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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

3 AUGUST 2018

Commission File number 001-15246

LLOYDS BANKING GROUP plc

(Translation of registrant’s name into English)

25 Gresham Street
London
EC2V 7HN
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 x     Form 40-F  o

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) o.

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) o.

This report on Form 6-K shall be deemed incorporated by reference into the company’s Registration Statement on Form F-3 (File Nos. 333-211791 and 333-211791-01) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

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EXPLANATORY NOTE

This report on Form 6-K contains the interim report of Lloyds Banking Group plc, which includes the unaudited consolidated interim results for the half-year ended 30 June 2018, and is being incorporated by reference into the Registration Statement with File Nos. 333-211791 and 333-211791-01.

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BASIS OF PRESENTATION

This report covers the results of Lloyds Banking Group plc (the Company) together with its subsidiaries (the Group) for the half-year ended 30 June 2018.

IFRS 9 and IFRS 15: On 1 January 2018, the Group implemented IFRS 9 “Financial Instruments” and IFRS 15 “Revenue from Contracts with Customers”. As permitted by IFRS 9 and IFRS 15, comparative information for previous periods has not been restated.

Statutory basis: Statutory information is set out on pages 2 to 5. However, a number of factors have had a significant effect on the comparability of the Group’s financial position and results. Accordingly, the results are also presented on an underlying basis.

Underlying basis: These results are adjusted for certain items which are listed below, to allow a comparison of the Group’s underlying performance.

·                  restructuring, including severance-related costs, the costs of implementing regulatory reform including ring-fencing, the rationalisation of the non-branch property portfolio, the integration of MBNA and Zurich’s UK workplace pensions and savings business;

·                  volatility and other items, which includes the effects of certain asset sales, the volatility relating to the Group’s own debt and hedging arrangements and that arising in the insurance businesses, insurance gross up, the unwind of acquisition-related fair value adjustments and the amortisation of purchased intangible assets;

·                  payment protection insurance provisions.

Unless otherwise stated, income statement commentaries throughout this document compare the half-year ended 30 June 2018 to the half-year ended 30 June 2017, and the balance sheet analysis compares the Group balance sheet as at 30 June 2018 to the Group balance sheet as at 31 December 2017.

The comparative information included in the consolidated financial statements presented in this Form 6-K differs from the comparative information provided in the Group’s UK results for the six months ended 30 June 2018. As reported in the Company’s 2016 Form 20-F, an adjusting post balance sheet event that occurred between the signing of the Group’s 2016 UK Annual Report and Accounts and its 2016 Form 20-F resulted in the charge recognised in respect of PPI complaints in the Company’s 2016 Form 20-F being £350 million greater than that recorded in the Group’s 2016 UK Annual Report and Accounts. Consequently, the charge recognised by the Group in its UK basis results for the first quarter of 2017 was £350 million greater than on a US basis. Since 31 March 2017, the Group has reported the same net assets on a US basis and on a UK basis.

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FORWARD LOOKING STATEMENTS

This document contains certain forward looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and section 27A of the US Securities Act of 1933, as amended, with respect to the business, strategy, plans and / or results of Lloyds Banking Group and its current goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about Lloyds Banking Group’s or its directors’ and/or management’s beliefs and expectations, are forward looking statements. Words such as ‘believes’, ‘anticipates’, ‘estimates’, ‘expects’, ‘intends’, ‘aims’, ‘potential’, ‘will’, ‘would’, ‘could’, ‘considered’, ‘likely’, ‘estimate’ and variations of these words and similar future or conditional expressions are intended to identify forward looking statements but are not the exclusive means of identifying such statements. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend upon circumstances that will or may occur in the future.

