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SEGMENTAL ANALYSIS

12 Months Ended

Dec. 31, 2022

Disclosure of entity's operating segments [Abstract]

NOTE 4: SEGMENTAL ANALYSIS

Lloyds Banking Group provides a wide range of banking and financial services in the UK and in certain locations overseas.

The Group Executive Committee (GEC) has been determined to be the chief operating decision-maker, as defined by IFRS 8 Operating Segments, for the Group. The Group’s operating segments reflect its organisational and management structures. The GEC reviews the Group’s internal reporting based around these segments in order to assess performance and allocate resources. They consider interest income and expense on a net basis and consequently the total interest income and expense for all reportable segments is presented net. The segments are differentiated by the type of products provided and by whether the customers are individuals or corporate entities.

The segmental results and comparatives are presented on an underlying basis (pre-tax), the basis reviewed by the chief operating decision-maker. The underlying basis is derived from the recognition and measurement principles of IFRS with the effects of the following excluded in arriving at underlying profit before tax:

•Restructuring costs relating to merger, acquisition and integration activities

•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 businesses, the unwind of acquisition-related fair value adjustments and the amortisation of purchased intangible assets

•Payment protection insurance remediation provisions, excluding litigation costs

For the purposes of the underlying income statement, operating lease depreciation (net of gains on disposal of operating lease assets) is shown as an adjustment to total underlying income.

During the year ended 31 December 2022, there were changes as a result of the Group restructure effective from 1 July 2022 and other methodology changes (comparatives have been restated accordingly):

•Business Banking and Commercial Cards moved from Retail to Commercial Banking. Wealth moved from Insurance and Wealth to Retail.

•Insurance and Wealth was renamed Insurance, Pensions and Investments.

•The Group reviewed and updated its methodology for liquidity transfer pricing between segments.

•The Group revised the treatment of restructuring costs and all such costs other than those relating to merger, acquisition and integration activities are now reported within operating costs in arriving at underlying profit.

•Non lending-related fraud costs, previously included within underlying impairment, are now reported as part of operating costs (this has not impacted the statutory impairment charge).

The Group's restructure created a revised organisational structure under its divisions. The Group completed a review and determined that it had three operating and reportable segments: Retail; Commercial Banking; and Insurance, Pensions and Investments:

•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.

•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.

•Insurance, Pensions and Investments offers insurance, investment and pension management products and services.

Other comprises income and expenditure not attributed to the Group’s operating segments. These amounts include those arising from the Group’s equities business, residual net interest income after transfer pricing (including the central recovery of the Group’s distributions on other equity instruments) and certain gains from gilt sales.

Inter-segment services are generally recharged at cost, although some attract a margin. In particular, a profit margin is charged on the internal commission arrangements between the branch network and other distribution channels and the insurance product manufacturing businesses within the Group. Inter-segment lending and deposits are generally entered into at market rates, except that non-interest bearing balances are priced at a rate that reflects the external yield that could be earned on such funds.

For the majority of those derivative contracts entered into by business units for risk management purposes, the business unit recognises the net interest income or expense on an accrual accounting basis and transfers the remainder of the movement in the fair value of the derivative to the central function where the resulting accounting volatility is managed where possible through the establishment of hedge accounting relationships. Any change in fair value of the hedged instrument attributable to the hedged risk is also recorded within the central function. This allocation of the fair value of the derivative and change in fair value of the hedged instrument attributable to the hedged risk avoids accounting asymmetry in segmental results and leads to accounting volatility, which is managed centrally and reported within Other.


	Retail £m	Commercial Banking £m		Insurance, Pensions and Investments £m		Other £m	Total £m
Year ended 31 December 2022
Underlying net interest income	9,774		3,447		(101)	52	13,172
Underlying other income, net of insurance claims and changes in insurance and investment contract liabilities	1,731		1,565		1,576	377	5,249
Total underlying income, net of insurance claims and changes in insurance and investment contract liabilities	11,505		5,012		1,475	429	18,421
Operating lease depreciation1	(368)		(5)		–	–	(373)
Underlying income, net of operating lease depreciation	11,137		5,007		1,475	429	18,048
Underlying operating costs	(5,175)		(2,496)		(1,042)	(122)	(8,835)
Remediation	(92)		(133)		(30)	–	(255)
Total underlying costs	(5,267)		(2,629)		(1,072)	(122)	(9,090)
Underlying impairment (charge) credit	(1,373)		(517)		(12)	392	(1,510)
Underlying profit before tax	4,497		1,861		391	699	7,448

