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Member of Lloyds Banking Group
HBOS plc
Report and Accounts 2025

Registered Office: The Mound, Edinburgh EH1 1YZ. Registered in Scotland No. SC218813

Contents

Strategic report | 1
Directors’ report | 6
Current directors | 10
Forward-looking statements | 11
Independent auditors’ report | 12
Income statements | 20
Statements of comprehensive income | 21
Balance sheets | 22
Statements of changes in equity | 23
Cash flow statements | 25
Notes to the financial statements | 26
Subsidiaries and related undertakings | 81

1 | HBOS plc Annual Report and Accounts 2025 |

Strategic report
Principal activities
HBOS plc (the Company) and its subsidiaries (together, the Group) provide a wide range of banking and financial services.
The Group’s revenue is earned through interest and fees on a broad range of financial services products including current and savings accounts,
personal loans, credit cards and mortgages within the retail market and loans and other products to commercial and corporate customers.
Business review
Income statement
The Group’s profit before tax for 2025 was £1,918 million (2024: £ 1,098 million). This was driven by higher total income partly offset by an
increase in operating expenses and a higher impairment charge. Profit after tax was £1,480 million (2024: £853 million).
Total income for 2025 was £5,644 million, an increase of 25% (2024: £4,516 million). Within this, net interest income of £4,901 million
increased 21% (2024: £4,050 million), due to the effect of the mortgage book refinancing onto higher rates as well as the impact of lower
deposit and funding costs.
Other income of £743 million was 59% higher (2024: £466 million), driven by increases across net fee and commission income, other operating
income and net trading income. Net fee and commission income for the year was £357 million (2024: £285 million), with the prior year
impacted by changes in commission arrangements with Scottish Widows. Other operating income increased to £199 million (2024: £98 million)
due to an increase in recharges to fellow Lloyds Banking Group undertakings. Net trading income increased to £187 million (2024: £83 million)
reflecting market movements.
Total operating expenses of £3,472 million were 4% higher (2024: £3,326 million), reflecting strategic investment (including planned higher
severance), business growth costs and inflationary pressures. This was partially mitigated by cost savings from investment and continued
business-as-usual cost discipline. The Group recognised remediation costs of £46 million (2024: £116 million).
The impairment charge was £254 million, compared to a charge of £92 million in 2024, which benefitted from a large credit from improvements
in the Group’s economic outlook. The charge for 2025 reflected both strong performance relating to personal customers, as well as the benefits
from calibrations and model refinements alongside a debt sale. 2025 also included releases from Stage 1 and Stage 2 model calibrations
capturing strong credit performance across corporate clients and reducing interest rates throughout the year.
The Group recognised a tax expense of £438 million in the year, compared to £245 million in 2024.
The Group’s post-tax return on average total assets increased to 0.44% compared to 0.26% in the year ended 31 December 2024.
Balance sheet
Total assets of £338,323 million increased by £8,403 million (31 December 2024: £329,920 million). This was predominantly due to higher
financial assets at amortised cost, which increased by £10,906 million to £328,180 million (31 December 2024: £317,274 million). This included
an increase in loans and advances to customers of £12,066 million, predominantly from growth in mortgage lending, which was partly offset by
a £871 million reduction in amounts due from fellow Lloyds Banking Group undertakings. The increase in financial assets at amortised cost was
partly offset by a decrease in derivative financial assets of £1,123 million due to market movements and a decrease of £899 million in current
tax recoverable following the receipt of refunds from fellow Lloyds Banking Group undertakings.
Total liabilities of £321,093 million increased by £8,386 million (31 December 2024: £312,707 million). This included an £18,620 million increase
in balances due to fellow Lloyds Banking Group undertakings primarily reflecting the repayment of the Bank of England’s Term Funding Scheme
with additional incentives for SMEs (TFSME). Customer deposits increase d by £2,533 million, driven by growth in Retail savings accounts, as a
result of net inflows to limited withdrawal and fixed term deposits particularly through increased ISA balances. These increases were partially
offset by an £11,725 million reduction in repurchase agreements, reflecting the TFSME repayments.
Total equity increased by £17 million to £17,230 million (31 December 2024: £17,213 million), with profit for the year broadly offset by dividends
paid, a lower pension surplus and distributions to non-controlling interests.
Capital
Neither the Company nor the Group are regulated from a capital perspective. Regulatory capital is instead managed in the Company’s principal
banking subsidiary, Bank of Scotland plc.
Future developments
Information about future developments is provided within the principal risks and uncertainties section below.
Section 172(1) Statement
This section (pages 1 to 3) is our Section 172(1) statement for the purposes of the Companies Act 2006 (the Act), describing how the directors
have had regard to the matters set out in section 172(1) (a) to (f) 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 6 to 10.
The directors remain mindful in all their deliberations of the long-term consequences of their decisions, as well as the importance of the
Company maintaining a reputation for high standards of business conduct and the Board engaging with, and taking account of the interests of,
stakeholders.
Stakeholder Engagement
The Board recognises the fundamental importance of engaging with its stakeholders, gaining a deeper understanding of their views, and the
importance of this understanding in informing their discussions and decision-making. During the year, key stakeholders included customers,
clients, colleagues, shareholders, communities, regulators and suppliers.
The Group’s Closer to Customers, Clients and Colleagues programme remains a key method by which non-executive directors hear directly
from the Board’s stakeholders.
The programme helps the directors better understand the important issues for the Group’s stakeholders, the role the Group plays in supporting
them, and how the Group is performing.
Activity under the programme, along with other forms of director engagement, is described below. Examples of decision making by the Board
which had particular relevance to their stakeholder engagement can be found on page 3.
Our Stakeholders
Customers and clients
Why does the Board engage?
The Board’s engagement with customers is central to the Company’s customer-centric approach, including the Company’s ability to evolve to
meet changing customer needs, and support our customers in achieving their financial ambitions.

2 | HBOS plc Annual Report and Accounts 2025 |

Strategic report continued
How did the Board engage?
• Sessions providing deeper insight into the issues faced by specific customer groups, including single person households, small businesses and
later life, including retirement
• Holding events with clients in Edinburgh, Manchester and London to hear directly from them on the issues their businesses are facing
• Regular updates to the Board by the executive team gave insight into the Company’s performance in delivering on its customer and client-
related objectives, including customer insight sessions and ongoing consideration of the Group customer dashboard
• Concerns relevant to customers and clients were identified for consideration in wider proposals put to the Board
How does that engagement impact Board decisions?
• Hearing directly from customers and clients helps better determine the action the Company takes now and in the future to best support our
customers’ needs
• Direct engagement helps the Board in ensuring the Company can best meet its Consumer Duty obligations
• Regular updates from the executive team help to identify opportunities for innovation and improvement to better support our customers
and clients
• Review of the Group Customer Dashboard gives the Board the opportunity to ensure meaningful changes are delivered to further improve
customer outcomes
Shareholders
The Company is a wholly owned subsidiary within the Lloyds Banking Group group of companies. The directors ensure that the strategy,
priorities, processes and practices of the Company are fully aligned where required to those of Lloyds Banking Group, ensuring that the
interests of Lloyds Banking Group plc as the Company’s ultimate shareholder are duly acknowledged. Further information in respect of the
relationship of Lloyds Banking Group plc with its shareholders is included within the Lloyds Banking Group plc Annual Report and Accounts for
2025, available on the Lloyds Banking Group website.
Colleagues
Why does the Board engage?
The Board’s ambition is that the Company continues to be a place where people who are passionate about our purpose wish to work.
Engagement with colleagues helps to understand better how they remain motivated to achieve our purpose, with the skills needed to deliver
on the Company’s wider strategic objectives.
How did the Board engage?
• Held a number of colleague engagement and recognition events, with the opportunity to hear directly from colleagues and recognise their
achievements in supporting our customers
• Considered reports on key themes raised during colleague engagement activity, including the work of the People Forum, the People
Consultation Forum and the Management Advisory Forum
• Review by its Responsible Business Committee of findings from surveys of colleague sentiment and other colleague engagement reports
How does that engagement impact Board decisions?
• Allows the Board to understand directly colleague views on the Company’s progress against its strategy, including what could improve this
progress, and colleague observations from interacting with customers, further informing wider Board decision making
• Helps the Board gain additional insight on matters which colleagues have raised as part of wider engagement activity and allows progress
against matters raised to be monitored
During the year Lloyds Banking Group communicated directly with colleagues detailing Company performance, changes in the economic and
financial environment and updates on key strategic initiatives. Meetings were held throughout the year with our recognised unions.
For 2025, the Remuneration Committee approved the overall Group Performance Share pool for colleagues. Colleagues are eligible to
participate in HMRC approved share plans which promote share ownership by giving employees an opportunity to invest in Lloyds Banking
Group plc shares. The vast majority of colleagues hold shares in Lloyds Banking Group plc.
The Board’s Responsible Business Committee is the designated body for workforce engagement, providing focus, but with the Board retaining a
commitment for individual Board members to engage with colleagues directly throughout the year. The Responsible Business Committee
reports regularly to the Board on its colleague engagement agenda. The Board considers these arrangements to be effective as the work of the
Responsible Business Committee combined with the other colleague engagement methods in this section allows engagement with diverse
colleague groups.
Engagement in action: Pension engagement
During the year, the Board and its Remuneration Committee consulted with colleagues on proposals to move UK defined contribution pension
provision from Your Tomorrow and Your Retirement Plan to the Scottish Widows Master Trust. The Board engaged with colleagues to
understand their views through a comprehensive digital first consultation process. This included around 1,800 items of feedback formally
submitted by colleagues across all grades, business units and age groups. Trade union partners, including Accord and Unite, were also
consulted, along with the People Consultation Forum, allowing collective consultation and a number of relevant questions to be raised,
resulting in no formal objections or requests for further action. The Board was pleased to have the opportunity to hear from colleagues and
representatives so as to be able to take their views into account prior to making the decision to transfer the future pension provision of UK
colleagues to the Scottish Widows Master Trust from 2026.
Communities and environment
Why does the Board engage?
The Company’s presence in a large number of communities across the UK continues to reinforce the importance of engagement and action to
help these communities prosper, while also helping to build a more sustainable and inclusive future.
How did the Board engage?
• Members of the Board met with representatives of charities and community groups supported by Lloyds Banking Group’s charitable
foundations
• The Board continues to be supported in environmental matters by its Responsible Business Committee, which considers stakeholder views
on matters relating to the Company’s ambition to be a trusted, sustainable, inclusive and responsible business

3 | HBOS plc Annual Report and Accounts 2025 |

Strategic report continued
How does that engagement impact Board decisions?
• Engagement with the charitable partners of Lloyds Banking Group allowed the Board to better understand the Company’s impact within
local communities
• The work of the Responsible Business Committee gives the Board deeper insight into its role as both an employer and a collaborator within
the communities in which the Company is present
Regulators and government
Why does the Board engage?
The Board recognises the importance of its ongoing constructive relationships and dialogue with both government and the regulatory
authorities in markets in which the Company operates, in particular in achieving the Company’s strategic ambitions, and continuing to deliver
for the Company’s wider stakeholders.
How did the Board engage?
• Directors held ongoing discussions with the FCA and PRA on various aspects of the regulatory agenda
• Discussions included the Board’s role in oversight of the Company’s key risks and execution of strategy
• The PRA and FCA attended a meeting of the Board during which progress against actions from their Periodic Summary Meeting and Firm
Evaluation letters were discussed
• Directors engaged with the Government during the year on matters relating to the impact of policy on the financial services sector
How does that engagement impact Board decisions?
• Ongoing direct discussions allow the Board to better understand the regulators’ and the Government’s priorities and how these are best
acknowledged in the Board’s wider decision making
Suppliers
Why does the Board engage?
The Board recognises the importance of the partners the Company relies on for key aspects of its operations and strengthening these
relationships to achieve both the Company’s and its suppliers’ wider ambitions.
How did the Board engage?
• The Audit Committee considered reports from Sourcing and Finance teams on the efficiency of supplier payment practices, including those
relating to the Company’s key suppliers
• The Board continued to oversee resilience in the supply chain, ensuring the Company’s most important supplier relationships were not
impacted by potential material events
How does that engagement impact Board decisions?
• Ensures the Company’s approach continues to meet wider industry standards on supplier management, in particular supplier payment
practices
• Allows a deeper understanding of our supply chain and the degree to which our suppliers’ operations align to the strategy and purpose of
the Company
Key Decisions
Considering stakeholder interests is key to decision-making by the Board. To better understand their interests, the Board receives feedback
from stakeholders through engagement both inside and outside of the board room, including at specific events and through the Group’s Closer
to Customers, Clients and Colleagues programme.
Senior management supports Board decision-making by addressing stakeholder implications in proposals submitted to the Board for
consideration and providing the Board with details of stakeholder interactions.
An example of a Board decision outlined below illustrates this in practice.
Empowering customers through technology and innovation
Customers & Clients, Communities & Environment, Shareholders, Suppliers, Colleagues, Regulators & Government
Board considerations:
In 2025, in line with the Group’s customer-focused strategy, the Board considered initiatives aimed at accelerating and broadening the
Company’s digital transformation and deepening customer relationships as well as simplifying customer interactions.
Board initiatives:
• In June, the Board approved the Consumer Duty annual report and considered how good customer outcomes remain critical as the
Company focuses on customer experience and differentiation. Throughout 2025, the Board received updates on co-servicing which enables
customers to service products across our brands seamlessly – whether in branch, online, or when they need extra support
• Customer differentiation was also the focus of executive briefings to the Board in June and November on the Group’s proposed acquisition
of Curve, a London based fintech operating an innovative digital wallet platform, with a view to accelerating the Group’s digital wallet
strategy and differentiate customer experience
Future focus:
The Board is committed to supporting the Group’s strategy to deliver market-leading digital experiences and empower its customers.

4 | HBOS plc Annual Report and Accounts 2025 |

Strategic report continued
Principal risks and uncertainties
The most important risks faced by the Group are detailed below. External risks may impact the success of delivering against the Group’s long-
term strategic objectives. They include, but are not limited to, macroeconomic and geopolitical uncertainties and inflation trends which could
contribute to the cost of living and associated implications for consumers and businesses.
Risk management is essential to our business model and strategy, helping us to embrace opportunities responsibly and drive sustainable growth
for the Group. Our strong risk management culture, underpinned by our enhanced risk management framework (RMF), is vital in safeguarding
the Group, colleagues and customers against both existing and emerging risks.
The Group’s credit performance remains strong and stable; the loan portfolio remains well positioned amid macroeconomic uncertainty and is
closely monitored to proactively identify signs of stress.
Operational resilience remains crucial, enabling the Group to prevent, withstand and respond to cybersecurity threats and IT outages, using
intelligence and learnings from recent global events.
The Group continues to modernise its technology and strengthen capabilities and ensure the safe, responsible use of models and tools such as
artificial intelligence.
During 2025, the Group has continued to make progress in its risk transformation journey, allowing us to further evolve our risk management
approach to deliver good outcomes for our customers. This has included the consistent implementation of the RMF requirements for all of the
Group’s legal entities, business units and functions.
The RMF ensures processes are in place to facilitate robust risk management and effective decision making.
The Group’s risk policies are supported by risk toolkits, which set out clear guidance and minimum standards for proactive identification and
effective risk management, fostering a strong risk management culture across the Group.
The Group has 10 principal risks, which are unchanged in 2025 from the prior year and are underpinned by a suite of level two risks. These
consist of capital risk, climate risk, compliance risk, conduct risk, credit risk, economic crime risk, liquidity risk, market risk, model risk and
operational risk. These risks are reviewed and reported on regularly to the Board in alignment with the enhanced RMF.
Capital risk
Capital risk is defined as the risk that an insufficient quantity or quality of capital is held to meet regulatory requirements or to support
business strategy, an inefficient level of capital is held or that capital is inefficiently deployed across the Group.
Climate risk
The Group defines climate risk as the risk from the impacts of climate change and the transition to net zero (‘inbound risk’), or a result of the
Group’s response to tackling climate change and supporting the transition to net zero (‘outbound risk’).
Compliance risk
The risk of financial penalties, regulatory censure, criminal or civil enforcement action or customer detriment as a result of failure to identify,
assess, correctly interpret, comply with, or manage regulatory and/or legal requirements.
Conduct risk
The risk of the Group’s activities, behaviours, strategy or business planning, having an adverse impact on outcomes for customers, undermining
the integrity of the market or distort competition, which could lead to regulatory censure, reputational damage or financial loss.
Credit risk
Credit risk is defined as the risk that parties with whom the Group has contracted fail to meet their financial obligations (on- and off-balance
sheet).
Economic crime risk
Economic crime risk is defined as the risk that the Group implements ineffective policies, systems, processes and controls to prevent, detect
and respond to the risk of fraud and/or financial crime resulting in increased losses, regulatory censure, fines and/or adverse publicity in the UK
or other jurisdictions in which the Group operates.
Liquidity risk
Liquidity Risk is the risk that the Group has insufficient financial resources to meet its commitments when they fall due or can only secure them
at excessive cost.
Market risk
Market risk is defined as the risk that the Group’s capital or earnings profile are adversely affected by changes in market rates or prices,
including, but not limited to, interest rates, foreign exchange, equity prices and credit spreads.
Model risk
Model risk is the potential for adverse consequences from model errors or the inappropriate use of modelled outputs to inform business
decisions. Adverse consequences could lead to a deterioration in the prudential position, non-compliance with applicable laws and/or
regulations, or damage to the Group’s reputation. Model risk can also lead to financial loss, as well as qualitative limitations such as the
imposition of restrictions on business activities.
Operational risk
Operational risk is defined as the risk of actual or potential impact to the Group (financial and/or non-financial) resulting from inadequate or
failed internal processes, people, and systems or from external events.
Resilience is core to the management of operational risk within the Group to ensure that business processes (including those that are
outsourced) can withstand operational risks and can respond to and meet customer and stakeholder needs when continuity of operations is
compromised.