Examples of such forward looking statements include, but are not limited to: projections or expectations of  Lloyds Banking Group’s future financial position including profit attributable to shareholders, provisions, economic profit, dividends, capital structure, portfolios, net interest margin, capital ratios, liquidity, risk-weighted assets (RWAs), expenditures or any other financial items or ratios; litigation, regulatory and governmental investigations;  Lloyds Banking Group’s future financial performance; the level and extent of future impairments and write-downs; statements of plans, objectives or goals of Lloyds Banking Group or its management including in respect of statements about the future business and economic environments in the UK and elsewhere including, but not limited to, future trends in interest rates, foreign exchange rates, credit and equity market levels and demographic developments; statements about competition, regulation, disposals and consolidation or technological developments in the financial services industry; and statements  of assumptions underlying such statements.

Factors that could cause actual business, strategy, plans and/or results (including but not limited to the payment of dividends) to differ materially from forward looking statements made by Lloyds Banking Group or on its behalf include, but are not limited to: general economic and business conditions in the UK and internationally; market related trends and developments; fluctuations in interest rates, inflation, exchange rates, stock markets and currencies; the ability to access sufficient sources of capital, liquidity and funding when required; changes to  Lloyds Banking Group’s credit ratings; the ability to derive cost savings and other benefits including, but without limitation as a result of any acquisitions, disposals and other strategic transactions; changing customer behaviour including consumer spending, saving and borrowing habits; changes to borrower or counterparty credit quality; instability in the global financial markets, including Eurozone instability, instability as a result of the exit by the UK from the European Union (EU) and the potential for other countries to exit the EU or the Eurozone  and the impact of any sovereign credit rating downgrade or other sovereign financial issues; technological changes and risks to the security of IT and operational infrastructure, systems, data and information resulting  from  increased threat of cyber and other attacks; natural, pandemic and other disasters, adverse weather and similar contingencies outside  Lloyds Banking Group’s control; inadequate or failed internal or external processes or systems; acts of war, other acts of hostility, terrorist acts and responses to those acts, geopolitical, pandemic or other such events; changes in laws, regulations, practices and accounting standards or taxation, including as a result of the exit by the UK from the EU, or a further possible referendum on Scottish independence; changes to regulatory capital or liquidity requirements and similar contingencies outside Lloyds Banking Group’s control; the policies, decisions and actions of governmental or regulatory authorities or courts in the UK, the EU, the United States or elsewhere including the implementation and interpretation of key legislation and regulation together with any resulting impact on the future structure of Lloyds Banking Group; the ability to attract and retain senior management and other employees and meet its diversity objectives; actions or omissions by  Lloyds Banking Group’s directors, management or employees including industrial action; changes to Lloyds Banking Group’s post-retirement defined benefit scheme obligations; the extent of any future impairment charges or write-downs caused by, but not limited to, depressed asset valuations, market disruptions and illiquid markets; the value and effectiveness of any credit protection purchased by  Lloyds Banking Group; the inability to hedge certain risks economically; the adequacy of loss reserves; the actions of competitors, including non-bank financial services, lending companies and digital innovators and disruptive technologies; and exposure to regulatory or competition scrutiny, legal, regulatory or competition proceedings, investigations or complaints.

Please refer to the latest Annual Report on Form 20-F filed with the US Securities and Exchange Commission for a discussion of certain factors and risks together with examples of forward looking statements.

Lloyds Banking Group may also make or disclose written and/or oral forward looking statements in reports filed with or furnished to the US Securities and Exchange Commission, Lloyds Banking Group annual reviews, half-year announcements, proxy statements, offering circulars, prospectuses, press releases and other written materials and in oral statements made by the directors, officers or employees of Lloyds Banking Group to third parties, including financial analysts. Except as required by any applicable law or regulation, the forward looking statements contained in this document are made as of the date hereof, and Lloyds Banking Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this document to reflect any change in Lloyds Banking Group’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

The information, statements and opinions contained in this document do not constitute a public offer under any applicable law or an offer to sell any securities or financial instruments or any advice or recommendation with respect to such securities or financial instruments.

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CONTENTS

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SUMMARY OF RESULTS

(1)         Prior periods restated to include remediation.

(2)         Adjusted to reflect the impact of applying IFRS 9 from 1 January 2018, with transitional arrangements applied for capital.

