with the Board both in and outside of the board room, the Executive routinely provide the Board with details of stakeholder interaction and feedback from across the wider Group.

Throughout 2022 the Board's key stakeholders remained the same as they were in 2021:

Stakeholder key:

| Customers and clients | Society and environment |
| --- | --- |
| Shareholders | Suppliers |
| Colleagues | Regulators and government |

![img-1.jpeg](img-1.jpeg)

## Section 172(1) Statement

In accordance with the Companies Act 2006 (the Act), the directors provide this statement describing how they have had regard to the matters set out in section 172(1) of the Act when performing their duty to promote the success of the Company under section 172. Further detail on key stakeholder interaction is also contained within the directors' report on **pages 72 to 137**.

The directors remain mindful in all their deliberations of the long-term consequences of their decisions, as well as the importance of the Group maintaining a reputation for high standards of business conduct and the Board engaging with, and taking account of the views of, key stakeholders.

## Key discussions and decisions

### Strategy

![img-2.jpeg](img-2.jpeg)

See more on **pages 22 to 31**

The Group announced in February 2022 its ambitious new strategy. While the external environment has changed significantly since then, our strategy remains the right one given its continued focus on customers whilst delivering growth and diversification. The Board ensures that the necessary resources are in place for the Group to meet its objectives and measure performance against them, and the focus of the Board on supporting the implementation of the strategy remains strong.

Given the fundamental importance of the Group's delivery of its strategy, the Board considered aspects of implementation of the strategy including opportunities and risks to delivery at its scheduled meetings in 2022.

Additionally, the Board held dedicated sessions in June and November where progress against the strategy was a primary focus. In June this included discussion of developments in key business areas, the Group's progress on its path to net zero, and updates on initiatives supporting the implementation of the strategy, including the mobilisation of the Group's new platform-based operating model.

The Board provided valuable feedback to the executive leadership team, which was considered and acted upon, with further updates provided at Board meetings later in the year and at the dedicated session in November.

At its November session, the Board also considered the impacts on the Group's strategy of the changing economic environment, changes in the skills the Group will need as its strategy develops, the importance of purpose in delivering on agreed strategic ambitions and how the Group delivers sustainable long term success.

Stakeholder interest was at the forefront in all these discussions. This was drawn out by the Executive, including how the implementation and development of the Group's strategy is impacting both customers and colleagues, with the Board reflecting on feedback received from stakeholders on the Group's progress in implementing the strategy.

# c£0.9bn

in-year incremental strategic investment

10 Lloyds Banking Group Annual Report and Accounts 2022

Key discussions and decisions

## Culture, values and purpose

![img-3.jpeg](img-3.jpeg)

![info icon]() See more on **pages 84 and 85**

The Board continues to recognise the importance of creating a purpose-driven culture led by values which drive the delivery of the right outcomes for the Group's stakeholders. The Board has to that end continued to oversee the activity commenced in 2021 to deliver transformation in this area.

The Board considered early in the year the importance of the Group's values as a driver of wider cultural change, and in that regard agreed proposals for re-defining these values and for providing fuller alignment between the Group's values and its purpose, recognising that both of these are key drivers of our cultural change.

The Board encouraged feedback to be sought from colleagues on the values proposed, and following this feedback approved a Group wide re-launch and programme of colleague engagement.

The purpose remains Helping Britain Prosper and the new five values are People-first, Bold, Inclusive, Sustainable and Trust.

The Board then considered progress in the embedding of our purpose and the re-defined values. This included how the Group's culture plan would deliver on the ambitions which had been set, how the Group would know that progress was being made, and the areas and actions which would take particular focus during the course of the year, while also ensuring that simplicity could be maintained in the overall approach.

Later in the year the Board endorsed a new framework to enable the delivery of further cultural change, including new initiatives such as the Grow with Purpose leadership development programme. The Board will continue to review progress in this area in the year to come.

**With colleague support, we are building a culture in which everyone feels included, empowered and inspired to do the right thing for all our stakeholders.**

**Robin Budenberg**

Chair

## Climate and net zero

![img-4.jpeg](img-4.jpeg)

![info icon]() See more on **pages 36 and 37**

The Board has overall oversight of environmental, social and governance matters, with sustainability an integral element of the Group's strategy and embedded in business objectives.

The Board maintains its commitment to, and acknowledges the importance of, the ambitious climate change goals set in 2020, including reducing the emissions the Group finances by more than 50 per cent by 2030, and achieving net zero by 2050 or sooner.

The Board has devoted considerable time to reviewing the Group's progress against these objectives, and during the year oversaw a number of additional commitments to further drive the Group's progress to deliver on our climate ambitions. Key for 2022 was the release of our net zero activity update that included sector-specific emission reduction targets for seven Net-Zero Banking Alliance sectors. In our environmental sustainability report for 2022 we have also published the Group's first climate transition plan, complementing the existing Scottish Widows climate action plan released in the first part of 2022.

In October, the Board approved new sector targets for four high emitting sectors, including UK residential mortgages, automotive original equipment manufacturers and aviation, along with an update to power.

These combine with our existing sector targets for thermal coal, oil and gas, and retail motor, with our seven targets now covering some of the UK's hardest to abate and most material sectors.

As part of the process of determining and setting these sector targets, the Board reviewed and challenged key strategic levers, dependencies, risks and opportunities at its offsite meeting in June, acknowledging the unique factors at play within the individual sectors.

Alongside sector targets, we released our new supply chain ambition to reduce the emissions from our suppliers by 50 per cent by 2030 on the path to net zero by 2050 or sooner, complementing our existing financed emissions and own operations emissions reduction ambitions. The Board also approved via its Responsible Business Committee enhancements to our external sector statement for oil and gas.

Progress against all of these initiatives continues to be closely monitored by the Board. As the Group's climate ambitions and related stakeholder interests have been a key consideration for the Board during the course of the year, further information on our progress in meeting climate ambitions and our first Group transition plan can be found in our supplementary environmental sustainability report ↗

**>50%**

**reducing emissions from our suppliers by 50 per cent by 2030, on the path to net zero**

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022

11

Group Chief
Executive's review

# Continued
business
momentum
with an
opportunity
to do more

"

The Group delivered a robust
financial performance with
increased capital returns,
whilst continuing to Help
Britain Prosper.

**Charlie Nunn**
Group Chief Executive

12 Lloyds Banking Group Annual Report and Accounts 2022

## Overview

Throughout 2022, we have continued to deliver on our purpose of Helping Britain Prosper, core to everything we do, whilst creating a more sustainable and inclusive future for people and businesses. Last year we announced our ambitious new strategy with the aim of growing our business and deepening relationships with our customers, meeting more of their financial needs. While the operating environment has changed significantly since then, our purpose-driven strategy is more relevant now than ever before. Based on significant strategic action we have made a good start and are seeing early evidence of delivery. We believe our strategy will create higher more sustainable returns, as reflected in our enhanced guidance and are excited about the opportunities ahead.

During the year, the Group delivered a robust financial performance with continued income growth supported by higher interest rates and solid business volumes. Costs were in line with expectations despite ongoing inflationary pressures. As a result of the Group's performance and strong pro forma capital generation of 245 basis points in the year, the Board has recommended a final ordinary dividend of 1.60 pence per share, resulting in a total dividend for the year of 2.40 pence, an increase of 20 per cent on prior year and in line with our progressive and sustainable ordinary dividend policy. In addition, the Group has announced a share buyback programme of up to £2 billion, resulting in total capital returns of up to £3.6 billion, equivalent to more than 10 per cent of the Group's market capitalisation value.

We know that the current environment continues to be challenging for many people and have mobilised the organisation to further support our customers. We are committed to maintaining support for our customers, clients and colleagues in the current environment and have invested in deep capabilities to facilitate this. This includes training more than 4,600 colleagues to provide financial assistance to individuals and businesses, build financial resilience to face cost of living challenges and support customers with tailored products if needed. We also saw over 5 million registrations for our Your Credit Score tool, leveraging our digital strengths to help customers take greater control of their own finances. For our colleagues, we provided additional payments in August and December 2022 and designed a new pay deal for 2023, focused on our lower paid colleagues, to provide greater protection and certainty.

## How we're Helping Britain Prosper by supporting the UK's vital social housing sector

Throughout the UK, social housing is an integral part of the housing landscape with millions of people benefitting from stable and genuinely affordable homes.

That's why I am proud that the Group is the biggest supporter of social housing in the UK. Since 2018, we've supported around £15 billion of funding to the sector and we currently work with over 200 housing associations of all sizes.

Improving access to quality housing is central to building an inclusive society and Helping Britain Prosper.

Read more in our social sustainability report 21

## Robust financial performance with ongoing strength in our customer franchise

In 2022, we delivered a robust financial performance, with statutory profit before tax of £6.9 billion. Underlying profit before impairment of £9.0 billion was up 46 per cent on 2021, including net income of £18.0 billion, driven by increased average interest-earning assets, a strengthened banking net interest margin, continued recovery in other income and lower operating lease depreciation. Cost discipline was sustained, with operating costs of £8.8 billion, up 6 per cent and in line with guidance, reflecting stable business-as-usual costs and higher planned strategic investment and new businesses. We saw strong observed asset quality with sustained low levels of new to arrears and very modest deterioration in observed credit metrics. Underlying asset quality remains strong, despite the weaker macroeconomic environment.

The Group also benefitted from continued balance sheet growth during the year. Loans and advances to customers were up £6.3 billion at £454.9 billion. This included continued growth of £6.3 billion in the open mortgage book (£1.2 billion of which was in the fourth quarter) alongside higher retail unsecured loan and credit card balances. Commercial Banking balances increased by £1.2 billion during the year due to attractive growth opportunities in the Corporate and Institutional Banking portfolio, partly offset by repayments of government-backed lending. The Group also saw growth in its open book investments, with over £8 billion net new money in the period, despite difficult market conditions. Customer deposits decreased by £1.0 billion from the end of 2021 to £475.3 billion, with Retail deposits up £2.4 billion in the period, including current account balances up £2.5 billion, more than offset by reductions in Commercial Banking deposits. Group deposits are up c.£65 billion since the end of 2019.

## Significant progress on serving all stakeholders, with a good start to our new strategy

We have a purpose-driven strategy. Core to this is our focus on building an inclusive society and supporting the transition to a low carbon economy, while creating new opportunities for our future growth. To build a more inclusive society we have supported £2.1 billion of funding to the social housing sector and lent £14.3 billion to first time buyers in the year. We have also helped around 185,000 small businesses boost their digital capability and technology adoption in the year. Importantly, we are also on track to reach our gender and ethnic diversity ambitions by 2025 supported by delivering a race education programme to our workforce in 2022.

![img-5.jpeg](img-5.jpeg)

of funding supported to the social housing sector since 2018

![img-6.jpeg](img-6.jpeg)

Lloyds Banking Group Annual Report and Accounts 2022 13

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

## Group Chief Executive's review continued

To support the transition to a low carbon economy we have funded over £13 billion of green and sustainable financing in 2022 and made around £12 billion of discretionary investments in climate-aware strategies through Scottish Widows. We have also created a new partnership with Octopus Energy to support in retrofitting the UK housing stock and launched our first Group climate transition plan which you can find in our environmental sustainability report.

Despite external developments and challenges, our strategy remains the right one. It is more important than ever to deliver against our purpose-driven outcomes that benefit all our stakeholders. We are responding to the economic environment by increasing support to customers and colleagues, whilst accelerating our efficiency actions to offset the significant inflationary pressures in the business. During 2022, the Group invested £0.9 billion of incremental strategic investment, delivering gross cost savings of £0.3 billion so far. We have extended our ambition for saving even further, increasing our 2024 gross cost savings target by an additional £0.2 billion.

### Driving revenue growth and diversification

We have made good progress on building deeper customer relationships, as well as innovating and broadening our product offerings and improving the ease with which our customers can access them. We remain the UK's largest digital bank and have continued to invest in personalisation and digitisation, resulting in a 15 per cent increase in daily logons and growing our digitally active users by 8 per cent to 19.8 million. We have also expanded our presence in areas where we are under-represented. For example, we grew our protection market share by around 1 percentage point. In our new mass affluent business, we saw an increase in banking balances of over 5 per cent and launched new, tailored banking products, including packaged bank accounts and credit cards, as well as enhanced direct to consumer investments. We are building capability as we look to launch our differentiated, digital first model in earnest later this year. In February 2023, the Group announced the acquisition of Tusker, a vehicle management and leasing company focused on electric and low emissions vehicles. This will further develop the Group's Motor business in a way that is clearly aligned with the organisation's purpose and sustainability ambitions.

In SME, we continue to digitise and diversify our business, with positive early momentum demonstrated by a more than 20 per cent growth in new merchant services clients. We are also broadening our product capabilities with strategic fintech partnerships where appropriate. Alongside, our targeted Corporate and Institutional offering delivered c.£8 billion of green and sustainable financing, driven by purpose-driven growth with businesses transitioning to net zero. We are meeting more needs for existing clients and growing non-lending income, supported by investment in product capabilities. This is reflected in a c.20 per cent growth in our percentage share of wallet for foreign exchange trading.

### Investing in enablers to improve delivery

Maintaining discipline with regards to cost and capital efficiency is critical to our strategy. To this end, increased customer engagement and continued investment in digital propositions enable us to optimise the cost-to-serve to customers by, for example, streamlining our branch network, whilst reducing our office footprint by c.12 per cent. We remain committed to identifying further efficiencies to minimise the net cost impact from inflationary pressures and create the necessary capacity for investment. With regards to capital efficiency, we have demonstrated RWA discipline during the year whilst pursuing growth in capital-lite and fee generating businesses.

In order to deliver our strategy, we are focused on maximising the potential of our people, technology and data, the key enablers. For our people, efforts in 2022 have focused on positioning the organisation for future success. We have established an experienced, new leadership team with significant capabilities in strategic and digital delivery, alongside a flatter executive structure aligned with our strategic priorities.

The strengthening of our senior leadership team is also delivering on our inclusion and diversity objectives. In addition, we restructured our business and technology teams to set up a new platform-based operating model that brings together expertise in cross cutting, multi-functional teams to now drive greater accountability and collaboration and help to effect more quickly and efficiently. Finally, we have continued to invest in the talent, skills and capabilities needed to deliver our long-term growth strategy with our approach extending to consideration of international in-sourcing opportunities and how we work with third parties.

We are investing in modernising our technology estate, improving resilience and operational agility. During 2022 we decommissioned 5 per cent of our legacy applications, in line with our target of a greater than 15 per cent reduction by the end of 2024. As part of our effort to grow the role of data in our business, we reduced our data centre estate by 10 per cent in 2022. We also successfully ingested the first significant tranche of data onto Google's public cloud platform and continue to target 20 per cent of our applications to be on public and private cloud in 2024. Our experience in 2022 has enhanced our conviction in the fundamental importance of our technology and data transformation programme for the long-term success of the Group.

Through our purpose-driven strategy we will continue to drive revenue growth and diversification across our main businesses, unlocking opportunities through our consumer and commercial franchises. This growth will in turn leverage the Group's cost and capital efficiency, building on our strong foundations. Critical to this is our intention to maximise the potential of our people, technology and data in supporting our ambitions.

## Outlook

Although the macroeconomic outlook remains uncertain, our people, business model and financial strength ensure that we can continue to support our customers and Help Britain Prosper. Our purpose-driven strategy is more relevant now than ever before and our experience in the last year reinforces our belief that successful strategic delivery will create a more sustainable business and deliver increased shareholder returns in the medium to longer-term. Based on our current macroeconomic assumptions the Group expects:

### 2023 guidance

- Banking net interest margin to be greater than 305 basis points
- Operating costs to be c.£9.1 billion
- Asset quality ratio to be c.30 basis points
- Return on tangible equity to be c.13 per cent
- Capital generation to be c.175 basis points

### 2024 and 2026 guidance

- Operating costs now expected to be c.£9.2 billion in 2024, with a cost income ratio of less than 50 per cent by 2026
- Asset quality ratio now expected to be c.30 basis points in 2024
- Return on tangible equity now expected to be c.13 per cent in 2024 and greater than 15 per cent by 2026
- Additional revenues from strategic initiatives of c.£0.7 billion by 2024 and c.£1.5 billion by 2026
- Risk-weighted assets to be between £220 billion and £225 billion at the end of 2024
- Capital generation now expected to be c.175 basis points in 2024, increasing to greater than 200 basis points by 2026
- The Group will maintain its progressive and sustainable ordinary dividend policy, whilst the Board expects to pay down to its target CET1 ratio by the end of 2024

►
**Charlie Nunn**
Group Chief Executive

14 **Lloyds Banking Group** Annual Report and Accounts 2022

## The importance of our people and culture

Our people make all the difference. We are committed to building a fully inclusive environment that is reflective of the society we serve. A place that encourages and values the unique differences our people bring with them to work every day, and where everyone can reach their full potential.

Our purpose of Helping Britain Prosper is as important as ever, but in order for us to grow our business in a way that delivers great outcomes for customers, communities and colleagues, we need to put our purpose at the front and centre of every decision we make.

To ensure we're all supported to make that change, we've evolved our values so that they clearly align with our purpose: People-first, Bold, Inclusive, Sustainable and Trust. They'll guide not only how we work, but also how we make decisions. We've introduced a new value helping us to champion sustainability, recognising its important role in delivering on our purpose and supporting Britain's transition to a net zero economy. Further detail on our new values can be found on **pages 84 and 85**.

Our leaders are critical to our cultural change. We're bringing them together in a different, and more intimate way to accelerate the change, in a programme called Grow with Purpose. Over three days, they are exploring our purpose, strategy and organisational shifts, before making commitments about what they'll do differently. Charlie Nunn, Group Chief Executive, is spending time with the top 300 leaders at Grow with Purpose, as well as the Group Executive Committee who are attending the three days in full.

To help drive change through the rest of the organisation, we're launching our Catalyst programme, involving 10 per cent of the organisation. They will inspire everyone across the Group to think and act differently, unblocking problems and igniting change whilst role modelling our purpose and values.

We recognise that the world of work is changing, technology is advancing, and skills needed today will be obsolete in the future. As the UK faces challenges with skills shortages, we are investing in our colleagues to be the key to our future success. We are developing the deep technical skills we need now, and in the future, and have developed a reskilling proposition, so we can nurture and retain talent by providing opportunities for second, third and even fourth careers, allowing colleagues to move freely around the Group.

Amongst our top 300 population, we are building skills and diversity, including 32 internal promotions to executive and 28 external executive hires of which 46 per cent were women and 21 per cent were from an ethnic minority background.

We know the success of our business is dependent on our colleagues and we aim to look for ways to help them feel more supported, in control and confident about their future. We have also launched several changes for the colleague proposition including a one-off payment of £1,000 to the vast majority of colleagues; improved workplace facilities; increased year-end get together allowance; and more accessible and easier to use technology in offices. As we accelerate our purpose-driven ambition, one of the critical outcomes will be to become a place where more people are both passionate about, and want to advocate for, working at Lloyds Banking Group, making this a key measure of our success going forward. In response to the increasing cost of living, recruitment and colleague sentiment challenges, we have announced a wide-ranging pay deal, with a focus on lower paid colleagues.

Looking forward, with Helping Britain Prosper as our north star and working closely with our colleagues, we will enable the cultural transformation of the Group.

![img-7.jpeg](img-7.jpeg)

![img-8.jpeg](img-8.jpeg)

# 92%

of our colleagues believe in our purpose of **Helping Britain Prosper**

![img-9.jpeg](img-9.jpeg)

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 15

## Our external environment

The Group continues to adapt to evolving market trends

# Customers

- Customers value convenience and relevance for their financial needs; our strategy seeks to meet this through investment in our business
- Cost of living is forefront in the minds of our customers; we are proactively supporting them in a challenging period

# Link to principal risks

Conduct, Credit, Data,
Operational resilience, People

# Market dynamics

2022 has been a challenging year for many of our customers. Whilst the social and economic consequences of COVID-19 continue to be felt, the Russian invasion of Ukraine in February added to the economic headwinds from nearly two years of disruption.

New working patterns continue and worsening health outcomes are reducing labour force participation. Supply chain disruption, in addition to global fiscal and monetary stimulus has contributed to inflationary pressure as customers revert to pre-COVID-19 norms. The digital acceleration experienced over the last two years as COVID-19 forced new behaviours has stabilised, with customer activity still strongly skewed towards digital channels. Consequently, customer expectations of convenient, personalised experiences through digital channels remain high.

Rising interest rates in the UK, worsening following the market dislocation resulting from the September mini-budget, had a significant impact on customer and client borrowing costs. Rising mortgage costs have been an unexpected shock for many and the full consequences of this are likely to be felt over the coming years as our customers come to the end of their fixed rate products. Inflationary pressure on real incomes will also have knock-on impacts on longer-term challenges our customers face, such as saving for retirement. Businesses face a combination of rising input costs, higher borrowing costs, a tight labour market and lower consumer demand. Whilst government intervention in energy markets has softened the blow on customer finances in the short term, rising taxation on both consumers and businesses presents a challenging outlook.

# Change in channel usage versus 2017

Average visits per user (%)1

![img-10.jpeg](img-10.jpeg)

1 First part of 2021 includes effects of national lockdown.

# Our response

The Group continues to adapt to customer trends. In the longer term, to meet customer expectations for seamless, personalised experiences, we continue to invest in our data and technology capabilities. The benefits of this can be seen in our cost of living support hub; our customers have visited this over 875,000 times and received personalised support with debt repayments, subscription management to help control spending and links to independent advice and support services. The cost of living challenges increase the need to execute on our strategy, deepening relationships with customers to support their financial needs and creating a digital mass affluent proposition. For commercial clients, digitising our SME business and focusing our corporate and institutional business on meeting their core cash management, debt and risk management needs remains our focus.

We have increased our support to customers during 2022. Cost of living pressures are affecting our customers in different ways and there are increasing expectations for financial service providers to do more to support them. We are tailoring our support to meet our customers individual changing circumstances and have trained more than 4,800 colleagues to provide financial assistance to individuals and businesses to help them build financial resilience and provide access to tailored products if needed. To support customers with potential financial stress, we have offered over 200,000 mortgage customers support in the face of higher interest rates and provided 220,000 customers a £500 interest-free overdraft buffer. We've also communicated to more than 550,000 businesses to provide support and options in managing their finances, for example sustainable financing options to reduce energy costs. Our digital strength is also supporting customers to take greater control of their finances, with over 5 million registrations for our Your Credit Score tool.

16 Lloyds Banking Group Annual Report and Accounts 2022

# Economy

- Given our focus on UK customers, the Group's prospects are closely linked to developments in the UK economy
- The UK outlook deteriorated in the second half of 2022, heavily influenced by the invasion of Ukraine and central banks' response to high inflation
- High inflation and rising interest rates create a challenging UK economic outlook for 2023

Link to principal risks

Capital, Conduct, Credit, Market

Market dynamics

After starting 2022 with economic activity constrained by COVID-19, UK GDP recovered almost to its pre-pandemic level by mid-year. Further recovery was limited by rising numbers of workers with long-term sickness and weak productivity growth. House prices and commercial real estate (CRE) prices continued to rise through the first half of 2022. During the second half of the year, however, Russia's invasion of Ukraine began to have a large impact on global and UK economies.

Higher energy and food prices exacerbated greater supply chain costs, pushing UK CPI inflation to a 41 year high of 11 per cent during the fourth quarter. Although the UK Government capped energy prices and provided further support to lower income households and pensioners, households' spending power fell by around 2 per cent in 2022, the largest single-year decline since the 1950s.

Policy support to counter cost of living pressures is constrained. UK Government finances are increasingly stretched, entering the third economic 'crisis' since 2008. Spending plans for the next five years have been pared back, taxes raised and the energy price cap reduced from April 2023. In response to inflation rising well above target, the Bank of England raised UK Bank Rate from 0.25 per cent at the start of 2022 to 3.5 per cent by year end, the highest level since 2008.

Although inflation will begin to fall from early 2023, this is expected to be gradual, causing a further decline in households' spending power, dragging down UK GDP by 1.2 per cent. With UK Bank Rate, expected to be 4 per cent through most of the year, house prices are forecast to fall by 7 per cent across 2023 with mortgage affordability for new buyers at its tightest since pre-2009. Higher interest rates are reducing CRE prices even more significantly.

There are significant risks to these forecasts in both directions - the impact of rising interest rates could weaken the global or UK economy more than expected; conversely, the cost of living squeeze may be not as deep as assumed if recent falls in wholesale-market forward energy prices persist.

Developments in our markets across 2022 reflected the recovery in economic activity from pandemic-restricted levels of 2020/21, the end of government schemes that had supported companies' borrowing during the pandemic, and the rise in inflation. Consumer credit market balances rose by 5 per cent as spending recovered, although have still regained only half of their fall during the pandemic. Mortgage market balances rose by a healthy 4 per cent, supported by the 18 per cent rise in house prices over the three years since the start of the pandemic. Growth in households' deposits slowed to a more normal 4 per cent in 2022 after having grown by 17 per cent in total over 2020 and 2021 when spending opportunities were constrained. Business lending grew slightly, but this masks a bigger rise in lending to large companies and a fall of over 5 per cent in lending to SMEs as businesses began to pay down COVID-19 scheme borrowing.

A mild recession and falling property prices are expected to reduce growth in most of our markets in 2023. Mortgages are expected to slow the most, as higher interest rates drive down housing transactions. Consumer credit growth is expected to slow less, with further ground to make up to the pre-pandemic level of balances, and with elevated inflation supporting the nominal value of spending. Household deposits growth is expected to slow to its weakest since 2009 as the cost of living squeeze intensifies. SMEs are expected to continue reducing their elevated borrowing.

Our response

Given our UK focus, the Group's prospects are closely linked to the performance of the UK economy. Despite this, our business model and strategy, in particular the strength of our customer franchise, balance sheet and prudent approach to risk, position us well.

In line with our purpose of Helping Britain Prosper and a clear customer focus, we are providing support to those most affected by changes to the economic environment. In addition to the near-term revenue benefits from rising interest rates, our strategy will deliver growth and diversification even in a more challenging macroeconomic environment, improving the sustainability of returns. At the same time, we are accelerating efficiency measures to offset inflationary pressures on our cost base, consistent with our ongoing discipline in this area.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 17

Our external environment
continued

# Society and environment

- Stakeholders expect UK companies to play their role in supporting the country and its people in the current uncertain environment
- Building an inclusive society and supporting the transition to a low carbon economy are core to our strategy and our purpose of Helping Britain Prosper
- This focus positions us well to support our customers, colleagues and communities, and create value for all stakeholders

Link to principal risks
Climate, Conduct, Credit

# Market dynamics

We are faced with political and economic uncertainty both at home and globally. Rising inflation and interest rates, and government spending cuts and tax rises, engender a cost of living squeeze on many people and businesses in the UK.

The focus on climate change remains, with the emphasis now on companies' tangible short and medium-term plans and implementation of these plans to support the transition of the economy towards net zero. There is also an emerging focus on nature and biodiversity, the need to protect them and to better understand their inter-linkages with climate. At the same time, increasing regulatory focus on climate risks and evolving sustainability reporting standards put pressure on UK companies to continually enhance their climate capabilities and sustainability reporting.

# Our response

Core to our purpose, Helping Britain Prosper, and strategy is our focus on creating a more inclusive and sustainable future for people and businesses. This focus positions us well to support our customers and the broader UK society during challenging times, whilst continuing to support the transition required to reach net zero.

In 2022, we contacted over 200,000 mortgage customers to provide support in context of rising rates and more than 550,000 commercial clients to offer support in maintaining financial resilience through the cost of living challenges.

>200k
mortgage customers
contacted to provide support

>£13bn
of green and sustainable
finance provided to
businesses and households
to help them on their net
zero journey

We have also supported our colleagues by providing one-off payments in August and December 2022, and designed a new pay deal for 2023 to provide protection and certainty to our lower paid colleagues into the new year.

We have provided access to quality housing by supporting £2.1 billion of funding to the social housing sector and lending £14.3 billion to first time buyers in the year. We have partnered with the UK Urban Futures Commission and supported local, green infrastructure projects to support regional development across the country.

To support the transition to a low carbon economy, we have provided over £13 billion of green and sustainable finance to businesses and households to help them on their net zero journey and invested around £12 billion in climate-aware strategies through Scottish Widows during 2022. We have also created a new partnership with Octopus Energy to support retrofitting of the UK housing stock and developed our first Group climate transition plan which highlights the progress against our net zero ambitions and the actions we will take towards transition. This plan is included in our dedicated environmental sustainability report as we continue to enhance our reporting on environmental risks and opportunities.

Tax is also one of the ways in which businesses contribute to the societies in which they operate, and we are proud to be one of the UK's largest tax payers, helping finance public services.

We will continue to work hard to deliver on our purpose, Helping Britain Prosper, by creating a more sustainable and inclusive future for people and businesses, as we believe that it is only by doing right by our customers, colleagues and communities that we can create value for all stakeholders.

18 Lloyds Banking Group Annual Report and Accounts 2022

# Technology and data

- We operate in an increasingly digital market, with potential for new business models and changes to financial services infrastructure
- Technology investment remains important to improve customer experience, unlock efficiency savings and utilise the full potential of data

Link to principal risks

Change/execution, Conduct, Data, Operational, Operational resilience

Market dynamics

Recent years have seen an increase in customer digital usage as COVID-19 restrictions have accelerated existing trends. Whilst there has been some rebound, with cash usage increasing in 2022 and the share of consumer spend online declining from lockdown peaks, the long-term trend towards increasingly digital-first financial services remains. Reflecting this reduced customer demand, the number of bank branches continued to reduce during 2022.

We operate in a highly innovative market with business model innovation enabled through new digital technologies such as cloud hosting and API connectivity. Across many markets, there is potential for embedding lending, payments and insurance services within digital, non-financial services settings to disrupt traditional business models. Other areas of innovation such as cryptocurrencies experienced high volatility over the year. Nonetheless, the consequences of digital innovation in payments may be longer term, with central bank experimentation with their own digital currencies gaining pace. This has spurred industry exploration of the potential of technologies like blockchain in areas such as international payments, trade finance and market infrastructure.

As customers increasingly use digital channels within financial services and lead more of their lives online, the potential for fraud increases. However, the first half of 2022 saw a reduction in total fraud volume, following rises in recent years. Technology investment in capability to detect and prevent fraud, in addition to regulation such as secure customer authentication, is beginning to tackle this important issue for customers.

More broadly, the potential of new technologies to simplify legacy systems remains for banks. This includes reduced run and change costs, and improved services provided to customers enabled through real time and fully contextual data insights.

Our response

The Group continues to see significant value in its all-channel distribution model, maintaining a wide branch footprint alongside digital capabilities, which are critical to driving revenue growth and diversification for the business. Experience in 2022 has only enhanced our conviction of the importance of our technology transformation program for the long term health of the business.

In 2022 we have increased digitally active customers by 8 per cent to 19.8 million and continued to invest in simplifying our technology estate, making good progress in re-platforming our businesses and achieving a 5 per cent reduction in legacy applications. This unlocks customer benefits, such as faster, more seamless digital journeys, and business benefits through a lower cost to run and enhanced technology estate.

Our investment to maximise the potential of people, technology and data continues. During 2022 we reorganised our teams to bring business and technology ownership closer together through a new platform-based operating model. Our investment in data continues to mature, supporting better customer and business outcomes, in addition to enabling the deep customer insights required to comply with the upcoming Consumer Duty regulation. We continued to make good progress in transforming our technology and reduced our data centre footprint by 10 per cent.

Customers are using the digital channel for most product needs

% volume of products originated digitally

| 2022 | 84 |
| --- | --- |
| 2020 | 85 |
| 2018 | 73 |
| 2016 | 61 |
| 2014 | 40 |

Risk management

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Other information

Lloyds Banking Group Annual Report and Accounts 2022 19

Our external environment
continued

# Competitor

- We continue to largely operate in mature, highly competitive markets
- Fintechs are challenged by rising interest rates impacting funding availability
- Technology companies and international banks continue to expand financial services participation in the UK

Link to principal risks

Capital, Change/execution,
Conduct

# Market dynamics

The UK financial services sector is a highly competitive market, attracting new entrants in recent years from international firms and new start-ups backed by private capital. Our traditional peers have been strengthened by rising interest rates, albeit the uncertainty over the economic outlook presents downside risks. Notwithstanding, improved financial strength positions incumbent banks well to compete with new entrants.

2022 saw continued market entry from international peers with the launching of digital-only brands and acquisition of existing wealth management firms. These new direct competitors are expected to broaden their offerings over time in a bid to reach profitability and scale. Other new entrants pared back growth ambitions in the UK, reflecting the need to focus on their core franchise. In addition, technology companies' extension into financial services has continued. Provision of financial services embedded into platforms, often beginning with payment services, and then extending into working capital or consumer loans and deposits, is a key development. Differing approaches are being adopted by these platforms, from building out their own financial services offerings to partnering with existing banks to provide financial services.

For some UK fintech entrants 2022 was a more difficult year. Following global interest rate rises, increasing funding costs are challenging models that are better suited to more benign economic environments. Valuations and private capital funding have fallen over the year, as expectations of future growth have tempered, and funding costs increased. Nevertheless, the digital experience for customers and speed of execution continue to raise customer expectations across the board, requiring ongoing investment to keep pace, and fintechs remain significant competitors.

# Our response

We are well positioned to continue our market leading position across multiple markets and deliver on our ambition to grow. We have a strong customer franchise and core capabilities including credit decisioning and market leading efficiency, which is increasingly important given inflationary pressures. Our financial strength allows us to support our customers and our clear purpose and mission drive focus throughout the organisation to achieving our strategic goals.

We have strong customer relationships, meeting the needs of 26 million customers. We will continue to drive strong customer engagement through our multi-channel model and deepen customer relationships through a comprehensive offering. We are increasing our focus on customer segments, building out a compelling mass affluent proposition over time, supported by the acquisition of Embark that completed in early 2022. Our multi-brand strategy allows us to compete effectively in intermediary-driven markets, where we have headroom to grow as we improve our capability with technology investment, particularly in our pensions and protection businesses.

We continue to invest in front-to-back digitisation of our SME bank, responding to changing client needs and enabling us to meet more of their needs beyond banking.

We have also increased our focus on collaborating with fintechs during the year to broaden our product capabilities, for example a partnership to enable digital invoice financing and factoring for our SME bank clients.

Finally, within corporate and institutional business we are focusing on our core strengths in cash, debt and risk management products for our UK clients. We will continue to invest in these strengths and scale our originate to distribute capabilities to support clients' long-term needs and increase our balance sheet efficiency.

20 Lloyds Banking Group Annual Report and Accounts 2022

# 📄 Regulation

- The UK financial services sector is expected to remain highly regulated
- High volumes of new regulation and market reviews continue to be issued, with further regulatory changes anticipated

## Link to principal risks

Capital, Climate, Conduct, Market, Regulatory and legal

## Market dynamics

The UK financial services sector remains highly regulated with significant regulatory reform anticipated in 2023, including the implementation of the Edinburgh Reforms, the Financial Services and Markets Bill and reforms to Solvency II. 2023 will see a number of consultations and calls for evidence across the different areas of reform. We will analyse the proposals and work closely with the regulators and the government as and when the different areas of reform are consulted on. Key areas of focus for 2023 are below:

**Customer treatment:** Fair treatment of customers remains a priority for the FCA, and the introduction of the Consumer Duty in 2023 will require a more outcomes focused approach to prioritise customers' needs. Customers are facing increased cost of living pressures and we recognise the need to do more to support all customers, including those who may be in vulnerable circumstances.

**Capital regulation:** The Group complies with capital regulations covering the assessment and measurement of capital resources and requirements, including risk-weighted assets. In November 2022, the PRA published a consultation on its proposals to implement the final Basel III reforms. This included a number of significant changes to the calculation of risk-weighted assets. We are continuing to work closely with the industry and regulators to understand the implications.

**ESG:** Engagement continues with all key stakeholders, including customers, government, regulators and the market, to help create a more sustainable and inclusive future for all. We continue to enhance our sustainability reporting, including aligning to the recommendations of the Task Force for Climate-related Financial Disclosures, closely following the evolving sustainability reporting standards and requirements, and will further embed climate risk into risk frameworks and policies.

**Solvency II:** The Solvency II regime which regulates the insurance capital required for insurance entities is currently being reviewed/ is under consultation by the PRA.

**Financial Services and Markets Bill:** This Bill is designed to map out the future of the UK's financial services sector following the decision to leave the EU. By tailoring regulation to the UK market, its intention is to increase the UK's competitiveness as a global financial centre whilst maintaining high regulatory standards to protect customers. The Bill is a wide-ranging piece of legislation that covers multiple areas including reforms to capital markets and addressing customer challenges related to access to cash and fraudulent activity.

**Ring-fencing:** Since 2019, the Group has been structured into sub-groups to comply with the ring-fencing rules. The UK legislation was passed after the financial crisis to better protect customers and the day-to-day banking services they rely on. We await government's consultation on near-term reforms of ring-fencing, and will continue to work closely with the regulator on the matter.

**Edinburgh Reforms:** On 9 December 2022, the government launched the Edinburgh Reforms. The reforms focus on reviewing, updating or reforming a number of areas of financial services regulation, ranging from ring-fencing, consumer credit and the Senior Managers and Certification Regime, to repealing areas of EU regulation now that the UK has left the EU.

**Other:** A number of other regulatory initiatives are in progress which seek to address, amongst other things: access to cash, mortgages and green financing, culture, operational resilience, completion of IBOR transition, financial crime and accounting (e.g. IFRS 17).

## Our response

As a Group we always seek to comply with all applicable regulation and engage with regulators on all aspects to improve outcomes. Given the Group's customer-focused, sustainable and low risk business model, it is well placed to meet these requirements and welcomes the positive effect they have on the industry, its customers and other stakeholders.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 21

Our strategy

# Our purpose is
Helping Britain Prosper

We're creating a more
sustainable and inclusive
society for people and
businesses, shaping
finance as a force
for good.

To deliver on our purpose, we have
identified four focus areas where we are
best placed to provide significant positive
change, enabling us to create a more
inclusive society and sustainable future:

- Creating a more inclusive future
- Improving access to quality housing
- Enabling regional development
- Greening the built environment

View our environmental
sustainability report here.

View our social
sustainability report here.

Our strategic vision
supports our purpose

To become the UK's
customer-focused, digital
leader and integrated
financial services provider,
capitalising on new
opportunities, at scale.

22 Lloyds Banking Group Annual Report and Accounts 2022

![img-0.jpeg](img-0.jpeg)

# Significant strategic action, with early evidence of delivery

## Grow

### Drive revenue growth and diversification

#### Investing in growth

£0.9 billion in-year incremental strategic investment weighted towards growth. Delivered early stages of targeted additional 2024 revenues

## Focus

### Strengthen cost and capital efficiency

#### Accelerating efficiency initiatives

Cost discipline in an inflationary environment. Delivered £0.3 billion or around 25 per cent of increased 2024 gross cost savings target

## Change

### Maximise the potential of people, technology and data

#### Mobilising for change

New operating model implemented to deliver change more effectively

#### Refreshing the team

New organisational structure and leadership team

## Creating higher, more sustainable, returns

### In 2024

**c.13% RoTE**

**c.£0.7bn additional revenues from strategic initiatives**

**c.£9.2bn operating costs**

**c.175bps capital generation**

### By 2026

**>15% RoTE**

**c.£1.5bn additional revenues from strategic initiatives**

**<50% cost:income ratio**

**>200bps capital generation**

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 23

Our strategy in action

# Drive revenue growth and diversification

Growth is a core focus of our strategy. Around two thirds of our £3 billion strategic investment over the first three years is aligned to growing and diversifying revenue. We have carefully prioritised opportunities across each of our businesses to ensure we generate value in the near term as well as creating new revenue streams which deliver over the longer term.

We aim to **deepen and innovate in Consumer** to bring more of our products and services to our existing customers, as well as broaden our product offerings and make it easier for customers to access them through our intermediary partners. We aim to **digitise and diversify our SME business**, growing revenues in products and sectors where we have lower market share today. In addition, we are **creating a new mass affluent offering** to grow in this attractive and underserved market segment across banking, protection and simple wealth. Finally, we are **targeting our Corporate and Institutional offering** to deliver disciplined growth.

## Deepen and innovate in Consumer

### Progress in 2022

- Within Consumer, we have invested in driving improved levels of personalisation and digitisation, resulting in a 15 per cent increase in daily logons. We remain the UK's largest digital bank and in 2022 **grew our digitally active users by 8 per cent to 19.8 million**, set to exceed our 20 million ambition by 2024
- We have **increased our protection market share by around 1 percentage point**1, with growth in both our relationship and intermediary channels, and particularly strong performance in our new digital direct to consumer proposition. This will be further supported by the recent acquisition of Cavendish Online which will enable us to meet more of our franchise customers' protection needs
- We continue to build on our strong position in workplace pensions, with **net workplace pension flows of £6 billion** in 2022 from over 4 million workplace customers as we secured a 16 per cent market share of assets under administration
- Our intermediary businesses are important in our support of the UK's net zero transition needs. We have completed £3.5 billion1 of **green mortgage lending**, progressing well against our £10 billion objective by 2024. We have also completed over £2 billion of **financing for battery electric and plug-in hybrid electric vehicles**, against our target of £8 billion by 2024

![img-1.jpeg](img-1.jpeg)

24 Lloyds Banking Group Annual Report and Accounts 2022

1 Nine months to 30 September 2022.

2023 implementation

We will continue to personalise and digitise our Consumer offering, supporting our ambition to meet more of our existing customers' needs.

Our intermediary participation will be broadened with the launch of a new **intermediary protection proposition** that supports our aim to be a top three player by 2025.

We will expand our motor offering with innovative new solutions such as a market leading **digital vehicle leasing offer** and customer pre-approval capabilities. Personalisation capability that has been developed will be further deployed, for example by **scaling our HomeHub ecosystem** to improve mortgage acquisition and retention rates.

![img-2.jpeg](img-2.jpeg)

# Selected 2024 outcomes

>5%

Increase in depth of relationship1 through meeting more needs of existing customers

Grow

Credit card spend market share

>£55bn

New assets under administration investment and retirement open book net flows2

£20bn-25bn

Invested in climate-aware strategies3 through Scottish Widows by 2025

£8bn

Financing and leasing for electric vehicles and plug-in hybrid electric vehicles

1 Product holdings across brands for franchise customers with active relationship.

2 Includes long-term savings and excludes Embark day one contribution of around £37 billion, longstanding, unbundled investment only pensions, Cazenove and legacy private banking trusts.

3 Pre-defined funds that have an in-built bias or tilt towards companies that are transitioning their business models to be less carbon intensive and/or developing climate solutions.

Lloyds Banking Group Annual Report and Accounts 2022 25

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Our strategy in action continued

## Digitise and diversify our SME business

### Progress in 2022

- Our multi-year journey to build a front-to-back digital SME business has progressed, with positive early momentum shown including **more than 20 per cent growth in new merchant services clients** and a proven new digital onboarding capability
- We are focused on building out products which are important relationship anchors, such as asset finance, invoice discounting and trade finance. In 2022, we **grew income by around 5 per cent in mid-sized SME transaction banking and working capital**, as we pursue our target of 15 per cent income growth by 2024
- Our vision to broaden our relationships with one million small business clients has been supported by broadening our product capabilities with strategic **fintech partnerships**. For example, our invoice discounting partnership provides a solution that allows clients to better manage cashflows

### 2023 implementation

Investment in technology and data capability will continue in 2023 to create a digitally led, SME bank with diversified income and broader customer relationships over time.

We will deliver a **mobile first onboarding** proposition for clients and launch an end-to-end **digital origination** for asset finance, as we look to ensure we meet the full range of our clients' needs.

Continued investment in data capabilities is a critical enabler for our digital SME bank, ensuring we are better able to support client needs such as cash flow management.

### 2024 outcomes

>50%

Share of products originated and fulfilled digitally

>15%

Income growth in mid-sized SME transaction banking and working capital

20% p.a.

Growth in new merchant services clients

26 Lloyds Banking Group Annual Report and Accounts 2022

## Create a new mass affluent offering

### Progress in 2022

- In our new mass affluent business we saw an **increase in banking balances1 of over 5 per cent** and are building capability as we look to launch integrated and digitally led banking, insurance and investments propositions
- We have launched new, **tailored banking products** including packaged bank account and credit card products to provide personalised mass affluent banking propositions
- Our **direct to consumer investments** capability has been enhanced, aided by the completion of the acquisition of Embark. This was previously a gap in our product capability

### 2023 implementation

Further significant elements of our mass affluent offering will be launched in 2023, with customers experiencing a **differentiated, digital-first model**.

We will expand our **mass affluent banking offering**, with tiered savings, higher credit limits and bespoke benefits. In addition, we will launch **ready-made and direct to consumer investment** options.

## Target our Corporate and Institutional offering

### Progress in 2022

- We have delivered around **£8 billion of sustainable financing2** to our clients and launched carbon emission allowance transactions3. These milestones have been supported by our purpose-driven growth within loan origination and businesses transitioning to net zero
- We are investing in **product capabilities** that support our cash, debt and risk management offering. We have seen early benefits from this investment, including around 20 per cent growth in our FX trading percentage share of wallet
- Finally, we have strengthened our **originate to distribute** capabilities, delivering a milestone first strategic co-investment partnership. These strengthened capabilities further improve the Group's capital efficiency

### 2023 implementation

In 2023 we will build on these foundations by meeting more needs of purpose aligned clients in **key growth industries**.

We will **improve our capabilities** across our core business lines in debt capital markets, foreign exchange and financial institutions, including investing in our US and EU debt capital market capabilities. We will increase our balance sheet efficiency as we scale our strengthened **originate to distribute** capabilities to serve more clients.

### 2024 outcomes

**>£5bn**

Incremental total banking balances1 for mass affluent increasing to between £10 billion and £15 billion by 2026

**>£7bn**

Incremental net flows into investment proposition increasing to £25 billion by 2026

**Grow**

Number of mass affluent personal account customers

### 2024 outcomes

**£15bn**

Sustainable financing2

**Top 5**

GBP interest rate swaps ranking; deepen FX share of wallet

**>20%**

Growth in Corporate and Institutional other operating income

**<£3bn**

Net risk-weighted asset growth

1 Banking balances calculated as the absolute total of retail PCA, savings, overdrafts, credit card, mortgage and loan balances plus private banking PCA and savings balances.
2 Includes clean growth finance initiative, commercial real estate green lending, renewable energy financing, sustainability linked loans and green and social bond facilitation. New cumulative to 2024.
3 Under the UK Emissions Trading Scheme.

Lloyds Banking Group Annual Report and Accounts 2022

27

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Our strategy in action continued

# Strengthen cost and capital efficiency

As we invest to grow and diversify our revenue, it is essential to maintain our disciplined cost management approach.

We will also look to further improve our capital efficiency as we maintain our strong balance sheet with a disciplined risk approach, pursuing growth in capital-lite, fee generating businesses.

# S
O
L

# Progress in 2022

- Cost discipline has been a key strength for the Group and remains a key focus in enabling capacity for investment in growth initiatives as well as offsetting inflationary pressures. Around 25 per cent of our increased 2024 gross cost savings target has been delivered. Lowering the cost of technology through simplification of our legacy technology estate is critical to enabling the change the business requires for growth
- We further refined our **service model**, resulting in the closure of around 200 branches, alongside our continued investment in digital propositions
- We have also continued to reduce our **office footprint** as we adapt to new ways of working, with a 12 per cent reduction in the year, as we target a reduction of more than 30 per cent by 2024
- With regard to **capital efficiency**, we continue to demonstrate risk-weighted asset discipline as we pursue our growth initiatives in capital-lite, fee generating businesses. In addition, we successfully completed a securitisation transaction for a portfolio of legacy Retail mortgage loans, with much of the risk placed in the market

28 Lloyds Banking Group Annual Report and Accounts 2022

## 2023 implementation

Our investment in technology will deliver further improvements in **self-service capabilities** and **end-to-end journey digitisation**. In line with our ambition to embrace hybrid ways of working and transform workplaces, we will continue to **modernise our office footprint** as we work towards a significant reduction in our portfolio by 2024.

In response to the inflationary environment, we will continue to focus on generating further efficiencies to minimise the net cost impact and create the necessary capacity for investment.

Our **capital efficiency** will also be supported by our growth initiatives in capital-lite, fee generating businesses, as we optimise and recycle risk weighted assets into higher returning businesses. In 2023 we expect to also conclude the triennial pension review, which will demonstrate the significant advances we have made.

## 2024 outcomes

**>10%**

Increase in customers served per distribution FTE

**>30%**

Reduction in office footprint

Financial report

Financial data

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022

29

Our strategy in action continued

# action

## Maximise the potential of people, technology and data

Delivering this strategy requires the Group to accelerate the pace at which it uses digital technologies and data to support customers. We seek to emulate our success in building the largest UK Retail digital bank on a larger scale across the Group. Our prior investments in technology and data provide a strong foundation for delivering on our strategy.