5 | HBOS plc Annual Report and Accounts 2025 |

Strategic report continued
Financial risk management objectives and policies
Information regarding the financial risk management objectives and policies of the Group, in relation to the use of financial instruments, is
given in notes 14, 15 and 35 to the accounts. The Group’s approach to risk management including risk policies, risk appetite, measurement
bases and sensitivities, in particular for credit risk, market risk and liquidity risk, is aligned to those of Lloyds Banking Group plc, the Company’s
ultimate parent. Further information can be found in the Lloyds Banking Group plc Annual Report and Accounts.
The Group maintains risk management systems and internal controls relating to the financial reporting processes designed to:
• ensure that accounting policies are appropriately and consistently applied;
• enable the calculation, preparation and reporting of financial outcomes in line with applicable standards; and
• ensure that disclosures are made on a timely basis in accordance with statutory and regulatory requirements.
The 2025 Strategic report has been approved by the Board of Directors.
On behalf of the Board
Sir Robin Budenberg
Chair
HBOS plc
26 February 2026

6 | HBOS plc Annual Report and Accounts 2025 |

Directors’ report
Results
The consolidated income statement on page 20 shows a statutory profit before tax for the year ended 31 December 2025 of £1,918 million
(year ended 31 December 2024: £1,098 million).
Dividends
During the year the Company paid cumulative interim dividends of £980 million (2024: £1,050 million). The directors have not recommended a
final dividend for the year ended 31 December 2025 (2024: £nil). In February 2026, the directors approved the payment of an interim dividend
of £480 million, which was paid on 16 February 2026.
Post balance sheet events
There were no material post balance sheet events.
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 Company and 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.
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.
Corporate Governance Statement
In accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended by the
Companies (Miscellaneous Reporting) Regulations 2018) (the Regulations), for the year ended 31 December 2025, the Company has in its
corporate governance arrangements applied the Wates Corporate Governance Principles for Large Private Companies (the Principles), which
are available at www.frc.org.uk. The following section explains the Company’s approach to corporate governance, and its application of the
Principles.
High standards of corporate governance are central to achieving the strategy which has been set for the Company. To this end a Corporate
Governance Framework is in place for Lloyds Banking Group plc, the Company, Lloyds Bank plc and Bank of Scotland plc, with all four
companies sharing a common approach to governance. The framework is designed to meet the specific needs of each company, setting the
approach and standards in respect of the Company’s corporate governance practices, including addressing the matters set out in the Principles.
This includes the matters reserved to the Board, and the matters the Board has chosen to delegate to management. The Board delegates
responsibilities to the Group Chief Executive, who is supported by the Group Executive Committee, the composition of which is detailed on
page 71 of the Lloyds Banking Group plc Annual Report and Accounts for 2025. The Corporate Governance Framework of the Company further
addresses the requirements of the Principles as discussed on pages 6 to 7.
Principle One – Purpose and Leadership
The Board is collectively responsible for the long-term success of the Company. It achieves this by agreeing the Company’s strategy, within the
wider strategy of Lloyds Banking Group, and overseeing delivery against it. The Company’s strategy is discussed further in the Strategic Report
on pages 1 to 5. The Board also assumes responsibility for the management of the culture, values and wider standards of the Company, within
the equivalent standards set by Lloyds Banking Group. The Board’s understanding of stakeholders’ interests is central to these responsibilities
and informs key aspects of Board decision making, as discussed within the statement on page 3.
Acknowledging the needs of all stakeholders is fundamental to the way the Company operates, as is maintaining the highest standards of
business conduct, which is a vital part of the corporate culture. The Company’s approach is further influenced by our ambition to provide not
only outstanding service to our customers, but also responding to the UK’s social and economic issues. To this end, the Board plays a lead role
in establishing, promoting, and monitoring the Company’s corporate culture and values, with the Corporate Governance Framework ensuring
such matters receive the level of prominence in Board and Executive decision making which they require. The Company’s corporate culture and
values align to those of Lloyds Banking Group, which are discussed in more detail within the Strategic and Directors’ Reports of the Lloyds
Banking Group plc Annual Report and Accounts for 2025.
Principle Two – Board Composition
The Company is led by a Board comprising a non-executive Chair, independent non-executive directors and executive directors, further details
of the directors can be found on page 10. The Board reviews its size and composition regularly and is committed to ensuring it has the right
balance of skills and experience. The Board considers its current size and composition is appropriate to the Company’s circumstances. 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 diversity benefits each candidate can bring overall.
The Board is supported by its committees, the operation of which are discussed below, which make recommendations to the Board on matters
delegated to them. Each committee has written terms of reference setting out its delegated responsibilities. Each committee comprises non-
executive directors with appropriate skills and experience and is chaired by an experienced chair. The committee Chairs report to the Board at
the next Board meeting. The Board undertakes an annual review of its effectiveness, which provides an opportunity to consider ways of
identifying greater efficiencies, ways to maximise strengths and highlights areas of further development. An externally facilitated evaluation of
the Board’s effectiveness was undertaken during the course of the year, which concluded that the Board is continuing to operate effectively.
Further information on conclusions of the evaluation can be found on page 82 of the Lloyds Banking Group plc Annual Report and Accounts for
2025.

7 | HBOS plc Annual Report and Accounts 2025 |

Directors’ report continued
Principle Three – Director Responsibilities
The directors assume ultimate responsibility for all matters, and along with senior management are committed to maintaining a robust control
framework as the foundation for the delivery of good governance, including the effective management of delegation through the Corporate
Governance Framework. Policies are also in place in relation to potential conflicts of interest which may arise. All directors have access to the
services of the Company Secretary, and independent professional advice is available to the directors at the expense of Lloyds Banking Group,
where they judge it necessary to discharge their duties as directors.
The Board is supported by its committees which make recommendations on matters delegated to them under the Corporate Governance
Framework. The management of all committees is in keeping with the basis on which meetings of the Board are managed, with open debate,
and adequate time for members to consider proposals which are put forward. The Chair of the Board and each Board committee assumes
responsibility with support from the Company Secretary for the provision to each meeting of accurate and timely information.
Principle Four – Opportunity and Risk
The Board oversees the development and implementation of the Company’s strategy, within the context of the wider strategy of Lloyds
Banking Group, which includes consideration of all strategic opportunities. The Board is also responsible for the long term sustainable success
of the Company, generating value for its shareholder and ensuring a positive contribution to society. The Board agrees the Company’s culture,
purpose, values and strategy, within that of Lloyds Banking Group, and agrees the related standards of the Company, again within the relevant
standards of Lloyds Banking Group. Further specific aims and objectives of the Board are formalised within the Corporate Governance
Framework, which also sets out the matters reserved for the Board.
Strong risk management is central to the strategy of the Company, which along with a robust risk control framework acts as the foundation for
the delivery of effective management of risk. The Board agrees the Company’s risk appetite and ensures the Company manages risk effectively,
delegating related authorities to individuals through the Corporate Governance Framework and the further management hierarchy. Board level
engagement coupled with the direct involvement of senior management in risk issues ensures that escalated issues are promptly addressed,
and remediation plans are initiated where required. The Company’s risk appetite, principles, policies, procedures, controls and reporting are
managed in conjunction with those of Lloyds Banking Group, and as such are regularly reviewed to ensure they remain fully in line with
regulations, law, corporate governance and industry best practice. The Company’s principal risks are discussed further on page 4.
Principle Five – Remuneration
The Remuneration Committee of the Board, in conjunction with the Remuneration Committee of Lloyds Banking Group (the Remuneration
Committees), assume responsibility for the Company’s approach to remuneration. This includes reviewing and making recommendations on
remuneration policy as relevant to the Company, ranging from the remuneration of directors and members of the Executive to that of all other
colleagues employed by the Company. This includes colleagues where the regulators require the Company to implement a specific approach to
their remuneration, such as Senior Managers and other material risk takers. The activities of the Remuneration Committees extend to matters
of remuneration relevant to subsidiaries of the Company, where such subsidiary does not have its own remuneration committee.
Principle Six – Stakeholders
The Company as part of Lloyds Banking Group operates under Lloyds Banking Group’s wider approach to responsible business, which
acknowledges that the Company has a responsibility to help address the economic, social and environmental challenges which the UK faces,
and as part of this understand the needs of the Company’s external stakeholders, including in the development and implementation of
strategy. During the year the directors took a number of decisions with the Company’s purpose and specific stakeholder interest in mind, which
are discussed further on page 3. In 2025 the Responsible Business Committee provided further oversight and support of Lloyds Banking Group’s
and the Company’s plans for embedding responsible business in the Company’s core purpose. The approach of the Board in respect of its key
stakeholders is described further in a separate statement made in compliance with the Regulations on pages 1 to 3.
Directors
The names of the current directors are shown on page 10. Changes to the composition of the Board since 1 January 2024 up to the date of this
report are shown in the table below.

| Joined the Board | Left the Board
Chris Vogelzang | 16 June 2025 |
Scott Wheway |  | 31 October 2025

Directors’ indemnities
The directors of the Company have entered into individual deeds of indemnity with Lloyds Banking Group which constitute ‘qualifying third
party indemnity provisions’ for the purposes of the Companies Act 2006. The deeds indemnify the directors to the maximum extent permitted
by law and remain in force. The deeds were in force during the whole of the financial year, or from the date of appointment for any director
appointed during the course of the year. In addition, Lloyds Banking Group had appropriate Directors’ and Officers’ liability insurance cover in
place throughout 2025. Deeds for existing directors are available for inspection at the Company’s registered office.
Lloyds Banking Group has also granted deeds of indemnity by deed poll and by way of entering into individual deeds, which constitute
‘qualifying third party indemnity provisions’ to the directors of the Group’s subsidiary companies, including former directors who retired during
the year, and to colleagues subject to the provisions of the Senior Managers and Certification Regime. Such deeds were in force during the
financial year ended 31 December 2025 and remain in force as at the date of this report. Qualifying pension scheme indemnities have also been
granted to the Trustees of Lloyds Banking Group’s Pension Schemes, including those schemes relevant to the Company, which were in force for
the whole of the financial year and remain in force as at the date of this report.

8 | HBOS plc Annual Report and Accounts 2025 |

Directors’ report continued
Information required under DTR 7.2
Certain information is incorporated into this report by reference. Information about internal control and risk management systems relating to
the financial reporting process can be found on page 5.
Information about share capital is shown in note 28 on page 68. The Company is a wholly owned subsidiary of Lloyds Bank plc, which holds all
of the Company’s issued ordinary share capital.
The directors manage the business of the Company under the powers set out in the Companies Act 2006 and the Company’s articles of
association, these powers include those in relation to the issue or buy back of the Company’s shares.
The appointment and retirement of directors is governed by the Company’s articles of association and the Companies Act 2006. The
Company’s articles of association may only be amended by a special resolution of the shareholders in a general meeting.
Conflicts of interest
The Board has a comprehensive procedure for reviewing, and as permitted by the Companies Act 2006 and the Company’s articles of
association, approving actual and potential conflicts of interest. Directors have a duty to notify the Chair and Company Secretary as soon as
they become aware of actual or potential conflict situations. Changes to commitments of all directors are reported to the Board and a register
of directors' interests is regularly reviewed and authorised by the Board to ensure the authorisation status remains appropriate.
F uture developments and financial risk management objectives and policies
Information regarding future developments and financial risk management objectives and policies of the Group in relation to the use of
financial instruments that would otherwise be required to be disclosed in the directors’ report, and which is incorporated into this report by
reference, can be found in the strategic report.
Share capital
Information about share capital is shown in note 28 on page 68. This information is incorporated into this report by reference. The Company
did not repurchase any of its shares during 2025 (2024: none). There are no restrictions on the transfer of shares in the Company other than as
set out in the articles of association and certain restrictions which may from time to time be imposed by law and regulations.
Change of control
The Company is not party to any significant agreements which take effect, alter or terminate upon a change of control of the Company
following a takeover bid. There are no agreements between the Company and its directors or employees providing compensation for loss of
office or employment that occurs because of a takeover bid.
Research and development activities
During the ordinary course of business the Company develops new products and services within the business units.
Supporting disability
The Company aspires to be a best-in-class leader in disability and neuro-inclusion. Last year, the Group publicly launched its Blueprint for
Disability and Neuro-inclusion, sharing its commitments. Alongside that ambition, the Group committed to making recruitment more inclusive,
supporting career development, improving accessibility in workspaces and technology, upskilling colleagues to reduce stigma, and championing
the disability community beyond our organisation. In 2025, the Group held a facilitated workshop for all talent acquisition managers, which
tangibly increased their confidence in supporting hiring managers and candidates with disabilities and neurodivergent conditions, throughout
the recruitment process.
Information incorporated by reference
The following additional information forms part of the directors’ report, and is incorporated by reference.

Content |  | Pages
Disclosures required under the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 | Statement of employee engagement | 1 to 3
Statement of other stakeholder engagement | 1 to 3

Significant contracts
Details of related party transactions are set out in note 31 on pages 69 to 70.
Streamlined Energy and Carbon Reporting
The Company has taken advantage of the exemption from Streamlined Energy and Carbon Reporting (SECR) reporting requirements in its own
directors’ report as it is covered by the Lloyds Banking Group SECR report given in the Lloyds Banking Group plc 2025 Annual Report and
Accounts, available at www.lloydsbankinggroup.com/investors/financial-downloads.html.