(3)         Excludes reverse repos of £26.7 billion (31 December 2017 and 1 January 2018: £16.8 billion).

(4)         Excludes repos of £4.0 billion (31 December 2017 and 1 January 2018: £2.6 billion).

(5)         Loans and advances to customers (excluding reverse repos) divided by customer deposits (excluding repos).

(6)         Reported on the CRD IV transitional basis.

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STATUTORY INFORMATION (IFRS)

CONSOLIDATED INCOME STATEMENT

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SUMMARY CONSOLIDATED BALANCE SHEET

(1)  Adjusted to reflect the implementation of IFRS 9 and IFRS 15.

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REVIEW OF RESULTS

Income statement

During the half year to 30 June 2018, the Group recorded a profit before tax of £3,117 million, an increase of £223 million, or 8 per cent, compared to a profit before tax in the half year to 30 June 2017 of £2,894 million.

Total income, net of insurance claims, increased by £272 million, or 3 per cent, to £9,571 million in the half year to 30 June 2018 compared with £9,299 million in the half year to 30 June 2017, comprising an £805 million increase in net interest income and a decrease of £533 million in other income, net of insurance claims.

Net interest income was £6,007 million in the half year to 30 June 2018; an increase of £805 million, or 15 per cent, compared to £5,202 million in the half year to 30 June 2017. There was a significant reduction in the amounts payable to unit holders in those Open-Ended Investment Companies (OEICS) included in the consolidated results of the Group from an expense of £743 million in the half year to 30 June 2017 to an expense of £212 million in the half year to 30 June 2018. This decrease reflects investment performance in the period and is offset by lower other income, net of insurance claims. In 2018, the Group recognised £212 million (2017: £743 million) that was attributable to third party investors in respect of its consolidated OEICs as a result of positive market movements in the year to date, with market returns ranging from 5.7 per cent to (6.6) per cent. The change in population of consolidated OEICs in 2017 to 2018 did not have a significant impact on this figure, contributing a net decrease of £4 million attributable to third party investors. Amounts recognised that are attributable to third party investors have no impact on the Company’s ordinary shareholders as a compensating charge is recognised in net interest income, reflecting the amounts payable to the OEIC unitholders. Excluding the amounts attributable to OEIC unit holders, net interest income was £6,219 million in the half year to 30 June 2018; an increase of £274 million, or 5 per cent, compared to £5,945 million in the half year to 30 June 2017 as a result of margin improvements due to lower deposit and wholesale funding costs, more than offsetting continued asset pricing pressure. The margin also benefitted from changing product mix and growth in consumer finance, including the acquisition of MBNA.

Other income, net of insurance claims, was £533 million lower at £3,564 million in the half year to 30 June 2018 compared to £4,097 million in the half year to 30 June 2017. There were reduced gains within trading income on policyholder assets in the insurance business, as a result of market performance over the period, particularly in equities, but this was offset by a lower level of insurance claims and also the reduced amounts attributable to OEIC unit holders within net interest income. Adjusting for the amounts included within net interest income, other income, net of insurance claims, was £3,352 million in the half year to 30 June 2018, little changed from £3,354 million in the half year to 30 June 2017. There was a £150 million reduction in net fee and commission income, in part reflecting lower income as a result of the changes to overdraft charging announced in July 2017, which took effect in November. Insurance premium income was £716 million, or 17 per cent, higher at £4,815 million in the half year to 30 June 2018 compared to £4,099 million in the half year to 30 June 2017 as a result of a number of bulk annuity deals recognised in the current period. Other operating income was £45 million, or 4 per cent, lower at £1,238 million in the half year to 30 June 2018 compared to £1,283 million in the half year to 30 June 2017; the half-year to 30 June 2017 included a gain of £146 million on the sale of the Group’s investment in Vocalink.