Progress in 2022

### People

- In 2022 we have been focused on setting up our people and organisation for success in delivering our strategy and change more effectively. We have established an **experienced, new leadership team** with significant capabilities in strategic and digital delivery, alongside a **flattened executive structure**. Within our existing three core divisions we have reorganised around five new customer-facing business areas that are more closely aligned to our strategic priorities
- Beyond the executive level, we restructured our business and technology teams to set up a **new operating model for more than 20,000 employees** that brings together expertise in cross-cutting, multi-functional teams that drive greater accountability and collaboration and help to deliver change more quickly and efficiently
- We have enhanced our leadership in key skills areas, such as bringing in new Chief Information Officer hires who will support the transformation of our ways of working and culture. In strengthening our senior leadership team, we have remained true to our inclusion and diversity objectives

30 Lloyds Banking Group Annual Report and Accounts 2022

## Technology and data

- We have progressed on our plans to transform our technology and data capabilities. Alongside improved resilience, this will over time enable an agile technology model that can provide a highly efficient, scalable technology infrastructure and ultimately drive business value
- During 2022 we **decommissioned 5 per cent of our legacy applications**, a pace we expect to maintain over the next two years
- We have **reduced our data centre footprint by 10 per cent** and continue to increase the pace at which we migrate data to the cloud. Over time, further actions such as this will enable full unlocking of the potential of our data as we target 20 per cent of our applications on cloud in 2024
- Our transformed data capabilities will provide data-driven insights to support our business strategies across multiple use cases, including delivering automated processes to enhance the customer service experience

2023 implementation

## People

We are committed to building a fully inclusive environment that is reflective of the society we serve.

As part of this we are **making progress towards the targets that we have set**, including 50 per cent women, 13 per cent Black, Asian and Ethnic Minority colleagues and 3 per cent Black Heritage representation at senior management levels by 2025. We continue to commit ourselves to stretching targets, always challenging ourselves to go further. Bringing in new senior talent, particularly in technology and data, is supporting our effort to alleviate resource constraints for high in demand skills, **reducing our reliance on third-party support**.

Finally, we will **further modernise and enhance our office estate** with one third of our colleagues in transformed, modern workplaces by the end of 2023 as part of a compelling proposition for top talent.

## Technology and data

With our organisational foundations now in place, investment in transforming technology and data will be scaled in 2023.

Building on progress already made, we will further mature our data and machine learning capabilities that can then be leveraged across the business with multiple use cases. Complementing this, **continued migrations of data to public cloud** will support our modernisation and simplification efforts. We will continue executing on our plan, including **decommissioning around 10 per cent of legacy applications**, as we target a further 5 per cent reduction by 2024. Alongside other activity, this will support a gross **reduction in run and change technology costs** of around 10 per cent.

2024 outcomes

>15%

Reduction in legacy applications

15%

Gross reduction in run and change technology costs

Improve

Employee engagement index

20%

Applications on cloud (private and public)

60%

Business new lending decisions automated

Strategic report

Financial results

Performance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022

31

# Progress and performance

**Key performance indicators are regularly reviewed by the Board and the Group Executive Committee, to evidence performance against the Group's most important priorities.**

These include measures for assessing financial and non-financial performance and balancing the interests of various stakeholders including customers, shareholders and colleagues.

To ensure colleagues act in the best interests of customers and shareholders, variable remuneration at all levels across the Group is aligned to these priorities and takes into account the Group's financial performance and specific conduct and risk management controls.

The key performance indicators shown here directly impact the remuneration awarded to executive directors, which is heavily weighted towards the delivery of long-term, sustainable performance.

The implementation of our simplified balanced scorecard provides greater transparency to substantiate how our performance directly aligns with remuneration outcomes.

## Our 2022 balanced scorecard

### Financial (50 per cent)

Statutory profit after tax (20 per cent)
Return on tangible equity (20 per cent)
Operating costs (10 per cent)

### Strategic (50 per cent)

**Customers**
Group customer dashboard (25 per cent)

### Colleagues

Employee engagement (7.5 per cent)
Gender and ethnic representation in senior roles (7.5 per cent)

### Climate

Operational carbon emissions (5 per cent)
Sustainable financing and investment (5 per cent)

**R** Key performance indicators that are directly linked to our remuneration balanced scorecard are marked with this symbol. See **page 110**.

**A** We use a number of alternative performance measures in the description of our business performance and financial position. These measures are labelled with this symbol. See **page 67**.

# Financial

**Statutory profit after tax** **B** **5,555**

| 2022 | 5,555 |
| --- | --- |
| 2021 | 5,885 |
| 2020 | 1,387 |
| 2019 | 3,006 |
| 2018 1 | 4,506 |

Statutory profit after tax slightly lower, with higher income offset by impairment charges as a result of the revised economic outlook (compared to a credit in the prior year). 2021 also included the benefit of a deferred tax remeasurement.

$^{1}$ Restated to reflect amendments to IAS 12.

**Underlying profit** $^{A}$ **7,448**

| 2022 | 7,448 |
| --- | --- |
| 2021 1 | 7,536 |
| 2020 1 | 1,742 |
| 2019 1 | 7,172 |
| 2018 1 | 7,588 |

Underlying profit before tax slightly lower with income growth offset by an increased impairment charge (compared to a credit in the prior year).

$^{1}$ Restated to reflect the new costs basis. See **page 67**.

**Ordinary dividend** **2.40**

| p per share |  |
| --- | --- |
| 2022 | 2.40 |
| 2021 | 2.00 |
| 2020 | 0.57 |
| 2019 | 1.12 |
| 2018 | 3.21 |

Total ordinary dividend of 2.40 pence per share, up 20 per cent, reflecting our progressive and sustainable ordinary dividend policy. Includes both interim and final dividends.

**Return on tangible equity** $^{A}$ **B** **13.5**

| % |  |
| --- | --- |
| 2022 | 13.5 |
| 2021 | 13.8 |
| 2020 1 | 2.3 |
| 2019 1 | 6.6 |
| 2018 1 | 10.6 |

Return on tangible equity in 2022 reflects the Group's robust financial performance.

2023 guidance: Return on tangible equity of c.13 per cent.

$^{1}$ From 2021, to aid comparability with peers, we began reporting return on tangible equity without adding back the post-tax amortisation of intangible assets. Pre-2021 comparatives have been restated.

32 Lloyds Banking Group Annual Report and Accounts 2022

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

# Common equity tier 1 ratio^A (CET1)

| % | 14.1 |
| --- | --- |
| 2022 | 14.1 |
| 2021 1 | 16.3 |
| 2020 | 16.2 |
| 2019 | 13.8 |
| 2018 1 | 13.9 |

CET1 ratio remains strong at 14.1 per cent after capital distributions and pension contributions, remaining ahead of the ongoing target of c.12.5 per cent, plus a management buffer of c.1 per cent.

1 Reported on a pro forma basis, reflecting the dividend paid up by the insurance business and declared share buybacks.

# Operating costs^A

| £m | 8,835 |
| --- | --- |
| 2022 | 8,835 |
| 2021 1 | 8,312 |
| 2020 1 | 8,202 |
| 2019 1 | 8,316 |
| 2018 1 | 8,710 |

Operating costs increased, in line with guidance, given planned investment and new businesses, with business-as-usual costs stable.

2023 guidance: Operating costs of c.£9.1 billion.

1 Restated to reflect the new costs basis. See page 67.

# Economic profit^A

| £m | 2,782 |
| --- | --- |
| 2022 | 2,782 |
| 2021 | 3,063 |
| 2020 1 | (1,257) |
| 2019 1 | 428 |
| 2018 1 | 1,858 |

Economic profit reflected higher net income and a higher impairment charge. Economic profit is a measure of profit taking into account a charge for equity utilisation.

1 In 2021 the basis was amended in line with reward scheme performance measures. Comparatives have been restated.

# Total shareholder return

| % | 0 |
| --- | --- |
| 2022 | 0 |
| 2021 | 35 |
| 2020 | (42) |
| 2019 | 27 |
| 2018 | (20) |

Total in-year shareholder return was flat in the year. The share price was 5 per cent lower with capital return of 5 per cent.

Non-financial

# Customers

# Customer satisfaction

All-channel net promoter score

| 2022 | 67.7 |
| --- | --- |
| 2021 | 69.3 |
| 2020 | 68.8 |
| 2019 | 66.0 |
| 2018 | 63.4 |

Our all-channel net promoter score measures the customer perception of day-to-day services across our channels and remained strong in 2022 despite a decline since 2021 (which was an all-time high).

# Digitally active customers

| m | 19.8 |
| --- | --- |
| 2022 | 19.8 |
| 2021 | 18.3 |
| 2020 | 17.4 |
| 2019 | 16.4 |
| 2018 | 15.7 |

Our digitally active customers increased in the year to 19.8 million, reflecting the pace of digital adoption, with customers logging in over 5 billion times during 2022, up 8 per cent on prior year.

# Customer complaints

FCA reportable complaints per 1,000 accounts

| H1 2022 | 2.70 |
| --- | --- |
| H2 2021 | 2.77 |
| H1 2021 1 | 2.76 |
| H2 2020 1 | 2.89 |
| H1 2020 1 | 2.62 |

Our customer complaints reduced further and are amongst the lowest in the industry. We always want to provide our customers with the best possible service and our colleagues work tirelessly to understand the concerns of those who contact us. H2 2022 data not available at time of publishing.

# Group customer dashboard

% of customer experience metrics achieving target (November YTD)

| 2022 | 80 |
| --- | --- |
| 2021 | 79 |
| 2020 | 74 |
| 2019 | 65 |
| 2018 | 72 |

In 2022, 80 per cent of Group customer dashboard measures achieved target. This positive overall result is underpinned by strong performance relative to competitors, with average rank position further improved year on year.

Lloyds Banking Group Annual Report and Accounts 2022 33

## Progress and performance continued

Non-financial

# Colleagues

### Employee engagement index

% favourable

![img-0.jpeg](img-0.jpeg)

### Colleague engagement

The Group understands that engagement is a two-way process, so each year we ask colleagues to share their views via our independently run colleague surveys. In 2022, we refreshed how we listen to our colleagues to provide a more regular and complete picture of sentiment. This included redesigning our annual survey and running monthly pulse surveys to capture timely feedback, which is shared with leaders to take swift action.

Our new monthly pulse surveys launched in September and have allowed us to monitor advocacy, through a newly launched employee net promoter score, alongside mood. We also use these surveys to delve into relevant and timely topics, including our values and the transition to hybrid working.

We heard from around 60 per cent of colleagues in our spring census survey, with the response rate in line with 2021's spring survey but below our 2021 autumn survey participation. We found that engagement, confidence, trust and mood remained at similar levels to 2020, despite high levels of change. Most colleagues were also aware of and understood our new strategy. Our annual autumn survey was completed by 80 per cent of the Group and gave us a complete view on our progress with purpose, strategy and culture. Overall engagement improved 2 points compared to 2021, and has returned to pre-pandemic levels. We have seen an increase in overall mood linked to feeling more supported and connected.

During the year the Group communicated directly with colleagues detailing Group performance, changes in the economic and regulatory environment and updates on key strategic initiatives. Meetings were held throughout the year between the Group and our recognised unions. Please see **page 82** for further examples of how the Board engages with the Group's workforce and why the Board considers those arrangements to be effective. For 2022, the Remuneration Committee approved Group Performance Share awards for colleagues, and colleagues are eligible to participate in HMRC-approved share plans which promote share ownership by giving employees an opportunity to invest in Group shares. Further information can be found on **page 105** in the Directors' Remuneration Report.

![img-1.jpeg](img-1.jpeg)

### 2022 inclusion and diversity performance

The Group aims to create a more inclusive future for our customers, colleagues and communities. We will continue to create a fully inclusive organisation that is representative of modern-day Britain, where differences are embraced, and everyone can reach their potential.

We're proud to have been the first FTSE 100 company to set targets to increase both gender and ethnic diversity at senior levels and we continue to commit ourselves to stretching targets, always challenging ourselves to go further.

### Ethnic diversity

#### Our aspirations

**13%**

**Black, Asian and Minority Ethnic representation in senior roles by 2025$^{1}$**

**3%**

**Black heritage representation in senior roles by 2025$^{1}$**

During 2022, we have increased the representation of Black, Asian and Ethnic Minority colleagues in senior roles from 8.8 to 10.2 per cent and increased the representation of Black heritage colleagues in senior roles by 0.4 to 1.4 per cent.

The Board continues to meet the Parker Review recommendation of at least one Black, Asian or Ethnic Minority Board member.

As a Group we have continued to meet our commitment to publish our ethnicity pay gap report $^{2}$ and our race advisory panel continues to play a critical role in helping us to shape our initiatives.

### Gender diversity

#### Our aspirations

**50%**

**Women in senior roles by 2025$^{1}$**

During 2022, we have seen an increase in women in senior roles to 39.4 per cent, showing our progress towards meeting our 2025 target.

We are committed to maintaining at least four women on the Board and, over time, will aim to reach gender parity, matching the Group's ambition to have 50 per cent of senior roles filled by women. Reflecting these aspirations, the Board will aim to meet the recommendations set out by the FTSE Women Leaders Review.

Further information on the diversity of our Board can be found on **page 73**.

### Disability

Our aim is to create an inclusive and accessible working environment where everyone is supported to reach their full potential. The Group continues to hold the Business Disability Forum Gold Standard accreditation and Disability Confident status from the Department for Work and Pensions.

We offer bespoke training, career development and adjustments for colleagues and applicants with disabilities, including those who became disabled while employed.

### Sexual orientation and gender identity

We are proud to have created an inclusive and open working environment for our LGBT+ colleagues. Our LGBT+ colleague network, Rainbow, continues to play a role in our approach to supporting our LGBT+ colleagues, and has over 5,000 members and supporters.

Detailed progress on our inclusion and diversity focus areas, our progress on our race action plan and how we support our colleagues can be found in our social sustainability report $^{2}$.

$^{1}$ From a 2021 baseline year, excludes Embark.

34 Lleyds Banking Group Annual Report and Accounts 2022

## Our 2022 inclusion and diversity performance

|  |  | Number 2022 | % 2022 | % 2021 |
| --- | --- | --- | --- | --- |
| Gender 1 | Board members | Men 6 | 54.5 | 60.0 |
|  |  | Women 5 | 45.5 | 40.0 |
|  | GEC | Men 8 | 53.3 | 80.0 |
|  |  | Women 7 | 46.7 | 20.0 |
|  | GEC and GEC direct reports | Men 70 | 58.3 | 65.0 |
|  |  | Women 50 | 41.7 | 35.0 |
|  | Senior managers | Men 4,492 | 60.6 | 62.3 |
|  |  | Women 2,919 | 39.4✓ | 37.7 |
|  | All colleagues | Men 27,888 | 42.7 | 42.2 |
|  |  | Women 37,441 | 57.3 | 57.8 |
| Ethnicity | Board members ethnicity 2 |  |  |  |
|  | White British or other White | 9 | 81.8 | NR |
|  | Asian | 1 | 9.1 | NR |
|  | Other Ethnic Group | 1 | 9.1 | NR |
|  | GEC ethnicity 3 |  |  |  |
|  | White British or other White | 14 | 93 | NR |
|  | Asian | 1 | 7 | NR |
|  | Senior managers from an Ethnic Minority background | 742 | 10.2✓ | 8.8 |
|  | Senior managers from a Black Heritage background | 101 | 1.4 | 1 |
|  | All colleagues from an Ethnic Minority background | 8,675 | 13.4✓ | 11.3 |
| Disability | Colleagues who disclose that they have a disability | 4,221 | 6.5 | 3.7 |
| Sexual orientation | Colleagues who disclose their sexual orientation | 44,284 | 68.6 | 59.7 |

1 Data is collated and reported in compliance with the provisions of section 414C(6)(c) Companies Act 2006

2 In the current year there is no reported data for the categories of Black/African/Caribbean/Black British, Mixed/Multiple Ethnic groups and Not specified/prefer not to say.

3 In the current year there is no reported data for the categories of Mixed/Multiple Ethnic Groups, Black/African/Caribbean/Black British, Other ethnic group including Arab and Not specified/prefer not to say.

NR This data was not reported in 2021 and is a new disclosure in 2022.

✓ Indicator is subject to Limited ISAE 3000 (revised) assurance by Deloitte LLP for the 2022 Annual Responsible Business Reporting. Deloitte's 2022 assurance statement and the 2022 Reporting Criteria are available online at www.lloydsbankinggroup.com/who-we-are/responsible-business/downloads.

### Methodology and definitions:

- Data is sourced from the HR system (Workday) containing all permanent colleague details
- All data as at 31 December 2022
- All diversity information for ethnicity, disability and sexual orientation is based on voluntary self-declaration by colleagues. Our systems do not record diversity data of colleagues who have not declared this information and is for UK payroll only

- Gender data includes international, those on parental/maternity leave, absent without leave and long-term sick and excludes contractors, Group non-executive directors, temporary and agency staff

- The Group Executive Committee (GEC) assists the Group Chief Executive in strategic, cross-business or Group-wide matters and inputs to Board. GEC includes the Group Chief Executive and excludes colleagues who report to a member or attendee of the GEC, including administrative or executive support roles (personal assistant, executive assistant). GEC and GEC direct reports includes the Group Chief Executive and colleagues who report to a member or attendee of the GEC, including administrative or executive support roles (personal assistant, executive assistant)

- Senior managers: Grades F, G and Executive (F being the lowest)

- A colleague is an individual who is paid via the Group's payroll and employed on a permanent or fixed term contract (employed for a limited period). Includes parental leavers and internationals (UK includes Guernsey, Isle of Man, Jersey and Gibraltar). Excludes leavers, Group non-executive directors, contractors, temps and agency staff

- Diversity calculations are based on headcount, not full-time employee value and excludes Embark for the FY 2022 reporting period

## Building our internal talent

The focus on progressing our race action plan ambitions has continued, with significant effort in supporting our Black heritage colleagues looking to progress their career.

Our senior leadership programme, which helps us identify our next senior leaders, continued and following its success, in May 2022, we launched a similar programme for Black Heritage colleagues in middle management looking to develop their career. The programme runs for 12 months, supporting colleagues with the tools they might need to develop themselves and their career. It provides face-to-face networking and workshops, mentoring circles, upskilling sessions on writing CVs, pen portraits and interviews with talks from hiring managers and the support to find a sponsor.

Close to 100 colleagues enrolled in the programme in 2022, and by the end of 2022, over a quarter of the colleagues enrolled on the programme had either been promoted or taken a lateral move to progress their career.

![img-2.jpeg](img-2.jpeg)

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Lloyds Banking Group Annual Report and Accounts 2022 35

## Progress and performance continued

Non-financial

# Climate

### Operational carbon emissions 1 tCO2e

115,965

| 2021/22 | 115,965 |
| --- | --- |
| 2020/21 | 112,424 |
| 2019/20 | 114,722 |
| 2018/19 | 174,629 |

1 Restated all prior periods data to improve the accuracy of reporting, using actual data to replace estimates, historical emissions associated with Embark Group's properties, and improved escaped refrigerant related emissions.

This year, our overall market-based carbon emissions were 115,965 tonnes CO2e, 33.6 per cent lower since 2018/19 and a 3.1 per cent increase since 2020/21, mainly driven by higher business travel and commuting related carbon emissions post COVID-19.

### Sustainable lending and investment targets2 3 £bn

#### Commercial Banking

| We are here ▼ | 2024 target ▼ |
| --- | --- |
| £7.9bn |  |
| Progress (£bn lending) | £15bn |

#### Motor

| We are here ▼ | 2024 target ▼ |
| --- | --- |
| £2.1bn |  |
| Progress (£bn lending) | £8bn |

#### Scottish Widows

| We are here ▼ | 2025 target ▼ |
| --- | --- |
| £17.5bn |  |
| Progress (£bn investment) | £20-25bn |

#### Green mortgage lending

| We are here ▼ | 2024 target ▼ |
| --- | --- |
| c. £3.5bn |  |
| Progress (£bn lending) | £10bn |

2 Further details on the scope of these sustainable lending and investment targets is included within the environmental sustainability report on page 10.

### Our net zero ambitions ▼

### Financed emissions

#### Bank

- Work with customers, government and the market to help reduce the carbon emissions we finance by more than 50 per cent by 2030 on the path to net zero by 2050 or sooner3

#### Scottish Widows

- Target halving the carbon footprint4 of all of our investments by 2030 on the path to net zero by 20505

### Own operations6

- Net zero carbon operations by 2030
- Reduce total energy consumption by 50 per cent by 2030
- Maintain travel carbon emissions below 50 per cent of pre-COVID-19 levels

### Supply chain

- Reduce the carbon emissions we generate through our supply chain by 50 per cent by 2030 on the path to net zero by 2050 or sooner7

### Our climate approach

Tackling the climate crisis through supporting the transition to a low carbon economy is core to our Group strategy and our purpose. As a Group that supports many sectors of our economy through our lending, investments, products and services, we recognise our role in helping to enable the transition.

Our approach is a core part of our business strategy, with key sustainability objectives aligned to our priorities of Grow, Focus and Change. We plan to grow our business by capitalising on the opportunities, through green lending, investment and products.

In 2021, we highlighted four sustainable lending targets which together with our operational carbon emissions ambition form part of our Group balance scorecard. We are focused on our climate-related risks and we continue to expand our targets and plans to deliver our net zero ambitions in our own operations, supply chain and financed emissions. We plan to change how we operate, educating our people to support us to deliver on our climate ambition. Transitioning to net zero is a universal endeavour and will depend on government, industry and wider society acting together, alongside significant technology advancements in high emitting sectors.

We will actively manage our climate risks and hold ourselves to account to do all we can in how we run our own business. Our environmental sustainability report 21 provides details of how as a Group we will deliver against those ambitions and priorities, including climate-related financial disclosures consistent with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and recommended disclosures. We have launched our Group climate transition plan which covers activity across the Group, building on the climate action plan released by Scottish Widows in 2022. Further detail can be found in our environmental sustainability report, our separate supplement which allows for a more comprehensive response to the TCFD framework, covering material activity across the Group.

### Progress against TCFD recommendations

We comply with the FCA's Listing Rule 9.8.6R(8) and set out in the following table our climate-related financial disclosures consistent with the 2021 TCFD recommendations and recommended disclosures across all four of the TCFD pillars: strategy; governance; risk management; and metrics and targets.

We will continue to assess and develop our disclosures against the TCFD recommendations and recommended disclosures in 2023, considering relevant TCFD guidance and materials along with evolving best practice. The following table also provides an overview of our disclosure progress and priorities for 2023.

3 From a 2018 baseline.

4 Carbon footprint is a measure of carbon intensity calculated as absolute value of emissions applicable to an investment divided by value of investment.

5 From a 2019 baseline.

6 All from a 2018/19 baseline. The reporting period is October to September.

7 From a 2021/22 baseline. The reporting period is October to September.

36 Lloyds Banking Group Annual Report and Accounts 2022

## Progress against TCFD recommendations

| Pillar | Recommended disclosure | Environmental sustainability report | Summary of progress |
| --- | --- | --- | --- |
| Strategy | A Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term. | Pages 13 to 20 | Key climate-related risks and opportunities defined with the potential time horizons over which these may arise identified In 2023, we will look to further quantify risks and opportunities in relation to climate risk |
|  | B Describe the impact of climate-related risks and opportunities on the organisation's business, strategy and financial planning. | Pages 13 to 20 | Financial statements consider the impact of climate-related risks on our financial position and performance Continue to embed climate risk into financial planning process. Climate consideration factored into the economic base case and financed emission ambitions considered as part of the forecasting process In 2023, in line with our Group climate transition plan, net zero targets and strategies will be developed for some remaining high emitting sectors Expand the balance sheet assets covered by the forecasting process, and Partnership for Carbon Accounting Framework (PCAF) methodology updates Embed monitoring of sector targets as reported in our Group climate transition plan into reporting process so that climate considerations form part of the Group's regular decision making |
|  | C Describe the resilience of the organisation's strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. | Page 14 Pages 63 to 67 | Climate scenario analysis performed for some of our businesses most exposed to climate risk such as mortgage flood risk and transition risk for commercial portfolios The insights from this scenario analysis activity have been used to support the Group's measurement of Expected Credit Loss (ECL) and Internal Capital Adequacy Assessment Process (ICAAP) Continue to monitor our exposure to high-risk sectors and proposed actions to support transition Scottish Widows Group (SWG) developing scenario analysis model to inform business decisions. Output to be published in the 2022 SWG TCFD report In 2023, scenario analysis will be used to support forecasts and plans. We will compare scenario modelling outputs generated to inform strategic approach. Specific areas of development are understanding the impacts on some of our highest emitting sectors such as agriculture and integrating scenario analysis into the credit decision making process |
| Governance | A Describe the Board's oversight of climate-related risks and opportunities. | Pages 50 to 53 | Governance structure provides clear oversight and ownership of Group's environmental sustainability strategy and management of climate risk at Board and executive levels The Board is engaged on a regular basis on our sustainability agenda In 2023, the Board will consider our response to nature along with approval of sector targets for some of our remaining sectors. Continue to monitor progress against our targets and ambitions |
|  | B Describe management's role in assessing and managing climate-related risks and opportunities. | Pages 50 to 53 Page 55 | The Group Net Zero Committee provides direction and oversight of the Group's environmental sustainability strategy, supported by climate and sustainability steering groups or committees The Group Risk Committee provides oversight of climate risk Key committee oversight includes development of our 2022 sector targets and supply chain ambitions |
| Risk management | A Describe the organisation's processes for identifying and assessing climate-related risks. | Pages 16 to 17 | Assessment of climate risk has been undertaken, to understand the key risks across the Group Ongoing development of climate risk assessment tools and methodologies, including qualitative climate risk assessment tool for commercial clients In 2023, we will look at the incorporation of scenario analysis to inform climate risk assessment, alongside further refinement to evolving assessment processes |
|  | B Describe the organisation's processes for managing climate-related risks. | Pages 57 to 62 | Consideration of climate risk incorporated within our existing risk management processes, embedding relevant controls to mitigate these risks Key risks which incorporate climate include credit risk, insurance underwriting risk, conduct risk and operational resilience In 2023, we will look at further embedding controls across identified climate-related risks and enhancement of risk appetite to mitigate key climate risks across the Group |
|  | C Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation's overall risk management. | Pages 16 to 17 Pages 57 to 62 | Climate risk is embedded into our Enterprise Risk Management Framework, through consideration of climate risk as its own principal risk, and integration into other principal risks materially impacted The Group climate risk policy provides an overarching framework for the management of climate risks across the Group In 2023, there will be further enhancement to climate risk reporting |
| Metrics and targets | A Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process. | Pages 9 to 12 Pages 24 to 48 | Progress monitored against our net zero ambitions, including measures related to our financed emissions, own operation emissions, supply chain emissions and sustainable finance 2023 plan to enhance metrics to monitor our progress against our targets and ambitions and explore methodology in relation to nature |
|  | B Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. | Pages 11 to 12 Pages 28 to 48 | Disclosed Scope 1, 2 and 3 emissions for our own operations and supply chain, continue to develop our approach to calculating financed emissions now updated to period ended 2020 Scottish Widows 2022 reporting will include product level TCFD reporting In 2023, we will extend our asset coverage from a financed emissions perspective to cover additional business areas |
|  | C Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets. | Page 9 to 12 Pages 28 to 48 | Our environmental sustainability report 2022 provides an update on how we are progressing against emission pathway for the targets we released in October 2022 In 2023, we will develop targets for other high carbon sectors for release in 2024 |

In addition to the compliance above, entities within our Insurance Pensions and Investment business which are incorporated as part of Scottish Widows Group are required to report in compliance with FCA ESG Sourcebook (set via FCA PS21/24) reporting requirements for the period ended 31 December 2022. This additional compliance will be met through the publication of a separate Scottish Widows TCFD report, which is due to be published by 30 June 2023.

Lloyds Banking Group Annual Report and Accounts 2022 37

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# Risk overview
## Effective risk management and control

### Our approach to risk

Risk management is at the heart of the Group's purpose of Helping Britain Prosper. A strong risk management culture is crucial for sustainable growth, supporting the transition to a low carbon economy and building an inclusive society.

A prudent approach to risk is fundamental to the Group's business model and drives our participation choices, whilst protecting customers, colleagues and the Group.

The risk management section from **pages 139 to 195** provides an in-depth picture of how risk is managed within the Group, including the approach to risk appetite, risk governance, stress testing and detailed analysis of the principal risk categories, including the framework by which these risks are identified, managed, mitigated and monitored.

### Our enterprise risk management framework

The Group's comprehensive enterprise risk management framework, that applies to all legal entities across the Group, is the foundation for the delivery of effective and consistent risk control. It enables proactive identification, active management and monitoring of the Group's risks, which is supported by our One Risk and Control Self-Assessment approach.

The Group's risk appetite, principles, policies, procedures, controls and reporting are regularly reviewed and updated to ensure they remain fully in line with regulation, law, corporate governance and industry good practice.

Risk appetite is defined within the Group as the amount and type of risk that the Group is prepared to seek, accept or tolerate in delivering its strategy.

The Board is responsible for approving the Group's Board risk appetite statement annually. Board-level risk appetite metrics are augmented further by sub-Board level metrics and cascaded into more detailed business metrics and limits. Regular close monitoring and comprehensive reporting to all levels of management and the Board ensure appetite limits are maintained and subject to stress analysis at a risk type and portfolio level, as appropriate.

Governance is maintained through delegation of authority from the Board down to individuals. Senior executives are supported by a committee-based structure which is designed to ensure open challenge and enable effective Board engagement and decision making.

More information on the Board's responsibilities can be found on **page 91** and our Risk committees on **pages 142 to 143**.

### Risk culture and the customer

The Board and senior management play a vital role in shaping and embedding a healthy corporate culture.

Our responsible, inclusive and diverse culture supports colleagues to consistently do the right thing for customers. The Group's Code of Responsibility and refreshed values reinforce colleagues' accountability for the risks they take and their responsibility to prioritise customers' needs.

As a Group, we are open, honest and transparent with colleagues working in collaboration with business units to:

- Support effective risk management and provide constructive challenge
- Share lessons learned and understand root causes when things go wrong
- Consider horizon risks and opportunities

The Group aims to maintain a strong focus on building and sustaining long-term relationships with customers through the economic cycle.

### Risk profile and performance

The Group has continued to maintain support for its customers amid the backdrop of supply chain pressures, cost of living increases and global and domestic economic uncertainty.

Observed credit performance remains strong, with very modest evidence of deterioration. The Group's loan portfolio continues to be well positioned and heightened monitoring is in place to identify signs of affordability stress.

The Group's strategy will see ongoing investment in technology, driving the evolution of processes and further strengthening of the Group's operational resilience, amid continuously evolving threats, such as cyber risk.

Climate change remains a key consideration for the Group, with positive progress in 2022 and a commitment to continued focus in 2023.

Overall, key risks continue to be managed effectively and the Group is well positioned to safely progress its strategic ambitions.

![img-3.jpeg](img-3.jpeg)

38 Lloyds Banking Group Annual Report and Accounts 2022

# Principal risks

Principal risks are the Board-approved enterprise-wide risk categories, used to monitor and report the risk exposures posing the greatest impact to the Group.

All of the Group's principal risks, which are outlined in this section, are reported regularly to the Board Risk Committee and the Board. The Board Risk Committee report from **pages 99 to 103** outlines its activities during the year, as well as its purpose, responsibilities and composition.

The Group is in the process of conducting a detailed review of the enterprise risk management framework, which may result in a reclassification of our principal risks in 2023. **Page 147** contains a summary of our principal and secondary risks.

The risk management section from **pages 139 to 195** provides a more in-depth picture of how each principal risk is managed within the Group.

## Risk trends

Stable risk

Decreased risk

Increased risk

## Principal risks

| Principal risk category | Risk performance | Risk appetite | Key mitigating actions |
| --- | --- | --- | --- |
| Capital risk | The Group maintained its strong capital position in 2022 with a CET1 ratio of 14.1 per cent on a pro forma basis, having also absorbed significant regulatory headwinds on 1st January 2022. This is significantly ahead of regulatory requirements and in excess of the Group's ongoing target of around 12.5 per cent, plus a management buffer of around 1 per cent. Downside risks from economic and regulatory headwinds are being closely monitored. | The Group maintains capital levels commensurate with a prudent level of solvency to achieve financial resilience and market confidence. | Capital management framework that includes the setting of capital risk appetite, capital planning and stress testing activities Monitoring of early warning indicators and maintenance of a Capital Contingency Framework, designed to identify and act on emerging capital concerns at an early stage |
| Change/execution risk | The Group's inherent change/execution risk heightened in 2022, driven by the scale and increased complexity of some of the changes being delivered. The Group continues to strengthen its change capability and controls in response, to support the Group's business and technology transformation plans. | The Group has limited appetite for negative impacts on customers, colleagues, or the Group as a result of change activity. | Continued evolution and enhancement of the Group change policy, method and control environment Measurement and reporting of change/execution risk to appropriate bodies, including on critical elements of the change portfolio Providing sufficient skilled resources to safely deliver and embed change and support future transformation plans |
| Climate risk | 2022 has seen significant progress in embedding climate risk, with a consistent framework and clear responsibilities that will enhance understanding of the Group's climate risks and their management, in line with regulatory requirements. Progress continues in key areas, including developing climate data and scenario analysis capabilities; enhancing risk appetite measures; as well progressing the Group's ambitions for reducing emissions. | The Group takes action to support the Group's and its customers' transition to net zero, and maintain its resilience against the risks relating to climate change. | Climate risk policy in place, embedded across the Group Regular updates to the Board and further development of climate risk reporting Consideration of key climate risks as part of the Group's financial planning process |
| Conduct risk | Conduct risk remained stable in 2022, with the Group's focus on supporting customers impacted by the rising cost of living; implementing and embedding the FCA's new Consumer Duty requirements; and ensuring good customer outcomes amid the transformation of its business and technology. | The Group delivers good outcomes for its customers. | Robust conduct risk framework in place to support delivery of good customer outcomes, market integrity and competition requirements Active engagement with regulatory bodies and key stakeholders to ensure that the Group's strategic conduct focus continues to meet evolving stakeholder expectations |

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Lloyds Banking Group Annual Report and Accounts 2022 39

## Risk overview continued

| Principal risks |  |  |  |
| --- | --- | --- | --- |
| Principal risk category | Risk performance | Risk appetite | Key mitigating actions |
| Credit risk | The Group's credit portfolio continued to be well positioned with high levels of security, but a more challenging outlook, driven by interest rate rises and cost of living pressures, saw an increase in credit risk. Evidence of deterioration was very modest, with assets flowing into arrears, defaults and write-offs remaining low. Impairment was a net charge of £1,510 million, compared to a net credit of £1,385 million for 2021. The Group's expected credit loss allowances have increased to £5,222 million (2021: £4,477 million). | The Group has a conservative and well-balanced credit portfolio through the economic cycle, generating an appropriate return on equity, in line with the Group's target return on equity in aggregate. | Extensive and thorough credit processes, strategies and controls to ensure effective risk identification, management and oversight Significant monitoring in place, including early warning indicators to remain close to any signs of portfolio deterioration, accompanied by a playbook of mitigating actions Pre-emptive credit tightening ahead of macroeconomic deterioration, including updates to affordability lending controls for forward look costs |
| Data risk | Data risk remained stable in 2022, with significant ongoing investment in the maturity of data risk management, data capabilities and end-to-end management of data risk. Launch of the Group's new data strategy will support in managing risk and achieving the Group's growth objectives. | The Group has zero appetite for data-related regulatory fines or enforcement actions. | Delivering against the data strategy and uplifting capability in data management and privacy, oversight of the data supply chain and data controls and processes Data by design and data ethics principles embedded into the data science lifecycle |
| Funding and liquidity risk | The Group maintained its strong funding and liquidity position in 2022. The loan to deposit ratio increased to 96 per cent (2021: 94 per cent), largely driven by increased customer lending. The Group's liquid assets continue to exceed the regulatory minimum and internal risk appetite, with a liquidity coverage ratio (based on monthly rolling average from the previous 12 months) of 144 per cent (2021: 135 per cent). | The Group maintains a prudent liquidity profile and a balance sheet structure that limits its reliance on potentially volatile sources of funding. | Management and monitoring of liquidity risks and ensuring that management systems and arrangements are adequate with regard to the internal risk appetite, Group strategy and regulatory requirements Significant customer deposit base, driven by inflows to trusted brands |
| Insurance underwriting risk | Insurance underwriting risk remained broadly stable. Life and Pensions present value of new business premium increased to £21.7 billion (2021: £17.3 billion), with ongoing risks to short-term persistency driven by economic uncertainty and cost of living pressures. Total gross written premium decreased to £486 million (2021: £655 million) mainly due to difficult trading conditions and the renewal pricing impacts following the FCA GI Pricing Practices Market Study. | The Insurance Group has an appetite to take on insurance underwriting risks where they fit with our strategic objectives. | Significant reinsurance of mortality, morbidity and General Insurance catastrophe risk Robust processes for underwriting, reinsurance, claims management, pricing, product design and product management Management through diversification and pooling of risks |
| Market risk | Market volatility in 2022 created an environment of increased market risk. The Group remains well hedged, ensuring near-term interest rate exposure is managed, while benefitting from rising interest rates. The Group's structural hedge increased to £255 billion (2021: £240 billion) mostly due to the continued growth in stable customer deposits. The Group's pension funds had sufficient liquidity to withstand market volatility but saw a slight reduction in the IAS 19 accounting surplus to £3.7 billion (2021: £4.3 billion) | The Group has effective controls in place to identify and manage the market risk inherent in our customer and client focused activities. | Structural hedge programmes implemented to stabilise earnings Close monitoring of market risks and, where appropriate, undertaking of asset and liability matching and hedging Monitoring of the credit allocation in the defined benefit pension schemes, as well as the hedges in place against adverse movements in nominal rates, inflation and longevity |

40 Lloyds Banking Group Annual Report and Accounts 2022

## Principal risks

| Principal risk category | Risk performance | Risk appetite | Key mitigating actions |
| --- | --- | --- | --- |
| Model risk | Model risk has increased in 2022. The pandemic-related government-led support schemes weakened the relationships between model inputs and outputs, and the current economic conditions remain outside those used to build the models, placing reliance on judgemental overlays. The Group's models are being managed to reduce this need for overlays. The control environment for model risk is being strengthened to meet revised regulatory requirements. | Material models are performing in line with expectations. | Robust model risk management framework for managing and mitigating model risk within the Group |
| Operational risk | Operational risk remained stable in 2022 with operational losses reducing versus 2021. Security, technology and supplier management continue to be the most material operational risk areas. | The Group has robust controls in place to manage operational losses, reputational events and regulatory breaches. It identifies and assesses emerging risks and acts to mitigate these. | Review and investment in the Group's control environment, with a particular focus on automation, to ensure the Group addresses the inherent risks faced Deployment of a range of risk management strategies, including: avoidance, mitigation, transfer (including insurance) and acceptance |
| Operational resilience risk | Operational resilience remains a key focus, with continued enhancement to the Group's resilience for serving customers better and addressing regulatory priorities. Technology resilience remains a focus area, with dedicated programmes to address key risks. | The Group has limited appetite for disruption to services to customers and stakeholders from significant unexpected events. | Operational resilience programme in place to deliver against new regulation and improve the Group's ability to respond to incidents while delivering key services to customers Investment in technology improvements, including enhancements to the resilience of systems that support critical business processes |
| People risk | People risk has increased in 2022, aligning with the challenges of the Group's transformation agenda. The strategic focus of the new leadership team, together with the Group's revised pay offering, aims to enable colleagues to enhance their skills and capabilities, provide progression opportunities and support colleagues facing cost of living pressures. | The Group leads responsibly and proficiently, manages people resource effectively, supports and develops colleague skills and talent, creates and nurtures the right culture and meets legal and regulatory obligations related to its people. | Delivery of strategies to attract, retain and develop high-calibre people with the required capabilities, together with the management of rigorous succession planning for our senior leaders Continued focus on the Group's culture by developing and delivering initiatives that reinforce appropriate behaviours |
| Regulatory and legal risk | The regulatory and legal risk profile has remained stable thanks to proactive engagement on emerging focus areas including strategic transformation, cost of living pressures and Consumer Duty. Legal risk continued to be impacted by the evolving UK legal and regulatory landscape, other changing regulatory standards and uncertainty arising from the current and future litigation landscape. | The Group interprets and complies with all relevant regulation and all applicable laws (including codes of conduct which could have legal implications) and/or legal obligations. | Policies and procedures setting out the principles and key controls that should apply across the business which are aligned to the Group risk appetite Identification, assessment and implementation of policy and regulatory requirements by business units and the establishment of local controls, processes, procedures and resources to ensure appropriate governance and compliance |
| Strategic risk | Strategic risk is stable, with further integration into business planning having been a key focus in 2022. Maturation of the Group's strategic risk framework will strengthen the Group's ability to achieve its strategic transformation ambitions. | n/a | Considering and addressing the strategic implications of emerging trends Embedding of strategic risk into business planning process and day-to-day risk management |

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Lloyds Banking Group Annual Report and Accounts 2022 41

Risk overview continued

## Strategic risk

### Connectivity of risks and our strategic risk management framework

The Group's strategic choices and their resulting consequences can present a material risk to the Group's customers, colleagues and shareholders.

This is acknowledged by the Group's Board, with strategic risk recognised as a principal risk within the Group's enterprise risk management framework.

The unprecedented events resulting from the COVID-19 pandemic demonstrated how individual risks in aggregate can place significant pressure on the Group's strategy, business model and performance. This further highlighted the importance of the connectivity of strategic risks with wider principal and emerging risks.

Significant work has been undertaken since 2019 to clarify the relationships between principal, emerging and strategic risks.

This activity has evolved the understanding of the Group's key strategic risks and risk connectivity, as well as creating more explicit definitions of each of the risk types, which can be defined as:

**Principal:** The Board-approved enterprise-wide risk categories used to monitor and report the risk exposures posing the greatest impact to the Group.

**Strategic:** A principal risk arising from:

- A failure to understand the potential impact of strategic responses on existing risk types
- Incorrect assumptions about internal or external operating environments
- Inappropriate strategic responses and business plans

**Emerging:** A future internal or external event or trend, which could have a material positive or adverse impact on the Group and our customers, but where the probability, timescale and/or materiality may be difficult to accurately assess.

### Progress on strategic risk in 2022

Further progress has been made this year towards embedding strategic risk into the Group's planning processes and local risk management.

A re-evaluation of the strategic risk themes was undertaken following the announcement of the new Group strategy in the first quarter, which concluded that the themes remain appropriate. In addition, the Group's Strategic Risk Policy was published in August, to support the Group's businesses in developing their medium-term and strategic plans.

Building on this year's preparation for supporting the ongoing management of strategic risks, the Group will further strengthen its strategic risk insights and management in 2023.

## Strategic risk themes

Understanding the potential risk implications of our strategy is an important area of focus. Using both quantitative and qualitative analysis, key strategic risk themes have been identified and assessed (see below). These risks are aligned to the key areas of focus in the Group's strategy and can result in impacts on the Group's wider principal risks:

### Organisational purpose

An organisational purpose with a clear mission and values will enable us to help Britain prosper and build a more sustainable and inclusive business, creating value for the Group's stakeholders. Risks may arise from:

- Conflicting interpretation of the Group's mission and values
- Inability to inspire the culture and galvanise the organisation to support a progressive strategy
- The stated purpose failing to resonate with our stakeholders due to conflicting objectives

### Customer proposition

Risk of adverse impact on reputation, customer attraction, customer retention and income generation, arising from:

- Inappropriate products and services
- Inability to respond to changing customer profiles and needs
- Failure to maintain trust and deepen relationships

### Talent attraction and retention

Inability to meet the Group's customer, colleague and transformation goals due to:

- Competition for specialist skills in a challenging labour market
- Failure to attract, develop and retain talent and capabilities for delivering the Group's agenda

### Climate change

Failure to:

- Adapt to shifting consumer and colleague expectations
- Achieve regulatory and external climate commitments
- Support the transition to a low carbon economy as both a lender and employer

### Technology advances

Potential for greater operational costs, reduced resilience and uncompetitive or inappropriate customer offering, driven by:

- Failure to keep pace with advances in technology
- Inability to effectively leverage data, while ensuring strong data ethics
- Misalignment of technology versus customer appetite

42 Lloyds Banking Group Annual Report and Accounts 2022

# Emerging risks

Emerging risks are a key component of the Group's strategic risk framework.

The Group's horizon scanning activity enables identification of the most pertinent internal and external operating trends. This insight informs the Group's strategy, which in turn impacts the Group's risk profile.

## Evolution of the Group's methodology for assessing and prioritising emerging risks

In 2022, the Group has invested in evolving its approach for understanding and assessing emerging risks. Embracing a more rigorous evaluation methodology, the Group has introduced a wider range of variables for assessing and prioritising risks (see opposite). These include factors associated with the threat of a risk, the Group's specific vulnerability to a risk and the preparation and protection the Group has in place to manage or mitigate impacts.

The activity has resulted in a more focused list of the Group's key emerging risks, enabling greater management concentration on developing the appropriate responses.

### Emerging risks methodology

#### Threat

Factors associated with the **threat** presented by emerging risks

#### Vulnerability

Factors associated with the Group's specific **vulnerability** to emerging risks

#### Preparation and protection

The **preparation and protection** the Group has in place to manage or mitigate impacts

#### Emerging risk landscape

A focused list of the Group's key emerging risks from both internal and external sources, for management review and development of the Group's response

### Emerging risks

| Emerging risk theme | Concerns for the Group and key considerations |
| --- | --- |
| Climate-related responsibilities | The risks and resulting public perception of the Group's ability and choices to support the UK's transition to a low carbon economy. |
| Customer propositions and societal expectations | Failure to manage and evolve the customer proposition appropriately, amidst a constantly changing demographic of consumers. |
| Data ethics/ethical AI | The consequences of handling customer data unethically in relation to emerging technology, growing regulation, and how this may manifest across the Group's different entities. |
| Digital currencies | Failure to accurately understand and manage the usage of digital currencies by the public or the government, and how this may affect the Group's operations and future strategy. |
| Employee proposition | Inability of the Group to anticipate and hire for future skills aligned to evolving industry needs, or provide an attractive colleague proposition against the changing competition landscape. |
| Futureproof technology strategy | The rate at which the Group is able to adapt, invest and protect itself in relation to fast paced technology growth, alongside rising external expectations. |
| Global economic and political environment | Increasing strain on the UK economy resulting from continued geopolitical and economic tensions, impacting the Group's customers, partners and suppliers. |
| Operational and infrastructure blackouts | Service impacts to the Group's customers and colleagues due to economic, financial, biological, climate, technological or social challenges. |
| Potential breakup of the UK | Failure to adequately prepare and assess the policy, operational and financial impacts to the Group as a result of countries in the UK becoming independent. |
| UK economic environment | Inability to balance the long-term social, regulatory and financial impacts of sustained poor economic activity within the UK, and consequent unattractiveness of the UK for external investors. |

The individual emerging risks detailed above have been taken to key executive level committees throughout 2022, such as the Board Risk Committee, with actions assigned to monitor more closely their manifestation and potential opportunities. For further information on the Board Risk Committee's Chair Report, see **pages 99 to 103**.

Many emerging risk topics are reviewed on a recurring basis, alongside ongoing activity addressing their present impacts. However, it is acknowledged that these challenges will drive future trends in the long term which the Group will need to prepare for. For further information on how the Group is managing key emerging risks through its strategy, see **pages 145 to 146**.

The manifestation of other emerging risks is more unknown. As a result, the Group will continue to explore how these challenges may impact its future strategy, and how it can continue to best protect its customers, colleagues and shareholders.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 43

# Viability statement and going concern

## Viability statement

The directors have an obligation under the UK Corporate Governance Code to state whether they believe the Company and the Group will be able to continue in operation and meet their liabilities as they fall due over a specified period determined by the directors, taking account of the current position and the principal risks of the Company and the Group.

In making this assessment, the directors have considered a wide range of information, including:

- The principal and emerging risks which could impact the performance of the Group
- The 2022 Strategic Review which sets out the Group's customer and business strategy for the period from 2022 to 2026
- The Group's operating plan which comprises detailed financial, capital and funding projections together with an assessment of relevant risk factors for the period from 2022 to 2025 inclusive

In particular, the assessment included consideration of the ongoing impact of, and subsequent recovery from, the pandemic; the current and expected future impact of the UK's exit from the EU on the UK economy and regulatory agenda; and climate-related matters.

Group, legal entities and divisional operating plans are produced and subject to rigorous stress testing on an annual basis.

The planning process takes account of the Group's business objectives, the risks taken to seek to meet those objectives and the controls in place to mitigate those risks to remain within the Group's overall risk appetite.