9 | HBOS plc Annual Report and Accounts 2025 |

Directors’ report continued
Statement of directors’ responsibilities
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law, the directors are required to
prepare the Company’s and the Group’s financial statements in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006. Under company law, the directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the Company and the Group, and of the profit or loss of the Company and
the Group for that period. In preparing these financial statements, the directors are required to properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
provide additional disclosures when compliance with the specific requirements in international accounting standards in conformity with the
requirements of the Companies Act 2006 are insufficient to enable users to understand the impact of particular transactions, other events and
conditions on the entity’s financial position and financial performance; and make an assessment of the Company’s ability to continue as a
going concern. The financial statements also comply with International Financial Reporting Standards as issued by the IASB.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the Company and the Group, and enable them to ensure that the
financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the
Group, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. A copy of the financial
statements is placed on the website www.lloydsbankinggroup.com/investors/financial-downloads.html. The directors are responsible for the
maintenance and integrity of all information relating to the Company on that website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the current directors who are in office as at the date of this report, and whose names and functions are listed on page 10 of this annual
report, confirm that, to the best of his or her knowledge:
• The Company’s and the Group’s financial statements, which have been prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 give a true and fair view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included in the consolidation taken as a whole
• The strategic report and directors’ report includes a fair review of the development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and
uncertainties they face; and
• The Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provides the information necessary for
shareholders to assess the Company’s and the Group’s position, performance, business model and strategy.
This responsibility statement was approved by the Board of directors on 26 February 2026.
Independent auditor and audit information
Each person who is a director at the date of approval of this report confirms that, so far as the director is aware, there is no relevant audit
information of which the Company’s auditor is unaware and each director has taken all the steps that he or she ought to have taken as a
director to make himself or herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that
information. This confirmation is given and should be interpreted in accordance with the provisions of the Companies Act 2006.
On behalf of the Board
Kate Cheetham
Company Secretary
26 February 2026
HBOS plc
Registered in Scotland
Company Number SC218813

10 | HBOS plc Annual Report and Accounts 2025 |

Current directors
Executive directors:
Charlie Nunn, Group Chief Executive
William Chalmers, Chief Financial Officer
Non-executive directors:
Sir Robin Budenberg CBE, Chair
Nathan Bostock
Sarah Legg
Amanda Mackenzie LVO OBE
Harmeen Mehta
Cathy Turner
Chris Vogelzang
Catherine Woods

11 | HBOS plc Annual Report and Accounts 2025 |

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 HBOS
plc together with its subsidiaries (the Group) and its current goals and expectations. Statements that are not historical or current facts,
including statements about the Group’s or its directors’ and/or management’s beliefs and expectations, are forward-looking statements. Words
such as, without limitation, ‘believes’, ‘achieves’, ‘anticipates’, ‘estimates’, ‘expects’, ‘targets’, ‘should’, ‘intends’, ‘aims’, ‘projects’, ‘plans’,
‘potential’, ‘will’, ‘would’, ‘could’, ‘considered’, ‘likely’, ‘may’, ‘seek’, ‘estimate’, ‘probability’, ‘goal’, ‘objective’, ‘deliver’, ‘endeavour’, ‘prospects’,
‘optimistic’ and similar expressions or variations on these expressions are intended to identify forward-looking statements. These statements
concern or may affect future matters, including but not limited to: projections or expectations of the 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; the Group’s future financial performance; the level and extent of future impairments and write-downs; the Group’s ESG targets
and/or commitments; statements of plans, objectives or goals of the Group or its management and other statements that are not historical
fact and statements of assumptions underlying 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. Factors that could cause actual business,
strategy, targets, plans and/or results (including but not limited to the payment of dividends) to differ materially from forward-looking
statements include, but are not limited to: general economic and business conditions in the UK and internationally (including in relation to
tariffs); imposed and threatened tariffs and changes to global trade policies; acts of hostility or terrorism and responses to those acts, or other
such events; geopolitical unpredictability; the war between Russia and Ukraine; the escalation of conflicts in the Middle East; the tensions
between China and Taiwan; political instability including as a result of any UK general election; market related risks, trends and developments;
changes in client and consumer behaviour and demand; exposure to counterparty risk; the ability to access sufficient sources of capital,
liquidity and funding when required; changes to the Group’s credit ratings; fluctuations in interest rates, inflation, exchange rates, stock
markets and currencies; volatility in credit markets; volatility in the price of the Group’s securities; natural pandemic and other disasters; risks
concerning borrower and counterparty credit quality; risks affecting defined benefit pension schemes; changes in laws, regulations, practices
and accounting standards or taxation; changes to regulatory capital or liquidity requirements and similar contingencies; the policies and
actions of governmental or regulatory authorities or courts together with any resulting impact on the future structure of the Group; risks
associated with the Group’s compliance with a wide range of laws and regulations; assessment related to resolution planning requirements;
risks related to regulatory actions which may be taken in the event of a bank or Group failure; exposure to legal, regulatory or competition
proceedings, investigations or complaints; failure to comply with anti-money laundering, counter terrorist financing, anti-bribery and sanctions
regulations; failure to prevent or detect any illegal or improper activities; operational risks including risks as a result of the failure of third party
suppliers; conduct risk; risks related to new and emerging technologies, including artificial intelligence; 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;
technological failure; inadequate or failed internal or external processes or systems; risks relating to ESG matters, such as climate change (and
achieving climate change ambitions) and decarbonisation, including the Group’s ability along with the government and other stakeholders to
measure, manage and mitigate the impacts of climate change effectively, and human rights issues; the impact of competitive conditions; failure
to attract, retain and develop high calibre talent; the ability to achieve strategic objectives; the ability to derive cost savings and other benefits
including, but without limitation, as a result of any acquisitions, disposals and other strategic transactions; inability to capture accurately the
expected value from acquisitions; and assumptions and estimates that form the basis of the Group’s financial statements. A number of these
influences and factors are beyond the Group’s control. Please refer to the latest Annual Report on Form 20-F filed by Lloyds Banking Group plc
with the US Securities and Exchange Commission (the SEC), which is available on the SEC’s website at www.sec.gov, for a discussion of certain
factors and risks. Lloyds Banking Group plc may also make or disclose written and/or oral forward-looking statements in other written
materials and in oral statements made by the directors, officers or employees of Lloyds Banking Group plc 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
today’s date, and the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-
looking statements contained in this document whether as a result of new information, future events or otherwise. 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.

12 | HBOS plc Annual Report and Accounts 2025 |

Independent auditors’ report
Independent auditors’ report to the members of the HBOS plc
Report on the audit of the financial statements
1.Opinion
In our opinion:
• the financial statements of HBOS plc (the ‘parent company’, ‘the Company’) and its subsidiaries (the ‘Group’ or ‘HBOS’) give a true and fair
view of the state of the Group’s and of the parent company’s affairs as at 31 December 2025 and of the Group’s profit for the year then
ended;
• the Group financial statements have been properly prepared in accordance with United Kingdom adopted international accounting
standards and IFRS Accounting Standards as issued by the International Accounting Standards Board (IASB);
• the parent company financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise the:
• consolidated income statement;
• consolidated statement of comprehensive income;
• Group and Company balance sheets;
• Group and Company statements of changes in equity;
• Group and Company cash flow statements;
• notes 1 to 37 to the financial statements, which include the accounting policies.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law, United
Kingdom adopted international accounting standards and IFRS Accounting Standards as issued by the IASB. The financial reporting framework
that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom adopted
international accounting standards and as applied in accordance with the provisions of the Companies Act 2006.
2.Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the auditors’ responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided to the
Group and the parent company for the year are disclosed in note 11 to the financial statements. We confirm that we have not provided any
non-audit services prohibited by the FRC’s Ethical Standard to the Group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3.Summary of our audit approach

Key audit matters |  | The key audit matters that we identified in the current year were: • Expected credit losses (‘ECL’) (Group) • IT systems that impact financial reporting (Group and parent company) • Defined benefit obligations (Group and parent company)
Materiality |  | Overall materiality used for the Group consolidated financial statements was £170 million, which was determined on the basis of net assets. Overall materiality used for the parent company financial statements was £170 million, which was determined on the basis of net assets and capped at Group materiality.
Scoping |  | The group is audited as a single component by the group engagement team. Our audit scope covers the Group’s total assets, total liabilities, total income and total expenses.

Our audit approach
We structured our approach to the audit to reflect how the Group is organised as well as designing it to be both effective and risk focused. It
can be summarised into the following key activities through which we obtained sufficient audit evidence to form our opinion on the Group and
the parent company’s financial statements:
Audit planning and risk assessment
Our audit planning procedures considered the impact of internal and external factors affecting the Group’s profitability and operations, the
key audit matters most relevant to the users of the financial statements, the appropriate scope of audit work performed and the expectations
and requirements of the Group’s investors and regulators.
In performing our audit risk assessments, we considered the impact of macroeconomic factors on the Group’s key accounting judgements and
sources of estimation uncertainty. The key factors considered in our risk assessments were:
– the impact of uncertainty in the current economic climate and ongoing geopolitical tensions on the Group’s ECL; and
– changes to the regulatory and litigation environment affecting the Group’s financial reporting.
We obtained the knowledge and information required to inform our audit planning and risk assessment decision making through regular
meetings with Group and Divisional Finance and the extensive use of data and technology;

13 | HBOS plc Annual Report and Accounts 2025 |

Independent auditors’ report continued
Audit procedures undertaken at both Group and parent company level
We performed audit procedures over the Group and parent company financial statements including the consolidation of the Group’s results,
the preparation of the financial statements, litigation provisions and exposures, as well as the Group’s entity level and oversight controls
relevant to financial reporting;
Internal controls testing approach
Our internal controls testing approach was informed by our scoping and risk assessment activities. We have assessed the Group’s end-to-end
financial reporting processes supporting all in-scope financial statement balances and identified relevant controls to test for these balances.
This included the testing of general IT controls, process level controls and entity level controls at the Group level. For further information of the
impact of the control environment on our audit approach, please refer to the ‘IT systems that impact financial reporting’ Key Audit Matter; and
The impact of climate change on our audit
In planning our audit, we have considered the impact of climate change on the Group’s operations and any subsequent impact on its financial
statements. The Group sets out its assessment of the potential impact on page 4 of the Strategic report of the Annual Report.
In conjunction with our climate risk specialists, we have held discussions with the Group to understand their:
– process for identifying affected operations including the governance and controls over this process, and the subsequent effect on the
financial reporting for the Group; and
– long-term strategy to respond to climate change risks and how this is factored into the Group’s forecasts, considering publicly
announced climate change commitments and any costs associated with the Group’s net zero targets.
Our audit work has involved:
– evaluating climate as a factor in risk assessments for potentially affected balances;
– challenging the completeness of the physical and transition risks identified and considered in the Group’s climate risk assessment and the
conclusion that there continues to be no material impact of climate change risk on financial reporting;
– reviewing the Group’s qualitative loan portfolio analysis, and challenging the key assumptions used by the Group with reference to our
own understanding of the portfolios and publicly available documentation; and
– assessing disclosures in the Annual Report and challenging the consistency between the financial statements and the remainder of the
Annual Report.
As part of our audit procedures we are required to read and consider these disclosures to consider whether they are materially inconsistent
with the financial statements or knowledge obtained in the audit and we did not identify any material inconsistencies as a result of these
procedures.
4.Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of
the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s and the parent company’s ability to continue to adopt the going concern basis of
accounting included:
• using our knowledge of the Group and the parent company, the financial services industry, the financial services regulatory environment and
the general economic environment including, macroeconomic pressures affecting the Group’s operations, to identify inherent risks in the
business model and how such risks might affect the financial resources or ability to continue operations over the going concern period;
• making enquiries of Group management about the assumptions, including climate risk considerations, used in their going concern models,
and assessing the reasonableness of those assumptions and historical forecasting accuracy;
• evaluating the Group’s strategic plans in light of the changing macroeconomic environment, short and longer term financial budgets,
funding, liquidity and capital adequacy plans including internal stress tests;
• considering the Group’s operational resilience;
• reading analyst reports, industry data, Bank of England reports and other external information to determine if it provided corroborative or
contradictory evidence in relation to the Group’s assumptions;
• reviewing correspondence and meeting with prudential and conduct regulators to assess whether there are any matters that may impact
the going concern assessment;
• testing the underlying data generated to prepare the forecast scenarios and determining whether there was adequate support for the
assumptions underlying the forecasts; and
• evaluating the Group’s disclosures on going concern against the requirements of IAS 1.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group's and the parent company’s ability to continue as a going concern for a period of at least
twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
5.Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing
the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.

14 | HBOS plc Annual Report and Accounts 2025 |

Independent auditors’ report continued

Expected credit losses (Group)
Key audit matter description |  | How the scope of our audit responded to the key audit matter
Refer to notes 2, 12, 17, 18 and 35 in the financial statements |  |
The Group has recognised £1.5 billion of expected credit losses (‘ECL’) as at 31 December 2025. The valuation and allocation of ECL consists of a number of assumptions that are inherently uncertain and require a high degree of complex and subjective auditor judgement, specialised skills and knowledge, and complex impairment modelling. The increasing economic uncertainty resulting from geopolitical risks and the impact of changes in the US trade tariff rates has further heightened the levels of judgement required, especially in the development of the base case economic scenario and alternative economic scenarios. The key areas we identified as having the most significant level of management judgement were in respect of: • Multiple economic scenarios; • Collectively assessed ECL; • Individually assessed ECL; and • ECL model adjustments. |  |
Multiple economic scenarios The Group’s economics team develops the future economic scenarios by developing a base case forecast based on a set of conditioning assumptions, with the three outer economic scenarios (upside, downside and severe downside) derived using a Monte Carlo simulation around the base case. The modelled severe downside scenario is then adjusted to capture supply-side risks not contemplated by the Monte Carlo model. The upside, the base case and the downside scenarios are weighted at a 30% probability and the severe downside at a 10% probability. The development of the base case scenario, including the conditioning assumptions, is inherently highly complex and requires significant judgement. |  | We performed the following procedures: • tested the controls over the generation of the multiple economic scenarios including those over the Group’s governance processes to approve the base case, different scenarios and the weightings applied to each scenario; • working with our internal economic specialists: – challenged and evaluated economic forecasts in the base scenario such as the unemployment rate, House Price Index, Commercial Real Estate prices, inflation and forecasted interest rates, and Gross Domestic Product through comparison to independent economic outlooks, other external analyses and market data; – challenged and evaluated the appropriateness of changes in assumptions and/or the model including changes to the non- modelled severe downside approach; – challenged and evaluated the appropriateness of the methodology applied to generate alternative macroeconomic scenarios, including associated weightings and assumptions within the model; and – independently replicated the multiple economic scenario model and compared the outputs of our independent model to the Group’s output to test scenario generation; • tested the completeness and accuracy of the data used by the model; • performed a stand back assessment of the appropriateness of the weightings applied to each of the scenarios based on publicly available data; and • evaluated the appropriateness of disclosures in respect of significant judgements and sources of estimation uncertainty including macroeconomic scenarios.

15 | HBOS plc Annual Report and Accounts 2025 |

Independent auditors’ report continued

Key audit matter description |  | How the scope of our audit responded to the key audit matter
Collectively assessed ECL The ECL for the Retail and Commercial Banking divisions, except for individually assessed stage 3 commercial loans, is determined on a collective basis using impairment models. These models use a number of significant judgements to calculate a probability weighted estimate by applying a probability of default, exposure at default and a loss given default, taking account of collateral held or other loss mitigants, discounted using the effective interest rate. The key judgements and estimates in determining the collectively assessed ECL include: • modelling approach, model assumptions and judgements, and selection of modelling data; • credit risk ratings for the Commercial Banking division, which are performed on a counterparty basis for larger exposures by a credit officer; and • the appropriate allocation of assets into the correct staging taking into account any significant deterioration in credit risk since inception of the loan. |  | We tested controls across the process to estimate the ECL provisions including: • model governance including model validation and monitoring; • model assumptions; • allocation of assets into stages, including those to determine the credit risk rating in the Commercial Banking division; and • completeness and accuracy of the data used by the model. Working with our internal modelling specialists our audit procedures over the key areas of estimation in the valuation and allocation of the ECL covered the following: • Model estimations, where we: – evaluated the appropriateness of the modelling approach and assumptions used; – independently replicated a sample of the models for all in-scope portfolios and compared the outputs of our independent models to the Group’s outputs; – assessed model performance by evaluating variations between observed data and model predictions; – developed an understanding of model limitations and assessed these and remedial actions; and – tested the completeness and accuracy of the data used in model execution and calibration. • Allocation of assets into stages, where we: – evaluated the appropriateness of quantitative and qualitative criteria used for allocation into IFRS 9 stages, including independently assessing the credit rating of a sample of loans in the Commercial Banking division; – tested the appropriateness of the stage allocation for a sample of exposures; and – tested the data used by models in assigning IFRS 9 stages and evaluated the appropriateness of the model logic used.
Individually assessed ECL For individual provision assessments of larger exposures in stage 3 in the Commercial Banking division, complex and subjective auditor judgement including specialised knowledge is required in evaluating the methodology, models and inputs that are inherently uncertain in determining the ECL. The significant judgements in estimating provisions are the: • completeness and appropriateness of the potential workout scenarios identified; • probability of default assigned to each identified potential workout scenario; and • valuation assumptions used in determining the expected recovery strategies. |  | For expected credit losses assessed individually we have: • selected senior team members with extensive IFRS 9 knowledge and expertise to design and lead the execution of the audit of ECL; • tested the controls over individually assessed provisions including assumptions and inputs into workout and recovery scenarios, as well as valuation assumptions used; and • evaluated the appropriateness of workout and recovery scenarios identified, including the judgements to determine the timing and value of associated cash flows as well as consideration of climate risk.