External income	12,055		4,330		1,526	510	18,421
Inter-segment (expense) income	(550)		682		(51)	(81)	–
Segment underlying income, net of insurance claims and changes in insurance and investment contract liabilities	11,505		5,012		1,475	429	18,421

Segment external assets	372,485		147,477		175,212	182,655	877,829
Segment customer deposits	310,765		163,828		–	738	475,331
Segment external liabilities	314,091		202,070		169,182	144,965	830,308

1 Net of profits on disposal of operating lease assets of £197 million.


	Retail £m	Commercial Banking £m		Insurance, Pensions and Investments £m		Other £m	Total £m
Year ended 31 December 2022
Analysis of segment underlying other income, net of insurance claims and changes in insurance and investment contract liabilities:
Fee and commission income:
Current accounts	421		225		–	–	646
Credit and debit card fees	735		460		–	–	1,195
Commercial banking and treasury fees	–		310			1	311
Unit trust and insurance broking	–		–		85	–	85

Factoring	–		79		–	–	79
Other fees and commissions	64		169		271	15	519
Total fee and commission income	1,220		1,243		356	16	2,835
Fee and commission expense	(665)		(315)		(334)	(18)	(1,332)
Net fee and commission income	555		928		22	(2)	1,503
Operating lease rental income	1,065		12		–	–	1,077
Rental income from investment properties	–		–		144	1	145
Gains less losses on disposal of financial assets at fair value through other comprehensive income	–		–		–	92	92

Trading income	69		(793)		–	1,320	596
Insurance and other, net of insurance claims and changes in insurance and investment contract liabilities	227		28		2,771	(1,190)	1,836
Other external income, net of insurance claims and changes in insurance and investment contract liabilities	1,361		(753)		2,915	223	3,746
Inter-segment other income	(185)		1,390		(1,361)	156	–
Segment underlying other income, net of insurance claims and changes in insurance and investment contract liabilities	1,731		1,565		1,576	377	5,249

Other segment items reflected in income statement above:
Depreciation and amortisation	1,216		207		142	831	2,396
Movement in value of in-force business	–		–		(80)	–	(80)
Defined benefit scheme charges	72		28		7	18	125
Non-income statement segment items:
Additions to fixed assets	2,146		101		151	1,457	3,855
Investments in joint ventures and associates at end of year	4		–		–	381	385


	Retail £m	Commercial Banking £m	Insurance, Pensions and Investments £m		Other £m	Total £m
Year ended 31 December 20211
Underlying net interest income	8,577	2,602		(103)	87	11,163
Underlying other income, net of insurance claims and changes in insurance and investment contract liabilities	1,597	1,442		1,406	615	5,060
Total underlying income, net of insurance claims and changes in insurance and investment contract liabilities	10,174	4,044		1,303	702	16,223
Operating lease depreciation2	(442)	(18)		–	–	(460)
Underlying income, net of operating lease depreciation	9,732	4,026		1,303	702	15,763
Underlying operating costs	(4,987)	(2,288)		(899)	(138)	(8,312)
Remediation	(360)	(830)		(123)	13	(1,300)
Total underlying costs	(5,347)	(3,118)		(1,022)	(125)	(9,612)
Underlying impairment credit	447	936		–	2	1,385
Underlying profit before tax	4,832	1,844		281	579	7,536

External income	11,260	3,883		1,323	(243)	16,223
Inter-segment (expense) income	(1,086)	161		(20)	945	–
Segment underlying income, net of insurance claims and changes in insurance and investment contract liabilities	10,174	4,044		1,303	702	16,223

Segment external assets	364,179	144,390		195,039	182,917	886,525
Segment customer deposits	308,412	167,530		–	402	476,344
Segment external liabilities	312,594	204,641		188,372	127,766	833,373