The Group's annual planning process comprises the following key stages:

- The Board reviews and agrees the Group's strategy, risk appetite and objectives in the context of the operating environment and external market commitments
- The divisional teams develop their operating plans, ensuring that they are in line with the Group's strategy and risk appetite
- The financial projections and the underlying assumptions in respect of expected market and business changes, and future expected legal, accounting and regulatory changes, are subject to rigorous review and challenge from both divisional and Group executives
- In addition, the Board obtains independent assurance from the Risk division over the alignment of the plan with Group strategy and the Board's risk appetite. This assessment performed by the Risk division also identifies the key risks to delivery of the Group's operating plan

- The planning process is also underpinned by a robust capital and funding stress testing framework. This framework allows the Group to assess compliance of the operating plan with the Group's risk appetite
- The scenarios used for stress testing are designed to be severe but plausible, and take account of the availability and likely effectiveness of mitigating actions that could be taken by management to avoid or reduce the impact or occurrence of the underlying risks. The Group conducts internal stress testing and completes the PRA regulatory exercises. In 2022, stress tests have considered a range of economic conditions particularly relevant to the prevailing outlook, including high inflation and rising interest rates. Group stress results are segmented to provide insight, inform risk appetite, and allow for development of mitigating actions. In considering the likely effectiveness of such actions, the conclusions of the Board's regular monitoring and review of risk and internal control systems, as discussed on pages 139 to 195, is taken into account. Further information on stress testing and reverse stress testing is provided on page 144
- The final operating plan, Risk division assessment and the results of the stress testing are presented to the Board for approval. Once approved, the operating plan drives detailed divisional and Group targets for the following year

The directors have specifically assessed the prospects of the Company and the Group over the current plan period. The Board considers that a three-year period continues to present a reasonable degree of confidence over expected events and macroeconomic assumptions, while still providing an appropriate longer-term outlook. The directors have also reviewed a less detailed high level forecast for 2026; this high level forecast contains no information which would cause different conclusions to be reached over the longer-term viability of the Company and Group. Information relevant to the assessment can be found in the following sections of the annual report and accounts:

- The Group's principal activities, business and operating models and strategic direction are described in the strategic report on pages 2 to 45
- Emerging risks are disclosed on page 43
- The principal risks, including the Group's objectives, policies and processes for managing credit, capital, liquidity and funding, are provided in the risk management section on pages 139 to 195
- The Group's approach to stress testing and reverse stress testing, including both regulatory and internal stresses, is described on page 144

Based upon this assessment, the directors have a reasonable expectation that the Company and the Group will be able to continue in operation and meet its liabilities as they fall due over the next three years to 31 December 2025.

## Going concern

The going concern of the Company and the Group is dependent on successfully funding their respective balance sheets and maintaining adequate levels of capital.

In order to satisfy themselves that the Company and the Group have adequate resources to continue to operate for the foreseeable future, the directors have reviewed the Group's operating plan and its funding and capital positions, including a consideration of the implications of climate change.

The directors have also taken into account the impact of further stress scenarios as well as a number of other key dependencies which are set out in the risk management section under principal risks and uncertainties: funding and liquidity on page 40 and pages 179 to 184 and capital position on pages 148 to 155. Additionally, the directors have considered the capital and funding projections of the Company.

Accordingly, the directors conclude that the Company and the Group have adequate resources to continue in operational existence for a period of at least 12 months from the date of the approval of the financial statements and therefore it is appropriate to continue to adopt the going concern basis in preparing the accounts.

44 Lloyds Banking Group Annual Report and Accounts 2022

# Non-financial information statement

This section of the strategic report constitutes Lloyds Banking Group's Non-Financial Information Statement, produced to comply with sections 414CA and 414CB of the Companies Act. The information listed is incorporated by cross-reference to relevant content.

| Reporting requirement | Policies and standards which govern our approach | Information necessary to understand our Group and its impact, policies due, diligence and outcomes |
| --- | --- | --- |
| Stakeholders | Annual materiality assessment 1 Code of supplier responsibility Third party supplier policies | Delivering value for our stakeholders, pages 4 to 7 Governance in action, pages 10 and 11 ESG performance review 2 Environmental sustainability report 2 Code of supplier responsibility 2 Third party supplier policies are available at: www.lloydsbankinggroup.com/who-we-are/working-with-suppliers/policy-compliance.html |
| Environmental matters | Environmental (TCFD) statement | Governance in action, pages 10 and 11 Our external environment, page 18 Progress and performance, climate, pages 36 and 37 Climate risk, page 156 Environmental sustainability report 2 |
| Employees | Colleague policy 1 Code of ethics and responsibility Health and safety policy 1 | Governance in action, pages 10 and 11 Progress and performance, colleagues, pages 34 and 35 ESG performance review 2 Code of ethics and responsibility 2 |
| Respect for human rights | Human rights policy statement Colleague policy 1 Pre-employment vetting standards 1 Data privacy policy 1 Modern slavery and human trafficking statement Information and cyber security policy 1 | Progress and performance, colleagues, pages 34 and 35 The Group are guided by the International Bill of Human Rights, the International Labour Organization's (ILO) Core Labour Standards and its Tripartite Declaration of Principles, the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, and the UN's Guiding Principles on Business and Human Rights. As signatories to the United Nations (UN) Global Compact, we are aligned with its human rights and labour standards and report on our progress annually. Pursuant to the UK Modern Slavery Act, we produce a modern slavery statement Modern slavery and human trafficking statement 2 Human rights policy statement 2 Social sustainability report 2 All documents available at: www.lloydsbankinggroup.com/who-we-are/responsible-business/downloads |
| Social matters | Volunteering standards 1 Matched giving guidelines 1 Colleague policy 1 | Our unique business model, pages 2 and 3 Delivering value for our stakeholders, pages 4 to 7 Our external environment, page 18 Progress and performance, colleagues, pages 34 and 35 Social sustainability report 2 |
| Anti-corruption and anti-bribery | Anti-bribery policy 1 Anti-bribery policy statement Anti-money laundering and counter terrorist financing policy 1 Fraud risk management policy 1 | Risk management, pages 191 and 192 ESG performance review 2 Anti-bribery policy statement 2 |
| Description of principal risks and impact of business activity |  | Risk overview, pages 38 to 43 |
| Description of the business model |  |  |
| Non-financial key performance indicators |  | Our unique business model, pages 2 and 3 Our strategy in action, pages 24 to 31 Progress and performance, pages 32 to 37 ESG performance review 2 ESG reporting framework index 2 ESG reporting criteria 2 |

All documents available at:
www.lloydsbankinggroup.com/who-weare/responsible-business/downloads.

1 Certain Group policies, internal standards and guidelines are not published externally.

The policies mentioned above form part of the Group's policy framework which is founded on key risk management principles. The policies which underpin the principles define mandatory requirements for risk management. Robust processes and controls to identify and report policy outcomes are in place and were followed in 2022.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 45

# Financial results

In this section

| Result for the full year | 47 |
| --- | --- |
| Divisional results | 58 |
| Other financial information | 65 |
| Alternative performance measures | 67 |

# Financial education support for students

## Making Money Meaningful campaign

Working in partnership with the Money and Pensions Service, we're helping to support the UK's strategy for financial wellbeing goal by helping two million or more children receive a meaningful financial education by 2030. In October, we launched our month-long Making Money Meaningful campaign where over 300 colleagues delivered financial education sessions to 1,700 students who are beginning to make the transition into higher education or employment.

Our newly launched suite of financial capability resources.

48 Lloyds Banking Group Annual Report and Accounts 2022

## Income statement - underlying basis$^{A}$

|  | 2022 £m | 2021 £m | Change % |
| --- | --- | --- | --- |
| Underlying net interest income | 13,172 | 11,163 | 18 |
| Underlying other income | 5,249 | 5,060 | 4 |
| Operating lease depreciation | (373) | (460) | 19 |
| Net income | 18,048 | 15,763 | 14 |
| Operating costs 1 | (8,835) | (8,312) | (6) |
| Remediation | (255) | (1,300) | 80 |
| Total costs | (9,090) | (9,612) | 5 |
| Underlying profit before impairment | 8,958 | 6,151 | 46 |
| Underlying impairment (charge) credit 1 | (1,510) | 1,385 |  |
| Underlying profit | 7,448 | 7,536 | (1) |
| Restructuring 1 | (80) | (452) | 82 |
| Volatility and other items | (440) | (182) |  |
| Statutory profit before tax | 6,928 | 6,902 |  |
| Tax expense | (1,373) | (1,017) | (35) |
| Statutory profit after tax | 5,555 | 5,885 | (6) |
| Earnings per share | 7.3p | 7.5p | (0.2)p |
| Dividends per share - ordinary | 2.40p | 2.00p | 0.40p |
| Share buyback value | £2.0bn | £2.0bn |  |
| Banking net interest margin A | 2.94% | 2.54% | 40bp |
| Average interest-earning banking assets A | £452.0bn | £444.6bn | 2 |
| Cost:income ratio A,1 | 50.4% | 61.0% | (10.6)pp |
| Asset quality ratio A,2 | 0.32% | (0.31)% |  |
| Return on tangible equity A | 13.5% | 13.8% | (0.3)pp |

$^{A}$ See page 67.

$^{1}$2021 comparatives have been presented to reflect the new cost basis, consistent with the current period. See page 67.

## Key balance sheet metrics

|  | At 31 Dec 2022 | At 31 Dec 2021 | Change % |
| --- | --- | --- | --- |
| Loans and advances to customers | £454.9bn | £448.6bn | 1 |
| Customer deposits | £475.3bn | £476.3bn |  |
| Loan to deposit ratio A | 96% | 94% | 2pp |
| CET1 ratio | 15.1% | 17.3% | (2.2)pp |
| Pro forma CET1 ratio A,1 | 14.1% | 16.3% | (2.2)pp |
| Total capital ratio | 19.7% | 23.6% | (3.9)pp |
| MREL ratio | 31.7% | 37.2% | (5.5)pp |
| UK leverage ratio | 5.6% | 5.8% | (0.2)pp |
| Risk-weighted assets | £210.9bn | £196.0bn | 8 |
| Wholesale funding 2 | £100.3bn | £93.1bn | 8 |
| Liquidity coverage ratio 2 | 144% | 135% | 9pp |
| Tangible net assets per share A | 51.9p | 57.5p | (5.6)p |

$^{1}$31 December 2022 reflects the dividend received from Insurance in February 2023 and the full impact of the announced share buyback, but excludes the impact of the phased unwind of IFRS 9 relief on 1 January 2023. The 31 December 2021 comparative reflects the dividend received from Insurance in February 2022 and the full impact of the share buyback in respect of 2021 that completed in 2022, but excludes the impact of regulatory changes that came into effect on 1 January 2022.

$^{2}$ Wholesale funding includes significant risk transfer securitisations issued by special purpose vehicles of £1.6 billion (31 December 2021: £1.7 billion); the comparative has been presented on a consistent basis. The liquidity coverage ratio is calculated as a simple average of month-end observations over the previous 12 months.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 47

## Quarterly information$^{A}$

|  | Quarter ended 31 Dec 2022 £m | Quarter ended 30 Sep 2022 £m | Quarter ended 30 Jun 2022 £m | Quarter ended 31 Mar 2022 £m | Quarter ended 31 Dec 2021 £m | Quarter ended 30 Sep 2021 £m | Quarter ended 30 Jun 2021 £m | Quarter ended 31 Mar 2021 £m |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Underlying net interest income | 3,643 | 3,394 | 3,190 | 2,945 | 2,893 | 2,852 | 2,741 | 2,677 |
| Underlying other income | 1,438 | 1,282 | 1,268 | 1,261 | 1,307 | 1,336 | 1,282 | 1,135 |
| Operating lease depreciation | (78) | (82) | (119) | (94) | (78) | (111) | (123) | (148) |
| Net income | 5,003 | 4,594 | 4,339 | 4,112 | 4,122 | 4,077 | 3,900 | 3,664 |
| Operating costs 1 | (2,399) | (2,187) | (2,151) | (2,098) | (2,246) | (2,013) | (2,008) | (2,045) |
| Remediation | (166) | (10) | (27) | (52) | (775) | (100) | (360) | (65) |
| Total costs | (2,565) | (2,197) | (2,178) | (2,150) | (3,021) | (2,113) | (2,368) | (2,110) |
| Underlying profit before impairment | 2,438 | 2,397 | 2,161 | 1,962 | 1,101 | 1,964 | 1,532 | 1,554 |
| Underlying impairment (charge) credit 1 | (465) | (668) | (200) | (177) | 532 | 119 | 374 | 360 |
| Underlying profit | 1,973 | 1,729 | 1,961 | 1,785 | 1,633 | 2,083 | 1,906 | 1,914 |
| Restructuring 1 | (11) | (22) | (23) | (24) | (418) | (24) | 6 | (16) |
| Volatility and other items | (203) | (199) | 100 | (138) | (247) | (30) | 95 | - |
| Statutory profit before tax | 1,759 | 1,508 | 2,038 | 1,623 | 968 | 2,029 | 2,007 | 1,898 |
| Tax (expense) credit | (239) | (299) | (416) | (419) | (548) | (429) | 461 | (501) |
| Statutory profit after tax | 1,520 | 1,209 | 1,622 | 1,204 | 420 | 1,600 | 2,468 | 1,397 |
| Banking net interest margin A | 3.22% | 2.98% | 2.87% | 2.68% | 2.57% | 2.55% | 2.51% | 2.49% |
| Average interest-earning banking assets A | £453.8bn | £454.9bn | £451.2bn | £448.0bn | £449.4bn | £447.2bn | £442.2bn | £439.4bn |
| Cost:income ratio A,1 | 51.3% | 47.8% | 50.2% | 52.3% | 73.3% | 51.8% | 60.7% | 57.6% |
| Asset quality ratio A,1 | 0.38% | 0.57% | 0.17% | 0.16% | (0.46)% | (0.10)% | (0.33)% | (0.33)% |
| Return on tangible equity A | 16.3% | 11.9% | 15.6% | 10.8% | 2.9% | 14.5% | 24.4% | 13.9% |
| Loans and advances to customers | £454.9bn | £456.3bn | £456.1bn | £451.8bn | £448.6bn | £450.5bn | £447.7bn | £443.5bn |
| Customer deposits | £475.3bn | £484.3bn | £478.2bn | £481.1bn | £476.3bn | £479.1bn | £474.4bn | £462.4bn |
| Loan to deposit ratio A | 96% | 94% | 95% | 94% | 94% | 94% | 94% | 96% |
| Risk-weighted assets | £210.9bn | £210.8bn | £209.6bn | £210.2bn | £196.0bn | £200.7bn | £200.9bn | £198.9bn |
| Tangible net assets per share A | 51.9p | 49.0p | 54.8p | 56.5p | 57.5p | 56.6p | 55.6p | 52.4p |

$^{1}$2021 comparatives have been presented to reflect the new cost basis, consistent with the current period. See page 67.

48 Lloyds Banking Group Annual Report and Accounts 2022

# Balance sheet analysis

|  | At 31 Dec 2022 £bn | At 30 Sep 2022 £bn | Change % | At 30 Jun 2022 £bn | Change % | At 31 Dec 2021 £bn | Change % |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Loans and advances to customers |  |  |  |  |  |  |  |
| Open mortgage book | 299.6 | 298.4 |  | 296.6 | 1 | 293.3 | 2 |
| Closed mortgage book | 11.6 | 12.3 | (6) | 13.1 | (11) | 14.2 | (18) |
| Credit cards 1 | 14.3 | 14.3 |  | 14.2 | 1 | 13.8 | 4 |
| UK Retail unsecured loans | 8.7 | 8.8 | (1) | 8.5 | 2 | 8.1 | 7 |
| UK Motor Finance | 14.3 | 14.2 | 1 | 14.2 | 1 | 14.0 | 2 |
| Overdrafts | 1.0 | 1.0 |  | 1.0 |  | 1.0 |  |
| Retail other 2 | 13.8 | 13.0 | 6 | 12.5 | 10 | 10.9 | 27 |
| Wealth 1 | 0.9 | 1.0 | (10) | 1.0 | (10) | 1.0 | (10) |
| Small and Medium Businesses 1 | 37.7 | 39.8 | (5) | 41.1 | (8) | 42.5 | (11) |
| Corporate and Institutional Banking 1 | 56.0 | 57.6 | (3) | 55.7 | 1 | 50.0 | 12 |
| Central items 1,3 | (3.0) | (4.1) | (27) | (1.8) | 67 | (0.2) |  |
| Loans and advances to customers | 454.9 | 456.3 |  | 456.1 |  | 448.6 | 1 |
| Customer deposits |  |  |  |  |  |  |  |
| Retail current accounts | 114.0 | 115.7 | (1) | 113.4 | 1 | 111.5 | 2 |
| Retail relationship savings accounts | 166.3 | 165.7 |  | 165.8 |  | 164.5 | 1 |
| Retail tactical savings accounts | 16.1 | 16.2 | (1) | 16.9 | (5) | 16.8 | (4) |
| Wealth 1 | 14.4 | 14.9 | (3) | 14.9 | (3) | 15.6 | (8) |
| Commercial Banking deposits | 163.8 | 170.2 | (4) | 166.7 | (2) | 167.5 | (2) |
| Central items 1 | 0.7 | 1.6 | (56) | 0.5 | 40 | 0.4 | 75 |
| Total customer deposits | 475.3 | 484.3 | (2) | 478.2 | (1) | 476.3 |  |
| Total assets | 877.8 | 892.9 | (2) | 890.4 | (1) | 886.6 | (1) |
| Total liabilities | 830.3 | 846.5 | (2) | 840.3 | (1) | 833.4 |  |
| Ordinary shareholders' equity | 42.0 | 40.0 | 5 | 44.4 | (5) | 47.1 | (11) |
| Other equity instruments | 5.3 | 6.2 | (15) | 5.5 | (4) | 5.9 | (10) |
| Non-controlling interests | 0.2 | 0.2 |  | 0.2 |  | 0.2 |  |
| Total equity | 47.5 | 46.4 | 2 | 50.1 | (5) | 53.2 | (11) |
| Ordinary shares in issue, excluding own shares | 66,944m | 67,464m | (1) | 68,702m | (3) | 70,996m | (6) |

1 Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth moving from Insurance, Pensions and Investments (previously Insurance and Wealth) to Retail; comparatives have been presented on a consistent basis.

2 Primarily Europe.

3 Includes central fair value hedge accounting adjustments.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 49

## Group results - statutory basis

The results below are prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRSs). The underlying results are shown on **page 47**. A reconciliation between the statutory and underlying results is shown on **page 68**.

### Summary income statement

|  | 2022 £m | 2021 £m | Change % |
| --- | --- | --- | --- |
| Net interest income | 13,957 | 9,366 | 49 |
| Other income | (8,149) | 28,078 |  |
| Total income 1 | 5,808 | 37,444 | (84) |
| Insurance claims and changes in insurance and investment contract liabilities 1 | 12,401 | (21,120) |  |
| Total income, net of insurance claims and changes in insurance and investment contract liabilities | 18,209 | 16,324 | 12 |
| Operating expenses | (9,759) | (10,800) | 10 |
| Impairment (charge) credit | (1,522) | 1,378 |  |
| Profit before tax | 6,928 | 6,902 |  |
| Tax expense | (1,373) | (1,017) | (35) |
| Profit for the year | 5,555 | 5,885 | (6) |
| Profit attributable to ordinary shareholders | 5,021 | 5,355 | (6) |
| Profit attributable to other equity holders | 438 | 429 | 2 |
| Profit attributable to non-controlling interests | 96 | 101 | (5) |
| Profit for the year | 5,555 | 5,885 | (6) |
| Ordinary shares in issue (weighted-average - basic) | 68,847m | 70,937m | (3) |
| Basic earnings per share | 7.3p | 7.5p | (0.2)p |

$^{1}$ Includes income and expense attributable to the policyholders of the Group's long-term assurance funds that materially offset in arriving at profit before tax. These can, depending on market movements, lead to significant variances on a statutory basis in total income and insurance claims and changes in insurance and investment contract liabilities from one period to the next.

### Summary balance sheet

|  | At 31 Dec 2022 £m | At 31 Dec 2021 £m | Change % |
| --- | --- | --- | --- |
| Assets |  |  |  |
| Cash and balances at central banks | 91,388 | 76,420 | 20 |
| Financial assets at fair value through profit or loss | 180,609 | 206,771 | (13) |
| Derivative financial instruments | 24,753 | 22,051 | 12 |
| Financial assets at amortised cost | 520,322 | 517,156 | 1 |
| Financial assets at fair value through other comprehensive income | 23,154 | 28,137 | (18) |
| Other assets | 37,603 | 35,990 | 4 |
| Total assets | 877,829 | 886,525 | (1) |
| Liabilities |  |  |  |
| Deposits from banks | 7,266 | 7,647 | (5) |
| Customer deposits | 475,331 | 476,344 |  |
| Repurchase agreements at amortised cost 1 | 48,596 | 31,125 | 56 |
| Financial liabilities at fair value through profit or loss | 17,755 | 23,123 | (23) |
| Derivative financial instruments | 24,042 | 18,060 | 33 |
| Debt securities in issue | 73,819 | 71,552 | 3 |
| Liabilities arising from insurance and investment contracts | 149,868 | 168,463 | (11) |
| Other liabilities | 22,901 | 23,951 | (4) |
| Subordinated liabilities | 10,730 | 13,108 | (18) |
| Total liabilities | 830,308 | 833,373 |  |
| Total equity | 47,521 | 53,152 | (11) |
| Total equity and liabilities | 877,829 | 886,525 | (1) |

$^{1}$ Repurchase agreements at amortised cost, previously included within other liabilities, are now shown separately; comparatives have been presented on a consistent basis.

50 Lloyds Banking Group Annual Report and Accounts 2022

# Summary of Group results

## Statutory results

The Group's statutory profit before tax for the year was £6,928 million, £26 million higher than 2021. The benefit of higher income and lower operating expenses was offset by the impact of an impairment charge (compared to a credit in the prior year), in part reflecting the deterioration in the economic outlook. Statutory profit after tax was £5,555 million (2021: £5,885 million, which included the benefit of a deferred tax remeasurement). In the fourth quarter of the year, statutory profit before tax was £1,759 million and statutory profit after tax was £1,520 million, an increase on the third quarter of 17 per cent and 26 per cent respectively, as a result of higher income and a lower impairment charge, following the deterioration in the macroeconomic outlook recognised during the third quarter.

The Group's statutory income statement includes income and expenses attributable to the policyholders of the Group's long-term assurance funds. These items materially offset in arriving at profit before tax but can, depending on market movements, lead to significant variances on a statutory basis between total income and insurance claims and changes in insurance and investment contract liabilities from one period to the next. In 2022, due to deteriorating market conditions, the Group recognised losses on policyholder investments within total income, which were materially offset by the corresponding reduction in insurance and investment contract liabilities, recognised as a decrease in insurance claims and changes in insurance and investment contract liabilities expense and a decrease in the amounts payable to unit holders in the Group's consolidated open-ended investment companies, recognised within net interest income.

Total statutory income net of insurance claims and changes in insurance and investment contract liabilities for the year was £18,209 million, an increase of 12 per cent on 2021, reflecting continued recovery in customer activity and benefits from UK Bank Rate changes.

The Group maintained its focus on cost management, whilst increasing strategic investment as planned. Operating expenses decreased due to significantly lower remediation and restructuring costs and a reduced charge for operating lease depreciation. Remediation costs, principally relating to pre-existing programmes, were significantly lower than in 2021. Restructuring costs in the year included costs associated with the integration of Embark, whereas the prior year included a significant software write-off as the Group invested in new technology and systems infrastructure. The reduced operating lease depreciation charge reflected continued strength in used car prices, combined with the ongoing impact of a reduced, but stabilising, Lex fleet size, given industry-wide supply constraints in the new car market.

The impairment charge of £1,522 million in 2022, compared to a net credit of £1,378 million in 2021, reflected strong observed credit performance, but was impacted by a deteriorating economic outlook partly offset by COVID-19 releases.

The Group recognised a tax expense of £1,373 million in the year, compared to a tax expense of £1,017 million in 2021. The tax expense in 2022 included a £222 million benefit in relation to tax deductibility of provisions made in 2021, and a £53 million expense (2021: £954 million benefit) arising on the remeasurement of deferred tax assets.

Loans and advances to customers increased by 1 per cent on 31 December 2021 to £454.9 billion, including growth of £6.3 billion in the open-mortgage book, alongside higher retail unsecured loan and credit card balances. Commercial Banking balances increased by £1.2 billion due to attractive growth opportunities in the Corporate and Institutional Banking portfolio, partly offset by repayments of government-backed lending. Customer deposits have decreased by £1.0 billion since the end of 2021, to £475.3 billion. This included Retail current account growth of £2.5 billion, more than offset by Commercial Banking deposit reductions of £3.7 billion. In 2022, due to market conditions, a reduction was seen in policyholder investments, primarily within financial assets at fair value through profit or loss. This was materially offset by a corresponding reduction in the related insurance and investment contract liabilities.

Total equity reduced during the year as the Group's profits were more than offset by reductions in the cash flow hedging reserve due to the rising rate environment, the impact of pension scheme remeasurements given market conditions and the impact of in-year distributions, including the share buyback programme that was announced in February 2022 in respect of 2021. This programme completed on 11 October 2022, with c.4.5 billion ordinary shares repurchased.

## Underlying results$^{A}$

The Group's underlying profit for the year was £7,448 million, compared to £7,536 million for 2021. Growth in net income and reduced total costs were offset by an increased impairment charge, largely as a result of a deterioration in the economic outlook for the UK, versus the underlying impairment credit in 2021. Underlying profit before impairment for the period was up 46 per cent to £8,958 million, driven by net income growth and lower remediation costs. In the fourth quarter, underlying profit before impairment was £2,438 million, up 2 per cent on the third quarter.

### Net income$^{A}$

|  | 2022 £m | 2021 £m | Change % |
| --- | --- | --- | --- |
| Underlying net interest income | 13,172 | 11,163 | 18 |
| Underlying other income | 5,249 | 5,060 | 4 |
| Operating lease depreciation | (373) | (460) | 19 |
| Net income A | 18,048 | 15,763 | 14 |
| Banking net interest margin A | 2.94% | 2.54% | 40bp |
| Average interest-earning banking assets A | £452.0bn | £444.6bn | 2 |

Net income of £18,048 million was up 14 per cent on 2021, with higher net interest income and other income as well as a continued low charge for operating lease depreciation.

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Lloyds Banking Group Annual Report and Accounts 2022 51

## Summary of Group results continued

Net interest income of £13,172 million was up 18 per cent, driven by a stronger banking net interest margin of 2.94 per cent (2021: 2.54 per cent) and higher average interest-earning banking assets. The net interest margin benefitted from UK Bank Rate increases, structural hedge earnings from the rising rate environment and continued funding and capital optimisation, partly offset by lower mortgage margins. In the fourth quarter, the net interest margin increased to 3.22 per cent from 2.98 per cent in the third quarter, in part due to timing benefits from UK Bank Rate rises. Average interest-earning banking assets were up 2 per cent compared to 2021 at £452.0 billion, supported by continued growth in the open mortgage book. The Group now expects the banking net interest margin for 2023 to be greater than 305 basis points.

The Group manages the risk to its earnings and capital from movements in interest rates by hedging the net liabilities which are stable or less sensitive to movements in rates. As at 31 December 2022, the Group's structural hedge had an approved capacity of £255 billion (up £15 billion on 31 December 2021). Customer deposits have increased by c.£65 billion since the end of 2019; hedge capacity increased by £70 billion during the same period, of which c.£45 billion came from deposit growth and c.£25 billion from investment of existing deposits. The Group continues to review the stability of underlying deposits and their eligibility for the structural hedge. The nominal balance of the structural hedge was £255 billion at 31 December 2022 (31 December 2021: £240 billion) with a weighted-average duration of approximately three-and-a-half years (31 December 2021: approximately three-and-a-half years). The Group generated £2.6 billion of total gross income from structural hedge balances in 2022, representing growth over the prior year (2021: £2.2 billion).

Underlying other income of £5,249 million was 4 per cent higher compared to £5,060 million in 2021, including £1,438 million in the fourth quarter, up 12 per cent on the third quarter. This reflected improved performance across Retail and Commercial Banking while Insurance, Pensions and Investments (previously Insurance and Wealth) benefitted from assumption changes from the annual basis review.

Within Retail, other income was up 8 per cent on prior year, including improved current account and credit card performance. Retail other income was up slightly in the fourth quarter. Commercial Banking was up 9 per cent versus the prior year reflecting higher financial markets activity, also driving growth in the fourth quarter and strong performance in transaction banking, partly offset by lower levels of corporate financing activity. Insurance, Pensions and Investments other income was 12 per cent higher than the prior year. This largely reflected the impact of increased workplace pension income and bulk annuity deals along with the inclusion of Embark income and a benefit from assumption changes. Growth was partly offset by a decrease in the general insurance business contribution, primarily driven by pricing pressures and severe weather event claims of £108 million (2021: £11 million). Assumption and methodology changes of £348 million in the year (2021: £111 million), included £229 million in the fourth quarter, relating to updated longevity assumptions and a significant improvement in persistency assumptions. Other income associated with the Group's equity investments businesses, including Lloyds Development Capital, of £468 million was £214 million lower than the previous year after particularly strong contributions in 2021.

The Group delivered good organic growth in Insurance, Pensions and Investments and Wealth (reported within Retail) assets under administration (AuA), with combined £9 billion net new money$^{1}$ in open book AuA over the year. In total, open book AuA stand at £160 billion.

Looking forward, IFRS 17 will impact the phasing of profit recognition for insurance contracts. From the first quarter of 2023 insurance new business revenue within other income will be spread over the period the Group provides services to its policyholders (versus recognised up front under outgoing IFRS 4 accounting standards). Similarly, impacts from assumption changes will be spread over the life of the relevant contracts.

Operating lease depreciation of £373 million (2021: £460 million), reflected continued strength in used car prices, combined with the ongoing impact of a reduced, but stabilising, Lex fleet size, given industry-wide supply constraints in the new car market.

$^{1}$ Excludes market movements and Embark assets transferred on acquisition; includes post acquisition Embark net flows.

### Total costs$^{A}$

|  | 2022 £m | 2021 £m | Change % |
| --- | --- | --- | --- |
| Operating costs A,1 | 8,835 | 8,312 | (6) |
| Remediation | 255 | 1,300 | 80 |
| Total costs A,1 | 9,090 | 9,612 | 5 |
| Cost:income ratio A | 50.4% | 61.0% | (10.6)pp |

$^{1}$2021 comparatives have been presented to reflect the new cost basis, consistent with the current period. See page 67.

Cost discipline remains a core focus for the Group. The Group's cost:income ratio was 50.4 per cent, compared to 61.0 per cent in 2021. Total costs of £9,090 million were 5 per cent lower than in 2021 (with £2,565 million in the fourth quarter). Within this, lower remediation costs (down 80 per cent) were partially offset by increased operating costs of £8,835 million (up 6 per cent), reflecting higher planned strategic investment and costs in new businesses. Business-as-usual costs$^{A}$ were stable, with ongoing cost discipline in the context of inflationary pressures and increased staff payments. Operating costs are expected to be higher in 2023 at c.£9.1 billion (2022: £8.8 billion), given inflationary pressure and the peak of the Group's planned strategic investment, partially mitigated by continued cost efficiency.

In 2022 the Group recognised remediation costs of £255 million (£166 million in the fourth quarter). These principally relate to pre-existing programmes and are significantly lower than 2021 (£1,300 million). Within remediation there was an additional charge of £50 million relating to HBOS Reading in the fourth quarter. The provision held in respect of HBOS Reading continues to reflect the Group's best estimate of its full liability, albeit uncertainties remain.

52 Lloyds Banking Group Annual Report and Accounts 2022

## Underlying impairment$^{A}$

|  | 2022 £m | 2021 1,3 £m | Change % |
| --- | --- | --- | --- |
| Charges (credits) pre-updated MES 3 |  |  |  |
| Retail | 773 | 672 | (15) |
| Commercial Banking | 122 | (357) |  |
| Other | 20 | (1) |  |
|  | 915 | 314 |  |
| Updated economic outlook |  |  |  |
| Retail | 600 | (1,120) |  |
| Commercial Banking | 395 | (579) |  |
| Other | (400) | - |  |
|  | 595 | (1,699) |  |
| Underlying impairment charge (credit) A | 1,510 | (1,385) |  |
| Asset quality ratio A | 0.32% | (0.31)% |  |

1 Non lending-related fraud costs, previously reported within underlying impairment, are now included within operating costs. Comparatives have been presented on a consistent basis.

2 Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth moving from Insurance, Pensions and Investments (previously Insurance and Wealth) to Retail; comparatives have been presented on a consistent basis.

3 Impairment charges excluding the impact from updated economic outlook taken each quarter. Coronavirus impacted restructuring cases, previously disclosed separately, are now reported within charges pre-updated MES (multiple economic scenarios); comparatives have been presented on a consistent basis.

Asset quality remains strong, with sustained low levels of new to arrears and very modest evidence of deterioration in observed credit metrics, despite the inflationary pressures on affordability during the latter half of the year. Underlying impairment was a net charge of £1,510 million (2021: credit of £1,385 million), resulting in an asset quality ratio of 32 basis points. This reflects a more normalised, but still low, pre-updated multiple economic scenarios (MES) charge of £915 million in the year (2021: £314 million, net of £357 million released in Commercial Banking largely driven by write-backs), equivalent to an asset quality ratio of 20 basis points. In addition, the Group recognised a net £595 million MES charge, including £82 million in the fourth quarter (2021: a credit of £1,699 million), as a result of updates to the Group's economic outlook and associated scenarios. The updated outlook addresses risks from a higher inflation and interest rate environment that have emerged over the year. A charge of £1,145 million relating to these risks is partly offset by a credit of £550 million from the release of COVID-19 judgements, including the £400 million release of the COVID-19 central adjustment.

The fourth quarter saw an impairment charge of £465 million. This included a pre-updated MES charge of £383 million and also captures a further material charge in Commercial Banking on a pre-existing single case. The fourth quarter pre-updated MES charge includes additional expected credit loss (ECL) allowance build in Stage 1 as it rolls forward, picking up the elevated defaults expected in the fourth quarter of 2023, as well as recent observed behaviour. The small observed increase in defaults has been partially offset by an improvement in observed loss rates, largely within UK mortgages and unsecured portfolios as a result of collections policy changes and enhanced customer support initiatives.

The Group's loan portfolio continues to be well-positioned, reflecting a prudent through-the-cycle approach to lending with high levels of security, reflected in strong recovery performance. Observed credit performance remains strong, with very modest evidence of deterioration and the flow of assets into arrears, defaults and write-offs remaining at low levels and largely below pre-pandemic levels.

The Group's ECL allowance increased by £0.3 billion in the fourth quarter to £5.3 billion (31 December 2021: £4.5 billion). The ECL allowance is high by historical standards, £1.1 billion above 31 December 2019 and assumes that a large proportion of expected losses will crystallise over the next 12 to 18 months, before run rate losses return to around pre-pandemic levels. This uplift in defaults is forecast given the expected deterioration across a number of macroeconomic measures. The Group's base case predicts affordability pressures from inflation peaking at 10.3 per cent in the first quarter of 2023, alongside UK Bank Rate peaking at 4.0 per cent, with unemployment expected to build to 5.3 per cent in the first quarter of 2025. The economic outlook assumptions remain similar to those of the third quarter, with some fourth quarter ECL increases driven by models responding to updates to HPI and GDP forecasts, and additional management judgements raised in the quarter for affordability risks. The ECL uplift in the fourth quarter is also driven by a material update in the individual assessment of a pre-existing single case in Commercial Banking and model calibrations as mentioned above.

The ECL allowance continues to reflect a probability-weighted view of future economic scenarios built out from the base case and its associated conditioning assumptions. A 30 per cent weighting is applied to the base case, upside and downside scenarios and a 10 per cent weighting to the severe downside. All scenarios deteriorated during 2022 following the changes made to the base case outlook. The probability-weighted ECL is particularly impacted by the significance and non-linearity of losses from the severe downside scenario. In June 2022, the Group included an adjusted severe downside scenario to incorporate high CPI inflation and UK Bank Rate profiles and decided to adopt this adjusted scenario to calculate the Group's ECL. Given the increased severity of this severe downside scenario, there is a greater proportionate increase in ECL which builds further in the fourth quarter of 2022 due to sensitivity to model calibrations and new judgements introduced for inflationary and interest rate pressures.

Overall, management judgement adjustments have significantly reduced in the year, reflecting the balance of risks shifting from more idiosyncratic COVID-19 risks to broader macroeconomic risks from inflationary pressures and rising interest rates within the Group's base case and wider economic scenarios. Management judgements in respect of COVID-19 have been removed as the risks have either dissipated, or are now captured in model calibrations or other wider related judgements. Of the £0.8 billion released since 31 December 2021, £0.6 billion drives a credit to the impairment charge in the year, as prior risks have not emerged, with the remaining £0.2 billion now captured within ECL portfolio models, where previously distorted data or trends have now normalised. Judgemental adjustments for risks in relation to inflationary pressures, not deemed to be fully captured by models, are £0.2 billion at 31 December 2022. These are across Retail portfolios where the perceived affordability risks to certain segments are adjusted, largely through default assumptions, at customer level.

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Lloyds Banking Group Annual Report and Accounts 2022 53

## Summary of Group results continued

Observed portfolio performance remains strong, with impact on Stage 2 loans and advances to customers mostly due to the effect from updated MES or model changes driven by CRD IV regulatory requirements$^{1}$. As a result, Stage 2 loans and advances to customers increased to £66 billion (31 December 2021: £42 billion), with 93 per cent up to date (31 December 2021: 86 per cent). Of the £24 billion increase, £8 billion of the increase was due to changes in credit risk measurement and modelling associated with CRD IV regulatory requirements$^{1}$ within UK mortgages in the first half of the year. £15 billion occurred in the third quarter as a result of the updated economic outlook reflected in the MES, largely in UK mortgages and Commercial Banking (99 per cent of which related to up to date loans). In the fourth quarter Stage 2 assets increased by £2 billion, all of which are up to date accounts, largely in Retail as a result of model calibrations and additional management judgements. Stage 3 assets were £11 billion as at 31 December 2022 (31 December 2021: £9 billion) and stable compared to 30 September 2022. The £2 billion increase in Stage 3 assets over the year is primarily driven by changes in credit risk measurement and modelling associated with CRD IV regulatory requirements$^{1}$ since the end of 2021 and not reflective of observed deterioration.

On the basis of the current economic assumptions, the Group expects the asset quality ratio to be c.30 basis points in 2023.

1 As previously outlined, on 1 January 2022 the Group amended its definition of Stage 3 for UK mortgages, maintaining alignment between IFRS 9 and regulatory definitions of default. For UK mortgages, default was previously deemed to have occurred no later than when a payment was 180 days past due. In line with CRD IV this definition has now been reduced to 80 days, as well as including end-of-term payments on past due interest-only accounts and any non-performing loans. Furthermore, additional assets moved to Stage 2 given the consequential change in approach to the prediction and modelling of up to date accounts and their likelihood of reaching the new broader definition of default in the future. Given the accounts that moved to Stage 2 were up to date with low probability of default, there was no material ECL impact.

### Restructuring, volatility and other items

|  | 2022 £m | 2021 £m | Change % |
| --- | --- | --- | --- |
| Underlying profit A | 7,448 | 7,536 | (1) |
| Restructuring 1 | (80) | (452) | 82 |
| Volatility and other items |  |  |  |
| Market volatility and asset sales | (252) | 87 |  |
| Amortisation of purchased intangibles | (70) | (70) |  |
| Fair value unwind | (118) | (199) | 41 |
|  | (440) | (182) |  |
| Statutory profit before tax | 6,928 | 6,902 |  |
| Tax expense | (1,373) | (1,017) | (35) |
| Statutory profit after tax | 5,555 | 5,885 | (6) |
| Earnings per share | 7.3p | 7.5p | (0.2)p |
| Return on tangible equity A | 13.5% | 13.8% | (0.3)pp |
| Tangible net assets per share A | 51.9p | 57.5p | (5.6)p |

1 2021 comparatives have been presented to reflect the new cost basis, consistent with the current period. See page 67.

Restructuring costs of £80 million included costs associated with the integration of Embark and were significantly lower than in 2021 (£452 million), which included a software write-off as the Group invested in new technology and systems infrastructure. Since the first quarter of 2022 all restructuring costs, with the exception of merger, acquisition and integration costs, have been reported as part of the Group's operating costs.

Volatility and other items were a net loss of £440 million for the year, comprising £252 million of negative market volatility and £188 million relating to amortisation of purchased intangibles and fair value unwind. Market volatility included negative insurance volatility of £148 million due to rising interest rates and wider bond spreads partially offset by inflation (net of hedging), in addition to negative banking volatility of £46 million. This compares to gains during 2021 of £87 million, including positive insurance and banking volatility, partly offset by liability management losses and other statutory items. In the fourth quarter, a market volatility loss of £157 million included £120 million of negative banking volatility, principally from sterling strengthening.

Further information on the reconciliation of underlying to statutory results is included on **page 68**.

### Tax

The Group recognised a tax expense of £1,373 million for the year (2021: £1,017 million), with £239 million in the fourth quarter. The expense for the year included a £222 million benefit recognised in the fourth quarter in relation to tax deductibility of provisions made in 2021 and a £53 million expense (2021: £954 million benefit) arising primarily on the remeasurement of deferred tax assets following the substantive enactment of the previously announced reduction in the rate of banking surcharge from 8 per cent to 3 per cent.

The Group expects a medium-term effective tax rate of around 27 per cent, which includes the impact of the reduction in the rate of banking surcharge and the increase in corporation tax rate from 19 per cent to 25 per cent, both of which come into effect from 1 April 2023. An explanation of the relationship between the tax expense and the Group's accounting profit for the year is set out in note 14.

### Tangible net assets and returns$^{A}$

Tangible net assets per share were 51.9 pence, down from 57.5 pence at 31 December 2021. The favourable impact from profits supported strong distributions, with further benefits from a reduction in shares from the share buyback (3.4 pence) more than offset by cash flow hedge reserve movements as a result of increased interest rates (7.5 pence). In the fourth quarter, tangible net assets per share were up 2.9 pence (30 September 2022: 49.0 pence), driven by the favourable impact from profits and cash flow hedge reserve movements.

The return on tangible equity for 2022 was 13.5 per cent, reflecting the Group's robust financial performance (2021: 13.8 per cent). The Group expects the return on tangible equity to be c.13 per cent in 2023. Earnings per share were 7.3 pence (2021: 7.5 pence). In the comparative period of 2021, both the return on tangible equity and earnings per share benefitted from a net impairment credit and remeasurement of deferred tax assets.

54 Lloyds Banking Group Annual Report and Accounts 2022

## Balance sheet

|  | At 31 Dec 2022 | At 31 Dec 2021 | Change % |
| --- | --- | --- | --- |
| Loans and advances to customers | £454.9bn | £448.6bn | 1 |
| Customer deposits | £475.3bn | £476.3bn |  |
| Loan to deposit ratio 4 | 96% | 94% | 2pp |
| Wholesale funding 1 | £100.3bn | £93.1bn | 8 |
| Wholesale funding <1 year maturity | £37.5bn | £30.3bn | 24 |
| Of which money-market funding <1 year maturity 2 | £24.8bn | £16.1bn | 54 |
| Liquidity coverage ratio - eligible assets 3 | £144.7bn | £140.2bn | 3 |
| Liquidity coverage ratio 4 | 144% | 135% | 9pp |

1 Wholesale funding includes significant risk transfer securitisations issued by special purpose vehicles of £1.6 billion (31 December 2021: £1.7 billion); the comparative has been presented on a consistent basis.

2 Excludes balances relating to margins of £2.6 billion (31 December 2021: £3.8 billion).

3 Eligible assets are calculated as an average of month end observations over the previous 12 months post any liquidity haircuts.

4 The liquidity coverage ratio is calculated as a simple average of month-end observations over the previous 12 months.

Loans and advances to customers increased by 1 per cent on 31 December 2021 to £454.9 billion, including growth of £6.3 billion in the open mortgage book, alongside higher retail unsecured loan and credit card balances. Commercial Banking balances increased by £1.2 billion due to attractive growth opportunities in the Corporate and Institutional Banking portfolio, partly offset by repayments of government-backed lending. Customer deposits have decreased by £1.0 billion since the end of 2021, to £475.3 billion. This included Retail current account growth of £2.5 billion, more than offset by Commercial Banking deposit reductions of £3.7 billion. Deposits were down £9.0 billion in the fourth quarter with reductions in Commercial Banking and Retail. Commercial Banking deposits were down £6.4 billion, as the expected outflows of short term Corporate and Institutional Banking deposits materialised, alongside the seasonality and the impact of management actions. Retail deposits were down £1.7 billion, with reductions in current accounts, partially offset by increased savings balances. In January 2023, the Group successfully completed a transaction under which £2.5 billion of legacy Retail mortgage loans were securitised with much of the risk placed in the market. The transaction results in the derecognition of the mortgage assets from the Group's balance sheet, supporting the Group's capital and risk management.

The Group has maintained its strong funding and liquidity position with a loan to deposit ratio of 96 per cent, stable on 2021, continuing to provide robust funding and liquidity and potential for growth. The Group's funding and liquidity position is further discussed on page 179. The Group continued to access wholesale funding across a range of currencies and markets. Issuance volumes in 2022 totalled £9.3 billion (31 December 2021: £3.4 billion), of which £7.7 billion at 31 December 2022 was issued by Lloyds Banking Group plc across senior unsecured, T2 and AT1 (31 December 2021: £2.8 billion). Total wholesale funding increased to £100.3 billion at 31 December 2022 (31 December 2021: £93.1 billion) as a result of short term funding which has increased towards more normalised levels and maintains the Group's access to diverse sources and tenors of funding. The total outstanding amount of drawings from the Term Funding Scheme with additional incentives for SMEs (TFSME) has remained stable at £30.0 billion at 31 December 2022 (31 December 2021: £30.0 billion), with maturities in 2025, 2027 and beyond.

## Capital

|  | At 31 Dec 2022 | At 31 Dec 2021 | Change % |
| --- | --- | --- | --- |
| CET1 ratio | 15.1% | 17.3% | (2.2)pp |
| Pro forma CET1 ratio 4,1 | 14.1% | 16.3% | (2.2)pp |
| Total capital ratio | 19.7% | 23.6% | (3.9)pp |
| MREL ratio | 31.7% | 37.2% | (5.5)pp |
| UK leverage ratio | 5.6% | 5.8% | (0.2)pp |
| Risk-weighted assets | £210.9bn | £196.0bn | 8 |

1 31 December 2022 reflects the dividend received from Insurance in February 2023 and the full impact of the announced share buyback, but excludes the impact of the phased unwind of IFRS 9 relief on 1 January 2023. The 31 December 2021 comparative reflects the dividend received from Insurance in February 2022 and the full impact of the share buyback in respect of 2021 that completed in 2022, but excludes the impact of regulatory changes that came into effect on 1 January 2022.

| Pro forma CET1 ratio as at 31 December 2021 1 | 16.3% |
| --- | --- |
| Regulatory change on 1 January 2022 (bps) | (230) |
| Pro forma CET1 ratio as at 1 January 2022 | 14.0% |
| Banking build (including impairment charge) (bps) | 230 |
| Insurance dividend (bps) | 21 |
| Risk-weighted assets (bps) | 14 |
| Fixed pension deficit contributions (bps) | (31) |
| Other movements (bps) | 11 |
| Capital generation (bps) | 245 |
| Ordinary dividends (bps) | (81) |
| Share buyback accrual (bps) | (104) |
| Further variable pension contributions (bps) | (52) |
| Pro forma CET1 ratio as at 31 December 2022 2 | 14.1% |

1 31 December 2021 ratio reflects the dividend received from Insurance in February 2022 and the full impact of the share buyback in respect of 2021 that completed in 2022.

2 31 December 2022 ratio reflects the dividend received from Insurance in February 2023 and the full impact of the announced share buyback.

The Group's pro forma CET1 capital ratio reduced from 16.3 per cent at 31 December 2021 to 14.1 per cent at 31 December 2022. This was driven by a reduction of 230 basis points on 1 January 2022 for regulatory changes (as previously reported), subsequently offset by strong pro forma capital generation of 245 basis points during the year. Capital generation reflected banking build of 230 basis points, including a net impairment impact of 44 basis points which benefitted from IFRS 9 transitional relief as described below. A further 21 basis points reflected the dividends received from the insurance business in July 2022 (£300 million) and February 2023 (£100 million). Capital generation further benefitted from a post 1 January 2022 reduction in risk-weighted assets (excluding threshold movements), after foreign exchange impacts (which are hedged), equivalent to 14 basis points and other movements of 11 basis points. This was offset in part by 31 basis points relating to the full 2022 fixed pension deficit contributions for the Group's defined benefit pension schemes.

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Lloyds Banking Group Annual Report and Accounts 2022 55

## Summary of Group results continued

Capital generation during the fourth quarter was 54 basis points. Excluding the Insurance dividend received in February 2023 and the impact of the announced ordinary share buyback programme, the Group's CET1 capital ratio at 31 December 2022 was 15.1 per cent (31 December 2021: 17.3 per cent).