16 | HBOS plc Annual Report and Accounts 2025 |

Independent auditors’ report continued

Key audit matter description |  | How the scope of our audit responded to the key audit matter
ECL model adjustments Where impairment models do not incorporate all factors relevant to estimating the ECL, adjustments are made to address known model limitations and data limitations, emerging or non-modelled risks and the impact of economic uncertainty on different industry sectors. The identification of model limitations is highly judgemental and inherently uncertain. The adjustments made to address these limitations require specialist auditor judgement when evaluating the: • completeness of adjustments; and • methodology, assumptions, models and inputs. |  | In respect of the adjustments to models, we performed the following procedures in conjunction with our specialists: • tested the controls over the valuation of in-model and post-model adjustments, including methodology, calculation, assumptions and the completeness and accuracy of data used; • evaluated the methodology, rationale and assumptions in developing the adjustments, and evaluated the Group’s selection of approaches; • tested the completeness and accuracy of the data used in formulating the judgements; • performed a recalculation of adjustments; • evaluated the completeness of adjustments based on our understanding of both model and data limitations; and • assessed the appropriateness of the disclosures and whether the disclosures appropriately address the uncertainty which exists in determining the ECL.
Key observations communicated to the Audit Committee We are satisfied that the ECL provisions are reasonable and recognised in accordance with the requirements of IFRS 9. Calculations of the multiple economic scenarios, in-model adjustments and post-model adjustments are made using appropriate methodologies and reasonable modelled assumptions. Overall ECL levels are reasonable compared to peer benchmarking information.

IT systems that impact financial reporting (Group and parent company)
Key audit matter description |  | How the scope of our audit responded to the key audit matter
The Group’s IT environment is inherently complex due to the number of systems it operates and its reliance on automated and IT dependent manual controls. Together, these support a broad range of banking and insurance products as well as the processing of the Group’s significant volume of transactions, which impact all account balances. As such, IT systems within the Group form a critical component of the Group’s financial reporting activities. Due to the significant reliance on IT systems, effective General IT Controls (‘GITCs’) are critical to allow reliance to be placed on the completeness and accuracy of financial data and the integrity of automated system functionality, such as system calculations. We identified the IT systems that impact financial reporting as a key audit matter because of the: • Pervasive reliance on complex technology that is integral to the operation of key business processes and financial reporting; • Reliance on technology which continues to develop in line with the business strategy, such as the increase in the use of automation across the Group and increasing reliance on third parties; and • Importance of the IT controls in maintaining an effective control environment. A key interdependency exists between the ability to rely on IT controls and the ability to rely on financial data, system configured automated controls and system reports. IT controls, in the context of our audit scope, primarily relate to privileged access at the infrastructure level, user access security at the application level and change control. |  | Our IT audit scope covered the Group’s IT controls over information systems deemed relevant to the audit based on the financial data, system configured automated controls and/or key financial reports that reside within it. We used IT specialists to support our evaluation of the risks associated with IT in the following areas: • General IT Controls, including user access and change management controls; • Key financial reports and system configured automated controls; and • Cyber security risk assessment. Where deficiencies in the IT control environment were identified, our risk assessment procedures included an assessment of those deficiencies to determine the impact on our audit plan. Where relevant, the audit plan was adjusted to mitigate the unaddressed IT risk. Where we were able to identify and test appropriate mitigating controls over affected financial statement line items, our testing approach remained unchanged. In a limited number of areas, we adopted a non-controls reliance approach and we therefore performed additional substantive procedures.
Key observations communicated to the Audit Committee We are satisfied that the Group’s overall IT control environment appropriately supports the financial reporting process and control deficiencies identified in respect of privileged user access to IT infrastructure and in application user access management were mitigated by compensating business controls.

17 | HBOS plc Annual Report and Accounts 2025 |

Independent auditors’ report continued

Defined benefit obligations (Group and parent company)
Key audit matter description |  | How the scope of our audit responded to the key audit matter
Refer to notes 2 and 10 in the financial statements |  |
The Group operates a number of defined benefit retirement schemes, the obligations for which totalled £9.3 billion for the Group as at 31 December 2025. Their valuation is determined with reference to key actuarial assumptions including mortality assumptions, discount rates and inflation rates. Due to the size of these schemes, small changes in these assumptions can have a material impact on the value of the defined benefit obligation and therefore, the determination of these assumptions requires significant auditor judgement. |  | We performed the following audit procedures: • tested the Group’s and Company’s controls over the valuation of the defined benefit obligations, including controls over the assumptions setting process; and • challenged and evaluated the key actuarial assumptions against the compiled expected ranges, determined by our internal actuarial experts, based on observable market indices and market experience.
Key observations communicated to the Audit Committee We are satisfied that the Group’s and Company’s judgements in relation to the defined benefit obligations are reasonable.

6.Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

|  | Group financial statements |  | Parent company financial statements
Materiality |  | £170 million (2024 : £170 million) |  | £170 million (2024 : £170 million)
Basis for determining materiality |  | We have determined net assets to be the most relevant benchmark to the users of the financial statements. The determined materiality represents 1.0% of net assets. |  | The parent company materiality represents 0.7% of net assets and is capped at Group materiality.
Rationale for the benchmark applied |  | Given the importance of this measure to investors and users of the financial statements, we have used net assets as the benchmark for our determination of materiality given the volatility of income statement items in recent years.

6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.

|  | Group financial statements |  | Parent company financial statements
Performance materiality |  | 70% of Group materiality – £110 million (2024: 70% at £110 million) |  | 70% of parent company materiality – £110 million (2024: 70% at £110 million)
Basis and rationale for determining performance materiality |  | In determining performance materiality, we considered the following factors: a. The quality of the control environment and whether we were able to rely on controls; b. The degree of centralisation and commonality of controls and processes; c. The uncertain economic environment; d. The nature, volume and size of uncorrected misstatements arising in the previous audit; and e. The nature, volume and size of uncorrected misstatements that remain uncorrected in the current period.

6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £8 million (2024: £8 million), as
well as any differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit
Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
7.Other information

The other information comprises the information included in the Annual Report, other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information contained within the Annual Report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. |  | We have nothing to report in this regard.

18 | HBOS plc Annual Report and Accounts 2025 |

Independent auditors’ report continued
We summarise below our work in relation to areas of the other information including those areas upon which we are specifically required to
report:

|  | Our responsibility |  | Our report
Matters we are specifically required to report
Strategic report and directors’ report |  | Report whether they are consistent with the audited financial statements and are prepared in accordance with applicable legal requirements. Report if we have identified any material misstatements in either report in the light of the knowledge and understanding of the Group and of the parent company and their environment obtained in the course of the audit. |  | As set out in the section ‘Opinions on other matters prescribed by the Companies Act 2006’, in our opinion, based on the work undertaken in the course of the audit, the information in these reports is consistent with the audited financial statements and has been prepared in accordance with applicable legal requirements.
Principal risks within the strategic report |  | Review the confirmation and description in the light of the knowledge gathered during the audit, such as through considering the directors’ processes to support the statements made, challenging the Group’s key judgements and estimates, consideration of historical forecasting accuracy and evaluating macro-economic assumptions. |  | We have nothing material to report, add or draw attention to in respect of these matters.

8.Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
9.Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
10.Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable
of detecting irregularities, including fraud is detailed below.
Identifying and assessing potential risks related to irregularities
In identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration
policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• the Group’s own assessment of the risks that irregularities may occur either as a result of fraud or error that was discussed by the Audit
Committee including on 13 February 2026;
• results of our inquiries of management, in-house legal counsel, internal audit and the Audit Committee about their own identification and
assessment of the risk of irregularities, including those that are specific to the financial services sector, and review of supporting
documentation, concerning the Group’s policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and
– the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
• the discussion among the audit engagement team including relevant internal specialists, including tax, valuations, pensions, credit
modelling, actuarial, IT and industry specialists regarding how and where fraud might occur in the financial statements and any potential
indicators of fraud; and
• obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those laws and regulations that
had a direct effect on the financial statements, such as provisions of the UK Companies Act, pensions legislation and tax legislation or that
had a fundamental effect on the operations of the Group, including regulation and supervisory requirements of the Prudential Regulation
Authority, Financial Reporting Council and Financial Conduct Authority.

19 | HBOS plc Annual Report and Accounts 2025 |

Independent auditors’ report continued
Audit response to risks identified
As a result of performing the above, we identified the Group’s determination of ‘Expected credit losses’ as a key audit matter related to the
potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific procedures
in response to the key audit matter. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond
to the risk of management override.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant
laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the Audit Committee and in-house and external legal counsel concerning actual and potential litigation and
claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due
to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with
regulators;
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
• evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including specialists
and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Report on other legal and regulatory requirements
11.Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and of the parent company and their environment obtained in the course of the
audit, we have not identified any material misstatements in the strategic report or the directors’ report.
12.Matters on which we are required to report by exception

Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion: • We have not received all the information and explanations we require for our audit; or • Adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • The parent company’s financial statements are not in agreement with the accounting records and returns. |  | We have nothing to report in respect of these matters.
Directors’ remuneration Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been made. |  | We have nothing to report in respect of this matter.

13.Other matters which we are required to address
Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by shareholders at its annual general meeting on 20 May 2021 to
audit the financial statements of Lloyds Banking Group plc, including HBOS plc for the year ended 31 December 2021. Subsequent annual
reappointments have resulted in a total uninterrupted engagement of the firm of five year s, covering the years 31 December 2021 to 31
December 2025.
Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).
14.Use of our report
This report is made solely to the parent company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the parent company’s members those matters we are required to state to them
in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the parent company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have
formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.15R – DTR 4.1.18R, these financial
statements will form part of the Electronic Format Annual Financial Report filed on the National Storage Mechanism of the FCA in accordance
with DTR 4.1.15R – DTR 4.1.18R. This auditors’ report provides no assurance over whether the Electronic Format Annual Financial Report has
been prepared in compliance with DTR 4.1.15R – DTR 4.1.18R.
Michael Lloyd (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
26 February 2026

20 | HBOS plc Annual Report and Accounts 2025 |

Income statements
for the year ended 31 December

|  |  | The Group |  | The Company
| Note |  | 2025 £m |  | 2024 £m |  | 2025 £m |  | 2024 £m
Interest income |  |  | 14,865 |  | 14,258 |  | 124 |  | 144
Interest expense |  |  | (9,964) |  | (10,208) |  | (94) |  | (112)
Net interest income | 4 |  | 4,901 |  | 4,050 |  | 30 |  | 32
Fee and commission income |  |  | 687 |  | 690 |  | – |  | –
Fee and commission expense |  |  | (330) |  | (405) |  | – |  | –
Net fee and commission income | 5 |  | 357 |  | 285 |  | – |  | –
Net trading income | 6 |  | 187 |  | 83 |  | (4) |  | (6)
Dividends from subsidiaries |  |  | – |  | – |  | 980 |  | 1,050
Other operating income | 7 |  | 199 |  | 98 |  | 52 |  | 63
Other income |  |  | 743 |  | 466 |  | 1,028 |  | 1,107
Total income |  |  | 5,644 |  | 4,516 |  | 1,058 |  | 1,139
Operating expenses | 8 |  | (3,472) |  | (3,326) |  | (3) |  | (13)
Impairment charge | 12 |  | (254) |  | (92) |  | – |  | –
Profit before tax |  |  | 1,918 |  | 1,098 |  | 1,055 |  | 1,126
Tax expense | 13 |  | (438) |  | (245) |  | (19) |  | (19)
Profit for the year |  |  | 1,480 |  | 853 |  | 1,036 |  | 1,107
Profit attributable to ordinary shareholders |  |  | 1,243 |  | 647 |  | 1,036 |  | 1,107
Profit attributable to non-controlling interests |  |  | 237 |  | 206 |  | – |  | –
Profit for the year |  |  | 1,480 |  | 853 |  | 1,036 |  | 1,107

The accompanying notes are an integral part of the consolidated financial statements.

21 | HBOS plc Annual Report and Accounts 2025 |

Statements of comprehensive income
for the year ended 31 December

| The Group |  | The Company
| 2025 £m |  | 2024 1 £m |  | 2025 £m |  | 2024 1 £m
Profit for the year | 1,480 |  | 853 |  | 1,036 |  | 1,107
Other comprehensive income |  |  |  |  |  |  |
Items that will not subsequently be reclassified to profit or loss: |  |  |  |  |  |  |
Post-retirement defined benefit scheme remeasurements: |  |  |  |  |  |  |
Remeasurements before tax | (313) |  | (337) |  | (298) |  | (338)
Current tax | 14 |  | 16 |  | 14 |  | 16
Deferred tax | 62 |  | 68 |  | 58 |  | 69
| (237) |  | (253) |  | (226) |  | (253)
Items that may subsequently be reclassified to profit or loss: |  |  |  |  |  |  |
Movements in revaluation reserve in respect of debt securities held at fair value through other comprehensive income: |  |  |  |  |  |  |
Change in fair value | (8) |  | (5) |  | – |  | –
Current tax | – |  | 2 |  | – |  | –
| (8) |  | (3) |  | – |  | –
Movements in cash flow hedging reserve: |  |  |  |  |  |  |
Effective portion of changes in fair value taken to other comprehensive income | (10) |  | 3 |  | – |  | –
Deferred tax | 3 |  | (1) |  | – |  | –
| (7) |  | 2 |  | – |  | –
Net income statement transfers | (7) |  | (6) |  | – |  | –
Deferred tax | 2 |  | 2 |  | – |  | –
| (5) |  | (4) |  | – |  | –
| (12) |  | (2) |  | – |  | –
Movements in foreign currency translation reserve (tax: £nil) | 2 |  | – |  | – |  | –
| (18) |  | (5) |  | (226) |  | (253)
Total other comprehensive loss for the year, net of tax | (255) |  | (258) |  | (226) |  | (253)
Total comprehensive income for the year | 1,225 |  | 595 |  | 810 |  | 854
Total comprehensive income attributable to ordinary shareholders | 988 |  | 389 |  | 810 |  | 854
Total comprehensive income attributable to non-controlling interests | 237 |  | 206 |  | – |  | –
Total comprehensive income for the year | 1,225 |  | 595 |  | 810 |  | 854

1 Current tax and deferred tax impacts, previously shown in aggregate for each reserve, are now presented alongside each line item. Comparatives are represented on a consistent
basis.
The accompanying notes are an integral part of the consolidated financial statements.