1 Restated, see page F-34.

2 Net of profits on disposal of operating lease assets of £249 million.


	Retail £m	Commercial Banking £m	Insurance, Pensions and Investments £m		Other £m	Total £m
Year ended 31 December 20211
Analysis of segment underlying other income, net of insurance claims and changes in insurance and investment contract liabilities:
Fee and commission income:
Current accounts	425	213		–	–	638
Credit and debit card fees	533	350		–	–	883
Commercial banking and treasury fees	–	376		–	37	413
Unit trust and insurance broking	–	–		113	–	113

Factoring	–	76		–	–	76
Other fees and commissions	65	183		213	24	485
Total fee and commission income	1,023	1,198		326	61	2,608
Fee and commission expense	(571)	(271)		(313)	(30)	(1,185)
Net fee and commission income	452	927		13	31	1,423
Operating lease rental income	1,046	13		–	–	1,059
Rental income from investment properties	–	–		186	–	186
Gains less losses on disposal of financial assets at fair value through other comprehensive income	–	(5)		–	3	(2)

Trading income	52	926		–	345	1,323
Insurance and other, net of insurance claims and changes in insurance and investment contract liabilities	136	119		1,766	(950)	1,071
Other external income, net of insurance claims and changes in insurance and investment contract liabilities	1,234	1,053		1,952	(602)	3,637
Inter-segment other income	(89)	(538)		(559)	1,186	–
Segment underlying other income, net of insurance claims and changes in insurance and investment contract liabilities	1,597	1,442		1,406	615	5,060

Other segment items reflected in income statement above:
Depreciation and amortisation	1,525	283		170	847	2,825
Movement in value of in-force business	–	–		(70)	–	(70)
Defined benefit scheme charges	91	30		9	106	236
Non-income statement segment items:
Additions to fixed assets	1,921	179		117	1,011	3,228
Investments in joint ventures and associates at end of year	6	–		–	346	352

1 Restated, see page F-34.


	Retail £m	Commercial Banking £m	Insurance, Pensions and Investments £m		Other £m	Total £m
Year ended 31 December 20201
Underlying net interest income	8,380	2,528		(118)	(17)	10,773
Underlying other income, net of insurance claims and changes in insurance and investment contract liabilities	1,606	1,428		1,241	240	4,515
Total underlying income, net of insurance claims and changes in insurance and investment contract liabilities	9,986	3,956		1,123	223	15,288
Operating lease depreciation2	(856)	(28)		–	–	(884)
Underlying income, net of operating lease depreciation	9,130	3,928		1,123	223	14,404
Underlying operating costs	(4,967)	(2,281)		(832)	(122)	(8,202)
Remediation	(125)	(210)		(50)	6	(379)
Total underlying costs	(5,092)	(2,491)		(882)	(116)	(8,581)
Underlying impairment charge	(2,128)	(1,561)		(2)	(390)	(4,081)
Underlying profit (loss) before tax	1,910	(124)		239	(283)	1,742

External income	11,499	3,600		1,238	(1,049)	15,288
Inter-segment (expense) income	(1,513)	356		(115)	1,272	–
Segment underlying income, net of insurance claims and changes in insurance and investment contract liabilities	9,986	3,956		1,123	223	15,288

Segment external assets	350,779	151,093		182,284	187,113	871,269
Segment customer deposits	279,610	170,262		–	779	450,651
Segment external liabilities	284,634	214,022		176,646	146,554	821,856

1 Restated, see page F-34.

2 Net of profits on disposal of operating lease assets of £127 million.


	Retail £m	Commercial Banking £m	Insurance, Pensions and Investments £m		Other £m	Total £m
Year ended 31 December 20201
Analysis of segment underlying other income, net of insurance claims and changes in insurance and investment contract liabilities:
Fee and commission income:
Current accounts	429	186		–	–	615
Credit and debit card fees	447	301		–	–	748
Commercial banking and treasury fees	–	274		–	–	274
Unit trust and insurance broking	–	–		146	–	146