The net impairment impact of 44 basis points for the year reflects the impairment charge of 59 basis points, offset by IFRS 9 dynamic transitional relief of 15 basis points resulting from the increase in Stage 1 and Stage 2 expected credit losses in the second half of the year. On 1 January 2023 IFRS 9 static transitional relief came to an end and the transitional factor applied to IFRS 9 dynamic relief reduced by a further 25 per cent, resulting in an overall reduction of 15 basis points. The Group's pro forma CET1 capital ratio at 31 December 2022 does not include the impact of the reduced relief. In relation to capital usage, the impact of the interim ordinary dividend paid in September 2022 and the accrual for the recommended final ordinary dividend equates to 81 basis points, with a further 104 basis points utilised to cover the accrual for the announced ordinary share buyback programme.

During the year, a total of £2.2 billion in pension deficit contributions (both fixed and variable) has been paid into the Group's three main defined benefit pension schemes. As previously announced, the fixed contributions for the year of £800 million (equivalent to 31 basis points) were paid in full during the first quarter. Variable contributions of £1,442 million paid during the year cover the full amount of agreed contributions relating to 30 per cent of in-year shareholder distributions of £1,042 million (in accordance with the current agreement with the Trustee), plus an additional £400 million paid in December (aggregate variable contributions equivalent to 52 basis points in total). The additional payment represents an acceleration of future planned contributions, following the strong capital generation in 2022 and ahead of the triennial renegotiation of pension contributions.

Risk-weighted assets were £196 billion at 31 December 2021 and increased by £16 billion to £212 billion (pro forma) on 1 January 2022, reflecting regulatory changes which include the anticipated impact of the implementation of new CRD IV models to meet revised regulatory standards for modelled outputs. The new CRD IV models remain subject to finalisation and approval by the PRA and therefore the resultant risk-weighted asset impact also remains subject to this. Risk-weighted assets reduced by £1 billion during the year (subsequent to the 1 January 2022 regulatory changes) to £211 billion at 31 December 2022. This largely reflected optimisation activity and Retail model reductions from the strong underlying credit performance, partly offset by the growth in balance sheet lending and the impact of foreign exchange movements. The Group expects risk-weighted assets to be between £220 billion and £225 billion at the end of 2024.

As previously indicated, capital generation in 2022 was strong at 245 basis points. The Group experienced a number of tailwinds, including the low charge for operating lease depreciation, transitional relief in relation to impairment, risk-weighted asset reductions (post 1 January 2022 regulatory changes), high Insurance dividends and the low effective tax rate charge. Looking forward, while these tailwinds are unlikely to repeat, banking capital generation is nonetheless expected to continue to be strong. The Group now expects capital generation in 2023 to be c.175 basis points.

The PRA reduced the Group's Pillar 2A CET1 capital requirement during the fourth quarter to around 1.5 per cent of risk-weighted assets (previously around 2 per cent of risk-weighted assets). In December 2022 the UK countercyclical capital buffer rate increased to 1 per cent, increasing the Group's countercyclical capital buffer (CCyB) to around 0.9 per cent. This increase was partially offset by the removal of the CCyB related element of the PRA buffer. The planned increase in the UK countercyclical capital buffer rate to 2 per cent from July 2023 will lead to a further increase in the Group's CCyB to around 1.8 per cent.

The Financial Policy Committee (FPC) have amended the other systemically important institution (O-SII) buffer framework, changing the metric for determining the buffer rate from total assets to the leverage exposure measure of the Ring-Fenced Bank sub-group (RFB). This will apply from the next review point in December 2023 which will refer to the leverage exposure measure as at 31 December 2022, with any changes applying from 1 January 2025. Currently, the RFB's O-SII buffer is 2.0 per cent of risk-weighted assets, which equates to 1.7 per cent of risk-weighted assets at Group level. Based on the RFB's leverage exposure measure as at 31 December 2022, the O-SII buffer rate will be maintained at 2.0 per cent. The current sum of the Group's regulatory CET1 capital requirement and capital buffers remains at around 11 per cent. The Board's view of the ongoing level of CET1 capital required to grow the business, meet current and future regulatory requirements and cover uncertainties continues to be around 12.5 per cent, plus a management buffer of around 1 per cent.

## Pensions

The Group's three main defined benefit pension schemes continue to have an actuarial funding deficit, but are in a significantly stronger financial position than at 31 December 2021, when the deficit was c.£4 billion. During 2022, deficit contributions of £2.2 billion were paid into these schemes. The Group expects to make a further fixed contribution of £0.8 billion in the first half of 2023, consistent with 2021 and 2022. The Group has discussed with the Trustee the likelihood that further variable contributions will not be necessary in 2023 and beyond, dependent upon the outcome of the triennial valuation as at 31 December 2022. The Group expects to have substantially agreed the triennial valuation with the Trustee by the end of the third quarter of 2023, along with a revised contribution schedule in respect of any remaining deficit. Trustee agreement will be conditional upon prior feedback from the Pensions Regulator. The Group also expects that future contributions will become increasingly contingent in nature, such that they are only paid into the schemes if required. This will be reported on in future periods.

The schemes' funding position remained robust and did not experience any material impact from the market volatility seen in the latter part of the year. Asset prices fell in line with the broader market and hedges fell in value as interest rates rose. A similar impact was experienced on liability valuations which also fell in value given the portfolio was almost fully hedged. The Group's schemes used liability-driven investment strategies to achieve this outcome and as the hedging was maintained throughout the crisis, the strategy performed as expected.

## Dividend and share buyback

The Group has a progressive and sustainable ordinary dividend policy whilst maintaining the flexibility to return surplus capital through buybacks or special dividends. The Board intends to pay down to its capital target within the course of the current plan, by the end of 2024.

The Board has recommended a final ordinary dividend of 1.60 pence per share, which, together with the interim ordinary dividend of 0.80 pence per share totals 2.40 pence per share, an increase of 20 per cent, in line with the Board's commitment to capital returns. The Board has also announced its intention to implement an ordinary share buyback of up to £2.0 billion which will commence as soon as is practicable and is expected to be completed by 31 December 2023. The Board intends to return surplus capital by way of a further buyback programme given the amount of surplus capital, the growth in ordinary dividends and the flexibility that a buyback programme offers. Based on the total ordinary dividend and the intended ordinary share buyback the total capital return in respect of 2022 will be up to £3.6 billion.

56 **Lloyds Banking Group** Annual Report and Accounts 2022

# Segmental analysis - underlying basis$^{A}$

|  | Retail £m | Commercial Banking £m | Insurance, Pensions and Investments £m | Equity Investments and Central Items £m | Group £m |
| --- | --- | --- | --- | --- | --- |
| 2022 |  |  |  |  |  |
| Underlying net interest income | 9,774 | 3,447 | (101) | 52 | 13,172 |
| Underlying other income | 1,731 | 1,565 | 1,576 | 377 | 5,249 |
| Operating lease depreciation | (368) | (5) | - | - | (373) |
| Net income | 11,137 | 5,007 | 1,475 | 429 | 18,048 |
| Operating costs | (5,175) | (2,496) | (1,042) | (122) | (8,835) |
| Remediation | (92) | (133) | (30) | - | (255) |
| Total costs | (5,267) | (2,629) | (1,072) | (122) | (9,090) |
| Underlying profit before impairment | 5,870 | 2,378 | 403 | 307 | 8,958 |
| Underlying impairment (charge) credit | (1,373) | (517) | (12) | 392 | (1,510) |
| Underlying profit | 4,497 | 1,861 | 391 | 699 | 7,448 |

| Banking net interest margin A | 2.76% | 3.93% | - | - | 2.94% |
| --- | --- | --- | --- | --- | --- |
| Average interest-earning banking assets A | £362.0bn | £90.0bn | - | - | £452.0bn |
| Asset quality ratio A | 0.38% | 0.52% | - | - | 0.32% |
| Loans and advances to customers | £364.2bn | £93.7bn | - | (£3.0bn) | £454.9bn |
| Customer deposits | £310.8bn | £163.8bn | - | £0.7bn | £475.3bn |
| Risk-weighted assets | £111.7bn | £74.3bn | £0.1bn | £24.8bn | £210.9bn |

|  | Retail 1 £m | Commercial Banking 1 £m | Insurance, Pensions and Investments 1 £m | Equity Investments and Central Items £m | Group £m |
| --- | --- | --- | --- | --- | --- |
| 2021 |  |  |  |  |  |
| Underlying net interest income 2 | 8,577 | 2,602 | (103) | 87 | 11,163 |
| Underlying other income | 1,597 | 1,442 | 1,406 | 615 | 5,060 |
| Operating lease depreciation | (442) | (18) | - | - | (460) |
| Net income | 9,732 | 4,026 | 1,303 | 702 | 15,763 |
| Operating costs 3 | (4,988) | (2,288) | (899) | (137) | (8,312) |
| Remediation | (360) | (830) | (123) | 13 | (1,300) |
| Total costs | (5,348) | (3,118) | (1,022) | (124) | (9,612) |
| Underlying profit before impairment | 4,384 | 908 | 281 | 578 | 6,151 |
| Underlying impairment credit 3 | 447 | 936 | - | 2 | 1,385 |
| Underlying profit | 4,831 | 1,844 | 281 | 580 | 7,536 |

| Banking net interest margin A,2 | 2.50% | 2.96% | - | - | 2.54% |
| --- | --- | --- | --- | --- | --- |
| Average interest-earning banking assets A,2 | £353.4bn | £91.2bn | - | - | £444.6bn |
| Asset quality ratio A,3 | (0.13)% | (0.98)% | - | - | (0.31)% |
| Loans and advances to customers | £356.3bn | £92.5bn | - | (£0.2bn) | £448.6bn |
| Customer deposits | £308.4bn | £167.5bn | - | £0.4bn | £476.3bn |
| Risk-weighted assets | £96.4bn | £72.7bn | £0.1bn | £26.8bn | £196.0bn |

1 Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth moving from Insurance, Pensions and Investments (previously Insurance and Wealth) to Retail; comparatives have been presented on a consistent basis.
2 During 2022, the Group revised its liquidity transfer pricing methodology. Comparative segmental net interest income has been presented on a consistent basis. Total Group figures are unaffected by these changes.
3 2021 comparatives have been presented to reflect the new cost basis, consistent with the current period. See page 67.

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Lloyds Banking Group Annual Report and Accounts 2022 57

# Retail

Retail offers a broad range of financial services products to personal customers, including current accounts, savings, mortgages, credit cards, unsecured loans, motor finance and leasing solutions. Its aim is to build deep and enduring relationships that meet more of its customers' financial needs and improve their financial resilience throughout their lifetime, with personalised products and services. Retail operates the largest digital bank and branch network in the UK and continues to improve service levels and reduce conduct risk, whilst working within a prudent risk appetite. Through investment in strategic priority areas, alongside increasing use of data, Retail will deepen existing consumer relationships and broaden its intermediary offering, to improve customer experience, operational efficiency and enable increasingly tailored propositions.

## Strategic progress

- • UK's largest digital bank, with 19.8 million digitally active users and customers logging in over 5 billion times during 2022, up 15 per cent on prior year
- • Market-leading apps rated ahead of competitors in 2022$^{1}$. Record mobile app releases, including enhanced in-app and chat integrated search functionality used over 19 million times by customers
- • Acquisition of Tusker, a vehicle management and leasing company focused on electric and low emissions vehicles, further developing the Group's Motor business and aligned to its sustainability ambitions
- • Tailored mass affluent banking products launched across current accounts and credit cards
- • Continued net open mortgage book growth of £6.3 billion and £14.3 billion lending to first time buyers
- • Proactively contacted customers to offer support due to the rising cost of living, including mortgage customers on standard variable rates who could benefit from a product transfer
- • Over 5,000 daily visits$^{2}$ to the Cost of Living Support Hub. In excess of 5 million customers have registered for the Group's credit checking tool, Your Credit Score. In the year 147,000 customers$^{3}$ have moved out of persistent debt (2021: 128,000)
- • £3.5 billion of green mortgage lending$^{4}$, on track to meet 2024 target. Home retrofit partnership created with Octopus Energy and over 1 million visits to online Home Ecosystem
- • £2.1 billion financing and leasing for battery electric and plug-in hybrid vehicles, on track to meet 2024 target with over 70 per cent of deliveries in the year by Lex being battery electric or plug-in hybrid cars

## Financial performance

- • Underlying net interest income 14 per cent higher, benefitting from the rising rate environment in liabilities and higher unsecured lending balances, partly offset by mortgage margin compression
- • Underlying other income 8 per cent higher from improved levels of customer activity across current accounts and credit cards. Operating lease depreciation decreased 17 per cent, due to the continued strength of used car prices given industry-wide supply constraints in the new car market
- • Operating costs 4 per cent higher reflecting higher planned strategic investment costs and the rebuilding of variable pay, partly offset by continued benefit from efficiency initiatives. Remediation charges, relating to pre-existing programmes, decreased to £92 million
- • Underlying impairment charge £1,373 million. Portfolio remains resilient with a modest trend towards normalising credit performance during the second half. Updated economic scenarios, including inflation and interest rate pressures, have contributed to an increased charge (compared to a credit in the prior year)
- • Customer lending increased 2 per cent in the period with continued net open mortgage book growth of £6.3 billion and growth across credit cards and loans, partially offset by the continued run off of the closed mortgage book
- • Customer deposits increased 1 per cent in the period. Overall balances are resilient, in the context of cost of living impacts on customers and increased competition, with current account balances up by 2 per cent
- • Risk-weighted assets up 16 per cent in the period, driven by regulatory changes on 1 January 2022. Excluding these changes, risk-weighted assets are lower, benefitting from optimisation activity and strong underlying credit performance

1 Across Google Play and App Store, out of 36,000 written reviews, 76 per cent of customers rated the Group's apps 5-star (84 per cent 4-star and above).

2 Refers to average daily visits since launch in July 2022.

3 Data is 11 months to 30 November 2022. Comparator is 11 months to 30 November 2021.

4 As at 30 September 2022.

58 Lloyds Banking Group Annual Report and Accounts 2022

## Retail performance summary$^{A}$

|  | 2022 £m | 2021 £m | Change % |
| --- | --- | --- | --- |
| Underlying net interest income 1 | 9,774 | 8,577 | 14 |
| Underlying other income | 1,731 | 1,597 | 8 |
| Operating lease depreciation | (368) | (442) | 17 |
| Net income | 11,137 | 9,732 | 14 |
| Operating costs 2 | (5,175) | (4,988) | (4) |
| Remediation | (92) | (360) | 74 |
| Total costs | (5,267) | (5,348) | 2 |
| Underlying profit before impairment | 5,870 | 4,384 | 34 |
| Underlying impairment (charge) credit 3 | (1,373) | 447 |  |
| Underlying profit | 4,497 | 4,831 | (7) |
| Banking net interest margin A,2 | 2.76% | 2.50% | 26bp |
| Average interest-earning banking assets A | £362.0bn | £353.4bn | 2 |
| Asset quality ratio A,3 | 0.38% | (0.13)% |  |

1 Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth moving from Insurance, Pensions and Investments (previously Insurance and Wealth) to Retail; comparatives have been presented on a consistent basis.

2 During 2022, the Group revised its liquidity transfer pricing methodology. Comparative segmental net interest income has been presented on a consistent basis.

3 2021 comparatives have been presented to reflect the new cost basis, consistent with the current period. See page 67.

|  | At 31 Dec 2022 £bn | At 31 Dec 2021 £bn | Change % |
| --- | --- | --- | --- |
| Open mortgage book | 299.6 | 293.3 | 2 |
| Closed mortgage book | 11.6 | 14.2 | (18) |
| Credit cards 1 | 14.3 | 13.8 | 4 |
| UK unsecured loans | 8.7 | 8.1 | 7 |
| UK Motor Finance | 14.3 | 14.0 | 2 |
| Overdrafts | 1.0 | 1.0 |  |
| Wealth | 0.9 | 1.0 | (10) |
| Other 2 | 13.8 | 10.9 | 27 |
| Loans and advances to customers | 364.2 | 356.3 | 2 |
| Operating lease assets | 4.8 | 4.1 | 17 |
| Total customer assets | 369.0 | 360.4 | 2 |
| Current accounts | 114.0 | 111.5 | 2 |
| Relationship savings | 166.3 | 164.5 | 1 |
| Tactical savings | 16.1 | 16.8 | (4) |
| Wealth | 14.4 | 15.6 | (8) |
| Customer deposits | 310.8 | 308.4 | 1 |
| Risk-weighted assets | 111.7 | 96.4 | 16 |

1 Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth moving from Insurance, Pensions and Investments (previously Insurance and Wealth) to Retail; comparatives have been presented on a consistent basis.

2 Primarily Europe.

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Lloyds Banking Group Annual Report and Accounts 2022 59

# Commercial Banking

Commercial Banking serves small and medium businesses as well as corporate and institutional clients, providing lending, transactional banking, working capital management, debt financing and risk management services. Through investment in digital capability and product development, Commercial Banking will deliver an enhanced customer experience via a digital first Business model and expanded client propositions, generating diversified capital efficient growth and supporting customers on their transition to net zero.

## Strategic progress

- Proactively contacted more than 550,000 customers to offer support in maintaining financial resilience through the cost of living challenges; driven by analytically led client engagement utilising financial wellbeing tools
- Digitising business and transforming customer journeys; strengthening invoice finance proposition through a strategic fintech partnership which will deliver the first end-to-end digital single platform solution offered by a UK bank
- Exceeded full year target of 20 per cent growth in new merchant services clients, with strong foundations for growth as the Group continues to invest in products and digital onboarding capabilities
- Delivered c.£8 billion1 of Corporate and institutional green and sustainable financing in 2022, demonstrating significant progress towards the £15 billion commitment by the end of 2024. Supported purpose-driven growth within loan origination and businesses transitioning to net zero
- Increased the number and scale of commodity hedging solution trades to help clients manage their exposure to highly volatile energy markets, including the launch of carbon emission allowance transactions2
- Strengthened originate to distribute capability, including entering into our first strategic co-investment partnership to support clients' long term needs and increase balance sheet efficiency for the Group
- Upgraded rates digital product offering and foreign exchange pricing in addition to delivering the first phase of the new foreign exchange platform
- Enhancing cash management capabilities in the Islands business, onboarding to the new platform with leading API functionality
- Developing data-driven insights including launch of Lloyds Bank Market Intelligence, a product leveraging the Group's data and customer transactions to support clients' strategic goals

## Financial performance

- Underlying net interest income increased 32 per cent to £3,447 million, reflecting the higher rate environment and strong portfolio management across both assets and liabilities
- Underlying other income of £1,565 million, up 9 per cent on the prior year, driven by higher financial markets activity and strong performance in transactional banking, partly offset by lower levels of corporate financing activity
- Operating costs 9 per cent higher, reflecting higher planned strategic investment costs and the rebuilding of variable pay, partly offset by continued benefit from efficiency initiatives
- Remediation charges of £133 million, including a charge related to HBOS Reading in the fourth quarter
- Underlying impairment charge of £517 million (compared to a credit in the prior year) driven by the revised macroeconomic outlook and a further material charge on a pre-existing single case; the portfolio performance remains strong, with only modest evidence of deterioration observed in the fourth quarter
- Customer lending 1 per cent higher at £93.7 billion due to attractive growth opportunities and foreign exchange movements in the Corporate and Institutional portfolio, partly offset by net repayments within Small and Medium Businesses including government-backed lending
- Customer deposits decreased to £163.8 billion, reflecting pricing decisions based on Group liquidity requirements
- Risk-weighted assets increased 2 per cent to £74.3 billion, driven by the impact of regulatory changes on 1 January 2022, capital accretive balance sheet growth and foreign exchange movements, partly offset by ongoing optimisation

1 Includes the clean growth finance initiative, Commercial Real Estate green lending, renewable energy financing, sustainability linked loans and green and social bond facilitation.

2 Under the UK Emissions Trading Scheme.

60 Lloyds Banking Group Annual Report and Accounts 2022

## Commercial Banking performance summary$^{A}$

|  | 2022 £m | 2021 1 £m | Change % |
| --- | --- | --- | --- |
| Underlying net interest income 2 | 3,447 | 2,602 | 32 |
| Underlying other income | 1,565 | 1,442 | 9 |
| Operating lease depreciation | (5) | (18) | 72 |
| Net income | 5,007 | 4,026 | 24 |
| Operating costs 3 | (2,496) | (2,288) | (9) |
| Remediation | (133) | (830) | 84 |
| Total costs | (2,629) | (3,118) | 16 |
| Underlying profit before impairment | 2,378 | 908 |  |
| Underlying impairment (charge) credit 3 | (517) | 936 |  |
| Underlying profit | 1,861 | 1,844 | 1 |

| Banking net interest margin A,2 | 3.93% | 2.96% | 97bp |
| --- | --- | --- | --- |
| Average interest-earning banking assets A | £90.0bn | £91.2bn | (1) |
| Asset quality ratio A,3 | 0.52% | (0.98%) |  |

$^{1}$ Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking; comparatives have been presented on a consistent basis.

$^{2}$ During 2022, the Group revised its liquidity transfer pricing methodology. Comparative segmental net interest income has been presented on a consistent basis.

$^{3}$2021 comparatives have been presented to reflect the new cost basis, consistent with the current period. See page 67.

|  | At 31 Dec 2022 £bn | At 31 Dec 2021 1 £bn | Change % |
| --- | --- | --- | --- |
| Small and Medium Businesses | 37.7 | 42.5 | (11) |
| Corporate and institutional Banking | 56.0 | 50.0 | 12 |
| Loans and advances to customers | 93.7 | 92.5 | 1 |
| Customer deposits | 163.8 | 167.5 | (2) |
| Risk-weighted assets | 74.3 | 72.7 | 2 |

$^{1}$ Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking; comparatives have been presented on a consistent basis.

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Lloyds Banking Group Annual Report and Accounts 2022 61

# Insurance, Pensions and Investments

Insurance, Pensions and Investments supports over 10 million customers with Assets under Administration (AuA) of £197 billion (excluding Wealth) and annualised annuity payments of over £1.1 billion. The Group continues to invest significantly in the development of the business, including investment propositions to support the Group's mass affluent strategy, innovating intermediary propositions through the Cavendish Online acquisition and Embark, and accelerating the transition to a low carbon economy.

## Strategic progress

- Growth in investment and retirement business, with over £8 billion net new open book money1 in the period, despite difficult market conditions. Open book AuA of £146 billion (23 per cent growth), including Embark
- Workplace Pensions business saw a 12 per cent increase in total regular contributions to pensions administered, with £6.2 billion net AuA flows and 16 per cent AuA share as at 31 December 2022
- Direct to consumer ready-made investment offering now launched into the mobile banking apps, leveraging capability acquired with Embark and supporting the development of the Group's new mass affluent proposition
- On track to meet the target of between £20 billion and £25 billion invested in climate-aware investment strategies through Scottish Widows by 2025, with £12 billion invested in 2022 in line with the Climate Action Plan
- Deployed new features and enhancements to Individual Annuity products, including increasing the maximum age on Open Market products and introducing Value Protection, supporting the target of maintaining 15 per cent market share
- Progress towards the goal of being a top three protection provider by 2025, acquiring Cavendish Online and protecting over 25,000 families (up c.50 per cent) through the Group's direct channels. Grew market share c.1 percentage point2
- Investing in the General Insurance business to digitise customer claims and servicing journeys and expand the Group's brand presence through MBNA. Supporting profitable growth in the long term through improved customer experience
- Migrated c.3.5 million policies to strategic platforms, and decommissioned over 40 legacy applications. Added drawdown functionality to core pension products, enhancing the experience for customers when they reach retirement
- Scottish Widows awarded five stars in the Financial Service Awards across Insurance, Pensions and Investments for the seventh year in a row

## Financial performance

- Strong net income growth (13 per cent) with increased new business and £348 million assumption changes, reflecting improved persistency and updated longevity assumptions, though General Insurance net income decreased
- Life, Pensions and Investments (LP&I) new business income increased by £109 million (34 per cent), with underlying volumes up 8 per cent
- Inclusion of Embark contributes £45 million net income since acquisition, with estimated £3 billion sales volumes
- Strengthened the Workplace proposition, with £44 million growth in new business income
- Investment in the annuity business supporting 78 per cent new business income growth (£62 million) and £967 million bulk annuities sales
- Continued to grow the Protection offering, with new business income up 31 per cent
- General Insurance income net of claims decreased £167 million, with £108 million severe weather related claims (including £52 million from the adverse weather in December) and a reduction in sales volumes, driven by market challenges as insurers have reacted to pricing reforms
- Stockbroking income increased 25 per cent to £50 million with interest income benefitting from rate rises
- Operating costs increased by £143 million (16 per cent) reflecting higher planned strategic investment costs, the rebuilding of variable pay and the inclusion of Embark
- Underlying profit increased by £110 million to £391 million, including a benefit from a reduction in remediation costs

## Insurance capital and liquidity

- Strong capital position supported a final dividend of £100 million paid to Lloyds Banking Group (following £300 million in July 2022), with an estimated Insurance Solvency II ratio of 163 per cent (159 per cent after proposed dividend)
- Credit asset portfolio remains strong, rated 'A' on average, well diversified, with less than 1 per cent of assets backing annuities being sub investment grade or unrated. Strong liquidity position with c.£3.5 billion cash and cash like assets

1 Excludes market movements and Embark assets transferred on acquisition; includes post acquisition Embark net flows.

2 ABI data for nine months ended 30 September 2022.

62 Lloyds Banking Group Annual Report and Accounts 2022

## Insurance, Pensions and Investments performance summary$^{4}$

|  | 2022 £m | 2021 £m | Change % |
| --- | --- | --- | --- |
| Underlying net interest income 2 | (101) | (103) | 2 |
| Underlying other income | 1,576 | 1,406 | 12 |
| Net income | 1,475 | 1,303 | 13 |
| Operating costs 3 | (1,042) | (899) | (16) |
| Remediation | (30) | (123) | 76 |
| Total costs | (1,072) | (1,022) | (5) |
| Underlying profit before impairment | 403 | 281 | 43 |
| Underlying impairment charge 3 | (12) | - |  |
| Underlying profit | 391 | 281 | 39 |
| Life and pensions sales (PVNBP) 4 | 21,687 | 17,289 | 25 |
| General insurance underwritten new gross written premiums | 55 | 87 | (37) |
| General insurance underwritten total gross written premiums | 486 | 655 | (26) |
| General insurance combined ratio 5 | 113% | 101% | 12pp |
|  | At 31 Dec 2022 £bn | At 31 Dec 2021 £bn | Change % |
| Insurance Solvency II ratio (pre-dividend) 6 | 163% | 191% | (28)pp |
| Total customer assets under administration 1 | 197.3 | 179.2 | 10 |

1 Reflects the new organisation structure, with Wealth moving from Insurance, Pensions and Investments (previously Insurance and Wealth) to Retail; comparatives have been presented on a consistent basis.

2 During 2022, the Group revised its liquidity transfer pricing methodology. Comparative segmental net interest income has been presented on a consistent basis.

3 2021 comparatives have been presented to reflect the new cost basis, consistent with the current period. See page 67.

4 Present value of new business premiums.

5 General insurance combined ratio for 2022 includes £108 million relating to event weather claims (storm, subsidence and freeze) (2021: £11 million). 2021 also includes the £91 million regulatory fine relating to the way the Group historically communicated with home insurance customers regarding their renewals. Excluding these items and reserve releases the ratio was 94 per cent (2021: 87 per cent).

6 Equivalent estimated regulatory view of ratio (including With Profits funds and post-dividend) was 152 per cent (31 December 2021: 169 per cent).

## Income by product group

|  | 2022 |  |  | 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | New business £m | Existing business £m | Total £m | New business £m | Existing business £m | Total £m |
| Workplace, planning and retirement | 240 | 130 | 370 | 201 | 110 | 311 |
| Individual and bulk annuities | 141 | 101 | 242 | 79 | 83 | 162 |
| Protection | 42 | 22 | 64 | 32 | 20 | 52 |
| Longstanding | 9 | 303 | 312 | 11 | 286 | 297 |
| Total LP&I | 432 | 556 | 988 | 323 | 499 | 822 |
| Life and pensions experience and other items |  |  | 279 |  |  | 161 |
| General insurance |  |  | 113 |  |  | 280 |
| Embark |  |  | 45 |  |  |  |
| Stockbroking |  |  | 50 |  |  | 40 |
| Net income |  |  | 1,475 |  |  | 1,303 |

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Lloyds Banking Group Annual Report and Accounts 2022 63

## Insurance, Pensions and Investments continued

### Volatility arising in the insurance business

Volatility included in the Group's statutory results before tax comprises the following:

|  | 2022 £m | 2021 £m |
| --- | --- | --- |
| Insurance volatility | (735) | 503 |
| Policyholder interests volatility | 236 | 366 |
| Total volatility | (499) | 869 |
| Insurance equity hedging arrangements | 351 | (592) |
| Total | (148) | 277 |

The Group's insurance business has policyholder liabilities that are supported by substantial holdings of investments. IFRS requires that the changes in both the value of the liabilities and the investments are reflected within the income statement. The value of the liabilities does not move exactly in line with changes in the value of the investments. As the investments are substantial, movements in their value can have a significant impact on the profitability of the Group. Management believes that it is appropriate to disclose the division's results on the basis of an expected return. The impact of the actual return on these investments differing from the expected return is included within insurance volatility.

Insurance volatility movements during 2022 were largely driven by significant increases in interest rates, equity falls and bond spreads widening, offset to some extent by inflation increases (net of inflation hedging). Although the Group manages its exposures to equity, interest rate, foreign currency exchange rate, inflation and market movements within the Insurance division, it does so by managing the impacts on both capital and earnings volatility, though the extent to which these bases are hedged needs to be balanced. For example, equity market movements are hedged within Insurance on a Solvency II capital basis and whilst this also reduces the IFRS earnings exposure to equity market movements, the hedge works to a lesser extent from an IFRS earnings perspective.

### Changes in insurance assumptions and methodology

The following impacts from assumption changes are included within Insurance, Pensions and Investments underlying other income.

|  | 2022 £m | 2021 £m |
| --- | --- | --- |
| Persistency | 229 | (15) |
| Mortality, longevity and morbidity | 112 | 149 |
| Expense assumptions | 9 | (94) |
| Other | (2) | 3 |
| Total assumption changes | 348 | 43 |
| Methodology changes | - | 68 |
| Total assumption and methodology changes | 348 | 111 |

Key life and pensions assumptions and methodologies are formally updated through the annual basis review in the fourth quarter of each year. However, assumptions are monitored throughout the year and are updated at half-year where there is a compelling reason to do so.

The current period assumptions and methodology changes impact of £348 million, includes a benefit from updating to the latest industry longevity assumptions and a significant improvement in persistency assumptions (including benefit from adding drawdown functionality to the Group's core pension products).

64 Lloyds Banking Group Annual Report and Accounts 2022

## Implementation of IFRS 17

IFRS 17 is an accounting standard that changes the way profit is recognised for insurance contracts. Rather than recognise the expected profit for an insurance contract at its inception, IFRS 17 requires that the expected profit for providing insurance contract services is recognised over the period insurance contract services are provided. The profit is calculated based on discounted best estimate cash flows and an associated risk adjustment and is recognised by the creation of a contractual service margin (CSM) on the balance sheet, which is released to the income statement over the contract period. As a result, both new business profit, which is currently recognised in other income at the outset of the contract, and the impact of certain assumption changes, which is recognised in other income at the time the assumption is changed, will be recognised in the CSM and subsequently released to the income statement over the period of contractual service under IFRS 17. Existing business will continue to be recognised in the income statement over the period of the contract. Losses on groups of onerous contracts and recoveries of such losses, to the extent they are covered by reinsurance contracts held, are recognised in the income statement immediately. The Group will continue to recognise market volatility outside of underlying profit.

Whilst IFRS 17 impacts the timing of profit recognition for insurance contracts, it will have no impact on the total profit recognised over the lifetime of these contracts, Group capital or capital generation, the economic value of the insurance business or its capital position. The new standard is not expected to impact the ability of the Insurance business to pay dividends within the Group structure, which will continue to be driven by the Solvency II position.

The Group has adopted IFRS 17 from 1 January 2023 and as required by the standard, will restate its total equity at 1 January 2022 and its income statement for 2022. The Group's total equity under IFRS 17 at 1 January 2022 was £51.3 billion, approximately £1.9 billion lower than under IFRS 4. The reduction in equity is driven by the derecognition of the value in-force asset and the move to best estimate of contract liabilities, the creation of the new CSM liability (approximately £1.9 billion, net of reinsurance) and the establishment of the risk adjustment (approximately £1.5 billion, net of reinsurance).

During 2022, on the current IFRS 4 accounting basis, Insurance contributed £1,576 million to the Group's underlying other income, including new business income of £432 million and net gains arising from assumption changes of £348 million, both of which will be largely deferred to the CSM. Including these items, of the total 2022 reported underlying other income in Insurance, Pensions and Investments of £1,576 million, c.£1,300 million will be subject to a revised treatment under IFRS 17.

Under IFRS 17, income arising from insurance contracts will primarily be recognised through the release of the CSM and the risk adjustment (for non-financial risks such as mortality and persistency), rather than separately for new business and existing business. The Group estimates that c.£300 million of the CSM and risk adjustment, gross of reinsurance, held at 1 January 2022 would have been released to the income statement during 2022 on both a statutory and underlying basis.

During 2022, the Group added a drawdown feature to its existing long-standing and workplace pension business as a significant customer enhancement. This is a contract modification that results in a substantially different contract boundary. IFRS 17 requires that the contracts and their associated CSM (approximately £0.4 billion) at the time of the modification are derecognised and the modified contracts together with a new CSM (approximately £1.7 billion) are recognised as if they were new contracts. These contract modifications in 2022 are estimated to increase the CSM by approximately £1.3 billion and will result in the Group recognising a charge to its 2022 restated income statement of approximately £1.3 billion. While there may be contract modifications in the future, they are unlikely to be of this materiality. Given the scale of this modification and its impact on the 2022 income statement, it will be recognised outside of underlying profit. The release of the new CSM following modification will be disclosed in the insurance service result given the expected materiality of the annual release to the income statement. The Group will undertake further work during the first quarter of 2023 to finalise the financial impact of the contract modification and does not expect the final impact on equity at 31 December 2022 to differ materially from this estimate. This contract modification does not affect the capital position of the insurance business or the Group. Further information is given in note 55.

Under IFRS 17, the Group's reported results will continue to be impacted by market and economic factors, albeit the treatment and basis of estimation of certain items is being modified. Under IFRS 4, both the volatility relating to the Group's unit-linked business and policyholder interests volatility on the value in-force asset (VIF) are recognised in the income statement immediately. Under IFRS 17, the volatility relating to the unit-linked business will be recognised in the CSM and released to the income statement in subsequent years except where the Group has applied the risk mitigation option. In addition, policyholder interests volatility on the VIF will not exist under IFRS 17. The removal of these two components together are estimated to adversely impact volatility by c.£0.4 billion in the 2022 income statement restated for IFRS 17 versus IFRS 4. The consequent increased adverse volatility which remains in the income statement under IFRS 17 reflects the significant market volatility seen in 2022.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 65

# Equity Investments and Central Items

|  | 2022 £m | 2021 £m | Change % |
| --- | --- | --- | --- |
| Net income | 429 | 702 | (39) |
| Operating costs 1 | (122) | (137) | 11 |
| Remediation | - | 13 |  |
| Total costs | (122) | (124) | 2 |
| Underlying profit before impairment | 307 | 578 | (47) |
| Underlying impairment credit | 392 | 2 |  |
| Underlying profit | 699 | 580 | 21 |

$^{1}$2021 comparatives have been presented to reflect the new cost basis, consistent with the current period. See page 67.

Equity Investments and Central Items contains the Group's equity investments businesses, including Lloyds Development Capital (LDC) and the Group's share of the Business Growth Fund (BGF), as well as Citra Living. Also included are income and expenses not attributed to other divisions, including residual underlying net interest income after transfer pricing (which includes the central recovery of the Group's distributions on other equity instruments), in period gains from gilt sales and the unwind of associated hedging costs.

During 2022, the Group's equity investment businesses contributed net income of £419 million compared to £573 million in 2021. This is lower given the above run rate gains in LDC in 2021 and charges of c.£40 million in relation to the BGF in 2022. During 2022 LDC has continued to deliver strong investment performance. The business continues to build its investment portfolio with attractive returns and opportunities to further integrate with the Group offering.

Underlying impairment for the period was a credit of £392 million compared to £2 million in 2021, relating to the full release of the ECL central adjustment held at the end of 2021 (31 December 2021: £400 million). This adjustment was not allocated to specific portfolios and was applied in respect of uncertainty in the economic outlook, relating to the risks of COVID-19.

## Other financial information

### Number of employees (full-time equivalent)

|  | At 31 Dec 2022 | At 31 Dec 2021 |
| --- | --- | --- |
| Retail 1 | 30,208 | 30,235 |
| Commercial Banking 1 | 8,671 | 8,554 |
| Insurance, Pensions and Investments 1 | 3,999 | 4,026 |
| Group functions and services 1 | 17,699 | 16,290 |
|  | 60,577 | 59,105 |
| Agency staff | (1,223) | (1,150) |
| Total number of employees | 59,354 | 57,955 |

$^{1}$ Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth moving from Insurance, Pensions and Investments (previously Insurance and Wealth) to Retail; comparatives have been presented on a consistent basis.

### Post-tax return on average assets

|  | 2022% | 2021% |
| --- | --- | --- |
| Post-tax return on average assets | 0.62 | 0.67 |

### Share buyback in respect of 2021 results

During 2022, the Group completed a £2 billion share buyback programme, in respect of 2021 results, with c.4.5 billion shares purchased at an average price of 44.16 pence per share. Through a reduction in the weighted average number of ordinary shares in issue, share buybacks have the effect of increasing earnings per share and, depending on the average price paid per share, can either increase or decrease the tangible net assets per share. The 2022 share buyback had the effect of increasing the earnings per share by 0.3 pence and increasing the tangible net assets per share by 0.5 pence.

66 Lloyds Banking Group Annual Report and Accounts 2022

# Alternative performance measures

The statutory results are supplemented with those presented on an underlying basis and also with other alternative performance measures. This is to enable a comprehensive understanding of the Group and facilitate comparison with peers. The Group Executive Committee, which is the chief operating decision maker for the Group, reviews the Group's results on an underlying basis in order to assess performance and allocate resources. Management uses underlying profit before tax, an alternative performance measure, as a measure of performance and believes that it provides important information for investors. This is because it allows for a comparable representation of the Group's performance by removing the impact of items such as volatility caused by market movements outside the control of management.

In arriving at underlying profit, statutory profit before tax is adjusted for the items below, to allow a comparison of the Group's underlying performance:

- Volatility and other items, which includes the effects of certain asset sales, the volatility relating to the Group's hedging arrangements and that arising in the insurance business, the unwind of acquisition-related fair value adjustments and the amortisation of purchased intangible assets

As announced at the 2021 full-year, in the first quarter of 2022 the Group adopted a new basis for cost reporting, including all restructuring costs, with the exception of merger, acquisition and integration costs, within operating costs. Non lending-related fraud costs, previously included within underlying impairment, are also now reported as part of operating costs. This has not impacted the statutory impairment charge. Comparatives have been presented on a consistent basis.

The analysis of lending and expected credit loss (ECL) allowances is presented on both a statutory and an underlying basis and a reconciliation between the two is shown on **page 163**. On a statutory basis, purchased or originated credit-impaired (POCI) assets include a fixed pool of mortgages that were purchased as part of the HBOS acquisition at a deep discount to face value reflecting credit losses incurred from the point of origination to the date of acquisition. Over time, these POCI assets will run off as the loans redeem, pay down or losses crystallise. The underlying basis assumes that the lending assets acquired as part of a business combination were originated by the Group and are classified as either Stage 1, 2 or 3 according to the change in credit risk over the period since origination. Underlying ECL allowances have been calculated accordingly. The Group uses the underlying basis to monitor the creditworthiness of the lending portfolio and related ECL allowances.

The Group calculates a number of metrics that are used throughout the banking and insurance industries on an underlying basis. These metrics are not necessarily comparable to similarly titled measures presented by other companies and are not any more authoritative than measures presented in the financial statements, however management believes that they are useful in assessing the performance of the Group and in drawing comparisons between years. A description of these measures and their calculation, is given below. Alternative performance measures are used internally in the Group's Monthly Management Report.

| Asset quality ratio | The underlying impairment charge or credit for the period in respect of loans and advances to customers, both drawn and undrawn, expressed as a percentage of average gross loans and advances to customers for the period. This measure is useful in assessing the credit quality of the loan book |
| --- | --- |
| Banking net interest margin | Banking net interest income on customer and product balances in the banking businesses as a percentage of average gross interest-earning banking assets for the period. This measure is useful in assessing the profitability of the banking business |
| Business-as-usual costs | Total operating costs less strategic investment and new businesses, including Embark and Citra Living |
| Cost income ratio | Total costs as a percentage of net income calculated on an underlying basis. This measure is useful in assessing the profitability of the Group's operations before the effects of the underlying impairment credit or charge |
| Economic profit | Statutory profit after tax adjusted to apply a charge for equity utilisation and to remove non-controlling interests. This measure is used as one of the Group's key performance indicators and is useful in assessing the Group's profitability whilst factoring in the cost of equity |
| Loan to deposit ratio | Loans and advances to customers divided by customer deposits |
| Operating costs | Operating expenses adjusted to remove the impact of remediation, restructuring costs, operating lease depreciation, the amortisation of purchased intangibles, the insurance gross up and other statutory items |
| Pro forma CET1 ratio | CET1 ratio adjusted for the effects of the dividend paid up by the insurance business in the subsequent quarter period and the impact of the announced ordinary share buyback programme. December 2021 pro forma CET1 ratios include the impact of the share buyback programme in respect of 2021, announced in February 2022 |
| Return on tangible equity | Profit attributable to ordinary shareholders, divided by average tangible net assets. This measure is useful in providing a consistent basis with which to measure the Group's performance |
| Tangible net assets per share | Net assets excluding intangible assets such as goodwill and acquisition-related intangibles divided by the number of ordinary shares in issue. This measure is useful in assessing shareholder value |
| Underlying profit before impairment | Underlying profit adjusted to remove the underlying impairment credit or charge. This measure is useful in allowing for a comparable representation of the Group's performance before the effects of the forward-looking underlying impairment credit or charge |
| Underlying profit | Statutory profit before tax adjusted for certain items as detailed above. This measure allows for a comparable representation of the Group's performance by removing the impact of certain items including volatility caused by market movements outside the control of management |

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 67

## Alternative performance measures continued

### Reconciliation between statutory and underlying basis financial information

| Statutory basis | Removal of: |  |  | Underlying basis 4 |  |
| --- | --- | --- | --- | --- | --- |
|  | £m | Volatility and other items 1 £m | Insurance gross up 2 £m | £m |  |
| 2022 |  |  |  |  |  |
| Net interest income | 13,957 | 226 | (1,011) | 13,172 | Underlying net interest income |
| Other income, net of insurance claims and changes in insurance and investment contract liabilities | 4,252 | 120 | 877 | 5,249 | Underlying other income |
|  |  | (373) | - | (373) | Operating lease depreciation |
| Total income, net of insurance claims and changes in insurance and investment contract liabilities | 18,209 | (27) | (134) | 18,048 | Net income |
| Operating expenses 4 | (9,759) | 535 | 134 | (9,090) | Total costs 4 |
| Impairment charge | (1,522) | 12 | - | (1,510) | Underlying impairment charge |
| Profit before tax | 6,928 | 520 | - | 7,448 | Underlying profit |
| 2021 |  |  |  |  |  |
| Net interest income | 9,366 | 255 | 1,542 | 11,163 | Underlying net interest income |
| Other income, net of insurance claims and changes in insurance and investment contract liabilities | 6,958 | (139) | (1,759) | 5,060 | Underlying other income |
|  |  | (460) | - | (460) | Operating lease depreciation |
| Total income, net of insurance claims and changes in insurance and investment contract liabilities | 16,324 | (344) | (217) | 15,763 | Net income |
| Operating expenses 4 | (10,800) | 971 | 217 | (9,612) | Total costs 4,5 |
| Impairment credit | 1,378 | 7 | - | 1,385 | Underlying impairment credit 5 |
| Profit before tax | 6,902 | 634 | - | 7,536 | Underlying profit |

1 In the year ended 31 December 2022 this comprised the effects of market volatility and asset sales (loss of £252 million); the amortisation of purchased intangibles (loss of £70 million); restructuring costs (loss of £80 million); and fair value unwind (loss of £118 million).

2 In the year ended 31 December 2021 this comprised the effects of market volatility and asset sales (gain of £87 million); the amortisation of purchased intangibles (loss of £70 million); restructuring costs (loss of £452 million); and fair value unwind (loss of £199 million).

3 The Group's insurance businesses' income statements include income and expense attributable to the policyholders of the Group's long-term assurance funds. These items have no impact in total upon profit attributable to equity shareholders and, to provide a clearer representation of the underlying trends within the business, these items are shown net within the underlying results.

4 Statutory operating expenses includes operating lease depreciation. On an underlying basis operating lease depreciation is included in net income.

5 2021 comparatives have been presented to reflect the new cost basis, consistent with the current period. See page 67.

### Asset quality ratio$^{4}$

|  | 2022 | 2021 |
| --- | --- | --- |
| Underlying impairment (charge) credit (£m) | (1,510) | 1,385 |
| Remove non-customer underlying impairment (£m) | 27 | (7) |
| Underlying customer related impairment (charge) credit (£m) (a) | (1,483) | 1,378 |
| Loans and advances to customers (£bn) | 454.9 | 448.6 |
| Add back expected credit loss allowance (drawn) (£bn) | 4.5 | 3.8 |
| Add back acquisition related fair value adjustments (£bn) | 0.4 | 0.4 |
| Underlying gross loans and advances to customers (£bn) | 459.8 | 452.8 |
| Averaging (£bn) | (2.9) | (2.4) |
| Average underlying gross loans and advances to customers (£bn) (b) | 456.9 | 450.4 |
| Asset quality ratio 4 = (a) / (b) | 0.32% | (0.31%) |

68 Lloyds Banking Group Annual Report and Accounts 2022

## Banking net interest margin$^{A}$

|  | 2022 £m | 2021 £m |
| --- | --- | --- |
| Underlying net interest income (£m) | 13,172 | 11,163 |
| Remove non-banking underlying net interest expense (£m) | 111 | 108 |
| Banking underlying net interest income (£m) (a) | 13,283 | 11,271 |
| Underlying gross loans and advances to customers (£bn) | 459.8 | 452.8 |
| Adjustment for non-banking and other items: |  |  |
| Fee-based loans and advances (£bn) | (8.4) | (5.1) |
| Other (£bn) | 5.0 | 1.3 |
| Interest-earning banking assets (£bn) | 456.4 | 449.0 |
| Averaging (£bn) | (4.4) | (4.4) |
| Average interest-earning banking assets A (£bn) (b) | 452.0 | 444.6 |
| Banking net interest margin A (%) = (a) / (b) | 2.94 | 2.54 |

## Cost:income ratio$^{A}$

|  | 2022 £m | 2021 £m |
| --- | --- | --- |
| Total costs (a) | 9,090 | 9,612 |
| Net income (b) | 18,048 | 15,763 |
| Cost:income ratio A = (a) / (b) | 50.4% | 61.0% |

## Economic profit$^{A}$

|  | 2022 £m | 2021 £m |
| --- | --- | --- |
| Statutory profit after tax | 5,555 | 5,885 |
| Remove equity utilisation charge | (2,677) | (2,721) |
| Remove non-controlling interests | (96) | (101) |
| Economic profit A | 2,782 | 3,063 |

## Loan to deposit ratio$^{A}$

|  | At 31 Dec 2022 £bn | At 31 Dec 2021 £bn |
| --- | --- | --- |
| Loans and advances to customers (a) | 454.9 | 448.6 |
| Customer deposits (b) | 475.3 | 476.3 |
| Loan to deposit ratio A = (a) / (b) | 96% | 94% |

## Operating costs$^{A}$

|  | 2022 £m | 2021 £m |
| --- | --- | --- |
| Operating expenses | 9,759 | 10,800 |
| Adjustment for: |  |  |
| Remediation | (255) | (1,300) |
| Restructuring 1 | (80) | (452) |
| Operating lease depreciation | (373) | (460) |
| Amortisation of purchased intangibles | (70) | (70) |
| Insurance gross up | (134) | (217) |
| Other statutory items 1 | (12) | 11 |
| Operating costs A,1 | 8,835 | 8,312 |
| Remove costs related to strategic initiatives and news businesses | (489) | - |
| Business-as-usual costs A | 8,346 | 8,312 |

$^{1}$2021 comparatives have been presented to reflect the new cost basis, consistent with the current period. See page 67.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 69

## Alternative performance measures continued

### Pro forma CET1 ratio$^{A}$

|  | At 31 Dec 2022% | At 31 Dec 2021% |
| --- | --- | --- |
| CET1 ratio | 15.1 | 17.3 |
| Insurance dividend and share buyback accrual 1 | (1.0) | (1.0) |
| Pro forma CET1 ratio A | 14.1 | 16.3 |

$^{1}$ Dividend paid up by the insurance business in the subsequent first quarter period and the impact of the announced ordinary share buyback programme.