22 | HBOS plc Annual Report and Accounts 2025 |

Balance sheets
at 31 December

|  |  | The Group |  | The Company
| Note |  | 2025 £m |  | 2024 £m |  | 2025 £m |  | 2024 £m
Assets |  |  |  |  |  |  |  |  |
Cash and balances at central banks |  |  | 2,767 |  | 2,853 |  | – |  | –
Financial assets at fair value through profit or loss | 15 |  | 253 |  | 278 |  | – |  | –
Derivative financial instruments | 16 |  | 2,214 |  | 3,337 |  | – |  | 13
Loans and advances to banks |  |  | 131 |  | 111 |  | – |  | –
Loans and advances to customers | 17 |  | 312,855 |  | 300,789 |  | – |  | –
Debt securities |  |  | 1,041 |  | 1,350 |  | – |  | –
Due from fellow Lloyds Banking Group undertakings |  |  | 14,153 |  | 15,024 |  | 2,690 |  | 3,141
Financial assets at amortised cost |  |  | 328,180 |  | 317,274 |  | 2,690 |  | 3,141
Financial assets at fair value through other comprehensive income | 15 |  | 102 |  | 103 |  | – |  | –
Goodwill | 20 |  | 452 |  | 452 |  | – |  | –
Current tax recoverable |  |  | 373 |  | 1,272 |  | – |  | –
Deferred tax assets | 13 |  | 1,515 |  | 1,577 |  | – |  | 7
Investment in subsidiary undertakings | 21 |  | – |  | – |  | 22,696 |  | 22,687
Retirement benefit assets | 10 |  | 764 |  | 1,018 |  | 725 |  | 966
Other assets | 22 |  | 1,703 |  | 1,756 |  | – |  | –
Total assets |  |  | 338,323 |  | 329,920 |  | 26,111 |  | 26,814
Liabilities |  |  |  |  |  |  |  |  |
Deposits from banks |  |  | 99 |  | 179 |  | – |  | –
Customer deposits |  |  | 167,586 |  | 165,053 |  | – |  | –
Repurchase agreements at amortised cost |  |  | 10,443 |  | 22,168 |  | – |  | –
Due to fellow Lloyds Banking Group undertakings |  |  | 125,551 |  | 106,931 |  | 2,257 |  | 2,326
Financial liabilities at fair value through profit or loss | 15 |  | 17 |  | 22 |  | – |  | –
Derivative financial instruments | 16 |  | 3,016 |  | 3,490 |  | – |  | –
Notes in circulation |  |  | 2,118 |  | 2,121 |  | – |  | –
Debt securities in issue at amortised cost | 24 |  | 8,933 |  | 8,654 |  | – |  | –
Other liabilities | 25 |  | 1,068 |  | 1,321 |  | – |  | 4
Retirement benefit obligations | 10 |  | 72 |  | 74 |  | 72 |  | 74
Current tax liabilities |  |  | – |  | – |  | 4 |  | 3
Deferred tax liabilities | 13 |  | – |  | – |  | 163 |  | 228
Provisions | 26 |  | 408 |  | 511 |  | – |  | –
Subordinated liabilities | 27 |  | 1,782 |  | 2,183 |  | 225 |  | 628
Total liabilities |  |  | 321,093 |  | 312,707 |  | 2,721 |  | 3,263
Equity |  |  |  |  |  |  |  |  |
Share capital | 28 |  | 3,778 |  | 3,778 |  | 3,778 |  | 3,778
Share premium account |  |  | 585 |  | 585 |  | 585 |  | 585
Other reserves | 29 |  | 11,159 |  | 11,177 |  | 9,678 |  | 9,678
Retained profits |  |  | (892) |  | (950) |  | 9,349 |  | 9,510
Ordinary shareholders’ equity |  |  | 14,630 |  | 14,590 |  | 23,390 |  | 23,551
Non-controlling interests |  |  | 2,600 |  | 2,623 |  | – |  | –
Total equity |  |  | 17,230 |  | 17,213 |  | 23,390 |  | 23,551
Total equity and liabilities |  |  | 338,323 |  | 329,920 |  | 26,111 |  | 26,814

The accompanying notes are an integral part of the consolidated financial statements.
The directors approved the financial statements on 26 February 2026.

Sir Robin Budenberg Chair | Charlie Nunn Group Chief Executive | William Chalmers Chief Financial Officer

23 | HBOS plc Annual Report and Accounts 2025 |

Statements of changes in equity
for the year ended 31 December

The Group |  | Attributable to ordinary shareholders |  | Non- controlling interests £m |  | Total £m
| Share capital 2 £m | Share premium 2 £m |  | Other reserves £m |  | Retained profits £m |  | Total £m |  |
At 1 January 2024 |  | 3,778 |  | 585 |  | 11,182 |  | (317) |  | 15,228 |  | 2,573 |  | 17,801
Comprehensive income |  |  |  |  |  |  |  |  |  |  |  |  |  |
Profit for the year |  | – |  | – |  | – |  | 647 |  | 647 |  | 206 |  | 853
Other comprehensive income |  |  |  |  |  |  |  |  |  |  |  |  |  |
Post-retirement defined benefit scheme remeasurements, net of tax |  | – |  | – |  | – |  | (253) |  | (253) |  | – |  | (253)
Movements in revaluation reserve in respect of debt securities held at fair value through other comprehensive income, net of tax |  | – |  | – |  | (3) |  | – |  | (3) |  | – |  | (3)
Movements in cash flow hedging reserve, net of tax |  | – |  | – |  | (2) |  | – |  | (2) |  | – |  | (2)
Total other comprehensive loss |  | – |  | – |  | (5) |  | (253) |  | (258) |  | – |  | (258)
Total comprehensive (loss) income 1 |  | – |  | – |  | (5) |  | 394 |  | 389 |  | 206 |  | 595
Transactions with owners |  |  |  |  |  |  |  |  |  |  |  |  |  |
Dividends (note 30) |  | – |  | – |  | – |  | (1,050) |  | (1,050) |  | – |  | (1,050)
Distributions to non-controlling interests |  | – |  | – |  | – |  | – |  | – |  | (206) |  | (206)
Change in non-controlling interests |  | – |  | – |  | – |  | – |  | – |  | 50 |  | 50
Capital contributions received |  | – |  | – |  | – |  | 23 |  | 23 |  | – |  | 23
Total transactions with owners |  | – |  | – |  | – |  | (1,027) |  | (1,027) |  | (156) |  | (1,183)
At 31 December 2024 |  | 3,778 |  | 585 |  | 11,177 |  | (950) |  | 14,590 |  | 2,623 |  | 17,213
Comprehensive income |  |  |  |  |  |  |  |  |  |  |  |  |  |
Profit for the year |  | – |  | – |  | – |  | 1,243 |  | 1,243 |  | 237 |  | 1,480
Other comprehensive income |  |  |  |  |  |  |  |  |  |  |  |  |  |
Post-retirement defined benefit scheme remeasurements, net of tax |  | – |  | – |  | – |  | (237) |  | (237) |  | – |  | (237)
Movements in revaluation reserve in respect of debt securities held at fair value through other comprehensive income, net of tax |  | – |  | – |  | (8) |  | – |  | (8) |  | – |  | (8)
Movements in cash flow hedging reserve, net of tax |  | – |  | – |  | (12) |  | – |  | (12) |  | – |  | (12)
Movements in foreign currency translation reserve, net of tax |  | – |  | – |  | 2 |  | – |  | 2 |  | – |  | 2
Total other comprehensive (loss) income |  | – |  | – |  | (18) |  | (237) |  | (255) |  | – |  | (255)
Total comprehensive (loss) income 1 |  | – |  | – |  | (18) |  | 1,006 |  | 988 |  | 237 |  | 1,225
Transactions with owners |  |  |  |  |  |  |  |  |  |  |  |  |  |
Dividends (note 30) |  | – |  | – |  | – |  | (980) |  | (980) |  | – |  | (980)
Distributions to non-controlling interests |  | – |  | – |  | – |  | – |  | – |  | (237) |  | (237)
Change in non-controlling interests |  | – |  | – |  | – |  | 23 |  | 23 |  | (23) |  | –
Capital contributions received |  | – |  | – |  | – |  | 9 |  | 9 |  | – |  | 9
Total transactions with owners |  | – |  | – |  | – |  | (948) |  | (948) |  | (260) |  | (1,208)
At 31 December 2025 |  | 3,778 |  | 585 |  | 11,159 |  | (892) |  | 14,630 |  | 2,600 |  | 17,230

1 Total comprehensive income attributable to owners of the parent was a surplus of £988 million (2024: surplus of £389 million).
2 Share capital and share premium, previously presented in aggregate, are shown separately. Comparatives have been represented on a consistent basis.
Further details of movements in the Group’s share capital and reserves are provided in notes 28 and 29.
The accompanying notes are an integral part of the consolidated financial statements.

24 | HBOS plc Annual Report and Accounts 2025 |

Statements of changes in equity continued
for the year ended 31 December

The Company |  | Attributable to ordinary shareholders
Share capital 2 £m |  | Share premium 2 £m |  | Other reserves £m |  | Retained profits £m |  | Total £m
At 1 January 2024 |  | 3,778 |  | 585 |  | 9,678 |  | 9,683 |  | 23,724
Comprehensive income |  |  |  |  |  |  |  |  |  |
Profit for the year |  | – |  | – |  | – |  | 1,107 |  | 1,107
Other comprehensive income |  |  |  |  |  |  |  |  |  |
Post-retirement defined benefit scheme remeasurements, net of tax |  | – |  | – |  | – |  | (253) |  | (253)
Total comprehensive income 1 |  | – |  | – |  | – |  | 854 |  | 854
Transactions with owners |  |  |  |  |  |  |  |  |  |
Dividends (note 30) |  | – |  | – |  | – |  | (1,050) |  | (1,050)
Capital contributions received |  | – |  | – |  | – |  | 23 |  | 23
Total transactions with owners |  | – |  | – |  | – |  | (1,027) |  | (1,027)
At 31 December 2024 |  | 3,778 |  | 585 |  | 9,678 |  | 9,510 |  | 23,551
Comprehensive income |  |  |  |  |  |  |  |  |  |
Profit for the year |  | – |  | – |  | – |  | 1,036 |  | 1,036
Other comprehensive income |  |  |  |  |  |  |  |  |  |
Post-retirement defined benefit scheme remeasurements, net of tax |  | – |  | – |  | – |  | (226) |  | (226)
Total comprehensive income 1 |  | – |  | – |  | – |  | 810 |  | 810
Transactions with owners |  |  |  |  |  |  |  |  |  |
Dividends (note 30) |  | – |  | – |  | – |  | (980) |  | (980)
Capital contributions received |  | – |  | – |  | – |  | 9 |  | 9
Total transactions with owners |  | – |  | – |  | – |  | (971) |  | (971)
At 31 December 2025 |  | 3,778 |  | 585 |  | 9,678 |  | 9,349 |  | 23,390

1 Total comprehensive income attributable to owners of the parent was a surplus of £810 million (2024: surplus of £854 million).
2 Share capital and share premium, previously presented in aggregate, are shown separately. Comparatives have been represented on a consistent basis.
Further details of movements in the Company’s share capital and reserves are provided in notes 28 and 29.
The accompanying notes are an integral part of the consolidated financial statements.

25 | HBOS plc Annual Report and Accounts 2025 |

Cash flow statements
for the year ended 31 December

| Note |  | The Group |  | The Company
|  | 2025 £m |  | 2024 £m |  | 2025 £m |  | 2024 £m
Cash flows provided by (used in) operating activities |  |  |  |  |  |  |  |  |
Profit before tax |  |  | 1,918 |  | 1,098 |  | 1,055 |  | 1,126
Adjustments for: |  |  |  |  |  |  |  |  |
Change in operating assets | 36(A) |  | (9,415) |  | (7,319) |  | 27 |  | –
Change in operating liabilities | 36(B) |  | 8,877 |  | 9,185 |  | (73) |  | 17
Non-cash and other items | 36(C) |  | (76) |  | (233) |  | (1,059) |  | (1,093)
Tax paid |  |  | (296) |  | (1,418) |  | (3) |  | –
Tax refunded |  |  | 902 |  | 1,034 |  | – |  | 64
Net cash provided by (used in) operating activities |  |  | 1,910 |  | 2,347 |  | (53) |  | 114
Cash flows (used in) provided by investing activities |  |  |  |  |  |  |  |  |
Purchase of financial assets |  |  | (5) |  | (3) |  | – |  | –
Dividends received from subsidiaries |  |  | – |  | – |  | 980 |  | 1,050
Purchase of property, plant and equipment |  |  | (174) |  | (197) |  | – |  | –
Purchase of other intangible assets |  |  | (120) |  | (84) |  | – |  | –
Proceeds from sale of property, plant and equipment |  |  | 13 |  | 38 |  | – |  | –
Proceeds from sale of goodwill and other intangible assets |  |  | 2 |  | 2 |  | – |  | –
Net cash (used in) provided by investing activities |  |  | (284) |  | (244) |  | 980 |  | 1,050
Cash flows used in financing activities |  |  |  |  |  |  |  |  |
Dividends paid to ordinary shareholders | 30 |  | (980) |  | (1,050) |  | (980) |  | (1,050)
Distributions to non-controlling interests |  |  | (237) |  | (206) |  | – |  | –
Interest paid on subordinated liabilities |  |  | (117) |  | (140) |  | (17) |  | (31)
Repayment of subordinated liabilities |  |  | (380) |  | – |  | (380) |  | –
Proceeds from change in non-controlling interests |  |  | – |  | 50 |  | – |  | –
Net cash used in financing activities |  |  | (1,714) |  | (1,346) |  | (1,377) |  | (1,081)
Effect of exchange rate changes on cash and cash equivalents |  |  | – |  | – |  | – |  | –
Change in cash and cash equivalents |  |  | (88) |  | 757 |  | (450) |  | 83
Cash and cash equivalents at beginning of year |  |  | 2,883 |  | 2,126 |  | 3,063 |  | 2,980
Cash and cash equivalents at end of year | 36(D) |  | 2,795 |  | 2,883 |  | 2,613 |  | 3,063

The accompanying notes are an integral part of the consolidated financial statements.
Interest received for the Group was £14,706 million (2024: £14,048 million) and for the Company was £123 million (2024: £143 million) and
interest paid for the Group was £9,217 million (2024: £10,356 million) and for the Company was £95 million (2024: £111 million).