Operating expenses decreased by £204 million, or 3 per cent, to £5,998 million in the half year to 30 June 2018 compared with £6,202 million in the half year to 30 June 2017, with an increase of £75 million reflecting the acquisition of MBNA and an increase in restructuring costs being offset by underlying cost efficiencies and a lower level of conduct charges. Conduct charges in the half year to 30 June 2018 totalled £807 million (compared to £1,240 million in the half-year to 30 June 2017) and include a Payment Protection Insurance charge of £550 million which now reflects claims volumes of approximately 13,000 per week until the deadline in August 2019, compared to the 11,000 run-rate previously assumed.

Impairment losses increased by £253 million to £456 million in the half year to 30 June 2018 compared with £203 million in the half year to 30 June 2017, reflecting lower releases and write-backs and the acquisition of MBNA. Asset quality remains strong.

Balance sheet and capital

Total assets were £17,670 million, or 2 per cent, higher at £829,779 million at 30 June 2018 compared to £812,109 million at 31 December 2017.  Loans and advances to customers were adjusted on adoption of IFRS 9, resulting in a reduction of £11,482 million to £461,016 million primarily due to the reclassification of certain assets to fair value through profit or loss due to the nature of the contractual cash flows. Taking into account this adjustment, loans and advances to customers increased in the half year to £469,025 million as a result of

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increased holdings of reverse repurchase agreement balances and continued growth in targeted segments such as SME and motor finance more than offsetting a reduction of some £4 billion on sale of the Group’s Irish residential mortgage portfolio; the open mortgage book remained broadly stable. Financial assets held at fair value through profit or loss increased by £13,130 million to £176,008 million on transition to IFRS 9, but have subsequently reduced to £172,361 million in the half year. Financial assets held at fair value through other comprehensive income have reduced following sales of part of the Group’s gilt holdings.

Customer deposits were £3,485 million higher at £421,609 million at 30 June 2018 compared to £418,124 million at 31 December 2017 as a £1,413 million increase in repurchase agreement balances and seasonal growth in current account balances have been more than offset by reductions in maturing retail savings products.

The Group’s transitional common equity tier 1 (CET 1) capital ratio remained at 14.1 per cent at 30 June 2018, compared to 14.1 per cent at 31 December 2017, reflecting profit generation, the receipt of the dividend paid by the Insurance business in February 2018, a reduction in the deferred tax asset deducted from capital and a substantial reduction in excess expected losses resulting from the partial absorption of the increase in impairment provisions following the adoption of IFRS 9. This has been offset by the accrual for foreseeable dividends in respect of the first half of 2018, share buybacks completed during the period and the accrual for the remaining share buyback, the impact on retained earnings following the adoption of IFRS 9 (net of transitional relief), movements through the fair value through other comprehensive income reserve and an increase in intangible assets deducted from capital. The transitional tier 1 capital ratio reduced to 17.1 per cent primarily reflecting the annual reduction in the transitional limit applied to grandfathered AT1 capital instruments. The total transitional capital ratio increased to 21.6 per cent, largely reflecting the issuance of new dated subordinated debt instruments, foreign exchange movements and the increase in CET 1 capital, partially offset by the amortisation of dated tier 2 instruments.

Risk-weighted assets reduced by £230 million to £210,689 million at 30 June 2018, compared to £210,919 million at 31 December 2017, reflecting continued active portfolio management and the sale of a strategic equity investment, foreign exchange movements and a reduction in CVA and operational risks, largely offset by targeted growth in key customer segments, model changes within the mortgage portfolios and an increase in market risk.

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SEGMENTAL ANALYSIS OF PROFIT BEFORE TAX BY DIVISION (UNAUDITED)

Underlying basis

The Group Executive Committee (GEC), which is the chief operating decision maker for the Group, reviews the Group’s internal reporting based around these segments (which reflect the Group’s organisational and management structures) in order to assess the Group’s performance and allocate resources; this reporting is on an underlying profit before tax basis. The GEC believes that this basis better represents the performance of the Group. IFRS 8 Operating Segments requires that the Group present its segmental profit before tax on the basis reviewed by the chief operating decision maker that is most consistent with the measurement principles used in measuring the Group’s statutory profit before tax. Accordingly, the Group presents its segmental underlying basis profit before tax in note 2 on page 52 of its financial statements in compliance with IFRS 8 Operating Segments.