### Return on tangible equity$^{A}$

|  | 2022 | 2021 |
| --- | --- | --- |
| Profit attributable to ordinary shareholders (£m) (a) | 5,021 | 5,355 |
| Average shareholders' equity (£bn) | 43.9 | 45.2 |
| Average intangible assets (£bn) | (6.7) | (6.3) |
| Average tangible equity (£bn) (b) | 37.2 | 38.9 |
| Return on tangible equity (%)* = (a) / (b) | 13.5 | 13.8 |

### Tangible net assets per share$^{A}$

|  | At 31 Dec 2022 £m | At 31 Dec 2021 £m |
| --- | --- | --- |
| Ordinary shareholders' equity | 41,980 | 47,011 |
| Remove goodwill | (2,655) | (2,320) |
| Remove intangible assets | (4,786) | (4,196) |
| Remove purchased value of in-force business | (175) | (197) |
| Other, including deferred tax effects | 396 | 538 |
| Tangible net assets (a) | 34,760 | 40,836 |
| Ordinary shares in issue, excluding own shares (b) | 66,944m | 70,996m |
| Tangible net assets per share* = (a) / (b) | 51.9p | 57.5p |

### Underlying profit before impairment$^{A}$

|  | 2022 £m | 2021 £m |
| --- | --- | --- |
| Statutory profit before tax | 6,928 | 6,902 |
| Remove impairment charge (credit) | 1,522 | (1,378) |
| Remove volatility and other items including restructuring | 508 | 627 |
| Underlying profit before impairment A | 8,958 | 6,151 |

70 Lloyds Banking Group Annual Report and Accounts 2022

# Governance

In this section

Directors' report

| Chair's introduction | 72 |
| --- | --- |
| UK Corporate Governance Code | 73 |
| Our Board | 74 |
| Group Executive Committee | 76 |
| Board leadership and company purpose | 78 |
| Division of responsibilities | 87 |
| Composition, succession and evaluation | 88 |
| Audit, risk and internal control | 91 |
| Committee reports |  |
| Nomination and Governance Committee report | 92 |
| Audit Committee report | 95 |
| Board Risk Committee report | 99 |
| Responsible Business Committee report | 104 |
| Directors' remuneration report | 105 |
| Other statutory and regulatory information | 134 |

# Supporting SMEs on their net zero journey

64 per cent of SMEs have plans in place to reach net zero by 2050

We are proud to work with smaller businesses around the UK and have developed a range of resources to support their sustainability work, in our **From Now to Net Zero practical guide for SMEs** and our Green Buildings Tool.

Our **From Now to Net Zero practical guide** sets out a five-step journey for SMEs to reach net zero. We followed this in 2022 with the release of our Net Zero Monitor. Almost two thirds, 64 per cent, of SMEs said they had a plan in place to reach net zero by 2050, with only 5 per cent not acting or considering acting on net zero. Our activities with SMEs form part of a range of engagements with our stakeholders in support of our Board commitment to reduce the emissions of the Group by more than 50 per cent by 2030 and achieving net zero by 2050 or sooner.

Statutory report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 71

## Chair's introduction
### Good corporate governance underpins the Group's ability to support our customers and to meet the needs of our stakeholders

![img-0.jpeg](img-0.jpeg)

**Robin Budenberg**
Chair

In February 2022, the Group launched an ambitious new strategy which is aligned to our purpose of Helping Britain Prosper and a primary focus of the Board has been the Group's strategic transformation and operational resilience. During the year, the Board has played a vital governance role overseeing the changes and planning required for the delivery of the new strategy.

Good corporate governance underpins the Group's ability to support our customers and to meet the needs of our stakeholders. As I mentioned in last year's Chair's Statement, there are strong links between governance and fostering a culture that supports long-term sustainable success. This financial year, the Board continued to promote a healthy, values-led culture that delivers the right outcomes for our customers. In line with our customer focus, the Board has overseen the Group's response to the increased cost of living.

The Board recognises that the ongoing societal challenges and macroeconomic uncertainties, including climate change and the rising cost of living, are concerning for many people. Our governance arrangements are designed to enable the Group to respond to external challenges so that we maintain support for our customers during these challenging times and create a more sustainable and inclusive future for people and businesses.

I will now highlight some of the key corporate governance activities that took place during the year.

### Board oversight of new strategy

The Board has overseen the changes and planning required for the delivery of the Group's new strategy, together with the finalisation of the formulation of the Group's purpose, strategy, values and key performance indicators. Further details can be found on **page 81**.

### Leading on culture

As I mentioned above, the Board has continued to play a lead role in fostering a healthy, values-led culture. Further information on the Board's role in assessing, monitoring and providing oversight of the development of the Group's values-led culture can be found on **pages 84 to 85**.

### Inclusion and diversity

Driving inclusion and diversity in the broadest sense throughout all levels of the organisation remains a priority for the Board. I am pleased to report that the representation of women at Board and senior leadership levels continued to increase in 2022 and the Group embedded further its Race Action Plan to drive change. More information on the Board's approach to inclusion and diversity is set out on **page 94**.

### Tackling climate change

In line with the Group's commitments as a founding member of the Net-Zero Banking Alliance and following the approval of emissions reduction targets for the Group's own operations in 2021, the Board approved the publication of an emissions reduction target for the Group's supply chains and specific sectoral emissions reduction targets for the Group's financed emissions in many of the most carbon intensive or financially material sectors. Further details can be found on **page 81**.

### Consumer Duty

Following publication of the FCA's final rules on Consumer Duty, the Board approved the Group's implementation plan. Amanda Mackenzie, Chair of the Responsible Business Committee, has been appointed as Group Consumer Duty Champion. Further details on the Board's role in overseeing the Group's approach to Consumer Duty can be found on **page 81**.

### Board and Committee changes

Scott Wheway joined the Board as a non-executive director and a member of the Nomination and Governance Committee and the Board Risk Committee on 1 August 2022. Scott became Chair of Scottish Widows Group on 12 September 2022. Cathy Turner also joined the Board as a non-executive director and a member of the Remuneration Committee on 1 November 2022.

Stuart Sinclair retired as a non-executive director at the Company's Annual General Meeting in May 2022. Stuart made a significant contribution to the Board and left with our sincere thanks and best wishes. Full details of the Board and Committee changes during 2022 are set out on **page 92**.

### Ring-fencing governance

Although this is Lloyds Banking Group plc's corporate governance report, I would like to thank Nigel Hinshelwood, Sarah Bentley and Brendan Gilligan for their continued and valued contribution as non-executive directors of Lloyds Bank plc and Bank of Scotland plc (the Ring-Fenced Banks), which represent the majority of the Group's banking activities. Further details regarding the Group's ring-fencing arrangements and the critical role these directors play in the Group's overall governance structure are set out on **pages 79 and 86**.

### Board evaluation

An external evaluation of the Board's effectiveness was undertaken by Dr Tracy Long of Boardroom Review Limited in 2022. Further information on the findings and process can be found on **page 89**.

### Corporate Governance Code

The Company's statement of compliance with the UK Corporate Governance Code 2018 can be found on **page 73**.

### Stakeholder engagement

The Board recognises the importance of engaging with all its stakeholders. Meeting the Group's responsibilities and duties to shareholders and the communities we serve is central to our purpose. Further details on how the Board takes account of stakeholder interests are set out on **pages 82 to 83**.

**Robin Budenberg**
Chair

72 Lloyds Banking Group Annual Report and Accounts 2022

# UK Corporate Governance Code

## Compliance statement

The UK Corporate Governance Code 2018 (the Code) applied to the financial year ended 31 December 2022. The Code is available at www.frc.org.uk.

**The directors' report is set out in a way that helps shareholders and investors to evaluate how the Company has applied the principles and complied with the provisions of the Code during 2022. The table below signposts the most relevant parts of the Annual Report, in particular where supporting information is not in the directors' report.**

The Company confirms that it applied the principles and complied with all the provisions of the Code throughout 2022. An externally facilitated evaluation of the Board took place in 2022 and further information on the findings and process is on **page 89**.

### Principles of the Code

#### 1. Board leadership and company purpose (pages 78 to 86)

|  | Page(s) |
| --- | --- |
| Chair's introduction | 72 |
| Our Board | 74 to 75 |
| Purpose, values and strategy | 2 to 31 and 81 |
| Culture | 11, 15 and 84 to 85 |
| Board stakeholder engagement and decision-making | 10 to 11 and 82 to 83 |
| Key performance indicators and strategic performance | 32 to 37 |
| Risk assessment | 38 to 44 |
| Risk management | 139 to 195 |
| Rewarding our workforce | 105 to 133 |

#### 2. Division of responsibilities (page 87)

| Our Board and governance structure | 78 |
| --- | --- |
| Independence and time commitments | 93 |
| Committee reports | 92 to 106 and 123 |
| Board and Committee meeting attendance | 79 |

#### 3. Composition, succession and evaluation (pages 88 to 90)

| Our Board | 74 to 75 |
| --- | --- |
| Our Board and governance structure | 78 |
| Board and Committee meeting attendance | 79 |
| Nomination and Governance Committee report | 92 to 94 |

#### 4. Audit, risk and internal control (page 91)

| Audit Committee report | 95 to 98 |
| --- | --- |
| Statement of directors' responsibilities | 137 |
| Risk management | 139 to 195 |
| Principal risks and emerging risks | 39 to 43 |
| Board Risk Committee report | 99 to 103 |
| Going concern | 44 |
| Viability report | 44 |

#### 5. Remuneration

| Directors' remuneration report | 105 to 133 |
| --- | --- |

## Corporate governance headlines at a glance

### Returns of capital

# 2.40p

Ordinary dividend per share for the financial year ended 31 December 2022 including interim and final dividend; in addition, a £2 billion share buyback programme commenced in February 2022 and completed in October 2022.

### Board tenure$^{1}$

![img-1.jpeg](img-1.jpeg)

- 1. 0-2 years
- 2. 2-4 years
- 3. 4-6 years
- 4. 6-8 years
- 5. 8-9 years

$^{1}$ As at 31 December 2022.

### Independence of the Board$^{2}$(excluding the Chair)

![img-2.jpeg](img-2.jpeg)

- 1. Independent
- 2. Executive
- 3. Board members as at 31 December 2022 and remains correct as at the date of publication of the Annual Report.

### Board ethnic diversity$^{3}$

Number (%)

![img-3.jpeg](img-3.jpeg)

**Met the Parker Review target and new FCA Listing Rule for at least one board member from a Black, Asian or Minority Ethnic background throughout the year$^{4}$**

- 1. White 9 (82%)
- 2. Black, Asian or Minority Ethnic 2 (18%)

$^{3}$ Board members as at 31 December 2022 and remains correct as at the date of publication of the Annual Report.

### Board gender diversity$^{4}$

Women (%)

![img-4.jpeg](img-4.jpeg)

**Met the FTSE Women Leaders Review and new FCA Listing Rule target of at least 40% of the board being women$^{5}$**

- $^{4}$ As at 31 December of the relevant year. The percentage for 2022 remains correct as at the date of publication of the Annual Report.
- $^{5}$ Please refer to **page 93** in relation to the target referred to in the FTSE Women Leaders Review and the new FCA Listing Rule that at least one senior board position (Chair, Chief Executive, Senior Independent Director or Chief Financial Officer) should be held by a woman.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 73

# Our Board
## Establishing our purpose, values and strategy

Each of the directors of Lloyds Banking Group plc is also a director of Lloyds Bank plc and Bank of Scotland plc (the Ring-Fenced Banks). The boards of the Ring-Fenced Banks have three additional non-executive directors: Nigel Hinshelwood (Senior Independent Director), Sarah Bentley and Brendan Gilligan. Read their biographies and about the Ring-Fenced Banks on pages 79 and 86.

Stuart Sinclair was a non-executive director of Lloyds Banking Group plc during 2022 until his retirement on 12 May 2022.

![img-5.jpeg](img-5.jpeg)

► Robin Budenberg CBE
Chair

![img-6.jpeg](img-6.jpeg)

► Alan Dickinson
Deputy Chair and Senior
Independent Director

![img-7.jpeg](img-7.jpeg)

► Sarah Legg
Independent non-executive director

Appointed: October 2020 (Board), January 2021 (Chair)

Skills, experience and contribution:

- Extensive financial services and investment banking experience
- Strong governance and strategic advisory skills to companies and government
- Regulatory, public policy and stakeholder management experience

Robin spent 25 years advising UK companies and the UK Government while working for S.G. Warburg/UBS Investment Bank and was formerly Chief Executive and Chairman of UK Financial Investments (UKFI), managing the Government's investments in UK banks following the 2008 financial crisis. He was awarded a CBE in 2015 for services to the taxpayer and the economy and is a qualified Chartered Accountant.

External appointments:

Chairman of The Crown Estate.

Appointed: September 2014 (Board), December 2019 (Senior Independent Director), May 2020 (Deputy Chair)

Skills, experience and contribution:

- Highly regarded retail and commercial banker
- Strong strategic, risk management and core banking experience
- Regulatory and public policy experience
Alan has 37 years' experience with the Royal Bank of Scotland, most notably as Chief Executive of RBS UK. Alan was formerly Chairman of Urban&Civic plc and of Brown, Shipley & Co. Limited, a Non-Executive Director and Chairman of the Risk Committee of the Nationwide Building Society and of Willis Limited and a Governor of Motability. Alan is a Fellow of the Chartered Institute of Bankers and the Royal Statistical Society.

External appointments:

Non-Executive Director of the England and Wales Cricket Board.

Appointed: December 2019

Skills, experience and contribution:

- Strong financial leadership and regulatory reporting skills
- Significant audit and risk experience in financial leadership
- Strong transformation programme experience

Sarah has spent her entire executive career in financial services with almost 30 years at HSBC in finance leadership roles. She was the Group Financial Controller, a Group General Manager and also Chief Financial Officer for HSBC's Asia Pacific region. She also spent eight years as a Non-Executive Director on the board of Hang Seng Bank Limited, a Hong Kong listed bank.

External appointments:

Non-Executive Director of Severn Trent plc, a Trustee of the Lloyds Bank Foundation for England and Wales, Board Member of the Audit Committee Chairs' Independent Forum and Chair of the Campaign Advisory Board, King's College, Cambridge University.

![img-8.jpeg](img-8.jpeg)

► Lord Lupton CBE

Independent non-executive director and Chair of Lloyds Bank Corporate Markets plc

![img-9.jpeg](img-9.jpeg)

► Amanda Mackenzie LVO OBE

Independent non-executive director

![img-10.jpeg](img-10.jpeg)

► Harmeen Mehta

Independent non-executive director

Appointed: June 2017 (Board), August 2017 (Chair of Lloyds Bank Corporate Markets plc)

Skills, experience and contribution:

- Extensive international corporate experience, especially in financial markets
- Strong board governance experience, including investor relations
- Regulatory and public policy experience
- Significant experience in strategic planning and implementation

Lord Lupton was Deputy Chairman of Baring Brothers, co-founded the London office of Greenhill & Co. and was Chairman of Greenhill Europe. He is a former Treasurer of the Conservative Party and became a Life Peer in October 2015, serving on the House of Lords Select Committee on Charities.

External appointments:

Senior Advisor to Greenhill Europe, a Trustee of The Lovington Foundation and Chairman of the Board of Visitors of the Ashmolean Museum.

Appointed: October 2018

Skills, experience and contribution:

- Extensive experience in ESG matters, including responsible business and sustainability
- Considerable customer engagement experience
- Strong digital technology experience
- Significant marketing and brand background
Amanda was Chief Executive of Business in the Community, of which King Charles III is the Royal Founding Patron and which promotes responsible business and corporate responsibility. Prior to that role, she was a member of Aviva's Group Executive for seven years as Chief Marketing and Communications Officer and was seconded to help launch the United Nation's Sustainable Development Goals. She is also a former Director of British Airways AirMiles, BT, Hewlett Packard Inc and British Gas.

External appointments:

Chair of The Queen's Reading Room and trustee of the charity Cumberland Lodge.

Appointed: November 2021

Skills, experience and contribution:

- Over 25 years' experience leading digital innovation and complex transformation
- Experience of building and running technology-led businesses and creating new ventures
- A wealth of international and financial services knowledge having lived in 11 countries and worked across 30 countries in six continents

Harmeen was appointed Chief Digital and Innovation Officer at BT in April 2021. Prior to that role, she spent seven years as Global Chief Information Officer and Head of Cyber Security and Cloud Business at Bharti Airtel, leading its cloud and security businesses. Earlier in her career, Harmeen held CIO positions at BBVA, HSBC and Bank of America Merrill Lynch.

External appointments:

Chief Digital and Innovation Officer at BT and Non-Executive Director at Max Healthcare Institute Ltd.

74 Lloyds Banking Group Annual Report and Accounts 2022

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

| A | Audit Committee member |
| --- | --- |
| BB | Board Risk Committee member |
| ND | Nomination and Governance Committee member |
| RE | Remuneration Committee member |

| NB | Responsible Business Committee member |
| --- | --- |
| C | Committee Chair |
| N | New to the Board in 2022 |

Committee Chairs and members shown as at 21 February 2023.

![img-11.jpeg](img-11.jpeg)

**► Cathy Turner**
Independent non-executive director

**Appointed:** November 2022

**Skills, experience and contribution:**

- Significant executive and non-executive financial services experience
- Knowledge of complex remuneration matters
- Communications expertise with a broad range of stakeholders including investors, regulators, government, media and unions

Cathy has significant financial services experience, having worked in senior executive positions at Barclays plc where her responsibilities, over time, included human resources, executive compensation, investor relations, strategy and brand marketing and at the Group, where she was responsible for the human resources, legal, audit, corporate brand and secretariat functions. Cathy has previously been a Non-Executive Director and Chair of the Remuneration Committee of Aldermore Group plc, Quilter plc and Countrywide plc.

**External appointments:**

Non-Executive Director and Chair of the Remuneration Committee of each of Rentokil Initial plc and Spectris plc. Partner on a part-time basis at Manchester Square Partners LLP.

![img-12.jpeg](img-12.jpeg)

**► Scott Wheway**
Independent non-executive director and Chair of Scottish Widows Group

**Appointed:** August 2022 (Board), September 2022 (Chair of Scottish Widows Group)

**Skills, experience and contribution:**

- Significant financial services board and chair experience
- Extensive knowledge and experience of large-scale banking and insurance businesses
- Track record as a non-executive and executive in customer-centric companies
Scott was appointed Chair of Centrica plc in 2020 where he has served on the board since 2016. Scott was formerly Chair of AXA UK plc, Chair of Aviva Insurance Limited, a Non-Executive Director of Aviva plc and Senior Independent Director of Santander UK plc. He worked as an executive in the retail sector for over 25 years where he held positions including chief executive officer of Best Buy Europe, managing director of Boots the Chemist plc and a number of senior executive positions at Tesco plc.

**External appointments:**

Chair of Centrica plc.

![img-13.jpeg](img-13.jpeg)

**► Catherine Woods**
Independent non-executive director

**Appointed:** March 2020

**Skills, experience and contribution:**

- Extensive executive experience of international financial institutions
- Deep experience of risk and transformation oversight
- Strong focus on culture and corporate governance

Catherine is a former Deputy Chair and Senior Independent Director of AIB Group plc where she also chaired the Board Audit Committee. In her executive career with J.P. Morgan Securities, she was Vice President, European Financial Institutions, Mergers and Acquisitions and Vice President Equity Research Department, forming the European Banks Team.

**External appointments:**

Non-Executive Director and Deputy Chair of BlackRock Asset Management Ireland Limited.

![img-14.jpeg](img-14.jpeg)

**► Charlie Nunn**
Executive director and Group Chief Executive

**Appointed:** August 2021

**Skills, experience and contribution:**

- Extensive financial services experience including in Chief Executive and other leadership roles
- Strategic planning and implementation
- Extensive experience of digital transformation
Charlie has over 25 years' experience in the financial services sector. Prior to joining the Group, Charlie held a range of leadership positions at HSBC, including Global Chief Executive, Wealth and Personal Banking and Group Head of Wealth Management and Digital, as well as Global Chief Operating Officer of Retail Banking and Wealth Management.

Charlie began his career at Accenture, where he worked for 13 years in the US, France, Switzerland and the UK before being made a Partner. He then moved to McKinsey & Co. as a Senior Partner, leading on projects for five years.

**External appointments:**

None.

![img-15.jpeg](img-15.jpeg)

**► William Chalmers**
Executive director and Chief Financial Officer

**Appointed:** August 2019 (Chief Financial Officer)

**Skills, experience and contribution:**

- Significant board-level strategic and financial leadership experience
- Strategic planning and development, mergers and acquisitions, equity and debt capital structuring and risk management
William joined the Board in August 2019, when he was appointed Chief Financial Officer and was interim Group Chief Executive from May 2021 to August 2021.

William has worked in financial services for over 25 years and previously held a number of senior roles at Morgan Stanley, including Co-Head of the Global Financial Institutions Group and Head of EMEA Financial Institutions Group. Before joining Morgan Stanley, William worked for JP Morgan, again in the Financial Institutions Group.

**External appointments:**

None.

![img-16.jpeg](img-16.jpeg)

**► Kate Cheetham**
Chief Legal Officer and Company Secretary

**Appointed:** July 2019

**Skills, experience and contribution:**

Kate became Group General Counsel (now Chief Legal Officer) in May 2015 and Company Secretary in July 2019. Kate joined the Group in 2005 from Linklaters, where she was a corporate lawyer specialising in mergers and acquisitions transactions. Before her current roles, Kate held a number of senior positions including Deputy Group General Counsel and General Counsel for Group Legal. Kate is a trustee of the Lloyds Bank Foundation for England and Wales.

Lloyds Banking Group Annual Report and Accounts 2022 75

# Group Executive Committee
## Delivering our vision and day-to-day management

![img-17.jpeg](img-17.jpeg)

► **Charlie Nunn**
Executive director and
Group Chief Executive

Charlie joined the Board as an executive director and Group Chief Executive in August 2021.

Read his biography on **page 75**.

![img-18.jpeg](img-18.jpeg)

► **William Chalmers**
Executive director and
Chief Financial Officer

William joined the Board in August 2019 as an executive director and the Chief Financial Officer.

Read his biography on **page 75**.

![img-19.jpeg](img-19.jpeg)

► **Kate Cheetham**
Chief Legal Officer and
Company Secretary

Kate became Group General Counsel (now Chief Legal Officer) in May 2015 and Company Secretary in July 2019.

Read her biography on **page 75**.

![img-20.jpeg](img-20.jpeg)

► **Elyn Corfield**
Chief Executive Officer,
Business and Commercial
Banking

Elyn was appointed in July 2022 as Chief Executive Officer, Business and Commercial Banking, serving all micro, small and medium-sized business customers as they grow and evolve, providing specialist sector propositions and supporting customer needs across all banking products. Prior to her current role, Elyn was the Managing Director, Consumer Finance, responsible for the Group's Consumer and Commercial Credit Card, Unsecured Personal Loan, Motor Finance and Leasing portfolios. Prior to joining the Group in 2017 through the acquisition of MBNA, Elyn was the Chief Financial Officer and prior to that held a number of finance leadership roles at MBNA. Elyn acted as the Group's Ambassador for the North for three years, and has been a Trustee of the MBNA Foundation since 2014.

![img-21.jpeg](img-21.jpeg)

► **Sharon Doherty**
Chief People and Places
Officer

Sharon joined the Group in June 2022 as Chief People and Places Officer, with the aim of helping our colleagues play their part in Helping Britain Prosper. Sharon is committed to creating a culture that attracts and inspires the most diverse, agile and committed talent to thrive and grow. Before joining the Group Sharon was Chief People and Places Officer at Finastra, a leading global fintech. Prior to this, she was Vodafone's Global HR Director, Technology where she drove its award-winning diversity and digital work programme. Sharon's career also spans people and leadership roles at Laing O'Rourke, BAA Heathrow's Terminal 5, GE Capital, PwC, Kingfisher and Marks and Spencer. Sharon is an author and champion of democracy, diversity, equity and inclusion across the world.

![img-22.jpeg](img-22.jpeg)

► **Jo Harris**
Chief Executive Officer, Mass
Affluent

Jo was appointed Chief Executive Officer, Mass Affluent as well as interim Chief Executive Officer, Consumer Relationships in July 2022. Jo joined the Group in 2014 from RBS, where she worked in a number of different leadership roles. Since joining the Group, Jo has worked in a variety of roles including Managing Director for Business Banking, Group Customer Services, and most recently Managing Director of Lloyds Bank and Bank of Scotland Community Banks. Jo has been a Trustee for the Lloyds Bank Foundation for England and Wales since 2017.

![img-23.jpeg](img-23.jpeg)

► **Antonio Lorenzo**
Chief Executive Officer, Scottish
Widows and Chief Executive
Officer, Insurance, Pensions
and Investments

Antonio joined the Group in 2011 and is currently responsible for the insurance, pensions and investments business. Antonio is also Chairman of Schroders Personal Wealth and a Board member of the Association of British Insurers. Prior to his current role, Antonio led Group Corporate Development, Group Strategy and the former Consumer Finance Division. Antonio also led the IPO and divestment of TSB and reshaped the Group's international presence. Before joining the Group, Antonio was Chief Financial Officer of Santander UK.

76 **Lloyds Banking Group** Annual Report and Accounts 2022

- C Group Executive Committee Chair
- M Group Executive Committee Member
- A Group Executive Committee Attendee

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

![img-24.jpeg](img-24.jpeg)

► **Laura Needham**
Chief Internal Auditor

Laura joined the Group in September 2022 as Chief Internal Auditor. Before joining the Group, Laura spent 22 years at PwC in a number of roles, predominantly in the UK, but also spent time in Sydney and New York. Laura's expertise is in risk, governance and control and at PwC Laura was both an external audit and internal audit partner working with most major banks in the UK. In her career she has held several people leadership roles, including being the Head of People for PwC's banking audit practice and was the gender balance network sponsor. Laura is passionate about talent development, diversity and inclusion and has led on cultural change programmes to improve employee engagement.

![img-25.jpeg](img-25.jpeg)

► **David Oldfield**
Interim Group Chief Operating Officer

David was appointed as Interim Group Chief Operating Officer from January 2022, responsible for delivering the Group's Data and Technology strategy and the operation of resilient and secure systems that underpin the Group's core functions. Additionally, David was the Group Director and CEO, Commercial Banking from September 2017 through to September 2022, responsible for supporting clients from SMEs through to Corporate and Institutional clients. David started his career with Lloyds Bank in 1984 on the graduate programme and has held key leadership roles across the Group including in Commercial, Retail, IT and Central Functions. David is a Fellow of the Chartered Institute of Bankers, Group executive sponsor for disability and chairs the wellbeing leadership group for Business in The Community.

![img-26.jpeg](img-26.jpeg)

► **Jayne Opperman**
Chief Executive Officer, Consumer Relationships

Jayne re-joined the Group in December 2022 as Chief Executive Officer for Consumer Relationships, the centre of the Group's growth strategy to deepen our consumer relationships through personalised experience and outstanding customer service. Jayne has over 25 years of experience in the financial sector, leading diverse teams focused on transforming businesses, most recently specialising in customer channels, operations and technology and using data as a tool to support colleagues and drive personalisation for customers. Prior to re-joining the Group, Jayne held roles at several well-known financial institutions both here and in Australia and Asia, including Citi, Westpac, ANZ and most recently Barclays.

![img-27.jpeg](img-27.jpeg)

► **Janet Pope**
Chief of Staff and Chief Sustainability Officer

Janet joined the Group in 2008 to run the Group's Savings business. Janet was previously Chief Executive at Alliance Trust Savings and EVP Global Strategy at Visa. Janet held a variety of roles at Standard Chartered Bank including Retail Banking MD for Africa and Non-Executive Director positions at Standard Chartered Bank Zimbabwe, Kenya, Zambia and Botswana. Janet is Chair of the Charities Aid Foundation Bank, a Trustee of the Charities Aid Foundation, a Non-Executive Director of the Financial Services Culture Board and is the Group's Executive Sponsor for Sexual Orientation and Gender Identity.

![img-28.jpeg](img-28.jpeg)

► **Stephen Shelley**
Chief Risk Officer

Stephen was appointed Chief Risk Officer in September 2017. Stephen is the Group's Executive Sponsor for Gender Diversity and Equality. Stephen joined the Group in May 2011 as Chief Credit Officer for Wholesale and International. In October 2012 he became Risk Director, Commercial Banking Risk. Previously, Stephen was Chief Risk Officer at Barclays Corporate and, prior to that, Chief Credit Officer UK Retail and Corporate. In his 21 year career at Barclays, Stephen undertook a variety of roles in the front office and risk.

![img-29.jpeg](img-29.jpeg)

► **Jasjyot Singh OBE**
Chief Executive Officer, Consumer Lending

Jas is Chief Executive Officer, Consumer Lending, our centre of excellence for lending propositions, both for customers who bank with us directly and through intermediaries. Jas has worked at the Group for 16 years and has held a number of roles across the Group's Consumer and Small Business businesses. His previous experience was in consulting roles, based in the US and across Europe, with a range of corporate strategy and digital design consulting projects across multiple industry sectors. Jas was awarded an OBE for his contribution to financial services during COVID-19.

![img-30.jpeg](img-30.jpeg)

► **Andrew Walton**
Chief Corporate Affairs Officer

Andrew joined the Group in September 2018 as Group Corporate Affairs Director, with responsibility for internal and external communications, reputation management and public affairs. Andrew has more than 25 years' experience in corporate affairs in the UK and US. Prior to joining the Group, Andrew was Senior Managing Director and Global Head of Financial Services for the strategic communications segment of FTI Consulting.

![img-31.jpeg](img-31.jpeg)

► **John Winter**
Chief Executive Officer, Corporate and Institutional Banking

John joined the Group in September 2022 as Chief Executive Officer for Corporate and Institutional Banking. John has more than 37 years' experience in corporate and investment banking, as well as in retail banking. John was most recently at MUFO, where he was Regional Executive and CEO for EMEA with responsibility for all of its Global Markets, Corporate and Investment Banking businesses in the region. He spent 15 years at Barclays, latterly as CEO for Corporate Banking and previously as head of its European investment banking business. John started his career at Merrill Lynch in 1985 in NYC and was head of EMEA DCM at Deutsche Bank from 1998 to 2001.

Lloyds Banking Group Annual Report and Accounts 2022 77

# Board leadership and company purpose

## The role of the Board

The Board is collectively responsible for promoting and assessing the long-term, sustainable success of the Group, generating value for shareholders and contributing to wider society.

The Board establishes the Group's purpose, values and strategy and seeks to ensure that the Group is Helping Britain Prosper. The Board approved the Group's current strategy in February 2022 and you can read more about how the Board has overseen the changes and planning required for the delivery of the new strategy by the Group Chief Executive, supported by the wider executive management team, on **page 81**.

The Group's role as a sustainable and inclusive business is central to its purpose, with the Board's Responsible Business Committee overseeing the Group's ambitions in building a truly purpose-driven organisation. Read more about the Responsible Business Committee on **page 104**.

The Board is also responsible for ensuring that the Group's culture is aligned with its purpose, values and strategy. Read more about how the Board assesses and monitors the Group's culture on **pages 84 to 85**.

The Board retains ultimate responsibility for ensuring the necessary resources are in place to meet agreed objectives. The effective management of risk is central to the Group's strategy, supported by the Group's enterprise risk management framework, which is discussed in the risk management report on **pages 139 to 195**.

The Board recognises that engaging with, and acting on the needs of, the Group's stakeholders is key to achieving the strategy and long-term objectives of the Company. Read more about how the Board engages with stakeholders on **pages 82 to 83** and the directors' statement of compliance with their duties under section 172 of the Companies Act 2006 on **pages 10 to 11**.

![img-32.jpeg](img-32.jpeg)

The key decisions and matters reserved for the Board's approval, such as the Group's long-term strategy and priorities, are set out in the Group's Corporate Governance Framework, which is reviewed periodically by the Board. The Board is supported by its Committees which make decisions or recommendations on matters as delegated to them under the Corporate Governance Framework, including Board appointments, the effectiveness of internal controls and the risk management framework, financial reporting, governance and remuneration policies. This enables the Board to spend a greater proportion of its time on strategic, forward-looking matters. Read more about the Corporate Governance Framework on **page 93**.

Each Board Committee comprises non-executive directors only and has an experienced chair. The Committees are managed on the same basis as the Board. The structure of each Committee seeks to facilitate open discussion and debate and ensure adequate time for Committees' members to consider all proposals.

The executive directors make decisions within the parameters and principles set out in the Corporate Governance Framework, which aims to ensure that decisions are made by management under the correct authority. However, where appropriate, any activity can be brought to the full Board for consideration, even if the matter falls within agreed executive parameters.

There are executive committees established to support the Group Chief Executive (Group Chief Executive Committees), in particular the Group Executive Committee. Read about the Group Chief Executive Committees on **pages 142 to 143** and the biographies of the Group Executive Committee members and attendee on **pages 76 to 77**.

The terms of reference for the Board Committees and the matters reserved for the Board can be found at www.lloydsbankinggroup.com/who-we-are/group-overview/corporate-governance.

78 Lloyds Banking Group Annual Report and Accounts 2022

## Board meetings in 2022

There were nine Board meetings during 2022. There are separate boards and board committees of Lloyds Banking Group plc, Lloyds Bank plc, Bank of Scotland plc and HBOS plc, but most meetings of these companies are held concurrently and we refer to this as the 'Aligned Board Model'. As most of the Group's business sits within Lloyds Bank plc and Bank of Scotland plc (together, the Ring-Fenced Banks), the interests of the Ring-Fenced Banks and the Group are aligned in most circumstances. This model is supported by a number of safeguards to enable us to operate in this way, including the appointment of three Ring-Fenced Bank-only non-executive directors and a Ring-Fenced Bank risk officer, all of whose focus is on protecting the interests of the Ring-Fenced Banks. Read more about the Group's governance structure and ring-fencing governance arrangements at the bottom of this page and on page 86.

Regular updates are provided to the Board by the Committee Chairs as well as by the Chair, the Group Chief Executive, the Chief Financial Officer, the Chief Risk Officer, the Group Chief Operating Officer and the Chairs of the boards of Lloyds Bank Corporate Markets plc and Scottish Widows Group Limited.

The Group has a comprehensive and continuous forward agenda setting and escalation process in place to ensure that the Board has the right information at the right time and in the right format to enable the directors to make the right decisions. The Chair leads the process, assisted by the Group Chief Executive and Company Secretary. The process ensures that sufficient time is being set aside for strategic discussions and business critical items. The Chair and the Committee Chairs ensure Board and Committee meetings are structured to facilitate open discussion, debate and challenge.

The process of escalating issues and agenda setting is regularly reviewed as part of the Board evaluation with enhancements made to the process, where necessary, to ensure it remains effective.

The non-executive directors also receive regular updates from management to give context to current issues.

The Chair held a number of meetings with the non-executive directors without the executive directors present.

### Board and Committee composition and attendance at meetings in 2022!

Chair

| Board member | Board | Nomination and Governance Committee | Audit Committee | Board Risk Committee | Remuneration Committee | Responsible Business Committee |
| --- | --- | --- | --- | --- | --- | --- |
| Robin Budenberg | 9/9 | 6/6 |  |  | 7/7 | 4/4 |
| Charlie Nunn | 9/9 |  |  |  |  |  |
| William Chalmers | 9/9 |  |  |  |  |  |
| Alan Dickinson | 9/9 | 6/6 | 6/6 | 10/10 | 7/7 | 4/4 |
| Sarah Legg | 9/9 |  | 6/6 | 10/10 |  | 4/4 |
| Lord Lupton | 8/9* |  |  |  |  | 4/4 |
| Amanda Mackenzie | 9/9 | 6/6 |  |  | 6/7* | 4/4 |
| Harmeen Mehta | 9/9 |  |  |  |  |  |
| Stuart Sinclair 3 | 4/4 | 2/2 |  |  | 2/3* | 2/2 |
| Cathy Turner 5 | 2/2 |  |  |  | 2/2 |  |
| Scott Wheway 4 | 3/3 | 2/2 |  | 3/4* |  |  |
| Catherine Woods | 9/9 |  | 6/6 | 10/10 | 7/7 |  |

1 Where a director is unable to attend a meeting he/she receives papers in advance and has the opportunity to provide comments to the Chair of the Board or to the relevant Committee Chair.

2 Stuart Sinclair retired from the Board on 12 May 2022.

3 Cathy Turner joined the Board and the Remuneration Committee on 1 November 2022.

4 Scott Wheway joined the Board, the Nomination and Governance Committee and the Board Risk Committee on 1 August 2022.

5 Unable to attend due to a pre-existing commitment.

### Focus on the Ring-Fenced Banks

All of the Lloyds Banking Group plc directors sit on the boards of the Ring-Fenced Banks together with three additional non-executive directors:

- **Nigel Hinshelwood** - Senior Independent Director and a member of the Audit, Remuneration, Board Risk and Nomination and Governance Committees of the Ring-Fenced Banks
- **Sarah Bentley** - non-executive director and a member of the Remuneration Committee of the Ring-Fenced Banks
- **Brendan Gilligan** - non-executive director and a member of the Audit and Board Risk Committees of the Ring-Fenced Banks

Since the Ring-Fenced Banks represent the majority of the banking activities of the Group, Nigel Hinshelwood, Sarah Bentley and Brendan Gilligan play an important role in the Group's overall governance structure. Read their biographies and more about the Group's structure and ring-fencing governance arrangements on page 86.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 79

## Board leadership and company purpose continued

### Key focus areas

This page shows some of the key focus areas of the Board during 2022 and highlights the stakeholder groups central to those matters considered and decisions taken.

Stakeholder key:

| Customers and clients | Society and environment |
| --- | --- |
| Shareholders | Suppliers |
| Colleagues | Regulators and government |

| Key focus areas for 2022 |  |  |  |
| --- | --- | --- | --- |
|  | Matters approved | Other matters considered/undertaken | Stakeholders |
| Purpose, culture and values | Purpose, culture and values - read more on pages 11, 15 and 84 to 85 Operation and effectiveness of the Remuneration Policy Net-Zero Banking Alliance targets - read more on pages 11 and 36 to 37 Modern slavery and human trafficking statement | Leadership and culture to align with the new structure - read more on page 15 Updates on colleague engagement including support to colleagues in light of cost of living increases |  |
| Customers and clients | Group customer dashboard Implementation of Consumer Duty plan - read more on page 81 Operational Resilience Self-Assessment | Ongoing support for customers and clients in light of the increases in the cost of living - read more on page 83 Customer experience and customer fair value |  |
| Strategy | Group's new strategy and investor communications - read more on pages 2 to 37 and 81 Cost of living priorities Investment in Citra Living | Strategy day and sessions to discuss implementation of the Group's new strategy, including purpose, governance and milestones and metrics - read more on page 81 New Group Executive operating model Competitor analysis |  |
| Financial | Four-year budget and operating plan Annual Report, Form 20-F, half-year results and quarterly interim management statements Payment of final dividend for 2021 and an interim dividend for 2022 Share buyback programme | Financial updates from the Chief Financial Officer including key financial highlights, performance against budget and sub-group business performance Economic forecasts |  |
| Risk management and regulatory | Risk appetite metrics Group Speak Up Champion - read more on page 83 Group Recovery Plan and PRA Resolvability Assessment Framework submission to the PRA | Risk reports and reports from the Board Risk Committee Model risk Regulatory capital in the context of potential stress events FCA Firm Evaluation PRA Periodic Summary Letter |  |
| Governance | Non-executive director Board and Committee appointments Actions arising from the externally evaluated board effectiveness review Board diversity policy Corporate Governance Framework | Executive succession plan and development plan for 2023 Key themes for Board focus Proposed format of the 2022 annual general meeting |  |

80 Lloyds Banking Group Annual Report and Accounts 2022

## Board oversight

### How governance contributes to the delivery of our strategy ▼

Our governance arrangements contribute to the development and delivery of our strategy in various ways, including by creating accountability and responsibility, information flow and independent insight from the non-executive directors.

The Board is responsible for establishing the Group's strategy and reviewing delivery of that strategy by the Group Chief Executive, supported by the wider executive management team.

In 2022 the Board approved a new strategy and has overseen the planning and changes required for its delivery. The timeline below summarises some of the key strategy-related matters which the Board discussed or received updates on.

### Focus of Board discussion or update

**Jan** Finalising our purpose-driven mission statement and financial and delivery plan for the strategy

**Feb** Approving the strategy, financial plans and investor communications

**Apr** Approach to implementing the strategy

**May** Plans for strategy mobilisation, in particular design of the target operating model and technology resilience

**Jun** Board offsite discussing and reviewing strategic progress and priorities in key business areas, the path to net zero and mobilisation activity to support delivery of the strategy

**Jul** Review of proposed strategy metrics for the Board

**Sep** Progress on mobilisation and execution of our strategy

**Nov** Board offsite discussing and reviewing impacts on the Group's strategy of the changing economic environment, strategic delivery progress, selected strategic priorities and purpose update

**Dec** Reviewing the draft four-year financial plan, including the impact of the Group's strategic investment plan

### Our focus on Consumer Duty

The Board is committed to delivering good outcomes for the Group's customers and, as we continue to move towards becoming a truly purpose-driven business, this remains at the heart of our strategy.

The FCA's new Consumer Duty sets higher and clearer standards of consumer protection across financial services, requiring firms to put their customers' needs first. As an organisation, we are already focused on the delivery of good outcomes for our customers - the Consumer Duty is the next step in the evolution of how we do this and will drive broader cultural change. There will be greater focus on the outcomes customers receive - whether products and services meet customer needs and offer fair value, if customers understand the information with which they are being provided and if customers are given the support required to meet their financial objectives.

The Responsible Business Committee, under delegated authority from the Board, provides oversight of the implementation, and ongoing consideration, of Consumer Duty, with the Board Risk Committee overseeing related risks. The Group has appointed two Consumer Duty Champions who will help ensure Consumer Duty is considered in senior strategic discussions. Amanda Mackenzie, as Chair of the Responsible Business Committee, is the Group Consumer Duty Champion, with John Reizenstein, non-executive director of Scottish Widows Group Limited (and Chair of its Risk Oversight Committee), fulfilling a similar role with the Insurance, Pensions and Investments business.

### Our focus on cyber security and risk

Technological resilience is vital to the provision of a secure and reliable service to customers. The Board recognises the importance of cyber security and the Nomination and Governance Committee therefore made a priority the recruitment to the Board of additional technology expertise, resulting in the appointment of Harmeen Mehta. Harmeen is Chief Digital and Innovation Officer at BT and brings to the Board 25 years' experience leading digital, engineering, IT and innovation transformation.

The Group's Information Technology and Cyber Advisory Forum (ITCAF) was established in 2018 to enable a smaller group of Board members, as well as directors of Lloyds Bank plc and Bank of Scotland plc, to engage in more detailed review of the Group's IT-related operational risks. ITCAF considers matters of cyber security and cyber issues generally as well as a wide range of technology matters. This helps inform and enhance discussions at the Board and the Board Risk Committee, to which ITCAF reports. Cyber risk is considered by the Board Risk Committee as part of oversight of operational resilience risk.

### Our focus on net zero

The Board has overall oversight of environmental, social and governance (ESG) matters. Sustainability and inclusivity are integral elements of our Group strategy; supporting the UK's transition to net zero is therefore closely aligned with our purpose of Helping Britain Prosper. Our Board-level Responsible Business Committee oversees the Group's performance as a responsible business, including the delivery of our sustainability strategy.

The Group continues to make good progress against our net zero ambitions and we have published our first Group climate transition plan, including seven sector-specific Net-Zero Banking Alliance targets, in our dedicated environmental sustainability report. We engage proactively with investors and other key stakeholders throughout the year on our sustainability priorities and plans. Given net zero and sustainability are at the heart of our purpose-driven strategy, with ambitious climate targets reflected in strategic objectives, the good progress already being made in this area and the Group's existing focus on disclosure, transparency and engagement, the Board does not believe it is necessary to propose a separate climate vote at the Company's 2023 annual general meeting at this time. We will continue to be transparent on our sustainability strategy, targets, plans and progress. Read more about the Board's focus on net zero on page 11 and in the Lloyds Banking Group environmental sustainability report 21

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Lloyds Banking Group Annual Report and Accounts 2022 81

## Board leadership and company purpose continued

### Stakeholder engagement

As in 2021, the non-executive directors undertook a tailored engagement programme which allowed them to hear directly from their key stakeholders, including customers, clients and colleagues.

The programme was designed to help the directors better understand what matters in the lives of customers and colleagues, the role the Group plays in supporting them and how the Group is performing in that regard, in turn helping to inform the directors' decision making.

A variety of activities took place under the programme, including meetings with customers and clients and conversations with colleagues, to understand the matters which are most important in their lives, both at and outside work, and the challenges these stakeholders face as the external economic environment continues to evolve. The non-executive directors found these sessions to be of great benefit, providing many valuable insights which helped in their review of the proposals considered by the Board during the year.

#### Our stakeholders

### Customers and clients

The Board has an ongoing commitment to understanding and addressing customer and client needs, which remains central to achieving the Group's strategic ambitions.

Examples of Board engagement with customers and clients included:

- Dedicated updates from across the organisation, which identified areas of customer and client concern, covering a range of internal and external performance measures; in addition, concerns relevant to customers and clients were identified for consideration in wider proposals put to the Board
- Regular updates giving insight into the Group's performance in delivering on its customer and client related objectives and commitments, assisting in determining where further action was required to meet these objectives
- The Chair and the Group Chief Executive attended customer and client engagement events across all main regions of the UK, providing an important opportunity for customers and clients to raise their concerns directly with these Board members
- Non-executive directors attended special events to provide a deeper insight into the issues which customers and clients have faced during the year, which included sessions on the challenges of buying and owning a home, the practical issues faced as a consequence of the cost of living crisis, the challenges customers face in day to day family life and the issues which our commercial and SME clients are routinely facing

### Colleagues

Colleagues remain a vital part of the delivery of the Group's strategic ambitions and the Board continues to recognise this in its engagement with colleagues, which has again this year included a variety of sessions across the Group, to discuss topical issues relating to challenges at and outside work.

Following a review in 2021 of how the Board engages with the Group's workforce, the Board's Responsible Business Committee has continued to be the designated body for workforce engagement, providing focus, but with the Board also retaining a commitment for individual Board members to continue to engage with colleagues directly throughout the year. The Board considers these arrangements to be effective as they enable a broad range of colleague engagement activities, as described in this section.

The Responsible Business Committee reports regularly to the Board on all of its activities, including on its colleague engagement agenda. The Board will continue to consider its arrangements for engaging with the Group's workforce to ensure they remain effective and to encourage meaningful dialogue between the Board and colleagues.

Examples of engagement with colleagues included:

- Regular review by the Responsible Business Committee of workforce engagement reports, covering key issues raised by colleagues, trends on people matters and updates on colleague sentiment
- Review by the Responsible Business Committee of the findings of surveys of colleague sentiment and views, including annual and ad hoc surveys and review of the progress being made in addressing the matters colleagues have previously raised
- A related annual report to the Board, summarising all colleague engagement activity, key themes and issues which colleagues have raised during the year
- Non-executive directors attended a number of colleague focus groups to discuss themes from the annual colleague survey, the Group's new strategy and values, pay and reward and hybrid working. They also attended sessions where they were able to observe colleagues at work, including Fraud team colleagues handling customer calls
- The approach to colleague surveys will continue to evolve in the coming year, with insight from monthly 'Pulse' surveys being used to inform the discussion topics for future non-executive director/colleague focus groups
- Town Hall sessions were hosted by both the Chair and the Group Chief Executive, complemented by engagement sessions led by other senior leaders with feedback shared with the wider Board. The Group Chief Executive also held sessions with colleagues from a number of specific business areas across the Group
- Board members attended a range of other events held for the Group's senior leaders and other colleague network events

### Shareholders

The Group has one of the largest shareholder bases in the UK, with more than two million shareholders including most of our colleagues. The Board is committed to understanding the needs and expectations of all our shareholders, both private and institutional.

Examples of Board engagement with shareholders included:

- Regular updates from Investor Relations on market views and shareholder sentiment, including an annual presentation from the Group's corporate brokers on market dynamics and perception of the Group
- The Board's Nomination and Governance Committee considered correspondence received from institutional shareholders and non-governmental organisations, along with market feedback
- A number of directors engaged with shareholders, including the Chair and principally the Group Chief Executive and Chief Financial Officer, holding over 82 meetings with institutional shareholders, considering matters including the Group's strategy, its purpose and its financial performance
- The Senior Independent Director held sessions with both institutional shareholders and proxy agencies to help better understand their views of the Group and to provide updates on a range of current topics. As Remuneration Committee Chair, the Senior Independent Director also engaged with shareholders on matters relevant to remuneration
- Overall, the Group undertook c.300 meetings with institutional investors, many of which were attended by management and directors
- A virtual Board Governance Event was also held in December for institutional shareholders and other key investor stakeholders, with the opportunity to put questions to the Chair and the chairs of the Board Committees

82 Lloyds Banking Group Annual Report and Accounts 2022

## Society and environment

The Group is present in almost every community in the country and the Board therefore places great importance on engagement and action to help these communities prosper, while helping to build a more sustainable and inclusive future.