26 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements
for the year ended 31 December
Note 1: Basis of preparation
The consolidated financial statements of HBOS plc (the Company) together with its subsidiary undertakings (the Group) have been prepared in
accordance with United Kingdom adopted international accounting standards and in conformity with the requirements of the Companies Act
2006. The financial statements have also been prepared in accordance with IFRS® Accounting Standards as issued by the International
Accounting Standards Board (IASB).
The financial information has been prepared under the historical cost convention, as modified by the revaluation of financial assets measured
at fair value through other comprehensive income, trading securities and certain other financial assets and liabilities at fair value through profit
or loss and all derivative contracts. The directors consider that it is appropriate to continue to adopt the going concern basis in preparing the
financial statements. In reaching this assessment, the directors have considered the Group’s capital and funding position, the impact of climate
change upon the Group’s future performance and the results from stress testing scenarios.
The Group’s accounting policies are consistent with those applied by the Group in its financial statements for the year ended 31 December
2024 and there have been no changes in the Group’s methods of computation.
Current and deferred tax are presented separately for each movement in the revaluation reserve in respect of debt securities held at fair value
through other comprehensive income and movements in the cash flow hedge reserve within the statement of other comprehensive income.
Previously both current tax and deferred tax were presented in aggregate for each reserve.
The IASB has issued an amendment to IAS 21 The Effects of Changes in Foreign Exchange Rates, effective 1 January 2025. This amendment has
not had a significant impact on the Group.
Future accounting developments
There are a number of new accounting pronouncements issued by the IASB with an effective date of 1 January 2027. This includes IFRS 18
Presentation and Disclosure in Financial Statements and IFRS 19 Subsidiaries without Public Accountability: Disclosures.
IFRS 18 Presentation and Disclosure in Financial Statements replaces IAS 1 Presentation of Financial Statements. While many of the existing
requirements of IAS 1 Presentation of Financial Statements are retained, IFRS 18 Presentation and Disclosure in Financial Statements
introduces additional disclosure obligations in relation to the structure of the income statement, management-defined performance measures,
and the aggregation and disaggregation of financial information. IFRS 18 will have no impact on the Group’s net profit as it impacts neither
recognition nor measurement. The new standard will impact the presentation of the Group’s results as it requires that operating, investing and
financing activities are presented separately. There will also be a change in the Group’s cash flow statement as IFRS 18 requires that the first
line of the cash flow statement is operating profit rather than profit before tax.
IFRS 19 Subsidiaries without Public Accountability: Disclosures is being assessed and is not expected to have a significant impact on the
Company. IFRS 19 has yet to be endorsed for use in the UK.
The IASB has issued its annual improvements and a number of amendments to the IFRS Accounting Standards effective 1 January 2026,
including Amendments to IFRS 9 Financial Instruments and Amendments to IFRS 7 Financial Instruments Disclosures. These improvements and
amendments are not expected to have a significant impact on the Group.
Note 2: Accounting policies
The accounting policies are set out below. These accounting policies have been applied consistently.
(A)Consolidation
The assets, liabilities and results of Group undertakings (including structured entities) are included in the financial statements on the basis of
accounts made up to the reporting date. Group undertakings include subsidiaries, associates and joint ventures. Details of the Group’s
subsidiaries and related undertakings are given on pages 81 to 82.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it has power over the entity, is exposed to, or has rights
to, variable returns from its involvement with the entity, and has the ability to affect those returns through the exercise of its power. This
generally accompanies a shareholding of more than one half of the voting rights although in certain circumstances a holding of less than one
half of the voting rights may still result in the ability of the Group to exercise control. The existence and effect of potential voting rights that
are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group reassesses
whether or not it controls an entity if facts and circumstances indicate that there have been changes to any of the above elements.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group; they are deconsolidated from the date that
control ceases.
Structured entities are entities that are designed so that their activities are not governed by way of voting rights. In assessing whether the
Group has power over such entities in which it has an interest, the Group considers factors such as the purpose and design of the entity; its
practical ability to direct the relevant activities of the entity; the nature of the relationship with the entity; and the size of its exposure to the
variability of returns of the entity.
The treatment of transactions with non-controlling interests depends on whether, as a result of the transaction, the Group loses control of the
subsidiary. Changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity
transactions; any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration
paid or received is recognised directly in equity and attributed to the owners of the parent entity. Where the Group loses control of the
subsidiary, at the date when control is lost the amount of any non-controlling interest in that former subsidiary is derecognised and any
investment retained in the former subsidiary is remeasured to its fair value; the gain or loss that is recognised in profit or loss on the partial
disposal of the subsidiary includes the gain or loss on the remeasurement of the retained interest.
Intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated.
The acquisition method of accounting is used to account for business combinations by the Group. The consideration for the acquisition of a
subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration
includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as
incurred except those relating to the issuance of debt instruments (see (E)(4) below) or share capital (see (O ) below). Identifiable assets
acquired and liabilities assumed in a business combination are measured initially at their fair value at the acquisition date.

27 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 2: Accounting policies continued
(B)Goodwill
Goodwill arises on business combinations and represents the excess of the cost of an acquisition over the fair value of the Group’s share of the
identifiable assets, liabilities and contingent liabilities acquired. Where the fair value of the Group’s share of the identifiable assets, liabilities
and contingent liabilities of the acquired entity is greater than the cost of acquisition, the excess is recognised immediately in the income
statement.
Goodwill is recognised as an asset at cost and is tested at least annually for impairment. For impairment testing, goodwill is allocated to the
cash-generating unit (CGU) or groups of CGUs that are expected to benefit from the business combination. An impairment loss is recognised if
the carrying amount of a CGU is determined to be greater than its recoverable amount. The recoverable amount of a CGU is the higher of its
fair value less costs to sell and its value in use. If an impairment loss is identified, the carrying value of the goodwill is written down immediately
through the income statement. This impairment loss cannot be reversed in a subsequent period. At the date of disposal of a subsidiary, the
carrying value of attributable goodwill is included in the calculation of the profit or loss on disposal.
(C)Other intangible assets
Intangible assets which have been determined to have a finite useful life are amortised on a straight-line basis over their estimated useful life as
follows: up to 7 years for capitalised software; 10 to 15 years for brands and other intangible assets.
Intangible assets with finite useful lives are reviewed at each reporting date to assess whether there is any indication that they are impaired. If
any such indication exists the recoverable amount of the asset is determined and in the event that the asset’s carrying amount is greater than
its recoverable amount, it is written down immediately.
(D)Revenue recognition
(1)Net interest income
Interest income and expense are recognised in the income statement using the effective interest method for all interest-bearing financial
instruments, except for those classified at fair value through profit or loss. The effective interest method is a method of calculating the
amortised cost of a financial asset or liability and of allocating the interest income or interest expense over the expected life of the financial
instrument. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts over the expected life
of the financial instrument to the gross carrying amount of the financial asset (before adjusting for expected credit losses) or to the amortised
cost of the financial liability, including early redemption fees, other fees, and premiums and discounts that are an integral part of the overall
return. In the case of financial assets that are purchased or originated credit-impaired, the effective interest rate is the rate that discounts the
estimated future cash flows to the amortised cost of the instrument. Direct incremental transaction costs related to the acquisition, issue or
disposal of a financial instrument are also taken into account. Interest income from non-credit-impaired financial assets is recognised by
applying the effective interest rate to the gross carrying amount of the asset; for credit-impaired financial assets, the effective interest rate is
applied to the net carrying amount after deducting the allowance for expected credit losses. Impairment policies are set out in (H) below.
(2)Fee and commission income and expense
Fees and commissions receivable which are not an integral part of the effective interest rate are recognised as income as the Group fulfils its
performance obligations. The Group’s principal performance obligations arising from contracts with customers are in respect of value added
current accounts, credit cards and debit cards. These fees are received, and the Group provides the service monthly; the fees are recognised in
income on this basis. The Group also receives certain fees in respect of its asset finance business where the performance obligations are
typically fulfilled towards the end of the customer contract; these fees are recognised in income on this basis. Where it is unlikely that the loan
commitments will be drawn, loan commitment fees are recognised in fee and commission income over the life of the facility, rather than as an
adjustment to the effective interest rate for the lending expected to be drawn. Incremental costs incurred to generate fee and commission
income are charged to fee and commission expense as they are incurred.
(3)Other
Dividend income is recognised when the right to receive payment is established.
Revenue recognition policies specific to trading income are set out in (E)(3) below and those relating to leases are set out in (J)(1) below.

28 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 2: Accounting policies continued
(E)Financial assets and liabilities
On initial recognition, financial assets are classified as measured at amortised cost, fair value through other comprehensive income or fair value
through profit or loss, depending on the Group’s business model for managing those financial assets and whether the resultant cash flows
represent solely payments of principal and interest on principal outstanding. The Group assesses its business models at a portfolio level based
on its objectives for the relevant portfolio, how the performance of the portfolio is managed and reported, and the frequency of asset sales.
Financial assets with embedded derivatives are considered in their entirety when considering their cash flow characteristics. The Group
reclassifies financial assets only when its business model for managing those assets changes. A reclassification will only take place when the
change is significant to the Group’s operations and will occur at a portfolio level and not for individual instruments; reclassifications are
expected to be rare.
The Group initially recognises loans and advances, deposits, debt securities in issue and subordinated liabilities when the Group becomes a
party to the contractual provisions of the instrument. Regular way purchases and sales of securities and other financial assets and trading
liabilities are recognised on trade date, being the date that the Group is committed to purchase or sell an asset.
Financial assets are derecognised when the contractual right to receive cash flows from those assets has expired or when the Group has
transferred its contractual right to receive the cash flows from the assets and either: substantially all of the risks and rewards of ownership
have been transferred; or the Group has neither retained nor transferred substantially all of the risks and rewards, but has transferred control.
Financial liabilities are derecognised when the obligation is discharged, cancelled or expires.
(1)Financial instruments measured at amortised cost
Financial assets that are held to collect contractual cash flows where those cash flows represent solely payments of principal and interest are
measured at amortised cost. A basic lending arrangement results in contractual cash flows that are solely payments of principal and interest on
the principal amount outstanding. Where the contractual cash flows introduce exposure to risks or volatility unrelated to a basic lending
arrangement such as changes in equity prices or commodity prices, the payments do not comprise solely principal and interest. Financial assets
measured at amortised cost are predominantly loans and advances to customers and banks, reverse repurchase agreements and certain debt
securities used by the Group to manage its liquidity. Loans and advances and reverse repurchase agreements are initially recognised when cash
is advanced to the borrower at fair value inclusive of transaction costs. Interest income is accounted for using the effective interest method
(see (D) above).
Financial liabilities are measured at amortised cost, except for trading liabilities and other financial liabilities designated at fair value through
profit or loss on initial recognition which are held at fair value.
(2)Financial assets measured at fair value through other comprehensive income
Financial assets that are held to collect contractual cash flows and for subsequent sale where those cash flows represent solely payments of
principal and interest are recognised in the balance sheet at their fair value, inclusive of transaction costs. Interest calculated using the
effective interest method and foreign exchange gains and losses on assets denominated in foreign currencies are recognised in the income
statement. All other gains and losses arising from changes in fair value are recognised directly in other comprehensive income, until the financial
asset is either sold or matures, at which time, other than in respect of equity shares, the cumulative gain or loss previously recognised in other
comprehensive income is recognised in the income statement. The cumulative revaluation amount in respect of equity shares is transferred
directly to retained profits. The Group recognises a charge for expected credit losses in the income statement (see (H) below). As the asset is
measured at fair value, the charge does not adjust the carrying value of the asset, and this is reflected in other comprehensive income.
(3)Financial instruments measured at fair value through profit or loss
Financial assets are classified at fair value through profit or loss where they do not meet the criteria to be measured at amortised cost or fair
value through other comprehensive income or where they are designated at fair value through profit or loss to reduce an accounting mismatch.
All derivatives are carried at fair value through profit or loss, other than those in effective cash flow hedging relationships. Derivatives are
carried on the balance sheet as assets when their fair value is positive and as liabilities when their fair value is negative. Refer to note 15 (Fair
values of financial assets and liabilities) for details of valuation techniques and significant inputs to valuation models.
Derivatives embedded in a financial asset are not considered separately; the financial asset is considered in its entirety when determining
whether its cash flows are solely payments of principal and interest. Derivatives embedded in financial liabilities are treated as separate
derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not
carried at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the
income statement.
Trading securities, which are debt securities and equity shares acquired principally for the purpose of selling in the short term or which are part
of a portfolio which is managed for short-term gains, do not meet these criteria and are also measured at fair value through profit or loss.
Financial assets measured at fair value through profit or loss are recognised in the balance sheet at their fair value. Fair value gains and losses
together with interest coupons and dividend income are recognised in the income statement within net trading income.
Financial liabilities are measured at fair value through profit or loss where they are trading liabilities or where they are designated at fair value
through profit or loss in order to reduce an accounting mismatch; where the liabilities are part of a group of liabilities (or assets and liabilities)
which is managed, and its performance evaluated, on a fair value basis; or where the liabilities contain one or more embedded derivatives that
significantly modify the cash flows arising under the contract and would otherwise need to be separately accounted for. Financial liabilities
measured at fair value through profit or loss are recognised in the balance sheet at their fair value. Fair value gains and losses are recognised in
the income statement within net trading income in the period in which they occur.
The fair values of assets and liabilities traded in active markets are based on current bid and offer prices, respectively, which include the
expected effects of potential changes to laws and regulations, risks associated with climate change and other factors. If the market is not
active the Group establishes a fair value by using valuation techniques. The fair values of derivative financial instruments are adjusted where
appropriate to reflect credit risk (via credit valuation adjustments (CVAs), debit valuation adjustments (DVAs) and funding valuation
adjustments (FVAs)), market liquidity and other risks.

29 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 2: Accounting policies continued
(4)Borrowings
Borrowings (which include deposits from banks, customer deposits, repurchase agreements, debt securities in issue and subordinated liabilities)
are recognised initially at fair value, being their issue proceeds net of transaction costs incurred. These instruments are subsequently stated at
amortised cost using the effective interest method.
Preference shares and other instruments which carry a mandatory coupon or are redeemable on a specific date are classified as financial
liabilities. The coupon on these instruments is recognised in the income statement as interest expense. Securities which carry a discretionary
coupon and have no fixed maturity or redemption date are classified as other equity instruments. Interest payments on these securities are
recognised as distributions from equity in the period in which they are paid.
An exchange of financial liabilities on substantially different terms is accounted for as an extinguishment of the original financial liability and
the recognition of a new financial liability. The difference between the carrying amount of a financial liability extinguished and the new
financial liability is recognised in profit or loss together with any related costs or fees incurred. When a financial liability is exchanged for an
equity instrument, the new equity instrument is recognised at fair value and any difference between the carrying value of the liability and the
fair value of the new equity instrument is recognised in profit or loss.
(5)Sale and repurchase agreements (including securities lending and borrowing)
Securities sold subject to repurchase agreements (repos) continue to be recognised on the balance sheet where substantially all of the risks and
rewards are retained. Funds received for repos carried at fair value are included within trading liabilities.
Securities purchased under agreements to resell (reverse repos), where the Group does not acquire substantially all of the risks and rewards of
ownership, are measured at amortised cost or at fair value. Those measured at fair value are recognised within trading securities. The difference
between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method.
Securities borrowing and lending transactions are typically secured; collateral takes the form of securities or cash advanced or received.
Securities lent to counterparties are retained on the balance sheet. Securities borrowed are not recognised on the balance sheet, unless these
are sold to third parties, in which case the obligation to return them is recorded at fair value as a trading liability. Cash collateral given or
received is treated as a loan and advance measured at amortised cost or customer deposit.
(F)Hedge accounting
As permitted by IFRS 9, the Group continues to apply the requirements of IAS 39 to its hedging relationships.
Changes in the fair value of all derivative instruments, other than those in effective cash flow and net investment hedging relationships, are
recognised immediately in the income statement. As noted in (2) below, the change in fair value of a derivative in an effective cash flow
hedging relationship is allocated between the income statement and other comprehensive income.
Hedge accounting allows one financial instrument, generally a derivative, to be designated as a hedge of another financial instrument such as a
loan or deposit or a portfolio of such instruments. At the inception of the hedge relationship, formal documentation is drawn up specifying the
hedging strategy, the hedged item, the hedging instrument and the methodology that will be used to measure the effectiveness of the hedge
relationship in offsetting changes in the fair value or cash flow of the hedged risk. The effectiveness of the hedging relationship is tested both at
inception and throughout its life and if at any point it is concluded that it is no longer highly effective in achieving its documented objective,
hedge accounting is discontinued. Note 16 provides details of the types of derivatives held by the Group and presents separately those
designated in hedge relationships.
(1)Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together
with the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk; this also applies if the hedged asset is
classified as a financial asset at fair value through other comprehensive income. If the hedge no longer meets the criteria for hedge accounting,
changes in the fair value of the hedged item attributable to the hedged risk are no longer recognised in the income statement. The cumulative
adjustment that has been made to the carrying amount of the hedged item is amortised to the income statement using the effective interest
method over the period to maturity.
(2)Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other
comprehensive income in the cash flow hedge reserve. The gain or loss relating to the ineffective portion is recognised immediately in the
income statement. Amounts accumulated in equity are reclassified to the income statement in the periods in which the hedged item affects
profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative
gain or loss existing in equity at that time remains in equity and is recognised in the income statement when the forecast transaction is
ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that
was reported in equity is immediately transferred to the income statement.