The aggregate total of the underlying basis segmental results constitutes a non-GAAP measure as defined in the United States Securities and Exchange Commission’s Regulation G. Management uses the aggregate underlying profit before tax, a non-GAAP measure, as a measure of performance and believes that it provides important information for investors because they are comparable representations of the Group’s performance. Profit before tax is the comparable GAAP measure to aggregate underlying profit before tax; the following table sets out the reconciliation of this non-GAAP measure to its comparable GAAP measure.

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GROUP PROFIT RECONCILIATIONS

Restructuring costs of £377 million included £155 million for severance costs relating to the Group’s strategic investment plans as well as the costs of the integration of MBNA and Zurich’s UK workplace pensions and savings business, implementing regulatory reform and ring-fencing and the rationalisation of the non-branch property portfolio.

Market volatility and asset sales of £34 million included positive banking and insurance volatility, partly offset by the £105 million loss on sale of the Irish mortgage portfolio and an adjustment to past service pension liability.

The PPI charge of £550 million included an additional £460 million in the second quarter and now covers claims volumes of approximately 13,000 per week until the deadline in August 2019, compared to the 11,000 run rate previously assumed.

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DIVISIONAL RESULTS

RETAIL

Retail offers a broad range of financial service products, including current accounts, savings, mortgages, credit cards, motor finance and unsecured loans to personal and business banking customers. Its aim is to be the best bank for customers in the UK, by building deep and enduring relationships that deliver value to customers, and by providing them with greater choice and flexibility. Retail operates a multi-brand and multi-channel strategy and continues to simplify the business and provide more transparent products, helping to improve service levels and reduce conduct risks.

Progress against strategic priorities

Delivering a leading customer experience

·             Opened the new Halifax flagship branch, offering the latest in banking technology, and introduced eight new mobile branches taking the total to 36, helping reach more remote and rural communities across 190 locations

·             Maintained position as the UK’s largest digital bank with 13.8 million digital customers and 9.8 million mobile users

·             Delivery of an enhanced Lex Autolease driver portal, enabling a more streamlined customer experience through a self-serve platform

·             Shortened the branch mortgage application process by two days, due to a number of initiatives, including faster document processing and the roll out of automated valuations

Digitising the Group

·             The first major UK bank to successfully deliver Open Banking, enhanced by re-platforming our mobile app, enabling improved functionality and delivery of future capabilities

·             Launched new dynamic personal loan tool, providing customers with online eligibility checker and personalised price functionality

Maximising the Group’s capabilities

·             Extended the successful Jaguar Land Rover partnership until the end of 2020

·             Invested significantly in additional mortgage advisors, increasing customer facing capacity by over 10 per cent and the number of branches equipped to offer remote appointments doubling to 100

Transforming ways of working

·             Colleagues completed over 200,000 hours of learning, further developing the skills and capabilities required for the future

Financial performance

·             Underlying profit increased 14 per cent to £2,164 million

·             MBNA has performed ahead of expectations, and integration is expected to complete ahead of schedule in the first quarter of 2019

·             Net interest income increased 8 per cent reflecting a 14 basis points improvement in net interest margin. The benefits of MBNA and lower funding costs, more than offsetting ongoing mortgage pricing pressure

·             Other income was 5 per cent lower following changes to overdraft charging which took effect in November, more than offsetting fleet growth in Lex Autolease, which also drives growth in operating lease depreciation

·             Operating costs increased 3 per cent to £2,410 million. Excluding MBNA, costs were down 1 per cent as efficiency savings more than offset increased investment and inflationary pressure

·             Remediation reduced to £91 million driven by lower provision charges across existing programmes

·             Impairment charges increased 77 per cent to £461 million and the asset quality ratio increased 11 basis points to 27 basis points, both reflecting lower debt sales and recoveries and the inclusion of MBNA

·             Loans and advances increased to £340.8 billion with the transfer of Business Banking balances from Commercial Banking and growth in Black Horse, being partly offset by reductions in the closed mortgage book. Open mortgage book balances were flat in the first half

·             Customer deposits remained broadly flat, excluding the transfer of Business Banking relationship balances

·             Risk-weighted assets increased 2 per cent to £93.2 billion, reflecting balance growth and changing mix, along with model refinements

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Performance summary

(1)         Prior periods restated to include run-off.