Relevant engagement included:

- Updates on climate, environmental and social matters, covering all aspects of the Group's business, where the Board reviewed progress made against its stated ambitions in these areas and agreed any further action it considered was required
- The Board continues to be supported in environmental matters by its Responsible Business Committee. The Committee considers stakeholder views on all matters relating to the Group's ambition to be a trusted, sustainable, inclusive and responsible business and the report of the Committee on its work during the year can be found on page 104

## Regulators and government

The Board continues to maintain strong and open relationships with the Group's regulators and with government authorities, including key stakeholders such as the FCA, the PRA, HM Treasury and HMRC.

Relevant engagement included:

- The Chair and individual directors, including Chairs of the Board's Committees, held continuing discussions with the FCA and PRA on a number of aspects relevant to the evolving regulatory agenda
- The Board regularly reviewed updates on wider Group regulatory interaction, providing a view of key areas of focus and also progress made in addressing key regulatory priorities
- A meeting was held between the Board and the PRA in July to discuss the outcomes and progress of action relevant to the PRA's Periodic Summary Meeting letter

## Suppliers

The Group has a number of partners it relies on for important aspects of our operations and customer service provision and the Board recognises the importance of these supplier relationships in achieving the Group's wider ambitions.

Engagement with suppliers included:

- The Board's Audit Committee considered reports from the Group's Sourcing and Finance teams on the efficiency of supplier payment practices, including those relating to the Group's key suppliers, ensuring our approach continued to meet wider industry standards
- The Board continued to oversee resilience in the supply chain, ensuring our most important supplier relationships were not impacted by potential material events
- The Board has an ongoing zero tolerance approach towards modern slavery in our supply chain and receives updates on ongoing enhancements to the Group's supplier practices, including measures to address the risk of human trafficking and modern slavery in our wider supply chain

![img-0.jpeg](img-0.jpeg)

## Getting closer to customers

The Board is very conscious of the impact on our customers of the ongoing increases in the cost of living and the importance of supporting our customers. During the year the Board has received updates from management on the impacts on customers across our businesses, including regular feedback from the Group Chief Executive. The Board has also had the opportunity to discuss the impact of the cost of living increase with our regulators.

Board members have also sought to develop further their understanding of customers' needs and how the Group can support them via customer focus groups and a choice of call recordings, in each case on a range of topics.

Find out more about how we're helping customers in our social sustainability report ↗

![img-1.jpeg](img-1.jpeg)

## Supporting colleagues - whistleblowing

Speak Up (the Group's whistleblowing programme) enables colleagues to raise matters of concern. Alan Dickinson is the Group's whistleblowing champion and is responsible for overseeing the integrity, independence and effectiveness of the Group's whistleblowing procedures.

In addition, the Audit Committee reviews reports on whistleblowing to ensure that there are arrangements in place which colleagues can use in confidence to report relevant concerns and reports on its review to the Board.

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Lloyds Banking Group Annual Report and Accounts 2022

83

**Board leadership and company purpose** continued

## Our new values

During 2021 and 2022, we embarked on 'Growing our Culture Together' - a rigorous research programme involving thousands of colleagues across the organisation, to gather views and insights about our current and aspirational culture.

### Focusing on culture

We listened to our people to understand how it feels to work here, the role our culture plays and what improvements could be made. As we have continued to build our purpose into everything we do throughout 2022, we have taken on board further feedback and evolved our approach.

Our strategy sets out our plan to become a truly purpose-driven organisation and our culture is a fundamental enabler of that.

Board members were deeply engaged throughout the 'Growing our Culture Together' programme, participating in some of the 'culture conversations', allowing them both to input and hear directly from colleagues on this subject. These outputs ensured that the 'colleague voice' was central to the creation of a draft set of values. The draft set of values was then shared with colleagues to be further refined, with over 12,000 giving feedback to shape the final set which was launched in May 2022.

We continued to listen to further feedback as well as external development with the rising importance of sustainability. We recognised the need to simplify our frameworks and enhanced our values to guide not only how we act and behave but also how we make decisions.

# We collected data...

We looked at data and information from:

- Colleague surveys (26,600 colleagues)
- CultureScope diagnostic tool insights (8,000 colleagues)
- Financial Services Culture Board survey (13,435 colleagues)
- Glassdoor scrapes
- External organisations - Egon Zehnder, Boston Consultancy Group, Deloitte, Harvard Business Review
- Our organisation's archives - to understand our rich and diverse history of over 320 years, which acted as a stimulus when developing our values

![img-2.jpeg](img-2.jpeg)

# We listened...

We held 'culture conversations' where we spoke to:

- 241 colleagues through focus groups
- 50 colleagues through one-to-one interviews
- 67 People Product Owners, Culture Leads and Subject Matter Experts
- 7 external suppliers

We shared the themes identified from our research with over 12,000 colleagues having their say in how the values should be articulated

![img-3.jpeg](img-3.jpeg)

84 Lloyds Banking Group Annual Report and Accounts 2022

## Board engagement in 2022 and beyond

Our non-executive directors continue to engage with colleagues to deepen their understanding of how colleagues experience our culture through the Closer to Clients, Customers and Colleagues programme. Throughout 2022, non-executive directors attended a range of focus groups where colleagues discussed key themes from our annual colleague survey, our new strategy and values, pay and reward to hybrid working. Non-executive directors have been able to apply the insights gained from these sessions along with those from other colleague events across the business to inform their involvement in Board discussions and strategic direction.

For 2023 our approach continues to evolve, with insight from our monthly Pulse surveys and other relevant upcoming Board agenda items informing the discussion topics for our non-executive director colleague focus groups.

## Board monitoring of culture progress

The Board continues to monitor the Group's progress on culture and colleague sentiment drawing on insight from various sources - annual and monthly colleague surveys and the Financial Services Culture Board survey, as well as quarterly Workforce Engagement updates.

Collectively, these updates inform the Board of organisational changes impacting the workforce as well as external issues impacting colleagues and their wellbeing (such as the rise in the cost of living).

We have evolved our colleague listening strategy to an 'always on' approach, seeking more frequent views from colleagues. This will provide the Board with more timely and relevant insight to inform its strategic discussions.

## Looking to the future

During 2023, we will build on the work already undertaken on culture, recognising that this needs to continue evolving to support the Group's purpose. We understand the organisational shifts that we need to make. These have been shared with the Board, along with the actions needed to support the system, behaviour and symbolic changes needed to achieve them. Our Colleague Survey has provided us with a baseline for our current position and we will continue to leverage our evolved listening approach to understand the success of our actions and where further focus may be needed.

# We delivered...

We continued to listen to further feedback, as well as recognising the rising importance of sustainability. So we added an additional value, 'Sustainable', and refocused our values to enable colleagues to make the right decisions every day.

## People-first

We put people first to go further for our customers

- We listen and care for people as individuals
- We go the extra mile to help customers, colleagues and communities feel more supported, in control and confident about their future

![img-4.jpeg](img-4.jpeg)

## Bold

We're bold and take action

- We innovate and do things differently to better serve our customers and grow with purpose
- We challenge things that aren't right and take action to change them

![img-5.jpeg](img-5.jpeg)

## Inclusive

We're inclusive to value everyone

- We learn about and embrace our differences and seek out diverse perspectives
- We shape what we do and what we offer around the different needs and circumstances of our customers, colleagues and communities

![img-6.jpeg](img-6.jpeg)

These provide colleagues with a clear and simple framework to guide their behaviours and approach to decision making.

Since launching the new values, activities are underway across the organisation to deepen colleagues' understanding and to ensure everyone is living the values day-to-day and embedding them into decision making - from everyday choices to big strategic decisions.

## Sustainable

We champion sustainability to care for our planet

- We take responsibility for the impact of our actions on nature and Britain's transition to net zero
- We see the bigger picture and think through the consequences of our decisions

![img-7.jpeg](img-7.jpeg)

## Trust

We trust each other to achieve more together

- We give each other the space and support to take things on and see them through
- We are honest with each other and explain our decisions

![img-8.jpeg](img-8.jpeg)

Our approach to developing our new values was recognised at the Business Culture Awards 2022 where we won Best Brand & Values initiative.

Business Culture Awards 2022 Winner

Brand & Values

![img-9.jpeg](img-9.jpeg)

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Lloyds Banking Group Annual Report and Accounts 2022 85

## Board leadership and company purpose continued

### Group structure and ring-fencing governance arrangements

Since 1 January 2019, UK legislation has required large UK banks to separate personal banking services, such as current and savings accounts, from riskier activities, such as investment banking, in other parts of their business. This is called ring-fencing. The Group's structure and governance arrangements meet these regulatory requirements. Lloyds Bank plc and Bank of Scotland plc are the banks, within the Group, which have been included within the ring-fence (together, the Ring-Fenced Banks). The governance structure focuses on ensuring:

- Independent decision-making by the Ring-Fenced Banks' boards - on any matters where there might be a conflict between the interests of the Ring-Fenced Banks and the interests of another part of the Group
- Risks affecting the Ring-Fenced Banks are considered and managed from the Ring-Fenced Banks' perspective - including maintenance of the capital adequacy and liquidity of the Ring-Fenced Banks
- Clear and effective governance at both Ring-Fenced Bank and Lloyds Banking Group plc level - including second and third lines of defence in respect of risk management

## Group structure

The subsidiaries of the Group are structured into the following sub-groups under Lloyds Banking Group plc, providing effective governance for the business undertaken in each sub-group:

- Ring-Fenced Banks sub-group containing Lloyds Bank plc and Bank of Scotland plc (including the Halifax and MBNA businesses), serving both their UK personal and commercial customers
- Non-Ring-Fenced Bank sub-group - Lloyds Bank Corporate Markets plc - which provides products and services to Group customers that are not allowed within the ring-fence, as well as serving financial institutions' customers and holding certain of the Group's subsidiaries and branches outside the UK
- Insurance sub-group under Scottish Widows Group Limited (including Scottish Widows Limited)
- Equity sub-group under LBG Equity Investments Limited (including Lloyds Development Capital (Holdings) Limited)

The boards of the Ring-Fenced Banks comprise all of the Group directors plus three additional independent non-executive directors: Nigel Hinshelwood (Senior Independent Director), Sarah Bentley and Brendan Gilligan. These Ring-Fenced Bank-only directors are independent of the management and the rest of the Group and their role is to act exclusively in the best interests of the Ring-Fenced Banks. They play a crucial role in the governance structure, with an enhanced role in managing any potential conflicts between the Ring-Fenced Banks and the Group.

## Lloyds Banking Group plc simplified sub-group structure

### Aligned boards

Lloyds Bank plc1
HBOS plc
Bank of Scotland plc1

1 Ring-Fenced Banks

### Lloyds Bank Corporate Markets plc

Non-Ring-Fenced Bank

### Scottish Widows Group Limited

Insurance

### LBG Equity Investments Limited

Equity Investments

## Ring-Fenced Bank-only directors

### Nigel Hinshelwood

Senior Independent Director
Lloyds Bank plc and Bank of Scotland plc

![img-10.jpeg](img-10.jpeg)

**Appointed:** January 2019

#### Skills, experience and contribution:

- Extensive experience in the financial services sector having worked across the UK and Europe, North and South America, the Middle East and Asia Pacific
- Significant experience of large-scale transformation, operations and technology

Nigel was a partner at Ernst & Young (subsequently Cap Gemini Ernst & Young) for many years where he held numerous positions including Head of Financial Services and Chief Executive Officer of Southeast Asia.

Before becoming a non-executive, he was the Head of HSBC UK and Deputy CEO of HSBC Bank plc. Within the HSBC Group he held a number of executive appointments including Head of HSBC Insurance Holdings, Chief Operating Officer for Europe, Middle East and Africa and Global Head of Operations. Nigel was formerly a Non-Executive Director of Lloyd's of London Franchise Board.

### Sarah Bentley

Independent non-executive director
Lloyds Bank plc and Bank of Scotland plc

![img-11.jpeg](img-11.jpeg)

**Appointed:** January 2019

#### Skills, experience and contribution:

- Extensive digital and digital transformation experience
- Strong customer and marketing skills

Sarah is Chief Executive Officer and Executive Director of Thames Water Utilities Limited and a Director of Water UK, the trade association of the water and wastewater industry. Prior to joining Thames Water in autumn 2020, Sarah was Chief Customer Officer at Severn Trent plc and a member of its Executive Committee.

Before joining Severn Trent, Sarah was the Managing Partner for Accenture's Digital business unit in the UK and Ireland. Sarah previously worked internationally in a number of roles including Strategy, Marketing & Propositions for BT's Global Services division, CEO of Datapoint and Senior Vice President of eLoyalty.

### Brendan Gilligan

Independent non-executive director
Lloyds Bank plc and Bank of Scotland plc

![img-12.jpeg](img-12.jpeg)

**Appointed:** January 2019

#### Skills, experience and contribution:

- Extensive experience in core strategic finance and controllership roles in the financial services industry
- Significant experience of serving on the boards of regulated financial services businesses in the UK, France, Switzerland and Poland

Brendan's career began in the Public Audit division of KPMG in Ireland and Canada. He subsequently worked in commercial and consumer banking services and financing with Woodchester Investments plc and, after its acquisition by General Electric Company, with GE Capital until his retirement in April 2019.

86 Lloyds Banking Group Annual Report and Accounts 2022

# Division of responsibilities

## Board responsibilities

As Chair, Robin Budenberg has overall responsibility for the leadership of the Board and for ensuring its effectiveness in all aspects of its operation.

The composition of the Board helps ensure that no one individual or small group of individuals dominates the Board's decision-making. The diversity of skills, experience and background on the Board enables the Board to provide constructive challenge and strategic guidance and to offer specialist advice.

There is a clear division of responsibilities between the leadership of the Board and the executive leadership of the Group - please refer to the role summaries below. The responsibilities of the Chair, Group Chief Executive, Senior Independent Director, Board and Committees are agreed by the Board and publicly available on the Group's website at www.lloydsbankinggroup.com/who-we-are/group-overview/corporate-governance. The Chair periodically refreshes membership of the Committees.

## Monitoring independence

The Nomination and Governance Committee monitors whether there are any relationships or circumstances which may affect a director's independence. Following the most recent review of independence, the Committee concluded that all non-executive directors are independent in character and judgement. Robin Budenberg was independent on appointment when assessed against the circumstances set out in provision 10 of the Code.

## Monitoring time commitments

Non-executive directors are advised of time commitments for the Board and relevant Committees prior to their appointment and are required to devote such time as is necessary to discharge their duties effectively. The time commitments of the directors are considered by the Board on appointment and annually thereafter and, following the most recent review, the Board is satisfied there are no directors whose time commitments are considered to be a matter for concern.

External appointments, which may affect existing time commitments to the Board and its Committees, must be agreed with the Chair and prior Board approval must be obtained. During 2022, Sarah Legg was appointed a non-executive director of Severn Trent plc. The Board considered the time commitment and potential conflicts involved prior to Sarah accepting the role and was satisfied that she would continue to have sufficient time to commit to her Group Board and Committee appointments. The executive directors do not have any significant external appointments. Information on directors' attendance at meetings can be found on page 79.

## The right information and support

The Chair, supported by the Company Secretary, ensures that Board members receive appropriate and timely information. All directors have access to the advice of the Company Secretary and the Group provides access, at its expense, to the services of independent professional advisers in order to assist directors in their role. Board Committees are also provided with sufficient resources to discharge their duties.

### Non-executive directors

#### Chair

Robin Budenberg

![img-13.jpeg](img-13.jpeg)

Robin Budenberg leads the Board and promotes high standards of corporate governance. He leads in building an effective and complementary Board and sets the Board's agenda. The Chair also leads Board succession planning and seeks to ensure effective communication with shareholders.

#### Deputy Chair and Senior Independent Director

Alan Dickinson

![img-14.jpeg](img-14.jpeg)

As Deputy Chair, Alan Dickinson supports the Chair in representing the Board and deputises for the Chair. The Deputy Chair may also represent the Group's interests to official enquiries and review bodies.

As Senior Independent Director, Alan Dickinson is a sounding board for the Chair and Group Chief Executive. He acts as a conduit for the views of other non-executive directors and conducts the Chair's annual performance appraisal. He is available to help resolve shareholders' concerns and attends meetings with major shareholders and financial analysts to understand issues and concerns.

#### Non-executive directors

The independent non-executive directors challenge management constructively and help develop and set the Group's strategy. They actively participate in Board decision-making and scrutinise management performance. The non-executive directors satisfy themselves on the integrity of financial information and review the Group's risk exposures and controls. The non-executive directors, through the Remuneration Committee, also determine the remuneration of executive directors.

### Executive directors

#### Group Chief Executive

Charlie Nunn

![img-15.jpeg](img-15.jpeg)

Charlie Nunn manages and leads the Group on a day-to-day basis, making decisions on matters affecting the operation and performance of the Group's business and the delivery of the Board's approved strategy. He delegates aspects of his authority, as permitted under the Corporate Governance Framework, to other members of the Group Executive Committee.

#### Chief Financial Officer

William Chalmers

![img-16.jpeg](img-16.jpeg)

Under the leadership of the Group Chief Executive, William Chalmers makes and implements decisions in all matters affecting the management of financial resources. He provides specialist knowledge and experience to the Board. Together with Charlie Nunn, William Chalmers designs, develops and seeks to implement strategic plans and deals with the day-to-day operations of the Group.

### Company Secretary

#### Company Secretary

Kate Cheetham

![img-17.jpeg](img-17.jpeg)

As Company Secretary, Kate Cheetham advises the Board on matters relating to governance, ensuring good information flows and that comprehensive practical support is provided to directors. Kate Cheetham is also responsible for maintaining the Group's Corporate Governance Framework and organising directors' induction and training. Both the appointment and removal of the Company Secretary are matters for the Board as a whole.

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Lloyds Banking Group Annual Report and Accounts 2022 87

# Composition, succession and evaluation

## Composition

The balance of skills, experience, independence and knowledge on the Board is the responsibility of the Nomination and Governance Committee and is reviewed annually or whenever appointments are considered. The Nomination and Governance Committee assesses the skills, experience and knowledge of the non-executive directors on an individual basis and on a collective basis - please see the table below for the results of the latest assessment, which was approved on 18 January 2023. Having the right balance of skills and experience helps to ensure directors discharge their duties effectively.

The Nomination and Governance Committee leads the process for Board appointments, which makes recommendations to the Board. Open advertising and/or an external search consultancy is used for the appointment of the Chair and non-executive directors. Appointments are made on merit and due consideration is given to diversity in its broadest sense, including gender, social, regional and ethnic backgrounds and cognitive and personal strengths.

More details about the processes for the appointments of Scott Wheway and Cathy Turner as non-executive directors can be found on **page 94**.

## Succession planning

The Nomination and Governance Committee ensures plans are in place for orderly succession to both Board and senior management positions and oversees the development of a diverse pipeline for succession. More information about the work of the Nomination and Governance Committee on succession planning can be found on **pages 92 and 93**.

All directors intend to seek re-election or election at the Company's annual general meeting in 2023. The Board believes that all directors continue to be effective and committed to their roles.

## Evaluation

An externally facilitated evaluation of the Board's effectiveness was undertaken in 2022. Information on findings of that evaluation can be found on **page 89**.

### Collective view of the skills, experience and knowledge of the non-executive directors$^{1}$

![img-18.jpeg](img-18.jpeg)

● Deep experience - distinctive strength

1 Assessment by the Nomination and Governance Committee as at 18 January 2023.

### Tenure of non-executive directors$^{2}$

![img-19.jpeg](img-19.jpeg)

● Length of current tenure in complete years

2 Non-executive directors in office at the date of publication of the Annual Report.

### Our Board in 2022$^{3}$

#### Gender diversity

![img-20.jpeg](img-20.jpeg)

#### Age

![img-21.jpeg](img-21.jpeg)

#### Ethnic diversity

![img-22.jpeg](img-22.jpeg)

3 All data as at 31 December 2022. Gender and ethnicity data remains correct as at the date of publication of the Annual Report.

88 Lloyds Banking Group Annual Report and Accounts 2022

## Board evaluation

The Board is committed to independent evaluation of its own effectiveness and that of its committees and individual directors as recommended by the UK Corporate Governance Code 2018. Given the appointment of a new Group Chief Executive in August 2021 and the Group's ongoing strategy development at that time, the Board agreed that the 2021 Board evaluation would be deferred and that an externally facilitated evaluation of its effectiveness, together with that of its Committees, would be conducted in 2022 in order to allow the review to cover the Board's effectiveness in overseeing these developments. External board review specialist Dr Tracy Long of Boardroom Review Limited conducted that evaluation. Dr Long is an independent external service provider with no connection to the Group or any individual directors.

The annual evaluation, which is typically facilitated externally at least once every three years, provides an opportunity to consider ways of identifying greater efficiencies, maximising strengths and highlighting areas of further development to enable the Board continuously to improve its own performance and the performance of the Group.

The Chair of the Board, with the support of the Nomination and Governance Committee, leads the Board in considering and responding to the annual review of the Board's effectiveness, which includes a review of its Committees and individual directors. Performance evaluation of the Chair is conducted by the non-executive directors, led by the Senior Independent Director, considering the views of the executive directors.

The previous external evaluation was conducted in 2018, with internal evaluations having been conducted in 2019 and 2020. Given the Board's decision to defer the 2021 annual evaluation of its effectiveness until 2022, the Chair undertook additional individual assessments of the non-executive directors in January 2022 and an additional performance evaluation of the Chair was undertaken by the non-executive directors, led by the Senior Independent Director, considering the views of the executive directors also in January 2022.

If directors have concerns about the Group or a proposed action which cannot be resolved, their concerns are recorded in the Board minutes. Also, on resignation, non-executive directors are encouraged to provide a written statement of any concerns to the Chair, for circulation to the Board. No such concerns were raised in 2022 or up to the date of this report.

### External Board Effectiveness Review 2022

#### Stage 1 - June 2022 to August 2022

Dr Long held an initial meeting with the Chair and then conducted one-to-one interviews with each director. Interviews with the heads of the Retail, Commercial Banking and Insurance and Wealth businesses and some of the function heads were also undertaken as part of the process. The themes of the interviews included leadership and contribution, culture and composition and use of time and information.

#### Stage 2 - July 2022 to September 2022

Dr Long attended the Board and Committee meetings in July and September. This enabled Dr Long to witness and evaluate the Board and Committee processes and behaviours.

#### Stage 3 - October 2022 to November 2022

Individual feedback was provided by Dr Long to each of the directors in a series of one to one meetings. The findings and proposed actions were presented to the Nomination and Governance Committee and Board in November.

### External Board Effectiveness Review 2022

The overall feedback from the review includes that:

- The Board is adding value through appropriate engagement and focus; relationships are based on trust; debates are well informed, and governance is continuously reviewed;
- Directors are well led and briefed by the Chair, the Committee Chairs, the Group Chief Executive and the Chief Financial Officer, with diversity of tenure and experience;
- Meetings are collegiate and supportive;
- There is a shared strategic perspective and regular insights on performance, customer service and ethics, technology and transformation;
- There is significant attention to risk and control; and
- The corporate culture is considered an asset.

The Group intends to report back in its next annual report on the actions taken as a result of the review and the influence on the Board's composition.

### Key findings from the 2022 review

| Theme | Strengths | Areas for further development |
| --- | --- | --- |
| Board Leadership and Contribution | The Board has a collegiate, supportive style and an ability to add value to executive judgement. Board agendas are flexible, balancing the priorities between strategy, performance and governance. Non-executive directors are well prepared and papers are timely and well written. | Consider further dedicated professional time together outside of Board meetings. There is an opportunity for issues to be brought to the Board and Committees earlier to allow more scope for discussion. Board refreshment with a range of tenures, skills and diversity of perspective is critical in quality decision-making. Reviews of the composition of the Committees to ensure sufficient experience to cross-reference matters. |
| Strategy | The Board is focused on purpose and strategy throughout the year. Shareholder communication and feedback to the Board is high on the agenda, noted by all directors. | Continued awareness by all directors of the changes and challenges in the external environment. Consider broadening the customer lens to give an even more holistic view of market changes, opportunities and risks. |
| Risk and Control | The Board and the Committees pay significant attention to risk and control. Delegated committees are used appropriately for detailed review and the oversight of implementation, allowing the Board to focus on strategy and purpose. There are extensive and knowledgeable discussions at the Board and Committees on cyber defence and data protection. | Ongoing development of agenda and papers to encourage broader discussion on priorities. Consider a review of the definitions of the three lines of defence. Continue focus on learning through presentations of 'lessons learned'. |
| People, Culture and Environment | The Chair has set the tone and standard for the Board with continuous attention to purpose and values. There is a positive corporate culture with strong focus on customer needs, collaboration and teamwork. Ongoing attention to leadership and talent development. | Ongoing commitment from the Group Chief Executive, Group Executive Committee and the Board to ensure that the culture of accountability is demonstrated from the top. Continued focus on data, cyber, environmental issues and impact (including net zero) and inclusion and diversity. |

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 89

## Composition, succession and evaluation continued

### Board training

The Chair is responsible for leading the development, and monitoring the effective implementation, of training policies and procedures for the directors. On appointment, each director receives a formal and tailored induction. There is also a programme of ongoing training for directors.

The directors are committed to their own ongoing professional development and the Chair discusses training with each non-executive director at least annually. The Company Secretary oversees a training plan for the non-executive directors, with the plan for 2022 discussed at the Nomination and Governance Committee at the start of the year with the non-executive directors encouraged to suggest training topics of interest.

### Induction

New non-executive directors like Scott Wheway and Cathy Turner receive a tailored induction that focuses on the Group's culture and values, stakeholders, strategy, structure, operations and governance.

The emphasis is on ensuring that the induction brings the business and its issues alive, taking account of the specific role the director has been appointed to fulfil and their skills and experience to date.

An induction pack is provided containing key corporate documents and information relating to the Group covering aspects such as the role of a director (including relevant Group policies such as anti-bribery, conflicts of interest, expenses, gifts and hospitality and share dealing), the Board and its Committees, financials and strategy, governance, risk management, culture, shareholders and training.

Meetings are scheduled with the directors, the Company Secretary, Group Executive Committee members and other senior managers to discuss aspects such as:

- Group strategy including key priorities and challenges
- Overview of the business and Group operations
- The UK banking regulatory framework, key legal risks and corporate governance
- Overview of the Board and relevant Committees
- People, culture, values, purpose and remuneration
- Environmental, Social and Governance priorities including climate and inclusion and diversity
- Cyber security, data protection and operational resilience
- Introduction to Finance (including meetings with auditors)
- Overview of the Risk function (including the Ring-Fenced Bank Risk Office) and Audit function
- Capital management and liquidity
- Business and Commercial Banking
- Mass Affluent
- Consumer Relationships
- Corporate and Institutional Banking
- Scottish Widows Group Limited and the Insurance, Pensions and Investments sub-group
- Lloyds Bank Corporate Markets plc and the Non-Ring-Fenced Bank sub-group
- LBG Equity Investments and the Equity sub-group

**I received a comprehensive and thorough induction that provided clarity on the key issues facing the Group as a whole, together with specific insight into the insurance and pensions business. The induction equipped me with the necessary institutional knowledge to perform my roles as a non-executive director of Lloyds Banking Group and as Chair of Scottish Widows Group.**

**Scott Wheway**

Non-executive director of Lloyds Banking Group plc and Chair of Scottish Widows Group

### Group training modules

Non-executive directors are asked to complete training modules on a quarterly basis. In 2022, these modules were on:

- Information risk and cyber security
- Anti-bribery: fighting fraud and financial crime
- Conduct Rules
- Speak Up (the Group's whistleblowing programme)

### Other training

Training sessions have been offered across a range of topics of particular interest that were chosen to complement the Board agenda and facilitate advanced discussion. Where training was offered online, the sessions have been recorded and made available to all directors. The topics are produced based on the level of knowledge and experience of Board members. Key topics during 2022 included:

- Banking Skills Refresh - Commercial and Retail
- Risk Management - Internal Capital Adequacy Assessment Process and Internal Liquidity Adequacy Assessment Process
- Treasury Insights - Opportunities and Risks

In addition to the above, a board incident management exercise was undertaken.

Committee specific training is agreed by Committee Chairs as and when needed such as IFRS 17 training this year for members of the Audit Committee and training for members of the Responsible Business Committee by external and internal subject matter experts on the themes of nature and biodiversity loss.

Directors who take on new roles or change roles during the year attend induction or handover meetings in respect of those new roles.

### Audit and Risk Committee Forum for non-executive directors ▼

In November 2022 there was an inaugural Audit and Risk Committee Forum, which was attended by Group, Insurance and Lloyds Bank Corporate Markets Audit and Board Risk Committee members as well as colleagues from the business.

The aims of this informal forum were to network and to have interactive discussion to gain a shared understanding and appreciation of common areas of interest. The topics discussed were strategic transformation, data, risk and controls and climate risk. It is intended that the Forum will be held on an annual basis going forward.

![img-0.jpeg](img-0.jpeg)

90 Lloyds Banking Group Annual Report and Accounts 2022

# Audit, risk and internal control

## Audit and risk

There are formal policies and procedures in place designed to ensure the independence and effectiveness of the internal and external audit functions. Group Internal Audit is a single independent internal audit function, reporting to the Audit Committee. Further detail can be found in the sections headed 'Group Internal Audit' and 'Auditor independence and remuneration' on **page 98**.

The Board has delegated a number of responsibilities to the Audit Committee, including monitoring and reviewing financial reporting, the effectiveness of internal controls and the risk management framework, whistleblowing, the internal audit process and the external auditor's process. The Audit Committee reports regularly to the Board on its activities, and its report for 2022, confirming how it has discharged its duties, can be found on **pages 95 to 98**.

Requirements that the annual report is fair, balanced and understandable are considered during the drafting and reviewing process and the Board has concluded that the 2022 annual report meets this requirement. The Board is supported in this by its Audit Committee and a sign-off process involving different sections of the annual report being approved for inclusion by senior management, with additional review by the Group Disclosure Committee. The statement of directors' responsibilities can be found on **page 137** and the statement of the Auditor's responsibilities for the audit of the financial statements can be found on **page 208**. Related information on the Company's business model and strategy can be found on **pages 1 to 44**.

The Board is responsible for the Group's risk management and internal controls systems, including the determination of the nature and extent of risk the Company is willing to take. Risk is further managed through the Board-approved risk management framework, as discussed in the risk management report on **pages 139 to 195**. The Board Risk Committee assists the Board in fulfilling its risk governance and oversight responsibilities, including by the provision of advice to the Board on risk strategy and overseeing the development, implementation and maintenance of the Group's overall risk management framework, strategy, principles and policies and its risk appetite. The Board Risk Committee reports regularly to the Board on its activities and its report for 2022, confirming how it has discharged its duties, can be found on **pages 99 to 103**.

## Internal control

### Board responsibility

The Board is responsible for, and monitors, the Group's risk management and internal control systems. These are designed to facilitate effective and efficient operations and to ensure the quality and integrity of internal and external reporting and compliance with applicable laws and regulations and for the determination of the nature and extent of the principal risks the Group is willing to take in order to achieve its strategy. The directors and senior management are committed to maintaining a robust control framework as the foundation for the delivery of effective risk management. The directors acknowledge their responsibilities in relation to the Group's risk management and internal control systems and for reviewing their effectiveness. In establishing and reviewing the risk management and internal control systems, the directors carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity and reputation, the likelihood of a risk event occurring and the costs of control.

The process for identification, evaluation and management of the emerging and principal risks faced by the Group is integrated into the Group's overall framework for risk governance. The risk identification, evaluation and management process also identifies whether the controls in place result in an acceptable level of risk. At Group level, a consolidated risk report and risk appetite dashboard are reviewed and regularly debated by the Group Risk Committee, Board Risk Committee and the Board to ensure that they are satisfied with the overall risk profile, risk accountabilities and mitigating actions. The report and dashboard provide a view of the Group's overall risk profile, key risks and management actions, together with performance against risk appetite and an assessment of emerging risks which could affect the Group's performance over the life of the operating plan. Information regarding the main features of the internal control and risk management systems in relation to the financial reporting process is provided within the risk management report on **pages 139 to 195**. The Board concluded that the Group's risk management arrangements are adequate to provide assurance that the risk management systems put in place are suitable with regard to the Group's profile and strategy.

### Control effectiveness review

All material controls are recorded and assessed on a regular basis in response to triggers or at least annually. Control assessments consider both the adequacy of their design and operating effectiveness. Where a control is not effective, the root cause is established and action plans implemented to improve control design or performance. Control effectiveness against all residual risks is aggregated by risk category, reported and monitored via the monthly Key Risk Insights or Consolidated Risk Report (CRR). The Key Risk Insights/CRR are reviewed and independently challenged by the Risk division and provided to the Risk Division Executive Committee and Group Risk Committee. On an annual basis, a point in time assessment is made for control effectiveness against each risk category and across the sub-groups. The RCSA System, Key Risk Insights or CRR are the sources used for this point in time assessment and a year-on-year comparison on control effectiveness is reported to the Board.

### Reviews by the Board

The effectiveness of the risk management and internal control systems is reviewed at least annually by the Board and the Audit Committee, which also receive reports of reviews undertaken by the Risk division and Group Internal Audit. The Audit Committee receives reports from the Company's auditor, Deloitte LLP (which include details of significant internal control matters that they have identified) and has a discussion with the auditor at least once a year without executives present, to ensure that there are no unresolved issues of concern. The Group's risk management and internal control systems are regularly reviewed by the Board and are consistent with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting issued by the Financial Reporting Council and compliant with the requirements of GBD IV. They have been in place for the year under review and up to the date of the approval of the Annual Report. The Group, Ring-Fenced Banks sub-group and Lloyds Bank Corporate Markets have achieved full compliance with BCBS 239 risk data aggregation and risk reporting requirements and actively continue to maintain this status.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 91

# Nomination and Governance Committee report
## Increasing the diversity of the Board and executive remains an ongoing focus for the Committee

![img-1.jpeg](img-1.jpeg)

**Robin Budenberg**
Chair, Nomination and Governance Committee

Effective succession planning underpins the development of strong leadership across the Board and executive.

Key activities in 2022

- Board and senior executive succession planning
- Board recruitment and appointments
- Board and Committee composition, skills and training
- Outcomes from the externally facilitated Board evaluation
- Inclusion and diversity

Q&A

- How has the Nomination and Governance Committee (the Committee) ensured that the membership of the Board and its Committees remains appropriate?
- The Committee continually assesses the constitution of the Board and its Committees bearing in mind the strategic requirements of the Group and the need to ensure a strong, diverse and effective Board. The Board also regularly reviews the skills and experience of Board members, including requirements for the future. The appointments of Scott Wheway and Cathy Turner during 2022 helped strengthen the Board's overall breadth of experience and knowledge recognising, in particular, the significant financial services experience they both have.
- What role did the Committee play in consideration of the senior executive appointments made during 2022?
- The Committee's responsibilities include oversight of the development of a diverse pipeline for succession at both Board and senior executive level. The Committee is also responsible for ensuring that senior executives have the right skills, values, attitude and energy to succeed. The Committee reviews the Group Chief Executive's executive succession planning, with this being given additional focus in 2022, recognising the number of executive appointments made following the launch of the Group's new strategy. See page 93 for more details.
- What are the key areas of focus for the Committee in 2023?
- Core areas of focus for 2023 will include a continued focus on succession planning at both Board and executive level, together with implementation of recommendations arising from this year's Board evaluation process. Further enhancing inclusion and diversity at Board and executive level, and beyond, will remain an ongoing area of key focus, together with managing the composition of the Board and its Committees.

## Introduction

As mentioned in my introduction to the governance report on page 72, the Group launched an ambitious new strategy in February 2022, following which there have been a number of senior executive appointments made during the course of the year. A key area of focus for the Committee has consequently been considered of the executive succession planning arrangements put in place by the Group Chief Executive, together with ensuring that the policy for the selection and appointment of senior executives is appropriate. Other key areas of focus for the Committee, also covered in this report, include succession planning at Board level, and the outcomes of the externally facilitated Board evaluation process.

## Committee purpose and responsibilities

The purpose of the Committee is to keep the Board's governance, composition, skills, experience, knowledge, independence and succession arrangements under review and to make appropriate recommendations to the Board to ensure the Company's arrangements are consistent with the highest corporate governance standards.

## Board and Committee changes

Scott Wheway joined the Board as a non-executive director, and as a member of the Nomination and Governance Committee and Board Risk Committee, on 1 August 2022, and Cathy Turner joined the Board as a non-executive director, and member of the Remuneration Committee on 1 November 2022. Scott was also appointed Chair of the Scottish Widows Group with effect from 12 September 2022. Details of the selection process for these appointments can be found on page 94. I would like to take this opportunity to welcome Scott and Cathy, and also to thank Stuart Sinclair for his service to the Group following his retirement as a non-executive director at the Company's annual general meeting in May 2022.

## Succession planning

Consideration has been given to tenure of Board members and potential future Board retirements, and the impact of these on membership of the Board and its Committees. The Committee's ongoing review of the structure, size and composition of the Board and its Committees helps ensure that the appropriate mix of knowledge, skills, experience, and diversity is maintained. A summary of Board and Committee composition and attendance can be found on page 79.

All changes to the Board and its Committees are overseen by the Committee. Strong succession planning remains a key focus to help ensure the continuation of an appropriate mix of skills, experience and backgrounds. The Committee also continues to consider the overall health of the executive talent pipeline, together with detailed executive succession planning. Key considerations include, for example, cultural and strategic capabilities which will help ensure the continued transformation of the Group and the delivery of its strategic aims. Further details on the Committee's approach to succession planning can be found on page 93.

## Board effectiveness and training

As discussed in last year's report, the Board agreed the deferral of the Board evaluation due in 2021, with a view to an externally facilitated evaluation taking place during 2022. This was undertaken by an external board review specialist, Dr Tracy Long of Boardroom Review Limited, and full details of the review and its outcomes are provided on page 89. The Committee considered the outcomes of Dr Long's review and agreed, and recommended to the Board for approval, the action plan arising from the review. The Committee will oversee the implementation of the action plan during 2023. The Committee subsequently undertook an annual review of its effectiveness, the findings of which, together with the outcomes of the Board evaluation process as relevant to the Committee, were considered by the Committee at its January 2023 meeting; it was considered that the performance of the Committee continues to be effective.

92 Lloyds Banking Group Annual Report and Accounts 2022

The Committee also oversees training undertaken by the non-executive directors. The Chair discusses training with each non-executive director at least annually and, as set out in the summary of Board training on **page 90**, training sessions have been offered across a range of topics of particular interest, in addition to mandatory training requirements. Learning and engagement opportunities have been undertaken by all non-executive directors in relation to material aspects of the Group's business.

## Independence and time commitments

Based on its assessment for 2022, the Committee is satisfied that, throughout the year, all non-executive directors remained independent$^{1}$ in character and judgement.

In recommending directors for election and re-election at the annual general meeting, the Committee has reviewed the performance of each non-executive director and their ability to continue meeting the time commitments required, taking into consideration individual capabilities, skills and experiences and any potential conflicts of interest that have been disclosed. The external roles held by all directors were considered to be appropriate. During the processes leading to the appointment of Scott Wheway and Cathy Turner consideration was given to their external roles. In particular, the Committee noted that Cathy Turner's role as a partner at Manchester Square Partners was on a part-time basis and considered broadly equivalent to a non-executive directorship. Fuller details of any conflicts of interest can be found on **page 134**.

## The Group's Corporate Governance Framework

The most recent annual review of the Corporate Governance Framework was finalised in May 2022. This review resulted in a simplified and more accessible framework, while remaining compliant with relevant obligations and best practice.

As part of its broader governance responsibilities, the Committee considered regular updates on developments in corporate governance during the year, including FCA Policy Statements on Diversity and Inclusion, and Consumer Duty, and the Economic Crime and Corporate Transparency Bill 2022. The Committee also considered correspondence with shareholders.

## UK Corporate Governance Code

The Company applied the UK Corporate Governance Code 2018 for the year ending 31 December 2022 and complied with all the provisions. A detailed summary setting out the Company's compliance can be found on **page 73**.

The Committee reports to the Board on how it discharges its responsibilities and makes recommendations to the Board, all of which have been accepted during the year. The Committee's terms of reference can be found at www.lloydsbankinggroup.com/who-we-are/group-overview/corporate-governance.

## Committee composition, skills and experience

To ensure a broad representation of experienced and independent directors, membership of the Committee currently comprises the Chair, Deputy Chair (who is also the Senior Independent Director and Chair of the Remuneration Committee), the Chair of the Responsible Business Committee, together with a further independent non-executive director (who is the Chair of Scottish Widows Group). The Senior Independent Director of the Ring-Fenced Banks also attends meetings as an observer in order to provide insights on matters relevant to the Ring-Fenced Banks when required and as part of his role in the Group's overall governance structure.

The Group Chief Executive attends meetings as appropriate. Details of Committee membership and meeting attendance during the year can be found on **page 79**.

$^{1}$ The Chair was independent on appointment. Under the Code, thereafter the test of independence is not appropriate in relation to the Chair.

## succession planning

Succession planning was a key focus for the Committee during 2022 not only at Board level but, in particular, across key senior management roles following the launch of the Group's new strategy in February 2022, which resulted in a number of new appointments. As part of its regular oversight and review of the adequacy and effectiveness of succession arrangements for executive directors and members of the senior executive, the Committee received and discussed regular updates from the Group Chief Executive covering the new operating model and executive succession planning arrangements. The strength and diversity of the internal and external appointments achieved was supported by the effectiveness of the Group's succession planning.

The Chair is responsible for developing and maintaining a succession plan for the Group Chief Executive who is, in turn, primarily responsible for developing and maintaining succession plans for key leadership positions in the senior executive team.

Effective succession planning assists the Group in delivering on its strategic objectives over the medium and longer term by ensuring the desired mix of skills and experience of Board members and executives, this being of particular relevance in the context of the Group's new strategy. The Board remains committed to developing talent within the executive and management levels across the Group in order to provide opportunities to develop a diverse pipeline of current and future leaders.

The Committee supports the Chair in keeping the composition of the Board and its Committees under regular review and in leading the appointment process for nominations to the Board. This helps ensure continued focus on increasing the overall diversity of the Board, and capacity for future succession planning, also bearing in mind tenure of Board members and potential future retirements from the Board. The appointment process set out on the following page helps illustrate how this works in practice, highlighting the particular focus given to planning for individual roles with specific attributes. Alan Dickinson, the Deputy Chair and Senior Independent Director, will have served as a non-executive director for nine years in September 2023. When considering Alan's successor as Senior Independent Director, the Committee will give consideration to the recommendation of the FTSE Women Leaders Review that FTSE 350 companies should have at least one woman in the Chair or Senior Independent Director role, and/or one woman in the Chief Executive or Finance Director role by the end of 2025, as the Group does not meet this target as at the date of this report.

The Chair leads an ongoing assessment of the Board's collective technical and governance skill set and uses a Board skills matrix to track the Board's strengths and to identify any gaps in the desired collective skills profile of the Board. Consideration is given to a range of factors such as the Group's future strategic direction and helping to ensure that due weight is given to diversity in its broadest sense. The skills matrix is considered in the appointment of all Board members. The Group's diversity commitments and outcomes of the Board evaluation process are also taken into consideration.

Succession planning plays a key role in the recognition and promotion of diversity across the Board and senior management, further supported by a range of policies across the Group which promote the engagement of under-represented groups within the business in order to help continue to build a diverse talent pipeline. Further details can be found on **page 34**.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 93

## Nomination and Governance Committee report continued

### Appointment process - non-executive directors

In late 2021, following the announcement that Nick Prettejohn would stand down from the Board, the Board initiated a search process led by the Chair to identify an additional independent non-executive director, who would also succeed Nick as Chair of Scottish Widows Group. Similarly, following the announcement of Stuart Sinclair's intention to retire from the Board at the annual general meeting in 2022, a separate search process was initiated to identify a further independent non-executive director who would also serve as a member of the Remuneration Committee, this search similarly being led by the Chair. Competitive tender processes led to the appointment of Egon Zehnder (subsequently joined by Hedley May) for the former search process, and Russell Reynolds Associates for the latter. In each case, long lists of candidates were identified before being narrowed down to shortlists of preferred candidates who were then taken through interview processes. Initial interviews were in each case led by the Chair, supported by the Senior Independent Director and other non-executive directors, with the preferred candidates then also undertaking further meetings with certain other members of the Board and senior executive. Candidates for the Remuneration Committee related role also met with the Chief Financial Officer and the Chief People and Places Officer, while candidates for the Scottish Widows related role met with, amongst others, the Group Chief Executive and the Chief Executive Officer of Scottish Widows. The Senior Independent Director of Scottish Widows Group was also involved throughout the recruitment process for the Scottish Widows Group Chair.

During both processes, the Chair kept the Board and the Committee regularly informed on progress, with discussions being held throughout. Following the interviews and additional meetings, formal assessment of the final shortlisted candidates was undertaken against defined competencies, leading to Scott Wheway and Cathy Turner being identified as the preferred candidates for the respective roles, recognising their depth and breadth of relevant knowledge, skills and experience. The Committee's recommendations for each appointment were subsequently approved by the Board.

Each of these appointments involved a formal, rigorous and transparent appointment process based on merit and objective criteria, with due consideration being given to a broad range of factors such as diversity of gender, social and ethnic backgrounds, cognitive and personal strengths and the Group's future strategic direction. Each of Egon Zehnder, Hedley May and Russell Reynolds Associates have no connection with the Group or individual directors other than conducting external search services and related activity and, in the case of Russell Reynolds Associates, additional advisory services.

### Board diversity policy

The Board diversity policy (the Policy) sets out the Board's approach to diversity and provides a high-level indication of the Board's approach to inclusion and diversity in senior management roles which is governed in greater detail through the Group's policies.

The Board places great emphasis on ensuring that its membership reflects diversity in its broadest sense. Consideration is given to the combination of demographics, skills, experience, race, age, gender, educational and professional background and other relevant personal attributes on the Board to provide the range of perspectives, insights and challenge needed to support good decision-making.

New appointments are made on merit, taking account of the specific skills and experience, independence and knowledge needed to ensure a rounded Board and the diverse benefits each candidate can bring to the overall Board composition.

Objectives for achieving Board diversity are reviewed on a regular basis. On gender diversity, the Board is committed to maintaining at least four women Board members and over time will aim to reach 50 per cent representation of men and women on the Board to match the 50 per cent ambition that the Group has set for women in senior roles.

Reflecting these aspirations, the Board will also aim to meet the recommendations set out by the FTSE Women Leaders Review, noting that these recommendations, together with the Parker Review recommendations, have now been reflected in the FCA's Listing Rules and are effective for financial years commencing on or after 1 April 2022. The Board supports the focus on improving gender diversity at the most senior level and, as highlighted on the previous page, will give this due consideration during the appointment process for Alan Dickinson's successor as Senior Independent Director. The Board does not currently apply the Policy (which is updated annually and was last updated in January 2023) to individual Board Committees, but is comfortable that the diversity of the Board is reflected across Committee memberships. The representation of women on the Board is currently 45.5 per cent (based on five directors being women and six directors being men).

The Group has also set a target of 13 per cent of senior roles to be held by Black, Asian and Minority Ethnic executives by 2025. The Board will therefore aim to reflect this goal with regard to Board members. As at 31 December 2022, the Board continues to meet the recommendation of the Parker Review with two Black, Asian and Minority Ethnic Board members. As noted, the Board places high emphasis on ensuring the development of diversity in the senior management roles within the Group and supports and oversees the Group's ambition of achieving 50 per cent of senior roles held by women by 2025, and of 13 per cent of senior roles held by Black, Asian and Minority Ethnic colleagues by 2025 (including a minimum of 3 per cent of senior roles being held by Black Heritage colleagues). This is underpinned by a range of policies within the Group to help provide mentoring and development opportunities for women and Black, Asian and Minority Ethnic colleagues and to ensure unbiased career progression opportunities. Progress on this objective is monitored by the Board and built into its assessment of executive performance.

As at 31 December 2022, the representation of women within the Group Executive Committee and their direct reports was 41.7 per cent in total (with 46.7 per cent for the Group Executive Committee and 41 per cent for their direct reports). The representation of women across all senior roles was 39.4 per cent, and Black, Asian and Minority Ethnic representation in senior roles was 10.2 per cent. The Group's Race Action Plan, which was launched during 2020, aims to drive cultural change, recruitment, and progression across the Group. This includes a goal to increase Black representation in senior roles from 0.6 per cent to at least 3 per cent by 2025. As at 31 December 2022, we have increased the representation of Black Heritage colleagues in senior roles to 1.4 per cent. Further details of the Race Action Plan, and the Group's further achievements in championing inclusion and diversity in its widest sense, can be found on **page 34**.

A copy of the Policy is available on our website at www.lloydsbankinggroup.com/who-we-are/responsible-business/downloads and further information on the Board's broader approach to inclusion and diversity as part of its strategic priorities and continued investment in being a leading inclusive employer can be found on **page 34**.