30 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 2: Accounting policies continued
(G)Offset
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right of offset
and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. Cash collateral on exchange traded
derivative transactions is presented gross unless the collateral cash flows are always settled net with the derivative cash flows. In certain
situations, even though master netting agreements exist, the lack of management intention to settle on a net basis results in the financial
assets and liabilities being reported gross on the balance sheet.
(H)Impairment of financial assets
The impairment charge in the income statement reflects the change in expected credit losses, including those arising from fraud. Expected
credit losses are recognised for loans and advances to customers and banks, other financial assets held at amortised cost, financial assets
(other than equity investments) measured at fair value through other comprehensive income, and certain loan commitments and financial
guarantee contracts. Expected credit losses are calculated as an unbiased and probability-weighted estimate using an appropriate probability
of default, adjusted to take into account a range of possible future economic scenarios, and applying this to the estimated exposure of the
Group at the point of default after taking into account the value of any collateral held, repayments, or other mitigants of loss and including the
impact of discounting using the effective interest rate.
At initial recognition, allowance (or provision in the case of some loan commitments and financial guarantees) is made for expected credit
losses resulting from default events that are possible within the next 12 months (12-month expected credit losses). In the event of a significant
increase in credit risk since origination, allowance (or provision) is made for expected credit losses resulting from all possible default events
over the expected life of the financial instrument (lifetime expected credit losses). Financial assets where 12-month expected credit losses are
recognised are considered to be Stage 1; financial assets which are considered to have experienced a significant increase in credit risk since
initial recognition are in Stage 2; and financial assets which have defaulted or are otherwise considered to be credit-impaired are allocated to
Stage 3. Some Stage 3 assets, are subject to individual rather than collective assessment. Such cases are subject to a risk-based impairment
sanctioning process, and these are reviewed and updated at least quarterly, or more frequently if there is a significant change in the credit
profile. The collective assessment of impairment aggregates financial instruments with similar risk characteristics, such as whether the facility is
revolving in nature or secured and the type of security held against financial assets.
An assessment of whether credit risk has increased significantly since initial recognition considers the change in the risk of default occurring
over the remaining expected life of the financial instrument. In determining whether there has been a significant increase in credit risk, the
Group uses quantitative tests based on relative and absolute probability of default (PD) movements linked to internal credit ratings together
with qualitative indicators such as watchlists and other indicators of historical delinquency, credit weakness or financial difficulty. The use of
internal credit ratings and qualitative indicators ensures alignment between the assessment of staging and the Group’s management of credit
risk which utilises these internal metrics within distinct retail and commercial portfolio risk management practices. However, unless identified
at an earlier stage, the credit risk of financial assets is deemed to have increased significantly when more than 30 days past due. The use of a
payment holiday in and of itself has not been judged to indicate a significant increase in credit risk, with the underlying long-term credit risk
deemed to be driven by economic conditions and captured through the use of forward-looking models. These portfolio-level models are
capturing the anticipated volume of increased defaults and therefore an appropriate assessment of staging and expected credit loss. Where
the credit risk subsequently improves such that it no longer represents a significant increase in credit risk since initial recognition, the asset is
transferred back to Stage 1.
Assets are transferred to Stage 3 when they have defaulted or are otherwise considered to be credit-impaired. Default is considered to have
occurred when there is evidence that the customer is experiencing financial difficulty which is likely to affect significantly the ability to repay
the amount due. IFRS 9 contains a rebuttable presumption that default occurs no later than when a payment is 90 days past due which the
Group uses for all its products. In addition, other indicators of mortgage default are added including end-of-term payments on past due
interest-only accounts and loans considered non-performing due to recent arrears or forbearance. The use of payment holidays is not
considered to be an automatic trigger of regulatory default and therefore does not automatically trigger Stage 3. Days past due will also not
accumulate on any accounts that have taken a payment holiday including those already past due.
In certain circumstances, the Group will renegotiate the original terms of a customer’s loan, either as part of an ongoing customer relationship
or in response to adverse changes in the circumstances of the borrower. In the latter circumstances, the loan will remain classified as either
Stage 2 or Stage 3 until the credit risk has improved such that it no longer represents a significant increase since origination (for a return to
Stage 1), or the loan is no longer credit-impaired (for a return to Stage 2). On renegotiation the gross carrying amount of the loan is recalculated
as the present value of the renegotiated or modified contractual cash flows, which are discounted at the original effective interest rate.
Renegotiation may also lead to the loan and associated allowance being derecognised and a new loan being recognised initially at fair value.
A loan or advance is normally written off, either partially or in full, against the related allowance when the proceeds from realising any available
security have been received or there is no realistic prospect of recovery and the amount of the loss has been determined. Subsequent
recoveries of amounts previously written off decrease the amount of impairment losses recorded in the income statement. For both secured
and unsecured retail balances, the write-off takes place only once an extensive set of collections processes has been completed, or the status
of the account reaches a point where policy dictates that continuing attempts to recover are no longer appropriate. For commercial lending, a
write-off occurs if the loan facility with the customer is restructured, the asset is under administration and the only monies that can be
received are the amounts estimated by the administrator, the underlying assets are disposed and a decision is made that no further settlement
monies will be received, or external evidence (for example, third party valuations) is available that there has been an irreversible decline in
expected cash flows.

31 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 2: Accounting policies continued
(I)Property, plant and equipment
Property, plant and equipment is included at cost less accumulated depreciation. The value of land (included in premises) is not depreciated.
Depreciation on other assets is calculated using the straight-line method to allocate the difference between the cost and the residual value
over their estimated useful lives, as follows: the shorter of 50 years and the remaining period of the lease for freehold/long and short leasehold
premises; the shorter of 10 years and, if lease renewal is not likely, the remaining period of the lease for leasehold improvements; 10 to 20 years
for fixtures and furnishings; and 2 to 8 years for other equipment and motor vehicles.
The assets’ residual values and useful lives are reviewed and, if appropriate, revised at each balance sheet date.
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In
assessing the recoverable amount of assets the Group considers the effects of potential or actual changes in legislation, customer behaviour,
climate-related risks and other factors on the asset’s cash-generating unit (CGU). In the event that an asset’s CGU carrying amount is
determined to be greater than its recoverable amount the asset is written down immediately.
(J)Leases
Under IFRS 16, a lessor is required to determine if a lease is a finance or operating lease. A lessee is not required to make this determination.
(1)As lessor
Assets leased to customers are classified as finance leases if the lease agreements transfer substantially all of the risks and rewards of
ownership to the lessee but not necessarily legal title. All other leases are classified as operating leases. When assets are subject to finance
leases, the present value of the lease payments, together with any unguaranteed residual value, is recognised as a receivable, net of allowances
for expected credit losses and residual value impairment, within loans and advances to banks and customers. The difference between the gross
receivable and the present value of the receivable is recognised as unearned finance lease income. Finance lease income is recognised in
interest income over the term of the lease using the net investment method (before tax) so as to give a constant rate of return on the net
investment in the lease. Unguaranteed residual values are reviewed regularly to identify any impairment.
Operating lease assets are included within other assets at cost and depreciated over their estimated useful lives. The depreciation charge is
based on the asset’s residual value and the life of the lease. Operating lease rental income is recognised on a straight-line basis over the life of
the lease.
The Group evaluates non-lease arrangements such as outsourcing and similar contracts to determine if they contain a lease which is then
accounted for separately.
(2)As lessee
Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the
Group. Assets and liabilities arising from a lease are initially measured on a present value basis. The lease payments are discounted using the
interest rate implicit in the lease, if that rate can be determined, or the Group’s incremental borrowing rate appropriate for the right-of-use
asset arising from the lease, and the liability recognised within other liabilities.
Lease payments are allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to
produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over
the shorter of the asset’s useful life and the lease term on a straight-line basis.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss.
Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.
(K)Employee benefits
Short-term employee benefits, such as salaries, paid absences, performance-based cash awards and social security costs, are recognised over
the period in which the employees provide the related services.
(1)Pension schemes
The Group operates a number of post-retirement benefit schemes for its employees including both defined benefit and defined contribution
pension plans. A defined benefit scheme is a pension plan that defines an amount of pension benefit that an employee will receive on
retirement, dependent on one or more factors such as age, years of pensionable service and pensionable salary. A defined contribution plan is a
pension plan into which the Group pays fixed contributions; there is no legal or constructive obligation to pay further contributions.
(i)Defined benefit schemes
Scheme assets are included at their fair value and scheme liabilities are measured on an actuarial basis using the projected unit credit method.
The defined benefit scheme liabilities are discounted using rates equivalent to the market yields at the balance sheet date on high quality
corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to
the terms of the related pension liability. The Group’s income statement charge includes the current service cost of providing pension benefits,
past service costs, net interest expense (income), and plan administration costs that are not deducted from the return on plan assets. Past
service costs, which represents the change in the present value of the defined benefit obligation resulting from a plan amendment or
curtailment, are recognised when the plan amendment or curtailment occurs. Net interest expense (income) is calculated by applying the
discount rate at the beginning of the period to the net defined benefit liability or asset.

32 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 2: Accounting policies continued
Remeasurements, comprising actuarial gains and losses, the return on plan assets (excluding amounts included in net interest expense (income)
and net of the cost of managing the plan assets), and the effect of changes to the asset ceiling (if applicable) are reflected immediately in the
balance sheet with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurements recognised
in other comprehensive income are reflected immediately in retained profits and will not subsequently be reclassified to profit or loss.
The Group’s balance sheet includes the net surplus or deficit, being the difference between the fair value of scheme assets and the discounted
value of scheme liabilities at the balance sheet date. Surpluses are only recognised to the extent that they are recoverable through reduced
contributions in the future or through refunds from the schemes. In assessing whether a surplus is recoverable, the Group considers (i) its
current right to obtain a refund or a reduction in future contributions and (ii) the rights of other parties existing at the balance sheet date. In
determining the rights of third parties existing at the balance sheet date, the Group does not anticipate any future acts by other parties.
(ii)Defined contribution schemes
The costs of the Group’s defined contribution plans are charged to the income statement in the period in which they fall due.
(2)Share-based compensation
Lloyds Banking Group operates a number of equity-settled, share-based compensation plans in respect of services received from certain of its
employees. The value of the employee services received in exchange for equity instruments granted under these plans is recognised as an
expense over the vesting period of the instruments, with a corresponding increase in equity. This expense is determined by reference to the fair
value of the number of equity instruments that are expected to vest. The fair value of equity instruments granted is based on market prices, if
available, at the date of grant. In the absence of market prices, the fair value of the instruments at the date of grant is estimated using an
appropriate valuation technique, such as a Black-Scholes option pricing model or a Monte Carlo simulation. The determination of fair values
excludes the impact of any non-market vesting conditions, which are included in the assumptions used to estimate the number of options that
are expected to vest. At each balance sheet date, this estimate is reassessed and if necessary revised. Any revision of the original estimate is
recognised in the income statement, together with a corresponding adjustment to equity. Cancellations by employees of contributions to the
Group’s Save As You Earn plans are treated as non-vesting conditions and the Group recognises, in the year of cancellation, the amount of the
expense that would have otherwise been recognised over the remainder of the vesting period. Modifications are assessed at the date of
modification and any incremental charges are charged to the income statement.
(L)Taxation
Tax expense comprises current and deferred tax. Current and deferred tax are charged or credited in the income statement except to the
extent that the tax arises from a transaction or event which is recognised, in the same or a different period, outside the income statement
(either in other comprehensive income, directly in equity, or through a business combination), in which case the tax appears in the same
statement as the transaction that gave rise to it. The tax consequences of the Group’s dividend payments (including distributions on other
equity instruments), if any, are charged or credited to the statement in which the profit distributed originally arose.
Current tax is the amount of corporate income taxes expected to be payable or recoverable based on the profit for the period as adjusted for
items that are not taxable or not deductible, and is calculated using tax rates and laws that were enacted or substantively enacted at the
balance sheet date.
Current tax includes amounts provided in respect of uncertain tax positions when management expects that, upon examination of the
uncertainty by His Majesty’s Revenue and Customs (HMRC) or other relevant tax authority, it is more likely than not that an economic outflow
will occur. Provisions reflect management’s best estimate of the ultimate liability based on their interpretation of tax law, precedent and
guidance, informed by external tax advice as necessary. Changes in facts and circumstances underlying these provisions are reassessed at each
balance sheet date, and the provisions are remeasured as required to reflect current information.
Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the
balance sheet. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the balance sheet date,
and which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax liabilities are generally recognised for all taxable temporary differences but not recognised for taxable temporary differences
arising on investments in subsidiaries where the reversal of the temporary difference can be controlled and it is probable that the difference
will not reverse in the foreseeable future. Deferred tax liabilities are not recognised on temporary differences that arise from goodwill which is
not deductible for tax purposes.
Deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which the deductible temporary
differences can be utilised, and are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are not recognised in respect of temporary differences that arise on initial recognition of assets and liabilities
acquired other than in a business combination, or where at the time of the transaction they give rise to equal taxable and deductible
temporary differences. Deferred tax is not discounted.
The Group has applied the exception to recognising and disclosing information about deferred tax assets and liabilities related to Pillar 2
income taxes currently required by IAS 12 Income Taxes.

33 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 2: Accounting policies continued
(M)Foreign currency translation
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). Foreign currency transactions are translated into the appropriate
functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement, except when recognised in other comprehensive income as qualifying cash flow hedges.
Non-monetary assets that are measured at fair value are translated using the exchange rate at the date that the fair value was determined.
Translation differences on equities and similar non-monetary items held at fair value through profit and loss are recognised in profit or loss as
part of the fair value gain or loss. Translation differences on non-monetary financial assets measured at fair value through other comprehensive
income, such as equity shares, are included in the fair value reserve in equity unless the asset is a hedged item in a fair value hedge.
The results and financial position of all Group entities that have a functional currency different from the presentation currency are translated
into the presentation currency as follows: the assets and liabilities of foreign operations, including goodwill and fair value adjustments arising
on the acquisition of a foreign entity, are translated into sterling at foreign exchange rates ruling at the balance sheet date; and the income and
expenses of foreign operations are translated into sterling at average exchange rates unless these do not approximate to the foreign exchange
rates ruling at the dates of the transactions, in which case income and expenses are translated at the dates of the transactions.
Foreign exchange differences arising on the translation of a foreign operation are recognised in other comprehensive income and accumulated
in a separate component of equity. On disposal or liquidation of a foreign operation, the cumulative amount of exchange differences relating
to that foreign operation is reclassified from equity and included in determining the profit or loss arising on disposal or liquidation.
(N)Provisions and contingent liabilities
Provisions are recognised in respect of present obligations arising from past events where it is probable that outflows of resources will be
required to settle the obligations and they can be reliably estimated.
Contingent liabilities are possible obligations whose existence depends on the outcome of uncertain future events or those present obligations
where the outflows of resources are uncertain or cannot be measured reliably. Contingent liabilities are not recognised in the financial
statements but are disclosed unless they are remote.
Provision is made for expected credit losses in respect of irrevocable undrawn loan commitments and financial guarantee contracts
(see (H) above).
(O)Share capital
Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a
deduction, net of tax, from the proceeds. Dividends paid on the Group’s ordinary shares are recognised as a reduction in equity in the period in
which they are paid.
(P)Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise cash and non-mandatory deposits held with central banks,
mandatory deposits held with central banks in demand accounts and amounts due from banks with an original maturity of less than three
months that are available to finance the Group’s day-to-day operations.
(Q)Investment in subsidiaries
Investments in subsidiaries are carried at historical cost, less any provisions for impairment.
Note 3: Critical accounting judgements and key sources of estimation uncertainty
The preparation of the Group’s financial statements in accordance with IFRS Accounting Standards requires management to make judgements,
estimates and assumptions in applying the accounting policies that affect the reported amounts of assets, liabilities, income and expenses. Due
to the inherent uncertainty in making estimates, actual results reported in future periods may be based upon amounts which differ from those
estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances. In preparing the financial statements, the
Group has considered the impact of climate-related risks on its financial position and performance. While the effects of climate change
represent a source of uncertainty, the Group does not consider there to be a material impact on its judgements and estimates from the
physical, transition and other climate-related risks in the short term.
The significant judgements, apart from those involving estimation, made by management in applying the Group’s accounting policies in these
financial statements (critical judgements) and the key sources of estimation uncertainty that may have a significant risk of causing a material
adjustment to the carrying amount of assets and liabilities within the next financial year (key sources of estimation uncertainty), which
together are considered critical to the Group’s results and financial position, are disclosed within the following notes:
• Retirement benefit obligations (note 10)
• Tax (note 13)
• Fair value of financial assets and liabilities (note 15)
• Allowance for expected credit losses (note 18)
• Provisions (note 26 )