Factoring	–	76		–	–	76
Other fees and commissions	71	183		194	1	449
Total fee and commission income	947	1,020		340	1	2,308
Fee and commission expense	(585)	(234)		(303)	(26)	(1,148)
Net fee and commission income	362	786		37	(25)	1,160
Operating lease rental income	1,103	17		–	–	1,120
Rental income from investment properties	–	–		191	–	191
Gains less losses on disposal of financial assets at fair value through other comprehensive income	–	–		–	149	149
Lease termination income	–	5		–	–	5
Trading income	64	792		–	204	1,060
Insurance and other, net of insurance claims and changes in insurance and investment contract liabilities	198	349		1,338	(1,055)	830
Other external income, net of insurance claims and changes in insurance and investment contract liabilities	1,365	1,163		1,529	(702)	3,355
Inter-segment other income	(121)	(521)		(325)	967	–
Segment underlying other income, net of insurance claims and changes in insurance and investment contract liabilities	1,606	1,428		1,241	240	4,515

Other segment items reflected in income statement above:
Depreciation and amortisation	1,760	263		159	550	2,732
Movement in value of in-force business	–	–		76	–	76
Defined benefit scheme charges	100	32		9	106	247
Non-income statement segment items:
Additions to fixed assets	1,684	112		125	980	2,901
Investments in joint ventures and associates at end of year	4	–		–	292	296

1 Restated, see page F-34.

Geographical areas

The Group’s operations are predominantly UK-based and as a result an analysis between UK and non-UK activities is not provided.

Reconciliation of underlying basis to statutory results

The underlying basis is the basis on which financial information is presented to the chief operating decision-maker which excludes certain items included in the statutory results. The table below reconciles the statutory results to the underlying basis.


Lloyds Banking Group statutory £m		Removal of:
		Volatility, restructuring and other items1 £m	Insurance gross up2 £m	PPI remediation £m	Underlying basis £m
Year ended 31 December 2022
Net interest income	13,957	226	(1,011)	–	13,172
Other income, net of insurance claims and changes in insurance and investment contract liabilities	4,252	120	877	–	5,249

Operating lease depreciation3		(373)	–	–	(373)
Total income, net of insurance claims and changes in insurance and investment contract liabilities / Underlying income, net of operating lease depreciation	18,209	(27)	(134)	–	18,048
Operating expenses	(9,759)	535	134	–	(9,090)
Impairment charge	(1,522)	12	–	–	(1,510)
Profit before tax	6,928	520	–	–	7,448


Lloyds Banking Group statutory £m		Removal of:
		Volatility, restructuring and other items4 £m	Insurance gross up2 £m	PPI remediation £m	Underlying basis £m
Year ended 31 December 2021
Net interest income	9,366	255	1,542	–	11,163
Other income, net of insurance claims and changes in insurance and investment contract liabilities	6,958	(139)	(1,759)	–	5,060

Operating lease depreciation3		(460)	–	–	(460)
Total income, net of insurance claims and changes in insurance and investment contract liabilities / Underlying income, net of operating lease depreciation	16,324	(344)	(217)	–	15,763
Operating expenses	(10,800)	971	217	–	(9,612)
Impairment credit	1,378	7	–	–	1,385
Profit before tax	6,902	634	–	–	7,536


Lloyds Banking Group statutory £m		Removal of:
		Volatility, restructuring and other items5 £m	Insurance gross up2 £m	PPI remediation £m	Underlying basis £m
Year ended 31 December 2020
Net interest income	10,749	174	(150)	–	10,773
Other income, net of insurance claims and changes in insurance and investment contract liabilities	4,377	165	(27)	–	4,515

Operating lease depreciation3		(884)	–	–	(884)
Total income, net of insurance claims and changes in insurance and investment contract liabilities / Underlying income, net of operating lease depreciation	15,126	(545)	(177)	–	14,404
Operating expenses	(9,745)	905	174	85	(8,581)
Impairment (charge) credit	(4,155)	71	3	–	(4,081)
Profit before tax	1,226	431	–	85	1,742

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

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

3 Net of profits on disposal of operating lease assets of £197 million (2021: £249 million; 2020: £127 million).

4 Comprises the effects of market volatility and asset sales (gain of £87 million); the amortisation of purchased intangibles (£70 million); restructuring (£452 million, including a software write-off as a result of investment in new technology and systems infrastructure together with merger, acquisition and integration costs); and the fair value unwind (losses of £199 million).

5 Comprises the effects of market volatility and asset sales (losses of £59 million); the amortisation of purchased intangibles (£69 million); restructuring (£70 million of merger, acquisition and integration costs); and the fair value unwind (losses of £233 million).