94 Lloyds Banking Group Annual Report and Accounts 2022

# Audit Committee report
## Ensuring oversight of financial and narrative reporting and the internal control environment

![img-2.jpeg](img-2.jpeg)

**Sarah Legg**
Chair, Audit Committee

Assessing the impact of economic volatility on the financial statements and ensuring appropriate disclosure have been key considerations during the year.

### Key activities in 2022

- Reviewing the continuous improvement in financial and regulatory reporting, and the effectiveness of the internal controls over financial reporting
- Monitoring the implementation of IFRS 17 and its impact on the financial statements in relation to insurance contracts
- Oversight of Climate Reporting with respect to the financial statements, as standards continue to evolve

### Q&A

- How has the Audit Committee (the Committee) prioritised its agenda in view of economic volatility in 2022?
- As interest rates and inflation increased, particular attention was paid to areas of judgement and estimate that are sensitive to economic volatility ensuring that changing economic conditions have been reflected appropriately and in a timely manner. Disclosures were reviewed to ensure they support the understanding of the economic assumptions used. Where management judgement has been applied the reason for and impact of the judgements were examined.
- How has the Committee considered developments in Climate Reporting during the year?
- Given the importance of this area, time was spent examining linkages between narrative reporting and the financial statements disclosures. Progress in the emerging area of controls over climate data and internal reporting capabilities were monitored. The Committee supports the commitment to continuous improvement in Climate Reporting, which will continue to be of focus in 2023 as external standards evolve.
- Why is the work of the Committee important in respect of strategic delivery?
- The Committee provides oversight to the strategic development of the reporting environments, including longer-term improvements to processes and capabilities that underpin external reporting, key to wider stakeholder communication. The Committee benefits from the insight provided by internal and external audit, supporting rigorous review of strategic change.

## Introduction

I am pleased to report on how the Committee has discharged its responsibilities during the year and I would like to thank fellow Committee members for their contributions throughout 2022. The Committee has also benefitted from the participation of Ring-Fenced Bank directors, who attend the Committee as observers, bringing insight on matters relevant to the Ring-Fenced Banks. Their role forms an important part of the overall governance of the Group, along with the valuable contributions from the chairs of the audit committees of Scottish Widows and Lloyds Bank Corporate Markets. The Audit Committee works closely with other Board Committees, and in 2022 we initiated a joint Audit and Risk Committee Forum to discuss governance topics of common interest. In September 2022, following a rigorous selection process involving all members of the Audit Committee, we were pleased to welcome Laura Needham as our Chief Internal Auditor.

Looking forward to 2023, along with the core responsibilities for the integrity of the financial reporting and control environment, the Committee will continue to monitor areas of continuous improvement on an end-to-end basis. Transition to IFRS 17, impacting insurance contracts, will receive continuing attention. We will engage on the government's proposals on audit reform, monitor developments with respect to climate-related disclosures, and oversee actions in relation to regulatory reports.

## Committee purpose and responsibilities

The purpose of the Committee is to monitor and review the formal arrangements established by the Board in respect of the integrity of the financial reporting and narrative reporting of the Group and the Company, the independence and effectiveness of the internal and external audit functions, the effectiveness of the internal controls and the risk management framework and the adequacy and security of the arrangements for whistleblowing. This includes the statutory audit of the consolidated financial statements and the independence of the statutory external auditor. The Committee reports to the Board on how it discharges its responsibilities and makes recommendations to the Board, all of which have been accepted during the year. A full list of responsibilities is detailed in the Committee's terms of reference, which can be found at www.lloydsbankinggroup.com/who-we-are/group-overview/corporate-governance. In satisfying its purpose, the Committee undertakes the functions detailed within Disclosure Guidance and Transparency Rule 7.1.3R.

During the year the Committee considered a number of issues relating to the Group's financial reporting. These issues are summarised on the following pages, including discussion of the conclusions the Committee reached, and the key factors considered in reaching these conclusions. In addition, the Committee considered a number of other issues not related directly to financial reporting, including internal controls, internal audit and external audit. These issues are also discussed in detail on the final page of the report.

## Committee composition, skills, experience and operation

The Committee acts independently of the executive to ensure the interests of shareholders are properly protected in relation to financial reporting and internal control.

All members of the Committee are independent non-executive directors with competence in the financial sector, and their biographies can be found on pages 74 to 75. Sarah Legg is a Fellow of the Chartered Institute of Management Accountants and of the Association of Corporate Treasurers, with extensive knowledge of financial markets, treasury, risk management and international accounting standards. She is a member having recent and relevant financial experience for the purposes of the UK Corporate Governance Code, and is the Audit Committee financial expert for SEC purposes.

During the course of the year, the Committee held separate sessions with the internal and external audit teams, without members of the executive management present. For details of how the Committee was run, see page 78.

Strategic report

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Lloyds Banking Group Annual Report and Accounts 2022 95

## Audit Committee report continued

The Committee undertook an annual review of its effectiveness, the findings of which, together with the outcomes of the Board evaluation process as relevant to the Committee (which, for 2022, was externally facilitated) were considered by the Committee at its January 2023 meeting. It was considered that the performance of the Committee continues to be effective.

While the Committee's membership comprises the non-executive directors noted on **page 79**, all non-executive directors may attend meetings as agreed with the Chair of the Committee. The Group Financial Controller, Chief Internal Auditor, the external auditor, the Group Chief Executive, the Chief Financial Officer and the Chief Risk Officer also attend meetings as appropriate. Details of Committee membership and meeting attendance can be found on **page 79**.

| Matters considered during 2022 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Jan | Feb | Apr | Jun | Jul | Oct |
| Reporting |  |  |  |  |  |  |
| Review of external reporting documents | ● | ● | ● | ● | ● | ● |
| Significant accounting judgements | ● | ● | ● | ● | ● | ● |
| Going concern assumption/viability statement | ● | ● | ● | ● | ● | ● |
| Regulatory reporting | ● | ● | ● | ● | ● | ● |
| Climate related reporting | ● | ● | ● | ● | ● | ● |
| Activities of subsidiary audit committees | ● | ● | ● | ● | ● | ● |
| IFRS 17 | ● | ● | ● | ● | ● | ● |
| Audit and corporate governance reforms 1 | ● | ● | ● | ● | ● | ● |
| Control environment |  |  |  |  |  |  |
| Control effectiveness (including Sarbanes-Oxley) | ● | ● | ● | ● | ● | ● |
| Annual review of risk management framework and control effectiveness review summary | ● | ● | ● | ● | ● | ● |
| Group Audit |  |  |  |  |  |  |
| Reports from Group Internal Audit, including Speak Up (whistleblowing) | ● | ● | ● | ● | ● | ● |
| External audit |  |  |  |  |  |  |
| Reports from the external auditor including external audit plan | ● | ● | ● | ● | ● | ● |
| Appointment, remuneration, non-audit services and effectiveness | ● | ● | ● | ● | ● | ● |
| Other |  |  |  |  |  |  |
| Audit Committee effectiveness review | ● | ● | ● | ● | ● | ● |
| Finance strategy | ● | ● | ● | ● | ● | ● |

1 Review of the government's response to the consultation 'Restoring trust in audit and corporate governance'.

## Financial reporting

During the year, and in relation to the year ended 31 December 2022, the Committee considered the following issues in relation to the Group's financial statements and disclosures, with input from management, the Risk division, Group Internal Audit and the external auditor.

|  | Key issues | Committee review and conclusion |
| --- | --- | --- |
| Allowance for Impairments on Loans and Advances 31 December 2022: £4,903 million 31 December 2021: £4,042 million | The Group's impairment provision is dependent on management's judgements on matters such as future interest rates, house prices and unemployment rates, as well as its assessment of a customer's current financial position and whether the exposure has suffered a significant increase in credit risk. | During the year, the Committee has challenged the judgements and estimates used to calculate the provision for expected credit losses (ECL). Judgemental adjustments for COVID-19 impacts have been largely released, with inflationary risks an increased focus area. The Committee has also overseen the Group's investment to deliver ECL assessment and sensitivity analysis with improved speed and accuracy, allowing for a more robust assessment of late-breaking news on the economic outlook and a reduced need for overlays. Note 19 to the financial statements includes details of the Group's ECLs allowances, including those resulting from management judgements (31 December 2022: £330 million; 31 December 2021: £1,284 million). The Committee has reviewed management's rationale for these provisions and has challenged whether the additional provisions are appropriate. Conclusion: The Committee was satisfied that the impairment provision and the disclosures provided in the financial statements were appropriate. |

96 Lloyds Banking Group Annual Report and Accounts 2022

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Other information

|  | Key issues | Committee review and conclusion |
| --- | --- | --- |
| Going Concern and Viability Statement | The directors are required to confirm whether they have a reasonable expectation that the Company and the Group will be able to continue to operate and meet their liabilities as they fall due for a specified period. The viability statement must also disclose the basis for the directors' conclusions and explain why the period chosen is appropriate. | The Committee assisted the Board in determining the appropriateness of adopting the going concern basis of accounting and in performing the assessment of the viability of the Company and the Group. These assessments were based on the Group's operating, funding and capital plans which included consideration of climate-related matters on the Group's performance and its projected funding and capital position. The Committee also took into account the results of the Group's stress testing activities ( page 144 ), its principal risks ( page 39 to 41 ) and its emerging risks ( page 43 ). Conclusion: The Committee determined that the going concern basis of accounting was appropriate, advised the Board that three years was a suitable period of review for the viability statement, and that the viability statement could be provided. The viability statement is disclosed within the directors' report on page 44 . |
| Uncertain Tax Positions | The Group has open tax matters which require it to make judgements about the most likely outcome for the purposes of calculating its tax position. | The Committee reviewed management's assessment of the Group's uncertain tax positions, which took into account the views of the relevant tax authorities and any external advice it received. In particular, it considered the Group's claim for group relief of losses incurred in its former Irish banking subsidiary. Conclusion: The Committee was satisfied that the provisions and disclosures made in respect of uncertain tax positions were appropriate. |
| Retirement Benefit Obligations 31 December 2022: £21,985 million 31 December 2021: £9,030 million | The value of the Group's defined benefit pension plan obligations, which has reduced significantly during the year as a result of the increase in both gilt yields and corporate bond credit spreads, is determined using both financial and demographic assumptions. | The Committee reviewed the process used by management to determine appropriate assumptions to calculate the Group's defined benefit liabilities. These included the discount rate, the future rate of inflation and expected mortality rates. Conclusion: The Committee was satisfied that management had used appropriate assumptions that reflected the Group's most recent experience and were consistent with market data and other information. |
| Value-In-Force (VIF) Asset and Insurance Liabilities 31 December 2022: VIF asset: £5,416 million Insurance liabilities: £103,883 million 31 December 2021: VIF asset: £5,514 million Insurance liabilities: £122,423 million | Determining the value of the VIF asset and insurance liabilities requires management to make significant estimates for both economic and non-economic actuarial assumptions. | The Committee considered updates from management and from the Group's Insurance Audit Committee summarising its activities, which included a review of the economic and non-economic assumptions made by management to determine the Group's VIF asset and insurance liabilities. The most significant assumptions were in respect of workplace pension persistency, annuitant longevity, and expenses. Conclusion: The Committee was satisfied that the assumptions used to calculate the VIF asset and liabilities arising from insurance contracts and participating investment contracts were appropriate. The Committee also noted that no VIF asset is recognised under IFRS 17, which the Group adopted on 1 January 2023, and that the derecognition of this asset formed part of the IFRS 17 transition adjustments as at that date. |
| Climate-Related Financial Disclosures | Whilst the Committee noted that there has been a significant improvement in the Group's climate change reporting within the annual report and accounts, it believes that further enhancements will be possible as the availability of robust data increases. | During the year, the Committee has discussed with management improvements that can be made to the Group's climate-related disclosures within its financial statements. The Group has included within its 2022 disclosures: an analysis of vehicle types for the Group finance lease receivables and operating lease assets, the energy performance certificate (EPC) distribution of the Group's mortgage book, further detail on the climate-related risks impacting the Group's pension schemes and more detailed information on sector-specific lending. The disclosures were prepared in accordance with the Task-Force on Climate related Financial Disclosures (TCFD) recommendations. The Committee also discussed with management its plans for future disclosures, including the processes being put in place to ensure that the disclosures are robust, granular and specific to the Group. Conclusion: Whilst recognising that there is more to be done in future years, the Committee was satisfied with the Group's climate-related disclosures in its financial statements for the year ended 31 December 2022. |
| Conduct risk provisions | During 2022, the Group made provisions of £255 million (2021: £1,300 million), including £50 million for HBOS Reading (2021: £790 million). Management judgement is used to determine the expected costs of remediation and, where appropriate, the related administration costs. | The Committee has received regular updates on the Group's conduct risk matters and the progress it has made including updates on HBOS Reading. Conclusion: The Committee has considered management's assessment of the Group's provision for conduct-related matters and was satisfied that the provisions were appropriate. |

## Other significant issues

The following matters were also considered by the Committee.

### Risk management and internal control systems

Full details of the internal control and risk management systems in relation to the financial reporting process are given within the risk management section on **pages 138 to 195**. Specific related matters that the Committee considered for the year included:

- The effectiveness of systems for internal control, financial reporting and risk management
- The extent of the work undertaken across the Group to ensure that the control environment continued to operate effectively
- The major findings of internal investigations into control weaknesses, fraud or misconduct and management's response, along with any control deficiencies identified through the assessment of the effectiveness of the internal controls over financial reporting under the US Sarbanes-Oxley Act (SOX)

- Specifically the Committee continued to closely monitor the deficiencies identified in respect of privileged and user access across certain business applications and associated IT infrastructure and the Group's plans to address the control findings identified
- The Committee was also updated on the programme of continuous improvement across the SOX control environment, including placing greater emphasis on preventative controls operated across the business

The Committee was satisfied that internal controls over financial reporting were appropriately designed and operating effectively.

Lloyds Banking Group Annual Report and Accounts 2022 97

## Audit Committee report continued

### Risk-weighted assets (RWA) and regulatory reporting

The focus on the quality of regulatory reporting continues to be high on the PRA's agenda. To date, a number of skilled person independent reviews have been commissioned across the industry to review the governance, controls and processes supporting the regulatory reporting framework within firms. As part of our continued focus on strengthening our control environment in both financial and regulatory reporting, management established a Regulatory Reporting Review project in 2020. Involving first, second and third line, this programme has continued to review our regulatory reporting activities and where necessary, enhance our governance and control framework, with a link to longer-term and strategic initiatives also being considered. The Committee also commissioned an ongoing programme of external assurance on regulatory reporting with the focus of activity to date on risk-weighted assets. Management have provided regular updates to the Committee over the year to highlight progress made in improving the reporting control environment across a number of regulatory reports.

### Segmental reporting

During the year the Group considered the impact of a restructure on its external segmental reporting. The Committee reviewed the analysis prepared by management which noted that the primary focus of the Group Executive Committee (GEC), which is the Group's chief operating decision maker, remains the Group's divisional performance and that this is reflected in the Group's reporting to GEC. The Committee agreed with management's conclusion that its operating segments are the three divisions and that it is appropriate for the Group to provide external disclosure on this basis.

### IFRS 17

The Committee has been updated on the Group's IFRS 17 implementation programme throughout 2022 and in prior years and held a session dedicated to IFRS 17 in October 2022. This session included a discussion of the financial impacts, which included the expected adjustment to the Group's opening equity at 1 January 2022, the effect that IFRS 17 will have on the Group's underlying profit and the one-off impact of modifying customer contracts to include drawdown benefits during 2022. The Committee also discussed the Group's control framework in relation to both the transition and the business as usual processes to be adopted in the future.

### Restoring trust in audit and corporate governance

During the year the Committee has received updates on the government's response to the white paper 'Restoring trust in audit and corporate governance'. The Group broadly welcomes the proposals and the expected implementation approach, which will be through a combination of primary legislation, secondary legislation (statutory instruments) and regulation. Whilst this is likely to lead to an uncertain implementation timetable, it will allow the proposals to be fine-tuned to achieve the right outcome. The government has indicated that the primary legislation should receive Royal Assent in the first half of 2024. The Group has started to consider the actions that it will need to take as a result of the expected legislation; these plans will continue to be developed as the timelines and precise requirements evolve during 2023.

### Audit and Risk Committee Forum

It was agreed between the Chairs of the Committee and the Board Risk Committee to hold during the year a joint forum. The purpose of the forum was to discuss governance topics of common interest between the Audit and Board Risk Committee. The themes reviewed were data, the strategic transformation of the Group and climate. In addition, the embedding of the Group's risk and control framework was considered. Further information on the forum is contained on page 90.

### Group Internal Audit

In monitoring the activity, role and effectiveness of the internal audit function and their audit programme the Committee:

- Approved the annual audit plan and budget, including resource
- Reviewed progress against the plan through the year through updates including quarterly reports on the activities undertaken and six-monthly reports from the internal audit Quality Assurance team
- Considered the major findings of significant internal audits, and management's response
- Monitored the progress of internal audit's coverage of key risk themes across the Group, including Transition to Net Zero, Workforce of the Future, Customers in Financial Difficulty, Data Quality, Supplier Partnerships and Strategic Delivery
- Monitored completion of the enhancements identified by the third party who assessed the effectiveness of the internal audit function in 2021

### Speak Up (the Group's whistleblowing service)

The Committee received and considered reports from management on the Group's whistleblowing arrangements. The Committee reviewed the reports to ensure there are arrangements in place which colleagues can use in confidence and without fear of retaliation, to report concerns about inappropriate and unacceptable practices, that these arrangements are well-publicised and that there is proportionate and independent investigation of such matters or appropriate follow-up. The Committee reported on its consideration of whistleblowing arrangements to the Board.

### Auditor independence and remuneration

The Committee is responsible for establishing the Group's policies and procedures designed to protect the independence and objectivity of the external auditor. In April 2022, the Committee reviewed its non-audit services policy; no substantive changes were made to the policy.

The policy details those services that the auditor is permitted to carry out and pre-approves certain of these services provided the fee is below a threshold; all other permitted services must be specifically approved in advance by the Committee. Prior to the engagement of the auditor for a permitted service, the policy requires that senior management confirms whether the Committee has pre-approved the service or specific approval is required. The total amount of fees paid to the auditor for both audit and non-audit related services in 2022 and further information on the policy is disclosed in note 12 to the financial statements.

### External auditor

Following an external audit tender in 2018, Deloitte LLP (Deloitte) was appointed as auditor of the Company and the Group with effect from the 2021 financial year. Mike Lloyd is the statutory audit partner for the Group and attends all meetings of the Committee.

The Committee oversees the relationship with the external auditor including its terms of engagement and remuneration and monitors its independence and objectivity. During 2022, the Committee reviewed Deloitte's audit plan, including the underlying methodology, and Deloitte's risk identification processes. In its assessment of Deloitte's performance and effectiveness, the Committee has considered: Deloitte's interactions with the Committee; the responses to a questionnaire issued to the Group's businesses, Finance, Risk and Internal Audit; and the Financial Reporting Council's (FRC) Audit Quality Inspection Report published in July 2022. The Committee concluded that it was satisfied with the auditor's performance and recommended to the Board a proposal for the re-appointment of the auditor at the Company's Annual General Meeting.

### Statutory Audit Services compliance

The Company and the Group confirm compliance with the provisions of The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014, which relates to the frequency and governance of tenders for the appointment of the external auditor and the setting of a policy on the provision of non-audit services, for the year to 31 December 2022. There are no plans as at the date of this report to conduct a tender exercise for external audit services.

98 Lloyds Banking Group Annual Report and Accounts 2022

# Board Risk Committee report
## Effective risk management is core to successful delivery of the Group's strategy

![img-0.jpeg](img-0.jpeg)

**Catherine Woods**
Chair, Board Risk Committee

Challenges resulting from the rising cost of living and broader macroeconomic uncertainties have been central to the Committee's considerations this year.

### Key activities in 2022

- Reviewed progress on the Group's climate risk framework and scenario analysis capabilities
- Considered the ongoing effects of the pandemic, the rising cost of living, increasing interest rates, and other macroeconomic uncertainties, on both the Group and its customers
- Assessing the management of operational resilience risks, including cyber, supplier management and technology risks
- Considered the management of change and execution risks in the delivery of the Group's strategy
- Overseeing management of economic crime risks
- Reviewing management of the Group's balance sheet including structural hedge activity
- Assessment of key emerging risks and oversight of strategic risks

### Q&A

- How has the Board Risk Committee (the Committee) assessed the impacts of the rising cost of living, and broader macroeconomic uncertainties, on the Group's customers?
- These areas, together with ensuring that the Group continues to focus on supporting its customers, have been key areas of discussion and debate for the Committee this year. In addition to these topics featuring within regular reports from the Chief Risk Officer, the Committee has also considered a number of deep dives and reports looking at the current and potential credit impacts across the Group's commercial and retail customer portfolios, together with a focus on our capabilities and ability to support customers and businesses who may get into financial difficulty.
- How is the Committee considering the risks associated with implementation of the Group's new strategy?
- Consideration has been given to a wide range of areas where implementation of the Group's new strategy gives rise to potential risks in relation to the execution of change and impact on different risk types. This included deep dives and updates across areas such as change and execution risk, technology resilience, data risk, people risk and cyber risk. The Committee also focused on the operational resilience of the Group's critical business processes and important business services. Further information is set out on the following pages, within the commentary on each risk type.

What are the key areas of focus for the Committee in 2023?

- The Committee will continue to consider the following important areas:
  - Ensuring that progress continues to be made on climate risk management and ESG
  - Effective oversight of the Group's strategic transformation
  - Continuing impacts of the rising cost of living, increasing interest rates, macroeconomic uncertainties and geopolitical risks
  - Ensuring effective support for customers in financial difficulty, delivery of Consumer Duty requirements and good customer outcomes
  - Effective management of operational resilience risks, including supplier management, cyber and technology risks
  - Management of people risk and progress with delivery of the Group's strategic and cultural transformation
  - Oversight of the continued embedding of the Group's operational risk and control framework to deliver proactive and continuous risk management

## Introduction

I am pleased to report on how the Committee has discharged its responsibilities throughout 2022, a year in which the potential impacts of a range of external factors have been key considerations for the Committee. In addition, the Committee has focused on risks related to delivery of the Group's strategy with key areas of focus including the management of change and execution risk, technology resilience, data, people and cyber risks, and operational resilience of the Group's critical business processes and important business services. Changes implemented during 2021, to simplify how the Committee operates have continued in 2022 to help ensure an appropriate level of focus on key areas of risk.

While the prevalence and some of the more direct impacts of the pandemic have largely subsided during 2022, the broader impacts continue to be felt throughout the economy. Together with other events, such as the situation in Ukraine, these factors have all contributed to matters such as supply chain issues, inflation, higher interest rates and, ultimately, the increasing cost of living which impacts the Group, and its customers. A core consideration has been how the Group can continue to best support its customers against this backdrop; these will remain key areas of focus for the Committee during the year ahead. Understanding the impacts of climate risk also remains central to the Committee's activities.

I would like to take this opportunity to welcome Scott Wheway as a member of the Committee, following his appointment to the Board, and the Committee, in August 2022. Scott brings additional depth and breadth of experience of large-scale banking and insurance to the Committee's considerations.

## Committee purpose and responsibilities

The Committee assists the Board in fulfilling its risk governance and oversight roles and responsibilities. The Committee is also responsible for ensuring the risk culture is fully embedded and supports at all times the Group's agreed risk appetite, including the extent and categories of risk which the Board considers as acceptable for the Group to bear. A review and update of the Committee's terms of reference was completed during the year, ensuring alignment with the Risk Coalition principles and broader best practice standards.

The Committee is responsible for reviewing and reporting its conclusions to the Board on the Group's risk management framework, which captures risk principles, policies, methodologies, systems, processes, procedures and people. It also includes the review of new, or material, amendments to risk principles and policies, and overseeing any action resulting from material breaches of such policy.

More details on the Group's wider approach to risk management can be found in the risk management section on **pages 138 to 195**. Full details of the Committee's responsibilities are set out in its terms of reference, which can be found at www.lloydsbankinggroup.com/who-we-are/group-overview/corporate-governance.

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Lloyds Banking Group Annual Report and Accounts 2022 99

## Board Risk Committee report continued

### Committee composition, skills, experience and operation

As mentioned in my introduction, we welcomed Scott Wheway as a member of the Committee during the year, bringing the current membership up to four non-executive directors. Scott's appointment further enhances the Committee's breadth of experience, knowledge, and awareness of the importance of delivering the right outcomes for our customers. Two of the three designated independent non-executive directors of the Ring-Fenced Banks also attend meetings as observers in order to provide insights on matters relevant to the Ring-Fenced Banks when required and as part of their role in the Group's overall governance structure. The Chief Risk Officer has full access to the Committee and attends all meetings. The Chief Internal Auditor and members of the executive also attend meetings as appropriate.

The Committee undertook an annual review of its effectiveness, the findings of which, together with the outcomes of the Board evaluation process as relevant to the Committee (which, for 2022, was externally facilitated), were considered by the Committee at its January 2023 meeting; it was considered that the performance of the Committee continues to be effective. Details of the Board evaluation process can be found on **page 89**. Details of Committee membership and meeting attendance can be found on **page 79**.

As the most senior risk committee in the Group, the Committee interacts with other related risk committees, including the executive Group Risk Committee. These interactions help ensure the appropriate escalation of relevant matters to the Committee for review and consideration.

## Matters considered by the Committee

During 2022, the Committee considered a wide range of risks facing the Group and its Ring-Fenced Banks, both current and forward looking, across all key areas of risk management, in addition to risk culture and risk appetite. Changes implemented during 2021 which enhanced the way the Committee operates have continued to support the Committee in focusing on key risk topics through, for example, the use of deep dives to provide greater analysis of particular areas.

The following pages provide a summary of the risks considered by the Committee, with an outline of the material factors considered, and the conclusions which were ultimately reached. The Committee continues to be supported by the IT and Cyber Advisory Forum, which dedicates additional time and resource to reviewing and challenging risks associated with IT infrastructure, IT strategy, IT resilience and cyber risks, as highlighted on **page 81** in Our focus on cyber security and risk. The Chair and other members of the Committee attend this Forum.

The Board Risk Committee Chair is a member of the Audit Committee, in addition to the Audit Committee Chair being a member of the Board Risk Committee; this close interaction helps ensure that common issues of interest are addressed appropriately. During 2022, this was further enhanced through a Group-wide Audit and Risk Committee Forum being held which provided an opportunity for in-depth discussion on key areas of common interest. Further information about this Forum can be found on **page 90**. In addition, there is regular interaction with the Responsible Business Committee, especially on climate risk, and with the Remuneration Committee on the alignment of remuneration to risk performance.

The Committee also reviewed regular updates from the non-Ring-Fenced Bank and Insurance sub-groups, headed up by Lloyds Bank Corporate Markets plc and Scottish Widows Group Limited respectively, summarising key discussions and decisions taken at the relevant entities' risk committees. During 2022, the Committee also considered deep dives on the Insurance sub-group and specifically on the recently acquired Embark business.

| Activities for the year |  |  |
| --- | --- | --- |
| Risk type | Key issues | Committee review and conclusion |
| Conduct risk |  |  |
| Customers in financial difficulty | The Group's management of conduct risks and issues associated with customers in financial difficulty. | During 2022, the Committee noted the continued progress on supporting customers in financial difficulty. The significant transformation activities delivered in recent years have ensured sustained fair customer outcomes are being delivered, with enhanced support for the most vulnerable. For Business Banking and SME customers, the Committee recognised the substantial transformation to support businesses post-pandemic and noted ongoing investment to improve colleague capability and customer treatments. The Committee reviewed the emerging trends on conduct risk such as the heightened risks presented by the cost of living crisis. The work to proactively identify and engage customers most impacted by the crisis was recognised. The Committee gave support for a continued proactive response to support the challenges faced by customers. Conclusion: The Committee recognises the extensive work completed to support both retail and business customers in financial difficulty. Whilst significant improvements have been made, this will remain an area of focus for the Committee during 2023. The Committee will continue to monitor the ongoing activity to support customers and businesses as the cost of living crisis continues. |
| Rectifications and complaints | The Group's management of customer rectifications; resolving customer complaints in a timely and fair manner, together with eradicating the causes for complaints through root cause analysis. | Throughout 2022, the Committee received updates on the Group's complaints and rectifications performance. The Committee was encouraged to see the progress being made in reducing the number of rectifications throughout the year. The Committee has also been kept informed of progress against Board risk appetite metrics for complaints, which are within appetite, and have been appraised of the rollout of the Group's new complaint management system. Conclusion: The Committee will continue to focus on customers awaiting remediation and the time taken to close customer complaints in 2023 along with root cause analysis and read-across activity to ensure learnings are taken on board to help minimise future events. |

100 Lloyds Banking Group Annual Report and Accounts 2022

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| Risk type | Key issues | Committee review and conclusion |
| --- | --- | --- |
| Consumer Duty | Implementation and embedding of the FCA's new Consumer Duty rules across the Group. | The Committee has received updates on the Consumer Duty Programme throughout 2022. The Group's implementation plan was approved by the Responsible Business Committee in October in line with FCA requirements. As a critical element of Consumer Duty, it is vital that focus remains on the delivery of the key cultural initiatives, the development of Group MI reporting and third-party requirements. Ongoing engagement and transparency with regulators will be critical. Conclusion: The Committee recognises the significance of the embedding of the Consumer Duty requirements and will monitor as appropriate the ongoing delivery and evolution through the key delivery dates of July 2023 and July 2024. |
| Financial risk - covering credit and market risk |  |  |
| Commercial credit quality | Risks and external threats to the commercial credit portfolio, including cost of living related impacts, together with sectors potentially exposed to the impact of EU exit, Ukraine/Russia conflict and climate risks. | The Committee provided oversight of the Commercial Banking portfolio via regular credit quality papers, sector deep dives, and updates on climate risk and opportunities. Specific consideration is given to topics adopting a risk-based approach and this year there were spotlights on the Group's financial sponsors portfolio, leveraged and project finance exposures and the Commercial Real Estate sector. Discussion was also held regarding risk-adjusted returns across the portfolio. The Committee also reviewed the impact of the rising cost of living, increasing interest rates and emerging risks across a range of sectors, including those considered more vulnerable to the wider economic backdrop or structural change, those potentially exposed to the impacts of the UK's exit from the EU, sectors impacted by supply chain impacts due to the Ukraine/Russia conflict, and those exposed to increased levels of physical and transitional climate risk. Conclusion: While recognising the risks in the portfolio, the Committee was satisfied that management were continuing to take appropriate action to mitigate and address current and horizon risks. |
| Consumer credit quality | Risks relating to Consumer lending, including cost of living related impacts and climate-related risks. Areas such as Consumer secured lending, buy-for-tot, motor, Business Banking, and unsecured portfolios, together with customer indebtedness. | The Committee reviewed the performance of the Consumer portfolio via regular credit quality updates. Consideration is given to topics adopting a risk-based approach and this year additional focus was given to legacy mortgage exposures (originated during the period 2006 to 2008), which continue to run off, as well as risk-adjusted returns across the portfolio. Enhanced monitoring is in place to provide early warning of any adverse trends requiring further action and the Group continues to closely monitor and manage higher risk segments, such as customers with higher indebtedness levels or lower incomes, and customers impacted by the rising cost of living and increasing interest rates. Conclusion: The Committee is satisfied that appropriate lending controls and monitoring are in place to control risks across the Consumer lending portfolios and that there is an effective framework in place for ongoing risk management. |
| Balance sheet management and structural hedge | Management of the Group's balance sheet and structural hedging programme, given the impact of uncertain customer behaviour in a rising interest rate environment. | A key focus for the Group in 2022 has been the management of the balance sheet and resulting market and liquidity risks through a period of significant increases in interest rates and uncertainty over future customer behaviour. An update was presented to the Committee providing an overview of deposit trends as well as the future risks to changes in the volume and mix of deposits. The Committee discussed the risks associated with the current strategy, the governance framework supporting the decisions and the implications should customer behaviour not match expectations. Conclusion: Proactive management and close monitoring of the associated risks continue, with a focus on the evolving macroeconomic outlook and the implications for customer behaviour. The Committee was satisfied that management was taking the appropriate actions to monitor and mitigate the risks, while recognising that this will remain a key priority in 2023. |
| Model risk | Model risk continues to be an area of significant activity and importance, both internally and externally. | The Committee received further updates on progress to satisfy new prudential modelling requirements relating to credit risk capital models (primarily the new Capital Requirements Directive (CRD) IV regulations) and market risk models within IBOR transition activities, in addition to the model risk management and governance approach. This included amendments being proposed following both firm specific and industry-wide regulatory feedback. The Group continues to increase resources available and to enhance model risk management and governance to meet increasing internal and external demands. The Committee was also kept abreast of model risk management activity relating to advanced analytics (such as machine learning/artificial intelligence) models and associated aspects such as data ethics, and climate, as the Group continues to develop its capability in these areas. Conclusion: Communication with the PRA, to ensure that CRDIV and IBOR prudential change related submissions fulfil their requirements, continues. In terms of performance, the models continue to function adequately within the ongoing uncertain economic environment. Monitoring will continue as the economy recovers. The Committee is comfortable that the development of new model types is subject to appropriate risk control. |
| Climate risk |  |  |
| Climate risk | Climate change, sustainability, and the potential impact to the Group and its customers, including those from the transition to net zero and the Group's strategic response. | Climate risk remains a key issue for the Group, with regular updates provided to the Committee on the Group's progress to develop climate risk capabilities. This activity supports oversight of how the Group is meeting external expectations, including those from the PRA on managing the financial risks from climate change. The Committee continues to ensure that climate risk management capabilities are developing at pace, including the quantification and measurement of climate risk, and ensuring an appropriate risk appetite is established. In 2022, the Committee discussed the approach to developing climate scenario analysis capabilities, informed by activity from the Bank of England's Climate Biennial Exploratory Scenario (CBES) including the second round of the exercise conducted earlier in 2022. The Committee has also been updated on the Group's net zero strategy, supported by engagement through other committees (such as the Responsible Business Committee) to ensure appropriate oversight of the Group's net zero ambitions. The Committee provided input on discussions regarding strategic participation choices, as well as considering potential greenwashing risks. Conclusion: The Committee has been satisfied with the progress made in climate risk management during 2022, with the expectation to expand focus in 2023 towards broader ESG themes. The Committee will continue to closely monitor climate-related risks, including the delivery of climate-related commitments, data requirements, and development of further Board risk appetite metrics. |

Lloyds Banking Group Annual Report and Accounts 2022 101

## Board Risk Committee report continued

### Activities for the year continued

| Risk type | Key issues | Committee review and conclusion |
| --- | --- | --- |
| Operational risk |  |  |
| One RCSA implementation | The embedding of One Risk and Control Self-Assessment (One RCSA) as part of the Group's risk and control strategy to deliver a stronger risk culture and simplified risk and control environment. | The Group delivered on its One RCSA implementation plan by the end of 2021. Management's focus for 2022 moved to embedding One RCSA and ensuring that a complete and accurate view of the Group's risk and control environment is maintained through a culture of proactive and continuous risk management. The Committee has been provided with regular progress updates, including a deep dive that provided practical insights from business units on One RCSA embedding and the business value that has been realised. One RCSA also lays the foundations for broader review of the Group's risk management framework, to reflect the Group's new change model and ensure that risk management activities are actively driving safe delivery of the Group's strategy. Management will progress this activity in 2023. In 2022, the Committee also noted good progress in designing and implementing an end-to-end accountability model that aligns to revised Group structure and strategic ambitions. Conclusion: In line with expectations, the Group is on track to embed One RCSA by the end of 2023. The Committee will continue to monitor progress alongside the implementation of end-to-end accountability and the strengthening of the control environment. Whilst it is currently fit for purpose, the Committee is supportive of the broader review of the risk management framework and will review the proposals in 2023. |
| Operational resilience (IT resilience, cyber, supply chain/supplier management) | Operational resilience is one of the Group's most important non-financial risks. Enhancements continue to be made to the Group's resilience to better serve customers and to address regulatory priorities. | During 2022, the Committee received reports on the Group's identification of important business services and associated impact tolerances in response to Regulatory Policy Statements on Operational Resilience published in March 2021. The Committee reviewed two Group-wide self-assessments covering progress on the enhancements needed to ensure the Group's important business services can be recovered within impact tolerance by March 2025. Updates have also been presented on investment and associated risk impacts. In addition, the Committee reviewed a deep dive on the risks related to the Group's payments business. All security and cloud risks have been appropriately covered. Given the significance of the risk to the Group, the Committee is supported by the IT and Cyber Advisory Forum specifically focused on IT and cyber risks. Conclusion: The Committee remains focused on the operational resilience of the Group's critical business processes and important business services and has drawn valuable insight from the discussions this year. The Committee considers that governance of operational resilience risk is robust and supports the Group in meeting new regulatory requirements, and that activities in plan (such as migration to cloud) will enhance the ongoing resilience of key services to the Group's customers. |
| Data risk | Legacy challenges in the Group's data control environment to enable strategic objectives. | Data risk continues to be an area of significant regulatory and media attention. Quarterly updates have been provided to the Committee on the development and mobilisation of the data strategy in response to legacy data risk challenges. Committee members have been supportive of the plans, encouraging consideration of capability and cultural factors which might inhibit progress. It has been recognised that activity must be prioritised against a broad transformation agenda. The Committee will continue to be updated on any trade-offs or delays via regular reporting. Conclusion: The Committee is supportive of the data strategy and approach, recognising the complex roadmap of initiatives planned over a number of years. Delivery of the strategy is critical, given data is a key enabler for the overall Group strategy. |
| People risk | Ensuring the Group is able to attract and retain the right skills and capabilities with a continued focus on colleague wellbeing and sentiment as the Group's strategic and cultural transformation evolves. | People risk remains a key risk and progress is required to deliver the Group's strategic and cultural transformation over the next three years via Strategic Workforce Planning. Internal pressures coupled with a difficult external economic environment have been key considerations and the monitoring of colleague sentiment and wellbeing around these continues. The Committee considered a deep dive into the people risk profile where cost of living pressures, colleague attrition and the risk of upward reward pressure were deemed most material. Conclusion: The Committee supports the actions being taken to manage people risk and the challenges faced in the current landscape. Given its continuing importance, people risk will remain a key area of focus for 2023. |
| Change and execution risk (strategic transformation oversight) | Risks associated with the extensive current and future Group strategic change agenda, recognising challenges faced in ensuring both successful delivery and embedding of change. | In view of the scale of change, the Committee discussed a deep dive on change and execution risk in 2022, which focused on activities already undertaken and how horizon risks are being managed. The Committee also considers change and execution risk within other linked risk types, such as operational resilience and supplier risks, and when investment activities are discussed. The focus for 2022 has centred on establishing the change delivery mechanism to support the Group's strategic growth ambitions, bringing a closer relationship between investment funding, business unit change delivery and technology. Monitoring the safe delivery of the existing portfolio of change activity has been critical and, along with the continued enhancement of change risks and controls, will remain important through 2023. In addition, 2022 has seen significant focus on change capability to support the Group's business and technology transformation plans. The IT and Cyber Advisory Forum and the Committee have maintained close evaluation of the Group's strategic transformation, with dedicated deep dives on data, cyber and resilience, alongside a full review of how the Board will maintain ongoing effective oversight of the strategic change portfolio. Conclusion: The Committee will continue its focus on the management of change and execution risk within appetite and on monitoring progress with enhancement of the change delivery approach, the execution risk metrics, and the maturity of the new platform-based operating model to support technology and strategic change activities. |

102 Lloyds Banking Group Annual Report and Accounts 2022

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

| Risk type | Key issues | Committee review and conclusion |
| --- | --- | --- |
| Fraud | The Group's management of fraud risk, while continuing to minimise the impact to genuine customer journeys. A key focus is on cross-industry engagement to prevent and disrupt fraud. | The Committee acknowledged progress made on introducing targeted friction into the payments system, the direction of travel was supported, and it was noted that customer feedback around increased friction has generally been positive. Committee members supported lobbying around the scope of the Online Safety Bill, and would welcome more activity in this area, including the funding of deterrents and working with the industry on detection and prevention to minimise risk. Recent discussions have been held with the Payment Services Regulator (PSR) around a consultation on Authorised Push Payment (APP) fraud reimbursement. Conclusion: The Committee acknowledged that fraud risk continues to be a challenging area and supported management on what has been achieved to date. The Committee also supported the next steps in championing the Fraud Lobbying Strategy messages as part of the Group's routine and regular external engagement activity. |
| Money laundering and financial crime | The Group's management of financial crime risks and compliance with the UK's anti-money laundering regime. | The Committee acknowledged the Group's continued efforts to fight financial crime as set out in the Money Laundering Reporting Officer's (MLRO) Report. Committee members sought views on actions being taken in response to the FCA's communications on cash-based money laundering through Post Office counters. The MLRO confirmed that actions had been taken to limit cash deposits for both personal and business customers with minimal negative impact for customers. The Group has also held regular engagements with the FCA on Ongoing Know Your Customer remediation and sanctions. Two financial crime deep dive papers were submitted to the Committee during 2022. Key focus areas were people risk, diversity of thought, information sharing and lobbying. In conjunction with the lobbying efforts, the Group continues to engage meaningfully with the UK Government on addressing economic crime and particularly the Home Office's Economic Crime Plan 2.0. Conclusion: The Committee supported the overall direction of travel, in particular the strategic approach being taken, and encouraged further focus on progressing information sharing. Additionally, the Committee expressed an appreciation for the work undertaken by the Sanctions Team in response to the Russia and Ukraine conflict. |
| Other categories |  |  |
| Regulatory and legal risk | Managing regulatory and litigation risk is a key focus within the Group, with a significant amount of highly complex and interdependent regulatory interactions managed during 2022, which will continue to require management into 2023. | The Committee has provided effective oversight and ensured effective controls are in place to comply with existing regulatory obligations, including consideration of these at an individual legal entity level. The Committee considered regular updates on emerging regulatory and legal risks such as customer treatment (customers in financial difficulty, Consumer Duty, and access to cash). In addition, the Committee has continued to closely monitor a number of significant regulatory change and oversight programmes, such as operational resilience, resolvability; risk-free rates transition; and CRD IV regulations. Conclusion: The Group places significant focus on complex regulatory changes and litigation risk, as well as ensuring effective horizon scanning of upcoming trends and evolving risks. The Committee has discussed the topics raised, and will continue to closely monitor compliance with regulatory requirements in 2023. |
| Emerging and strategic risk | Reviewing the Group's emerging risk landscape, evolving the assessment of strategic risk and embedding the Group's strategic risk framework into business planning. | The Committee reviewed the Group's emerging risk landscape and plans to evolve its approach for assessing emerging risks. Progress made during 2022 has enhanced the analysis of the Group's emerging risk profiles, which has enabled the assessment of emerging risks to be refined. The Committee is supportive of the updated approach and approved the revised emerging risk themes. Separately, following the launch of the new Group strategy, a review of strategic risk was undertaken, which confirmed that the current strategic risk themes remain appropriate. The Committee has noted the progress made in 2022 towards further embedding strategic risk into the Group's planning processes and local risk management, with the strategic risk framework fully integrated into the Group's annual financial planning cycle. Conclusion: Understanding the emerging risk landscape and the Group's preparedness, along with the impact of risks which may arise from the Group's strategic choices, is a key activity. In 2023, the Committee will review key emerging risks and oversee the Group's assessment of strategic risks, considering their potential impacts and mitigating actions. |

Lloyds Banking Group Annual Report and Accounts 2022 103

# Responsible Business Committee report
## Responsible business is at the core of our purpose of Helping Britain Prosper

![img-1.jpeg](img-1.jpeg)

**Amanda Mackenzie**
Chair, Responsible Business Committee

There is much to be done, but the strong foundations which have now been laid will shape how we do business and create a more sustainable and inclusive future.

### Key activities in 2022

- Purpose and values
- Environmental sustainability oversight
- Nature and biodiversity
- Workforce engagement and culture
- Inclusion and diversity

### Q&A

- What role does the Committee play in support of the Group's purpose?
- The Committee is deeply involved in setting out our ambition to become a truly purpose-driven organisation. We discussed which areas we should pursue to drive the most positive impact for society and how to start embedding purpose into everything we do. We recognise that this will be a multi-year journey, but I was pleased to see the progress that has already been made.
- What are the key areas of focus for the Committee in 2023?
- The Committee will focus on reviewing and seeing the proof that we are embedding our purpose, our culture and our Consumer Duty plan. Creating further progress on our inclusion and diversity aspirations and developing our biodiversity expertise and plans alongside our net zero targets will also be priorities.

Recognising the vital role our colleagues play, we will continue to spend time listening to their feedback and input to drive culture change.

## Introduction

I am pleased to report how the Committee has discharged its responsibilities in 2022, my first full year as Chair. During the year, in addition to the matters within the Committee's scope as set out in this report, we spent time considering our role and reshaping the focus and agenda to ensure it fits the needs of a purpose-driven organisation.

In 2022, the Committee became the designated body to fulfil the Board's responsibility for review and approval of the Consumer Duty implementation plan and oversight thereafter. I was also appointed Board champion for the Group and the Ring-Fenced Bank boards to facilitate the oversight of Consumer Duty. Reflecting our evolving role, our areas of focus in 2023 will be further embedding purpose, social and environmental matters, culture, workforce engagement and duty to customers and stakeholders.

## Committee purpose and responsibilities

The purpose of the Committee is to support the Board in overseeing the Company's policies, performance and priorities as a responsible business. The Committee's terms of reference can be found at www.lloydsbankinggroup.com/who-we-are/group-overview/corporate-governance.

## Purpose and values

The Committee reviewed the progress we have made so far on our journey to become a more purpose-driven organisation. We laid strong foundations to support our purpose and vision in 2022, and identified key focus areas which support our purpose and where we can deliver the most material positive impact. Aligned to this, the Committee oversaw the creation and evolution of the values for colleagues, guiding them on how to work together as well as how to make decisions. In our 2022 Colleague Survey, 92% of colleagues felt that delivering on our purpose will help us grow the business profitably, and 79% could see how we are becoming a more purpose-driven organisation. In 2023, we expect to see further significant progress.

## Environmental sustainability oversight

The Committee provided oversight and approval of the Group's external reporting and reflected on the environmental sustainability progress and priorities. Assurance was sought that targets were ambitious, aligned to our strategy and the impact on the business was understood.

## Nature and biodiversity

The Committee received updates on nature and biodiversity and supported proposals to prioritise efforts by sector, noting the challenges and opportunities. We ensured that a collaborative and joint learning approach was taken, building credibility through partnerships with experts such as The Soil Association.

## Workforce engagement and culture

The Committee is the designated body to fulfil the Board's workforce engagement obligations and receives quarterly updates on engagement activity and culture, reporting to the Board on key themes and issues. Members were supportive of the culture change framework with discussion focusing on the proposals for future colleague listening and the Board's involvement, supporting the proposal for more frequent but shorter pulse surveys. Please refer to page 82 for more details on how the Board engages with the Group's workforce.

## Inclusion and diversity

The Committee received regular updates on our public commitments and the strategy. We were pleased to see that progress continued to be made in increasing the representation of women and Black, Asian and Minority Ethnic colleagues in senior roles. We asked the executive to continue the focus on achieving our commitments as we build an inclusive organisation.

## Committee composition, skills, experience and operation

The Committee, which met on four occasions in 2022, is composed of independent non-executive directors and is attended by the Group Chief Executive. It benefits from a broad range of perspectives, insight and experience, with representatives from Group Internal Audit and the Chief Operating Officer attending meetings as appropriate. Details of Committee membership and meeting attendance can be found on page 79.

The findings of the externally facilitated annual review of effectiveness were considered by the Committee at its January 2023 meeting. Based on the evaluation, the feedback was that the performance of the Committee continues to be effective.

104 Lloyds Banking Group Annual Report and Accounts 2022

# Directors' remuneration report
## Remuneration Committee
### Chair's statement

![img-2.jpeg](img-2.jpeg)

**Alan Dickinson**
Chair, Remuneration Committee

We have supported our people during the Cost of Living challenges, as we did during the COVID-19 pandemic. We moved quickly to provide a £1,000 payment to all 63,000 colleagues1 to assist with living costs in the summer last year and also worked with our recognised trade unions, Accord and Unite, to rapidly agree a pay deal for 2023, to bring certainty and support to those that needed it most.

#### Supporting our colleagues

- Cost of living payment of £1,000 in August 2022 to all 63,000 colleagues1, at a value of £67 million
- 2023 pay increases of between 8 per cent and 13 per cent for c.43,000 colleagues; overall increase to total pay costs lower at 6.3 per cent
- £2,000 minimum pay award and an additional £500 cash payment for lowest paid colleagues in December
- Pay increases capped at £5,000, to direct spend to those that need it most
- No 2023 annual pay award for executive directors or members of the Group Executive Committee

#### Remuneration content

| Chair's statement | pages 105-106 |
| --- | --- |
| Remuneration at a glance | page 108 |
| 2022 annual report on remuneration | pages 109-124 |
| 2023 Directors' Remuneration Policy | pages 125-133 |

Dear shareholder

On behalf of the Board, I am pleased to present the Directors' remuneration report for the year ended 31 December 2022.