(2)         Prior periods restated to include remediation.

(3)         Adjusted to reflect the impact of applying IFRS 9 from 1 January 2018.

(4)         Includes the Netherlands mortgage lending business.

(5)         SME portfolio within Commercial Banking re-segmented moving £1.0 billion of loans and advances to customers and £2.0 billion of customer deposits to Retail Business Banking. Prior period not restated.

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COMMERCIAL BANKING

Commercial Banking has a client-led, low risk, capital efficient strategy, helping UK-based clients and international clients with a link to the UK. Through its four client facing segments — SME, Mid Markets, Global Corporates and Financial Institutions — it provides clients with a range of products and services such as lending, transactional banking, working capital management, risk management and debt capital markets services.

Progress against strategic priorities

Commercial Banking is committed to supporting the financing needs of key client segments, continuing to invest in capabilities and digital propositions in order to deliver a leading customer experience supported by increasingly productive relationship managers. In the first half of 2018 we successfully launched Lloyds Bank Corporate Markets (LBCM), the Group’s non ring-fenced bank.

Delivering a leading customer experience

·             Awarded Business Bank of the Year at the FDs’ Excellence Awards for the 14th consecutive year; with an overall satisfaction rating of nine out of ten

Digitising the Group

·             Launched the digital eligibility and pricing tool, enabling SME clients to understand instantly how likely they are to be approved for a loan or overdraft of up to £25,000 before they apply

·             Piloted Invoice Finance Online, a new mobile enabled portal giving clients access to faster payments, flexible processing and functionality to create their own reports

Maximising the Group’s capabilities

·             On target to achieve £2 billion growth in net lending to start-ups, SMEs and Mid Market clients in 2018, supported by initiatives such as the £100 million lending fund for SMEs linked to the construction of EDF Energy’s Hinkley Point C power station, which will provide low-carbon electricity for around 6 million homes

·             Launched a £500 million fund for housing associations, supporting the Government pledge to deliver 300,000 houses each year by the middle of the next decade. Committed £750 million in 2018 for social housing projects, contributing to the Group’s commitment to enable more people in Britain to get a home

Transforming ways of working

·             Created the Customer Contact Portal, a digital tool to capture customer information in one place, enabling colleagues to provide proactive support, improve engagement and better serve customer needs across the Group

·             Further re-segmented the SME portfolio, moving 30,000 clients with a turnover of £3 million or less to Business Banking in Retail. Through investment in new technology, the Group has responded to changing client preferences, and can effectively manage day-to-day banking needs of smaller clients through the ‘direct’ relationship manager capability

Financial performance

·             Net interest income of £1,497 million has remained stable supported by improved net interest margin following continued optimisation of the lending portfolio as well as increased high quality transactional deposits

·             Other income showing good momentum, 4 per cent higher than previous six months, at £840 million. The first half of 2017 included a number of significant refinancing and hedging transactions

·             Improved return on risk-weighted assets of 2.71 per cent, up 5 basis points driven by a reduction in risk-weighted assets following further optimisation

·             Operating lease depreciation reduced following accelerated charges in prior year

·             Operating costs 2 per cent lower reflecting efficiency initiatives offsetting higher investment

·             Asset quality ratio of 2 basis points reflecting strong credit quality across the portfolio, with the slight increase in the first half of 2018 primarily driven by lower releases and write-backs. The second half of 2017 included a single large corporate impairment

·             Continued lending growth in SME of 2 per cent, including loans and advances now transferred to Business Banking

·             Increased customer deposits at £148.5 billion, reflecting continued success in attracting high quality transactional deposit balances

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Performance summary