2022 has been yet another extraordinarily challenging year as customers and colleagues came through COVID-19 to face rapidly rising inflation and material increases in household costs brought on by the Ukraine war. As a result, just as our colleagues have put tremendous effort into supporting our customers, the Remuneration Committee ("Committee") has carefully considered how best to support our colleagues, recognising that our lowest paid colleagues were the most adversely affected.

The Group was one of the first large UK companies to make a £1,000 payment to all 63,000 colleagues1 in August 2022 to help with living costs. We also made information and resources available through our Healthy Finances Hub and Employee Assistance Programme to enable colleagues to support themselves and we worked closely with our recognised unions Accord and Unite to rapidly agree the 2023 pay deal, to bring certainty and support to those that needed it most. This provides pay increases of between 8 per cent and 13 per cent for around 43,000 colleagues, although the overall increase to our total pay costs was materially lower at 6.3 per cent, as spend was directed to our lowest paid colleagues.

#### 2022 variable reward outcomes

As a result of the Group's strong performance in 2022, the Committee has approved a Group Performance Share ("GPS") pool of £446 million, to reward colleagues for their commitment and contribution in another challenging year. This is a 12 per cent increase on the pool for 2021, reflecting also a lower collective adjustment.

In determining the vesting outcome of the 2020 Executive Group Ownership Share ("EGOS"), the Committee carefully considered alignment with shareholder experience and whether adjustments were required for windfall gains. Despite targets being set before the onset of COVID-19, the Committee has not applied upward discretion and concluded a vesting outcome of 43.7 per cent, which reflects improvements in economic profit during the vesting period and strong progress against customer measures. 40 per cent of the award was weighted to Shareholder Return, which has not vested due to share price impacts during the performance period. Awards were granted at 49.4296 pence, before the Group's share price fell due to the onset of COVID-19 (to an average of 31.2 pence over the remainder of 2020) and the Committee concluded that an adjustment for windfall gains was therefore not required.

Customers remain central to our core values and our remuneration policies and practices support the principle of good customer outcomes, with customer measures embedded within incentive arrangements. This is an area that we will continue to review and evolve in light of expectations under the new Consumer Duty rules and guidance.

#### Executive directors remuneration outcomes

The Board considers that Charlie Nunn has made a strong start in his first full year as Group Chief Executive (GCE), establishing a new growth strategy, leadership team and priorities to transform the Group's culture for long term sustainable success. He has overseen robust financial performance and achievement of broader Group balanced scorecard targets whilst maintaining a strong regulatory and risk environment. Likewise William Chalmers, Group Chief Financial Officer (CFO), has played a critical role in the development and implementation of the new strategy, as well as embedding and delivering a strong commercial and investment discipline across the Group.

The Committee therefore determined that GPS (annual bonus) awards for the GCE and CFO should be in line with the Group's performance as assessed by the Group's balanced scorecard as outlined on **page 110**, with resultant awards of £1,337,821 and £688,733 respectively.

The Committee has determined to grant 2023 Long Term Share Plan (LTSP) awards of 150 per cent of salary to the GCE and the CFO to reflect the Group's performance in 2022 and other factors taken into account in the 'pre-grant test' as outlined on **page 121**.

1 Pro rated for reduced hours and excluded Senior Management.

Lloyds Banking Group Annual Report and Accounts 2022 105

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

## Directors' remuneration report continued

The normal range for LTSP awards for executive directors is 125 to 150 per cent of salary in addition to recognition of the Group's strong performance in 2022, the level of award for the GCE acknowledges that prior to joining Charlie Nunn agreed to voluntarily reduce the maximum opportunity from 200 per cent of salary under the approved Directors' Remuneration Policy to 150 per cent.

Recognising the desire to focus on the remuneration of lower paid colleagues in this exceptional period, no annual pay award is proposed for executive directors or members of the Group Executive Committee.

As reported with our results for the half year to June 2022, the Committee conducted a detailed review to determine whether further performance adjustments were required in the light of substantial provisions recognised in the accounts for the year to December 2021 for compensation to customers of HBoS Reading. These provisions resulted from the shortcomings identified by Sir Ross Cranston in the original review undertaken by Professor Griggs. The Committee carefully considered Sir Ross Cranston's findings and the previous actions taken, including:

- voluntary decisions by the former GCE and the former COO to withdraw from participation in the 2019 GPS awards following the publication of the Cranston review;
- downwards adjustment made to the 2021 GPS pool (£83 million) partly as a result of the significant provisions taken in 2021; and
- individual adjustments already made to GPS awards for current and former Executives

Having assessed all the evidence available, the Committee concluded that an adjustment of 20 per cent of the GPS awards granted during the full period of the Griggs review (impacting awards for 2017, 2018 and 2019) was appropriate for the former Group Chief Executive and former Group Chief Operating Officer. The levels of GPS forfeited in 2019 exceeded this amount and therefore further adjustments were not required. The Committee also concluded that no further adjustment was required for the former CFO who had limited direct involvement in the Griggs customer review.

## Directors' Remuneration Policy

Our current Policy, approved at the 2020 annual general meeting (AGM), falls due for review this year and, as a result, the Committee has undertaken a comprehensive study over several months to consider whether any changes should be recommended to shareholders. The 2020 Policy included the implementation of a restricted share plan (the LTSP) to reflect the Group's strategy at the time and our stable long-term business model.

Following the appointment of Charlie Nunn as our GCE, the Group launched its new strategy in February 2022, building on our strong foundations and our purpose of Helping Britain Prosper. As part of our strategy, we look to deepen relationships with our customers and meet more of their financial needs. This is setting the Group on a higher growth trajectory while we retain our strong focus on cost and capital discipline.

In light of the revised strategy the Committee has conducted a thorough review of the Policy to ensure it supports the Group's strategic priorities and the interests of our shareholders. The Committee has considered the need to remain competitive to attract and retain key talent to deliver the strategy and reflect developments in market practice.

The Committee has concluded that returning to a performance based long term incentive plan ("LTIP") would deliver stronger alignment with our strategic objectives by supporting a more demanding performance culture and providing the opportunity to directly link vesting outcomes to delivery of the strategy and the realisation of its benefits for shareholders. This is consistent with incentive arrangements for the majority of our peer banks. We consulted on proposals with a broad range of shareholders and other key stakeholders, who expressed initial support for alignment between business strategy, performance and executive remuneration outcomes.

Awards will be weighted not less than 50 per cent to financial measures, with 35 per cent anticipated for strategic measures and 15 per cent to environmental measures, reflecting that the transition to a low carbon economy is at the core of our strategy and aligns with our purpose to Help Britain Prosper. It is intended that the financial measures will be Return on Tangible Equity, Relative Total Shareholder Return and Capital Generation. Targets will be set for environmental measures, reflecting the path towards our published 2030 goals (https://www.lloydsbankinggroup.com/investors/esg-information.html).

The assessment of performance against strategic measures will be informed by the consideration of quantifiable Board metrics aligned to each of our four strategic growth pillars:

**Deepen and innovate in Consumer** - deepen relationships and innovate intermediary positions, including growing credit card spend market share, increasing green mortgage lending and increasing assets under administration

**Create a new mass affluent offering** - expand in the growing mass affluent market including increasing the number of mass affluent banking customers, banking balances and net inflows into investment propositions

**Digitise and diversify our SME business** - meet more client needs with a digital-first model including increasing the number of products originated and fulfilled digitally, income growth in mid-sized SME transaction banking and grow new merchant services clients

**Target our Corporate and institutional offering** - strengthen a core business with focus on UK-linked clients, including increasing sustainable financing, growing operating income and risk weighted assets

Target vesting outcomes will remain at 150 per cent of salary, in line with the current target levels for the LTSP and the previous EGOS incentive in place until 2020. The maximum proposed LTIP award will be 300 per cent of salary, lower than the 400 per cent maximum under the EGOS incentive. Whilst a performance based long term incentive will provide opportunity to reward outperformance, underperformance will lead to lower outcomes than provided under the current restricted share plan ("LTSP"), where vesting is subject to performance underpins rather than stretching performance targets. The Committee will also have the discretion to adjust the outcome for risk and conduct factors.

The first LTIP awards will be granted in 2024, subject to shareholder approval of the Policy at the 2023 AGM, aligning with the horizon of our 2024 to 2026 strategic goals and the final LTSP award in 2023 based on performance in 2022.

The Committee also reviewed the remuneration opportunities for executive directors to ensure they remain reflective of contribution and aligned to market. Total target compensation for William Chalmers at £2.9 million is lower than peers and between lower quartile and median when compared to FTSE30 companies. Recognising William's more than three years' experience with the Group and his business responsibilities in addition to his CFO role, the Committee propose to increase the CFO's GPS (annual bonus) maximum opportunity to 140 per cent of salary, aligned with the GCE, bringing total target compensation to £3.2 million. Whilst the fixed pay elements of the CFO's package remain lower than peers, the Committee considered an increase to bonus opportunity to be more appropriate at this time, reflecting the desired performance culture across the Group, ensuring increases in compensation reflect delivery for shareholders.

Together with my Committee members I look forward to hearing your views on the remuneration arrangements outlined in the report and we hope the new Policy will receive your support at the upcoming AGM.

On behalf of the Board

**Alan Dickinson**
Chair, Remuneration Committee

106 Lloyds Banking Group Annual Report and Accounts 2022

# Revised Policy overview

The below table sets out the revised Directors' Remuneration Policy which will be put forward to shareholders at the 2023 AGM. The full policy can be found on **pages 125 to 133**.

![img-3.jpeg](img-3.jpeg)

|  | Current Policy | Proposed changes in Policy and why |
| --- | --- | --- |
| Base Salary | Reflective of individual role, taking account of responsibilities, experience and pay in the wider Group Base salaries are typically reviewed annually with any increases normally taking effect from 1 April for executive directors | No Change |
| Fixed Share Award | Ensures that total fixed remuneration is commensurate with role Maximum award is 100 per cent of base salary Delivered in shares Three year delivery with 33 per cent being released each year | No Change |
| Pension | Provides cost effective and market competitive retirement benefits Maximum allowance for executive directors is 15 per cent of base salary, aligned with that available to the majority of the workforce | No Change |
| Benefits | Flexible benefit allowance of 4 per cent of base salary Other benefits include medical insurance, car allowance and transportation | No Change |
| Short Term Variable | Group Performance Share (GPS) Maximum opportunity of 140 per cent of salary for GCE and 100 per cent of salary for other executive directors, with normal target level at 50 per cent of maximum opportunity Performance adjustment including malus and clawback provisions apply No award can be made if threshold performance is not met by the Group or the individual | What: Maximum opportunity of 140 per cent of salary for executive directors Why: Total target compensation for the CFO is behind peers and between lower quartile and median when compared to FTSE30 companies. Given the significant value the CFO delivers for the Group, the Committee propose to increase the CFO's GPS maximum opportunity to 140 per cent of salary, aligned with the GCE. |
| Long Term Variable | Long Term Share Plan (LTSP) Restricted share plan with an opportunity of 150 per cent of base salary for the GCE and 200 per cent of base salary for other executive directors Vesting subject to an assessment of underpin thresholds being maintained, measured over a period of three years, or such longer period, as determined by the Committee | What: From 2024, awards will be granted under the rules of the 2023 LTIP, subject to shareholder approval at the AGM in May 2023 Awards will be granted in the form of conditional rights to shares in the Group The maximum LTIP opportunity is 300 per cent of base salary for all executive directors A minimum of 50 per cent of the award being dependent on financial measures Why: The proposed structure provides greater alignment to delivery of the revised strategic aims of the Group. |

## The Group's approach to shareholding requirements

The Group currently operates a shareholding policy which includes a post-employment shareholding requirement, please see **page 116** for further details.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 107

Directors' remuneration report continued

## 2022 Remuneration at a glance

### Our remuneration package

The below summarises the different remuneration elements for executive directors.

#### Base Salary

To support the recruitment and retention of executive directors of the calibre required to develop and deliver the Group's strategic priorities. Base salary reflects the role of the individual, taking account of market competitiveness, responsibilities and experience, and pay in the Group as a whole.

#### Fixed Share Award

To ensure that total fixed remuneration is commensurate with role and to provide a competitive reward package for executive directors with an appropriate balance of fixed and variable remuneration, in line with regulatory requirements.

#### Pension

To provide cost effective and market competitive retirement benefits, supporting executive director's in building long-term retirement savings. Executive director's employer pension contributions are aligned with those available to the majority of the workforce.

#### Benefits

To provide flexible benefits as part of a competitive remuneration package.

#### Group Performance Share (Annual Bonus)

To incentivise and reward the achievement of the Group's annual financial and strategic targets whilst supporting the delivery of long term superior and sustainable returns.

#### Long Term Share Plan

Long term variable reward opportunity to align executive management incentives and behaviours to the Group's objectives of delivering long term superior and sustainable returns. The Long Term Share Plan will incentivise stewardship over a long time horizon and promote good governance through a simple alignment with the interest of shareholders.

### 2022 Total remuneration (£000)

#### Group Chief Executive - Charlie Nunn

![img-4.jpeg](img-4.jpeg)

1 Total remuneration is from 16 August to 31 December 2021.

#### Chief Financial Officer - William Chalmers

![img-5.jpeg](img-5.jpeg)

![img-6.jpeg](img-6.jpeg)

#### Group Chief Executive

The single total remuneration for the Group Chief Executive during 2022 was £3.8 million. This is a decrease of 32 per cent compared to 2021 which included a buy-out award of £4.2 million.

#### Chief Financial Officer

The single total remuneration for the Chief Financial Officer during 2022 was £3.1 million. This is an increase of 34 per cent, and includes the first vesting EGOS (£948,000).

### 2022 Group balanced scorecard performance

**84.1%**

Our Group balanced scorecard reflects a strong business performance. Further details can be found on **page 110**.

### 2022 Group Performance Share (GPS) Pool

**£446m**

The Committee determined a GPS pool for 2022 of £446 million, reflecting the Group's strong financial and overall business performance.

### Long Term Share Plan (LTSP) 2023 Award

2023 Long Term Share Plan awards of 150 per cent of salary will be made to the Group Chief Executive and the Chief Financial Officer to reflect the Group's performance in 2022 and other factors taken into account in the 'pre-grant test'.

The Remuneration Committee considered the awards to be appropriate, reflecting Group and individual contribution in 2022 (**see page 121**).

### 2020 Executive Group Ownership Share

**Total vesting**

The vesting outcome for the 2020 Executive Group Ownership Share was 43.7 per cent.

108 Lloyds Banking Group Annual Report and Accounts 2022

# 2022 annual report on remuneration

## Executive director single total figure of remuneration (audited)

| £000 | Charlie Nunn |  | William Chalmers |  | Totals |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 |
| Base salary | 1,133 | 426 | 817 | 901 | 1,950 | 1,327 |
| Fixed Share Award 1 | 1,050 | 402 | 504 | 569 | 1,554 | 971 |
| Benefits | 76 | 51 | 62 | 46 | 138 | 97 |
| Pension | 170 | 64 | 123 | 122 | 293 | 186 |
| Total Fixed Pay | 2,429 | 943 | 1,506 | 1,638 | 3,935 | 2,581 |
| Group Performance Share 2 | 1,338 | 349 | 689 | 705 | 2,027 | 1,054 |
| Long-term incentive 3 | - | - | 948 | - | 948 | - |
| Total Variable Pay | 1,338 | 349 | 1,637 | 705 | 2,975 | 1,054 |
| Other remuneration 4 | - | - | 1 | - | 1 | - |
| Buy out 5 | - | 4,231 | - | - | - | 4,231 |
| Total remuneration | 3,767 | 5,523 | 3,144 | 2,343 | 6,911 | 7,866 |
| Less: Performance adjustment | - | - | - | - | - | - |
| Total remuneration less buy-outs and performance adjustment | 3,767 | 1,292 | 3,144 | 2,343 | 6,911 | 3,635 |

1 The fixed share award is part of fixed remuneration and is not subject to any performance conditions see **page 126**.

2 Awards for Charlie Nunn and William Chalmers will be made in March 2023 in a combination of cash and shares.

3 The 2020 Group Ownership Share (GOS) vesting (see **page 112**) at 43.7 per cent was confirmed by the Remuneration Committee at its meeting on 16 February 2023. The total number of shares vesting will be 2,153,182 for William Chalmers. The average share price between 1 October 2022 and 31 December 2022 44.04 pence has been used to indicate the value. The shares were awarded in 2020 based on a share price of 48.4296 pence and as such no part of the reported value is attributable to share price appreciation.

4 Other remuneration payments comprise income from all employee share plans, which arises through employer matching or discounting of employee purchases.

5 Charlie Nunn joined the Group on 16 August 2021 as Group Chief Executive and executive director. He was granted deferred share awards to replace, like for like, unvested share and cash awards from his previous employer, HSBC, forfeited as a result of joining the Group and lost opportunity bonus for 2020.

## 2022 pension and benefits (audited)

|  | Charlie Nunn | William Chalmers |
| --- | --- | --- |
| Pension/Benefits | 2022 | 2022 |
| Pension | 170,016 | 122,538 |
| Car or car allowance | - | 12,000 |
| Flexible benefits payments 1 | 45,000 | 48,026 |
| Private medical insurance | 1,130 | 1,130 |
| Legal Fee 2 | 29,455 | - |
| Transportation 3 | 483 | 399 |
| Subtotal for Total Benefits less pension | 76,068 | 61,555 |

1 Includes flexible benefits allowance and holidays sold through the Group's flexible benefits plan.

2 This relates to the tax costs in respect of the legal fees paid in 2021, which were disclosed in the 2021 annual report.

3 Transportation benefits relate to the 2021/22 tax year.

## Defined benefits pension arrangements (audited)

There are no executive directors with defined benefit pension entitlements.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 109

Directors' remuneration report continued

## Our 2022 balanced scorecard

Our simplified balanced scorecard provides transparency on how our performance directly aligns with remuneration outcomes for 2022 GPS and 2023 LTSP awards.

For 2022, ESG metrics aligned to our public commitments on climate change and promoting inclusion and diversity accounted for 17.5 per cent of the scorecard.

As set out in the scorecard assessment table below strong performance against the financial, customer and ESG measures have resulted in an overall outcome of 84.1 per cent.

The Committee determined that the scorecard outcome reflected Group performance and appropriately rewards the executive directors for their performance within the context of overall stakeholder experience.

| Our 2022 balanced scorecard |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Block | Measure | Weighting | Performance Range |  |  |  | Actual | Outcome | Weighted outcome |
|  |  |  | 25% | 50% | 75% | 100% |  |  |  |
| Risk | Profit after tax | 20% | £3,765m | £4,236m | £4,706m | £5,177m | £5,555m | 100% | 20% |
|  | Return on Tangible Equity | 20% | 8.3% | 9.3% | 10.3% | 11.4% | 13.5% | 100% | 20% |
|  | Operating Costs (excl. remediation and in year GPS expense) | 10% | £8,482m | £8,398m | £8,314m | £8,230m | £8,342m | 66.5% | 6.6% |
| Non-Financial | Group customer dashboard | 25% | 60% | 70% | 80% | 90% | 80% | 75% | 18.8% |
|  | Reducing our operational carbon emissions | 5% | 20% | 32% | 35% | 37% | 33.0% | 50% | 2.5% |
|  | Sustainable financing and investment | 5% | £9,000m | £13,500m | £17,000m | £21,000m | £26,626m 1 | 100% | 5.0% |
|  | Increasing our gender and ethnic representation in senior roles | 3.75% | 37.7% | 38.4% | 39.1% | 39.9% | 39.4% | 75% | 2.8% |
|  |  | 3.75% | 8.8% | 9.4% | 9.9% | 10.5% | 10.2% | 75% | 2.8% |
|  | Culture and colleague engagement | 7.50% | ≥ 70 (& above average) | ≥ 73 (& + 2 pts above average) | ≥ 75 (& + 5 pts above average) | ≥ 76 (& above high performing norm) | 75 (+ 6 pts above average) | 75% | 5.6% |
|  |  |  | Target |  |  |  |  |  |  |
| Total balanced scorecard outcome |  |  |  |  |  |  | 84.1% |  |  |
| Key: |  |  |  |  |  |  |  |  |  |
| Actual |  |  |  |  |  |  |  |  |  |
| 1 Includes sustainable finance for Commercial and Institutional, and Business and Commercial Banking clients, green mortgage lending (full year estimate based on September 2022 actual position), financing for EV and plug-in hybrid electric vehicles and Scottish Widows discretionary investment in climate aware strategies. |  |  |  |  |  |  |  |  |  |

| Charlie Nunn - Group Chief Executive |  | William Chalmers - Chief Financial Officer |  |
| --- | --- | --- | --- |
| Maximum award | £1,590,750 | Maximum award | £818,945 |
| Group balanced scorecard outcome | 84.1% | Group balanced scorecard outcome | 84.1% |
| Initial scorecard outcome | £1,337,821 | Initial scorecard outcome | £688,733 |
| Committee discretion | - | Committee discretion | - |
| Annual GPS award/ % of maximum | £1,337,821 84.1% | Annual GPS award/ % of maximum | £688,733 84.1% |
| Successfully re-launched the Group's purpose and values, creating a strong framework to embed the new culture Announced a new operating model and leadership team which will set us up for success in 2023 and beyond Continued leadership throughout the Cost of Living issues, ensuring an appropriate Group-wide response to support customers and colleagues |  | Strong financial management with all key measures, including PBT and ROTE, ahead of target Effective balance sheet management with a pro forma CET1 ratio of 14.1 per cent, ahead of regulatory requirements Positive engagement with investors and brokers on both Group performance and strategy Played a critical role in the strategic execution of the Group throughout 2022 |  |

110 Lloyds Banking Group Annual Report and Accounts 2022

## Non-financial measures (50%) commentary

The scorecard that the Committee used in determining the annual bonus awards for the executive directors, along with the assessment of performance against the scorecard, is detailed on **page 110**. The table below outlines the Committee's assessment of the non-financial elements of the scorecard.

| Measure | Commentary |
| --- | --- |
| Group customer dashboard Our assessment of how effectively we are serving customers across all brands, products and services | In 2022, 80 per cent of Group customer dashboard measures achieved target, reflecting strong performance relative to peers, with average rank position further improved year on year. Continued focus is required to maintain strong position in market and to further improve absolute scores across customer experience measures |
| Reducing operational carbon emissions | A 33 per cent reduction in emissions has been achieved in 2022 from our 2018/19 baseline. Year on year reductions in gas and refrigerants have been delivered, although increases have been seen in commuting and business travel emissions as colleagues return to offices |
| Sustainable financing and investment | We have exceeded our Sustainable finance and investment metric with strong performance across all contributing business lines - Commercial Banking, Consumer Lending Mortgages, Consumer Lending Transport and Scottish Widows Investments Demand has increased for sustainable finance supported by a strong housing market earlier in the year and the increasing take up of electric vehicles. Continued strengthening of our sustainable finance teams helped us secure more transactions including a number of Sustainability Linked Loan co-ordinator roles. Investments in climate-aware strategies were always planned to deliver a greater proportion upfront towards the overall 2025 strategic outcome, but performance in 2022 also benefitted from conversion of some investment in property shares to a low carbon tilt and an earlier than anticipated launch of the BlackRock ESG Credit Insight fund |
| Increasing our gender and ethnic representation in senior roles | We have increased the representation of women within our senior population by 1.7 percentage points since the end of 2021, moving from 37.7 per cent to 39.4 per cent We have increased the representation of Black, Asian and Minority Ethnic colleagues by 1.4 percentage points since the end of 2021, moving from 8.8 per cent to 10.2 per cent |
| Culture and colleague engagement Our employee engagement index score absolute and performance versus UK norm and high performing norm | Engagement saw a positive increase to 75 per cent in 2022 which is +6 points higher than the UK average though 3pts below the UK high performing norm (comparisons from 2019-2021) We also saw an increase in advocacy/eNPS (a new measure introduced in 2022) and colleague mood, with continued positive perceptions of our line manager capability |

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 111

## Directors' remuneration report continued

### 2020 Executive Group Ownership Share

In determining the vesting outcome of the 2020 Executive Group Ownership Share, the Committee carefully considered alignment with shareholder experience and whether adjustments were required for windfall gains. Despite targets being set before the onset of COVID-19, the Committee has not applied upward discretion and concluded a vesting outcome of 43.7 per cent of maximum, which reflects improvements in economic profit during the vesting period and strong progress against customer measures.

40 per cent of the award was weighted to Absolute Total Shareholder Return, which has not vested due to share price impacts during the performance period. Awards were granted at 49.4296 pence, before the Group's share price fell due to the onset of COVID-19 (to an average of 31.2 pence over the remainder of 2020) and the Committee concluded that an adjustment for windfall gains was therefore not required.

| 2020 Executive Group Ownership Share |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
| Block | Measure | Weighting | Performance Range |  | Actual | Weighted vesting |
|  |  |  | Threshold 1 | Maximum |  |  |
| Financial (65%) | Absolute Total Shareholder return (TSR) | 40% | 8% p.a | 16% p.a | (7.1%) p.a | 0.0% |
|  | Economic Profit 1 | 15% | £1,965m | £2,948m | £2,782m | 12.5% |
|  | Cost: Income Ratio 2 | 10% | 46.4% | 43.9% | 46.3 | 2.7% |
| Non-Financial (85%) | FCA reportable complaints per '000 accounts | 5% | 2.65 | 2.52 | 2.47 | 5.0% |
|  | Financial Ombudsman Service (FOS) change rate | 5% | 30% | 25% | 27% | 3.3% |
|  | Customer satisfaction | 10% | 3rd | 1st | 1st | 10.0% |
|  | Digital net promoter score | 7.5% | 65.3 | 68.3 | 69.2 | 7.5% |
|  | Employee engagement index | 7.5% | +5% vs. UK Norm | +2% vs. UK HP Norm | +6% vs. UK Norm | 2.8% |
| Award (% maximum) vesting |  |  |  |  | 43.7% |  |

1 A measure of profit taking into account a charge for equity utilisation.

2 Cost: Income Ratio adjusted to exclude non mergers and acquisitions restructuring costs (now reported in operating costs as of 2022) to ensure comparability with original GOS target.

3 Meeting threshold performance will result in 25 per cent vesting of each metric, relative to each weighting.

### Payments for loss of office (audited)

No payment for loss of office were made in 2022.

### Payments within the reporting year to past Directors (audited)

As disclosed in the 2021 Directors' remuneration report, Sir António Horta-Osório was provided with tax assistance worth £24,000 (inclusive of VAT) during 2022. There are no other payments made to past directors in 2022.

### External appointments

No executive director served as a non-executive director on the Board of another company in 2022.

112 Lloyds Banking Group Annual Report and Accounts 2022

## Relative importance of spend on pay

The graphs illustrate the total remuneration of all Group employees compared with returns of capital to shareholders in the form of dividends and share buyback.

### Dividend and share buyback$^{1}$

![img-0.jpeg](img-0.jpeg)

1 2022: Ordinary dividend in respect of the financial year ended 31 December 2022, partly paid in 2022 and partly to be paid in 2023 and intended share buyback. 2021: Ordinary dividend in respect of the financial year ended 31 December 2021, partly paid in 2021 and partly paid in 2022 and share buyback.

### Salaries and performance-based compensation$^{2}$

![img-1.jpeg](img-1.jpeg)

2 Performance-based compensation includes expense for the following plans: Group Performance Share (2022: £421 million, 2021: £301 million), Executive Group Ownership Share (2022: £25.3 million, 2021: £2.8 million), Executive Share Awards (2022: £0.2 million, 2021: £0.2 million) and LDC Assets under Management Plan (2022: £12 million, 2021: £12 million). For the 2022 performance year, the face value of awards was £446 million for Group Performance Share and £57.1 million for Long Term Share Plan.

## Comparison of returns to shareholders and Group Chief Executive total remuneration

The chart below shows the historical total shareholder return (TSR) of Lloyds Banking Group plc compared with the FTSE 100 as required by the regulations. The FTSE 100 index has been chosen as it is a widely recognised equity index of which Lloyds Banking Group plc has been a constituent throughout this period.

## TSR indices - Lloyds Banking Group and FTSE 100

### Historical TSR Performance

Growth in the value of a hypothetical £100 holding since 31st December 2012 (to 31st December 2022)

![img-2.jpeg](img-2.jpeg)

|  | GCE | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 4 | 2022 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| GCE single figure of remuneration £000 | Sir António Horta-Osório | 7,475 | 11,540 | 8,704 | 5,791 | 6,434 | 6,544 | 4,424 | 3,604 | 2,444 | n/a |
|  | Charlie Nunn 1 | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | 5,523 | 3,767 |
|  | William Chalmers 2 | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | 819 | n/a |
| Annual bonus/ GPS payout (% of maximum opportunity) | Sir António Horta-Osório 3 | 71% | 54% | 57% | 77% | 77% | 67.60% | n/a | n/a | 57.80% | n/a |
|  | Charlie Nunn | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | 57.80% | 84.1% |
|  | William Chalmers | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | 78.20% | n/a |
| Long-term incentive vesting (% of maximum opportunity) | Sir António Horta-Osório | 54% | 97% | 94.18% | 55% | 66.30% | 68.70% | 49.70% | 33.75% | 41.80% | n/a |
|  | Charlie Nunn | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a |
|  | William Chalmers | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a |
| TSR component vesting (% of LTIP maximum) | Sir António Horta-Osório | 25.30% | 30% | 30% | 0% | 0% | 0% | 0% | 0% | 0% | n/a |
|  | Charlie Nunn | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a |
|  | William Chalmers | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a |

1 Charlie Nunn succeeded Sir António Horta-Osório as Group Chief Executive with effect from 16 August 2021 and the single figure total remuneration for 2021 includes a one-off buy-out of £4,231 million.

2 William Chalmers was the interim Group Chief Executive from 1 May 2021 until 15 August 2021. remuneration in the table above is for this period.

3 Sir António Horta-Osório independently requested that he be withdrawn from consideration for a Group Performance Share award in 2019 and 2020. There were no GPS awards for 2020 performance.

4 2021 single figure of remuneration has been adjusted to reflect the LTIP vesting share price of 45.1038 pence instead of the average share price of 47.993 pence reported in the 2021 annual report.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 113

## Directors' remuneration report continued

### Single total figure of remuneration for Chair and non-executive directors (audited)

|  | Fees (£000) |  | Benefits (£000) 4 |  | Total (£000) |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 |
| Chair and non-executive directors |  |  |  |  |  |  |
| Robin Budenberg | 624 | 618 | 1 | 1 | 625 | 619 |
| Alan Dickinson | 445 | 397 | - | 1 | 445 | 398 |
| Sarah Legg | 224 | 212 | 5 | 2 | 229 | 214 |
| Lord Lupton | 282 | 287 | - | 1 | 282 | 288 |
| Amanda Mackenzie | 175 | 164 | - | - | 175 | 164 |
| Harmeen Mehta | 98 | 16 | - | - | 98 | 16 |
| Stuart Sinclair 1 | 72 | 231 | - | - | 72 | 231 |
| Cathy Turner 2 | 19 | - | - | - | 19 | - |
| Scott Wheway 3 | 189 | - | - | - | 189 | - |
| Catherine Woods | 242 | 232 | 10 | 5 | 252 | 237 |

1 Stuart Sinclair retired on 12 May 2022.

2 Cathy Turner was appointed on 1 November 2022.

3 Scott Wheway was appointed on 1 August 2022.

4 The Chair's benefits relates to private medical insurance provided since 2021 (with the value in respect of 2021, as disclosed above, restated to correct the omission in the 2021 annual report). Benefits for the other non-executive directors relates to reimbursement for expenses incurred in the course of duties. Non-executive directors do not receive variable pay.

### Directors' share interests and share awards

#### Directors' interests (audited)

|  | Number of shares |  |  | Number of options |  | Total shareholding 1 | Value |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | Owned outright 1 | Unvested subject to continued employment | Unvested subject to performance | Unvested subject to continued employment | Vested unexercised | Totals at 31 December 2022 2 | Expected value at 31 December 2022 (£000s) 3 |
| Executive directors |  |  |  |  |  |  |  |
| Charlie Nunn | 2,632,948 | 222,415 | 3,588,364 5 | 6,585,447 | - | 13,029,174 | 5,920 |
| William Chalmers | 6,325,447 | 449,505 | 9,060,823 4,5 | 63,494 | - | 15,899,269 | 5,963 4 |
| Non-executive directors |  |  |  |  |  |  |  |
| Robin Budenberg | 1,500,000 | - | - | - | - | 1,500,000 | n/a |
| Alan Dickinson | 200,000 | - | - | - | - | 200,000 | n/a |
| Sarah Legg | 200,000 | - | - | - | - | 200,000 | n/a |
| Lord Lupton | 2,250,000 | - | - | - | - | 2,250,000 | n/a |
| Amanda Mackenzie | 63,567 | - | - | - | - | 63,567 | n/a |
| Harmeen Mehta | 20,000 | - | - | - | - | 20,000 | n/a |
| Stuart Sinclair 6 | 362,664 | - | - | - | - | 362,664 | n/a |
| Cathy Turner 7 | 424,113 | - | - | - | - | 424,113 | n/a |
| Scott Wheway 8 | 168,356 | - | - | - | - | 168,356 | n/a |
| Catherine Woods | 107,549 | - | - | - | - | 107,549 | n/a |

1 Includes holdings of any Person Closely Associated.

2 There has been no change in shareholdings from 31 December 2022 to 22 February 2023.

3 Expected values are based on the LBO closing share price of 45.435 pence on 31 December 2022.

4 For awards granted under the 2020 Group Ownership Share (GOS) Plans, as the performance period has completed, the actual outcome of 43.7 per cent has been applied to the unvested shares to calculate the expected value.

5 For awards granted under the 2021 and 2022 Long Term Share Plan where the three-year underpin period has not completed, 100 per cent has been applied to calculate the expected value of the LTSP award in line with the applicable Remuneration Policy.

6 Stuart Sinclair retired on 12 May 2022; the number of shares shown is as of 12 May 2022.

7 Cathy Turner was appointed on 1 November 2022.

8 Scott Wheway was appointed on 1 August 2022.

9 Directors are not permitted to enter into any hedging arrangements in relation to share awards. No director uses share holding as collateral.

114 Lloyds Banking Group Annual Report and Accounts 2022

## Outstanding share plan interests (audited)

|  | At 1 January 2022 | Granted/ awarded | Dividends awarded | Vested/ released/ exercised | Lapsed | At 31 December 2022 | Exercise Price | Exercise periods |  | Notes |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  | From | To |  |
| Charlie Nunn |  |  |  |  |  |  |  |  |  |  |
| LTSP 2022 - 2024 |  | 3,588,364 |  |  |  | 3,588,364 |  |  |  | 2,3 |
| Deferred GPS awarded in 2022 (2021 GPS) |  | 370,691 |  | 148,276 |  | 222,415 |  |  |  | 4,5 |
| Share Buy-Out | 859,340 |  |  | 859,340 |  | - |  | 16/03/2022 | 15/03/2027 | 1 |
|  | 1,247,548 |  |  |  |  | 1,247,548 |  | 15/03/2023 | 14/03/2028 | 1 |
|  | 1,368,990 |  |  |  |  | 1,368,990 |  | 12/03/2024 | 11/03/2029 | 1 |
|  | 1,368,990 |  |  |  |  | 1,368,990 |  | 11/03/2025 | 10/03/2030 | 1 |
|  | 1,369,012 |  |  |  |  | 1,369,012 |  | 11/03/2026 | 10/03/2031 | 1 |
|  | 891,217 |  |  |  |  | 891,217 |  | 11/03/2027 | 10/03/2032 | 1 |
|  | 339,690 |  |  |  |  | 339,690 |  | 11/03/2028 | 10/03/2033 | 1 |
| William Chalmers |  |  |  |  |  |  |  |  |  |  |
| GOS 2020 - 2022 | 4,927,191 |  |  |  |  | 4,927,191 |  |  |  | 2 |
| LTSP 2021 - 2023 | 1,547,340 |  |  |  |  | 1,547,340 |  |  |  | 2,3 |
| LTSP 2022 - 2024 | - | 2,586,292 |  |  |  | 2,586,292 |  |  |  | 2,3 |
| Deferred GPS awarded in 2020 (2019 GPS) | 79,116 |  |  | 79,116 |  | - |  |  |  | 6 |
| Deferred GPS awarded in 2022 (2021 GPS) |  | 749,173 |  | 299,668 |  | 449,505 |  |  |  | 4,5 |
| Share Buy-Out | 686,085 |  |  | 686,085 |  | - |  | 28/01/2022 | 27/01/2027 | 7 |
| 2020 Sharesave | 46,317 |  |  |  |  | 46,317 | 24.25p | 01/01/2024 | 30/06/2024 |  |
| 2021 Sharesave | 17,177 |  |  |  |  | 17,177 | 39.40p | 01/01/2025 | 30/06/2025 |  |

1 When Charlie Nunn joined the Group on 16 August 2021 as Group Chief Executive and executive director he was granted deferred share awards and deferred cash to replace unvested awards from his previous employer, HSBC. Options vested on the 16 March 2022 and were exercised on 23 March 2022. Charlie Nunn retained all the shares apart from 404,092 shares which were sold at 49.965 pence to meet income tax and National Insurance contributions. The remaining 455,248 shares are subject to holding periods that mirror the shares replaced from HSBC of no hold, six months and 12 months holds.
2 All GOS and LTSP awards have a three-year performance period ending 31 December. Awards were made in the form of conditional rights to free shares.
3 LTSP awards (in the form of conditional share options) in 2022 were made over shares with a value of 150 per cent of salary for Charlie Nunn (3,588,364 shares with a face value of £1,687,500) and a value of 150 per cent for William Chalmers (2,586,292 shares with a face value of £1,216,256). Vesting is subject to underpin thresholds applicable for the first three years from grant as detailed on page 115 of the 2021 Directors' remuneration report. Each year the Remuneration Committee will monitor the Group's progress in relation to the underpins. The share price used to calculate the face value is the average price over the five days prior to grant (25 February 2022 to 3 March 2022), which was 47.027 pence. The underpins for this award are set out on page 115.
4 Half of GPS is deferred into shares (in the form of conditional rights to free shares). The face value of the shares awarded in respect of GPS granted in March 2022 was £174,325 (370,691 shares) for Charlie Nunn; and £352,314 (749,173 shares) for William Chalmers. As the awards represent deferral of awarded GPS they are not subject to further performance conditions. The share price used to calculate the face value is the average price over the five days prior to grant (25 February 2022 to 3 March 2022), which was 47.027 pence.
5 The first tranche of the 2021 GPS deferred award vested on 7 March 2022. The closing market price of the Group's ordinary shares on that date was 41.255 pence. The award was settled in shares net of tax, with the resulting shares subject to a one year holding period.
6 The final tranche of 2019 GPS award vested on 7 March 2022. The closing market price of the Group's ordinary shares on that date was 41.255 pence. The award was settled in shares net of tax. 50 per cent of the final tranche is subject to a one year holding period.
7 When William Chalmers joined the Group on 3 June 2019, he was granted deferred share awards to replace unvested awards from his former employer, Morgan Stanley. Options vested on 27 January 2022 and were exercised on 7 March 2022. William Chalmers retained all the shares apart from 322,702 shares which were sold at 41.825 pence to meet income tax and National Insurance contributions. The remaining 363,383 shares are subject to a 12-month holding period from the date of vesting on 27 January 2022.

## Outstanding share plan cash awards interests (audited)

|  | At 1 January 2022 (£) | Granted/ awarded (£) | Vested / released / exercised (£) | At 31 December 2022 (£) | Notes |
| --- | --- | --- | --- | --- | --- |
| Charlie Nunn |  |  |  |  |  |
| Deferred GPS cash awarded in 2022 (2021 GPS) | - | 104,594 | - | 104,594 | 1 |
| William Chalmers |  |  |  |  |  |
| Deferred GPS cash awarded in 2022 (2021 GPS) | - | 211,388 | - | 211,388 | 1 |

1 From 2022, half of GPS is now deferred into cash (in the form of deferred cash awards, with a face value equal to that of the relevant portion of the GPS award). As the awards represent deferral of awarded GPS they are not subject to further performance conditions. The awards will be released in two tranches; March 2023 and March 2024.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 115

## Directors' remuneration report continued

### Shareholding Requirement

Executives are expected to build and maintain a company shareholding in direct proportion to their remuneration in order to align their interests to those of shareholders. The minimum shareholding requirements executive directors are expected to meet are as follows: 350 per cent of base salary for the GCE and 250 per cent of base salary for other executive directors. From January 2023 individuals will have five years from appointment to achieve the shareholding requirement. In the event that exceptional individual circumstances exist resulting in an executive not being able to comply with the Policy, the Remuneration Committee will consider whether an exception should apply.

In recognition of the increased variable opportunity offered by the implementation of the LTIP and to further strengthen alignment with shareholders, from 1 January 2024 the shareholding requirement applicable to the GCE will increase from 350 per cent to 400 per cent of salary and from 250 per cent to 300 per cent for other executive directors, subject to approval of the Policy at the 2023 AGM.

### Post-employment shareholding requirement

Executive directors are contractually bound to a post-employment shareholding requirement of two years at a level equal to the lower of the shareholding requirements immediately prior to departure or the actual shareholding on departure.

The post-employment requirement will be maintained through self-certification, with the Committee keeping this approach under review.

None of those who were directors at the end of the year had any other interest in the capital of Lloyds Banking Group plc or its subsidiaries.

![img-3.jpeg](img-3.jpeg)

116 Lloyds Banking Group Annual Report and Accounts 2022

## Chair and non-executive director fees in 2022

Following a detailed review of peer benchmarks, there is a 1 per cent increase to the annual fee for the Chair, capped at £5,000 (£629,400) to align with the maximum pay increase permitted for the broader colleague population. The basic board fee will increase by 5 per cent (£86,100) and there are no increases to other non-executive directors fees for 2023.

|  | 2023 | 2022 |
| --- | --- | --- |
| Basic non-executive director fee | £86,100 | £82,000 |
| Deputy Chair | £107,000 | £107,000 |
| Senior Independent Director | £64,200 | £64,200 |
| Audit Committee Chair | £75,000 | £75,000 |
| Remuneration Committee Chair | £75,000 | £75,000 |
| Risk Committee Chair | £75,000 | £75,000 |
| Responsible Business Committee Chair | £42,800 | £42,800 |
| IT Forum Chair | £42,800 | £42,800 |
| Audit Committee member | £34,300 | £34,300 |
| Remuneration Committee member | £34,300 | £34,300 |
| Risk Committee member | £34,300 | £34,300 |
| Responsible Business Committee member | £16,100 | £16,100 |
| IT Forum member | £16,100 | £16,100 |
| Nomination and Governance Committee member | £16,100 | £16,100 |

Non-executive directors may receive more than one of the above fees.

## Percentage change in remuneration levels

The table below sets out the change in the directors' base salary/fees, taxable benefits and annual bonus compared with the change in our UK-based colleagues' pay. Lloyds Banking Group plc is not an employing entity, and therefore the disclosure below is made on a voluntary basis to compare any change with all employees of the wider Group based in the UK. This population has been chosen as the majority of our workforce are based in the UK and is considered to be the most appropriate group of employees. The same population is used for the purposes of the Chief Executive Officer pay ratio disclosure on **page 118** of the report.

|  | % change in base salary/fees |  |  | % change in GPS |  |  | % change in benefits |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2019 to 2020 | 2020 to 2021 4 | 2021 to 2022 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 |
| All employees 1 | 4 | 4 | 6 | (100) | n/a | 12 | (32) | 1 | 5 |
| Executive directors |  |  |  |  |  |  |  |  |  |
| Charlie Nunn 2 | n/a | n/a | 1 | n/a | n/a | 47 | n/a | n/a | 4 |
| William Chalmers 3 | 2 | 12 | (9) | (100) | n/a | (2) | (1) | 2 | 35 |
| Non-executive directors 4,5 |  |  |  |  |  |  |  |  |  |
| Robin Budenberg | n/a | 243 | 1 | n/a | n/a | n/a | n/a | n/a | - |
| Alan Dickinson | 45 | 14 | 12 | n/a | n/a | n/a | n/a | n/a | n/a |
| Sarah Legg | 131 | 28 | 6 | n/a | n/a | n/a | n/a | n/a | n/a |
| Lord Lupton | 0 | (8) | (2) | n/a | n/a | n/a | n/a | n/a | n/a |
| Amanda Mackenzie | 6 | (1) | 7 | n/a | n/a | n/a | n/a | n/a | n/a |
| Harmeen Mehta | n/a | n/a | 2 | n/a | n/a | n/a | n/a | n/a | n/a |
| Stuart Sinclair | 21 | (9) | (25) | n/a | n/a | n/a | n/a | n/a | n/a |
| Cathy Turner | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a |
| Scott Wheway | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a |
| Catherine Woods | n/a | 43 | 4 | n/a | n/a | n/a | n/a | n/a | n/a |

1 Lloyds Banking Group is not a contracting entity but considers this population to be appropriate for purposes of an 'All employees' calculation.

2 Charlie Nunn became the Group Chief Executive in August 2021. Figures for 2021 have been annualised based on the single total figure table.

3 William Chalmers was the Interim Group Chief Executive from May to August 2021 and received a deputisation payment for this period.

4 No Group Performance Share (bonus) was paid for 2020 performance.

5 In some instances, non-executive directors may change membership or become the Chair of a Committee during the year, resulting in large year-on-year percentage changes in fees.

6 Some non-executive directors have received other benefits that relate to reimbursement for expenses incurred in the course of duties. Reimbursements of these expenses do not provide an accurate comparison to benefits received by colleagues and are therefore not included.

Strategic report

Financial results

Governance

Risk management

Financial statements

Other information

Lloyds Banking Group Annual Report and Accounts 2022 117

Directors' remuneration report continued

# Gender pay

Our work to improve gender equality continues to be recognised externally: in 2022, Lloyds Banking Group was listed in The Times Top 50 Employers for Women list for the eleventh year running. We were also included in the Bloomberg Gender Equality Index for a fourth consecutive year running.

While we have further reduced the mean pay gap to 29.3 per cent, from 32.8 per cent in 2017, it is still larger than we would like and our progress has been too slow. Through our actions over the past few years, we've learned a lot about what works and what doesn't. What's clear is that our focus needs to be on creating an organisation that is more agile and reflects the social and demographic changes we are seeing.

Further information is available at https://www.lloydsbankinggroup.com/assets/pdfs/who-we-are/responsible-business/downloads/2022-reporting/lbg-gender-pay-gap-report-2022.pdf

# Mean pay gap

| % |  |
| --- | --- |
| 2022 | 29.3% |
| 2021 | 29.9% |

Bonus data has been excluded, as this year's bonus data cannot be compared like-for-like with the equivalent data for last year. This is because no bonuses were awarded for the 2020 performance year, which would normally have been paid during 2021, and therefore impacted the bonus data for the 2021 and 2022 Gender Pay Gap reporting periods.

# Ethnicity pay

While there is currently no legal requirement to publish ethnicity pay data in the UK, we are publishing this data not only because it is the right thing to do, but it also holds us to account for the goals we have set.

Broadly, the Group has made progress in improving Black, Asian and Minority Ethnic representation at senior levels. Senior Black, Asian and Minority Ethnic representation has increased by 3.7 per cent from 5.8 per cent in January 2018 (when our representation goals were set) to 9.3 per cent in April 2022 (based on all colleague data). However, our data shows us that under-representation is seen at its highest amongst our Black Heritage colleagues and needs additional focus to progress.

Further information is available at https://www.lloydsbankinggroup.com/assets/pdfs/who-we-are/responsible-business/downloads/2022-reporting/lbg-ethnicity-pay-gap-report-2022.pdf

# Mean pay gap

| % |  |
| --- | --- |
| 2022 | 4.6% |
| 2021 | 5.3% |

# Chief Executive Officer pay ratio

The Remuneration Committee views pay ratios as a useful reference point to inform policy setting, but also takes into consideration a number of other factors. The table below shows the ratios of the GCE's total remuneration to the remuneration of colleagues since 2017.

The change in the pay ratios for 2022 is explained in more detail on page 119.

| Year | Total compensation |  |  |  | Fixed pay |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | Methodology | P25 (Lower Quartile) | P50 (Median) | P75 (Upper Quartile) | P25 (Lower Quartile) | P50 (Median) | P75 (Upper Quartile) |
| 2022 | A | 120.1 | 86.1 | 48.1 | 81.1 | 59.1 | 35.1 |
| 2021 | A | 316.1 | 225.1 | 120.1 | 93.1 | 66.1 | 38.1 |
| 2020 | A | 132.1 | 95.1 | 54.1 | 103.1 | 75.1 | 42.1 |
| 2019 | A | 179.1 | 128.1 | 71.1 | 114.1 | 82.1 | 47.1 |
| 2018 | A | 237.1 | 169.1 | 93.1 | 113.1 | 81.1 | 48.1 |
| 2017 | A | 245.1 | 177.1 | 97.1 | 113.1 | 82.1 | 48.1 |
| Y-o-Y (2021 v 2022) |  |  | (62)% |  |  | (11)% |  |

118 Lloyds Banking Group Annual Report and Accounts 2022

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