34 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 4: Net interest income

| 2025 £m | 2024 £m
Interest income: |  |
Loans and advances to banks and customers | 14,788 | 14,153
Debt securities | 71 | 101
Financial assets held at amortised cost | 14,859 | 14,254
Financial assets at fair value through other comprehensive income | 6 | 4
Total interest income 1 | 14,865 | 14,258
Interest expense: |  |
Deposits from banks and customer deposits | (8,312) | (8,273)
Repurchase agreements at amortised cost | (861) | (1,521)
Debt securities in issue at amortised cost 2 | (666) | (262)
Lease liabilities | (11) | (11)
Subordinated liabilities | (114) | (141)
Total interest expense | (9,964) | (10,208)
Net interest income | 4,901 | 4,050

1 Includes £47 million (2024: £41 million) in respect of interest income on finance lease receivables.
2 The impact of the Group’s hedging arrangements is included on this line.
Net interest income also includes a credit of £7 million (2024: credit of £6 million) transferred from the cash flow hedging reserve (see
statement of comprehensive income).
Note 5: Net fee and commission income

| 2025 £m | 2024 £m
Fee and commission income: |  |
Current accounts | 192 | 202
Credit and debit card fees | 433 | 428
Other | 62 | 60
Total fee and commission income | 687 | 690
Fee and commission expense | (330) | (405)
Net fee and commission income | 357 | 285

Fees and commissions which are an integral part of the effective interest rate form part of net interest income shown in note 4. Fees and
commissions relating to instruments that are held at fair value through profit or loss are included within net trading income shown in note 6 .
In determining the disaggregation of fees and commissions the Group has considered how the nature, amount, timing and uncertainty of
revenue and cash flows are affected by economic factors. It has determined that the above disaggregation by product type provides useful
information that does not aggregate items that have substantially different characteristics.
At 31 December 2025, the Group held on its balance sheet £41 million (31 December 2024: £42 million ) in respect of services provided to
customers. There were no unsatisfied performance obligations at 31 December 2024 or 31 December 2025.
The most significant performance obligations undertaken by the Group are in respect of current accounts, the provision of other banking
services for commercial customers and credit and debit card services.
In respect of current accounts, the Group receives fees for the provision of bank account and transaction services such as ATM services, fund
transfers, overdraft facilities and other value-added offerings.
For commercial customers, alongside its provision of current accounts, the Group provides other corporate banking services including factoring
and commitments to provide loan financing. Loan commitment fees are included in fees and commissions where the loan is not expected to be
drawn down by the customer.
The Group receives interchange and merchant fees, together with fees for overseas use and cash advances, for provision of card services to
cardholders and merchants.
Note 6: Net trading income

| 2025 £m |  | 2024 £m
Net gains on financial assets and liabilities at fair value through profit or loss: |  |  |
Net gains on financial instruments held for trading | 124 |  | 54
Net (losses) gains on other financial instruments mandatorily held at fair value through profit or loss | (1) |  | 14
| 123 |  | 68
Foreign exchange and other | 64 |  | 15
Net trading income | 187 |  | 83

35 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 7: Other operating income
Other operating income primarily reflects amounts receivable from fellow Lloyds Banking Group undertakings.
Note 8: Operating expenses

| 2025 £m |  | 2024 £m
Staff costs: |  |  |
Salaries and social security costs 1 | 770 |  | 886
Pensions and other retirement benefit schemes (note 10) | 111 |  | 121
| 881 |  | 1,007
Premises and equipment costs | 161 |  | 189
Depreciation and amortisation 2 | 282 |  | 269
Regulatory and legal provisions (note 26) | 46 |  | 116
Amounts payable to fellow Lloyds Banking Group undertakings and other | 2,102 |  | 1,745
Total operating expenses | 3,472 |  | 3,326

1 Including social security costs of £85 million (2024: £90 million). Also includes amounts related to the Group’s share-based payment schemes (see note 9).
2 Including depreciation in respect of premises £50 million (2024: £37 million ), equipment £26 million (2024: £26 million) and right-of-use assets £62 million (2024: £64 million).
Average headcount
The average number of persons on a headcount basis employed by the Group during the year was as follows:

| 2025 |  | 2024
UK | 16,661 |  | 20,293
Overseas | 21 |  | 380
Total | 16,682 |  | 20,673

Note 9: Share-based payments
During the year ended 31 December 2025 Lloyds Banking Group plc operated a number of share-based payment schemes for which employees
of the HBOS Group were eligible and all of which are mainly equity settled. Details of all schemes operated by Lloyds Banking Group are set out
below; these are managed and operated on a Lloyds Banking Group-wide basis. The amount charged to the Group’s income statement in
respect of Lloyds Banking Group share-based payment schemes, and which is included within staff costs (note 8), was £35 million (2024:
£40 million).
During the year ended 31 December 2025 the Lloyds Banking Group operated the following share-based payment schemes, which are mainly
equity settled.
Lloyds Banking Group Performance Share plan
The Lloyds Banking Group operates a Group Performance Share plan that is part equity settled. Bonuses in respect of employee service in 2025
have been recognised in the charge in line with the proportion of the deferral period completed.
Save-As-You-Earn schemes
Eligible employees may enter into contracts through the Save-As-You-Earn (SAYE) schemes to save up to £500 per month and, at the expiry of
a fixed term of three years, have the option to use these savings within six months of the expiry of the fixed term to acquire shares in the
Group at a discounted price of no less than 90% of the market price at the start of the invitation period.
Movements in the number of share options outstanding under the SAYE schemes are set out below:

| 2025 |  | 2024
| Number of options | Weighted average exercise price (pence) |  | Number of options | Weighted average exercise price (pence)
Outstanding at 1 January | 797,624,786 | 42.30 |  | 1,311,205,148 | 31.70
Granted | 119,602,764 | 74.35 |  | 200,820,157 | 52.35
Exercised | (189,981,525) | 39.40 |  | (663,187,372) | 24.60
Forfeited | (24,349,649) | 43.66 |  | (17,375,716) | 39.01
Cancelled | (15,760,828) | 47.99 |  | (27,852,684) | 40.70
Expired | (1,816,675) | 39.45 |  | (5,984,747) | 35.40
Outstanding at 31 December | 685,318,873 | 48.52 |  | 797,624,786 | 42.30
Exercisable at 31 December | 178,806 | 39.40 |  | 955,281 | 24.25

The weighted average share price at the time that the options were exercised during 2025 was £0.61 (2024: £0.47). The weighted average
remaining contractual life of options outstanding at the end of the year was 1.88 years (2024: 1.85 years).
The weighted average fair value of SAYE options granted during 2025 was £0.15 (2024: £0.09). The fair values of the SAYE options have been
determined using a standard Black-Scholes model.
Other share option plans
Executive Share Plans – buyout and retention awards
Share options may be granted to senior employees under the Lloyds Banking Group Executive Share Plan 2003, Lloyds Banking Group
Executive Group Ownership Share Plan and Deferred Bonus Scheme 2021 specifically to facilitate recruitment (to compensate new recruits for
any lost share awards), and also to make grants to key individuals for retention purposes. In some instances, grants may be made subject to
individual performance conditions.

36 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 9: Share-based payments continued
Participants are not entitled to any dividends paid during the vesting period.

| 2025 |  | 2024
| Number of options | Weighted average exercise price (pence) |  | Number of options | Weighted average exercise price (pence)
Outstanding at 1 January | 15,578,997 | nil |  | 26,131,255 | nil
Granted | – | nil |  | 768,170 | nil
Exercised | (6,945,829) | nil |  | (10,815,436) | nil
Forfeited | (253,070) | nil |  | (488,091) | nil
Lapsed | – | nil |  | (16,901) | nil
Outstanding at 31 December | 8,380,098 | nil |  | 15,578,997 | nil
Exercisable at 31 December | 200,359 | nil |  | 988,243 | nil

The weighted average fair value of options granted in the year was £nil (2024: £0.46). The fair values of options granted have been determined
using a standard Black-Scholes model. The weighted average share price at the time that the options were exercised during 2025 was £0.75
( 2024: £0.53). The weighted average remaining contractual life of options outstanding at the end of the year was 5.9 years (2024: 6.2 years ).
Included in the above are awards to the Group Chief Executive.
Charlie Nunn joined the Group on 16 August 2021 as Group Chief Executive. He was granted deferred share awards over 8,301,708 shares to
replace unvested awards from his former employer, HSBC, that were forfeited as a result of him joining the Lloyds Banking Group.

| 2025 Number of options | 2024 Number of options
Outstanding at 1 January | 3,968,909 | 5,337,899
Exercised | (1,368,990) | (1,368,990)
Outstanding at 31 December | 2,599,919 | 3,968,909

Other share plans
Lloyds Banking Group Executive Group Ownership Share Plan
The plan, introduced in 2006, is aimed at delivering shareholder value by linking the receipt of shares to an improvement in the performance of
the Lloyds Banking Group over a three-year period. Awards are made within limits set by the rules of the plan, with the limits determining the
maximum number of shares that can be awarded equating to three times annual salary. In exceptional circumstances this may increase to four
times annual salary.
The Executive Group Ownership awards were replaced by Long Term Share Plan awards in 2021.

| 2025 Number of shares | 2024 Number of shares
Outstanding at 1 January | 22,123,194 | 39,804,293
Vested | (10,254,907) | (18,490,246)
Forfeited | – | (33,055)
Dividend award | – | 842,202
Outstanding at 31 December | 11,868,287 | 22,123,194

Lloyds Banking Group Long Term Share Plan
The plan, approved at the 2020 AGM and introduced in 2021, replaced the Lloyds Banking Group Executive Group Ownership Share Plan and is
intended to provide alignment to the Group’s aim of delivering sustainable returns to shareholders, supported by its values and behaviours.
The awards in respect of the 2023 grant are due to vest in 2026 at a rate of 100%.

| 2025 Number of shares | 2024 Number of shares
Outstanding at 1 January | 195,879,295 | 262,409,389
Vested | (62,272,967) | (53,608,504)
Forfeited | (4,809,902) | (12,921,590)
Outstanding at 31 December | 128,796,426 | 195,879,295

Lloyds Banking Group Long Term Incentive Plan
The plan, approved at the 2023 AGM and introduced in 2024, replaced the Long Term Share Plan and is intended to deliver stronger alignment
between variable reward outcomes and the creation of shareholder value through the delivery of our strategy and the deepening of our
relationships with our customers.

37 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 9: Share-based payments continued
The awards in respect of the 2024 grant are due to vest in 2027.

| 2025 Number of shares | 2024 Number of shares
Outstanding at 1 January | 75,063,395 | –
Granted | 46,999,778 | 75,063,395
Outstanding at 31 December | 122,063,173 | 75,063,395

The weighted average fair value of awards granted in the year was £0.48 (2024: £0.30).
Executive Share Plans – buyout and retention awards
Share awards in the form of conditional shares may be granted to senior employees under the Lloyds Banking Group Executive Group
Ownership Share Plan and Deferred Bonus Scheme 2021 specifically to facilitate recruitment (to compensate new recruits for any lost share
awards), and also to make grants to key individuals for retention purposes. In some instances, grants may be made subject to individual
performance conditions.
Participants are not entitled to any dividends paid during the vesting period.

| 2025 |  | 2024
| Number of shares |  | Number of shares
Outstanding at 1 January | 2,865,027 |  | –
Granted | 3,679,148 |  | 3,593,397
Vested | (1,747,624) |  | (728,370)
Outstanding at 31 December | 4,796,551 |  | 2,865,027

The weighted average fair value of awards granted in the year was £0.73 (2024: £0.51).
Assumptions at 31 December 2025
The fair value calculations at 31 December 2025 for grants made in the year, using Black-Scholes models and Monte Carlo simulation, are based
on the following assumptions:

| SAYE | Executive Share Plans | Long Term Share Plan
Weighted average risk-free interest rate | 3.87% | 3.81% | 4.13%
Weighted average expected life | 3.3 years | 1.5 years | 4.4 years
Weighted average expected volatility | 25% | 25% | 27%
Weighted average expected dividend yield | 5.0% | 6.0% | 6.0%
Weighted average share price | £0.84 | £0.80 | £0.71
Weighted average exercise price | £0.74 | nil | nil

Expected volatility is a measure of the amount by which the Lloyds Banking Group’s shares are expected to fluctuate during the life of an
option. The expected volatility is estimated based on the historical volatility of the closing daily share price over the most recent period that is
commensurate with the expected life of the option. The historical volatility is compared to the implied volatility generated from market traded
options in the Lloyds Banking Group’s shares to assess the reasonableness of the historical volatility and adjustments made where appropriate.
Share Incentive Plans
Matching shares
The Lloyds Banking Group undertakes to match shares purchased by employees up to the value of £45 per month; these matching shares are
held in trust for a mandatory period of three years on the employee’s behalf, during which period the employee is entitled to any dividends
paid on such shares. The award is subject to a non-market based condition: if an employee leaves within this three-year period for other than a
‘good’ reason, all of the matching shares are forfeited. Similarly, if the employees sell their purchased shares within three years, their matching
shares are forfeited.
The number of shares awarded relating to matching shares in 2025 was 26,409,397 (2024: 38,464,042), with an average fair value of £0.74
(2024: £0.53), based on market prices at the date of award.
Fixed share awards
Fixed share awards were introduced in 2014 in order to ensure that total fixed remuneration is commensurate with role and to provide a
competitive reward package for certain Lloyds Banking Group employees, with an appropriate balance of fixed and variable remuneration, in
line with regulatory requirements. The fixed share awards are delivered in Lloyds Banking Group plc shares, and are released over three years
with one third being released each year following the year of award. The number of shares purchased in relation to fixed share awards in 2025
was 1,470,573 (2024: 1,541,751) with an average fair value of £0.81 (2024: £0.55) based on market prices at the date of the award.
The fixed share award is not subject to any performance conditions, performance adjustment or clawback. On an employee leaving the Lloyds
Banking Group, there is no change to the timeline for which shares will become unrestricted.
Since the beginning of 2023 the number of recipients of these awards has been reduced to the executive directors only.
Free shares
An award of shares may be made annually to employees up to a maximum of £3,600. The shares awarded are held in trust for a mandatory
period of three years on the employee’s behalf, during which period the employee is entitled to any dividends paid on such shares. The award is
subject to a non-market based condition. If an employee leaves the Group within this three-year period for other than a ‘good’ reason, all of
the shares awarded will be forfeited.
There have not been any awards made since 2021.

38 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 10: Retirement benefit obligations
Critical accounting judgements and key sources of estimation uncertainty

Key sources of estimation uncertainty: | Discount rate applied to future cash flows
| Expected lifetime of the schemes’ members
| Expected rate of future inflationary increases

The net asset recognised in the balance sheet at 31 December 2025 in respect of the Group’s defined benefit pension scheme obligations was
£709 million, comprising an asset of £764 million and a liability of £55 million (2024: a net asset of £961 million comprising an asset of
£1,018 million and a liability of £57 million). The Group’s accounting policy for its defined benefit pension scheme obligations is set out in note
2(K).
Income statement and balance sheet sensitivities to changes in the key sources of estimation uncertainty and other actuarial assumptions are
provided in part (v).

| The Group
| 2025 £m | 2024 £m
Charge to the income statement |  |
Defined benefit pension schemes | 5 | 11
Other retirement benefit schemes | 1 | 1
Total defined benefit schemes | 6 | 12
Defined contribution pension schemes | 105 | 109
Total charge to the income statement (note 8) | 111 | 121

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Amounts recognised in the balance sheet |  |  |  |  |
Retirement benefit assets | 764 | 1,018 |  | 725 | 966
Retirement benefit obligations | (72) | (74) |  | (72) | (74)
Total amounts recognised in the balance sheet | 692 | 944 |  | 653 | 892

The total amounts recognised in the balance sheet relate to:

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Defined benefit pension schemes | 709 | 961 |  | 670 | 909
Other retirement benefit schemes | (17) | (17) |  | (17) | (17)
Total amounts recognised in the balance sheet | 692 | 944 |  | 653 | 892

The Group holds on its balance sheet the net surplus or deficit, being the difference between the fair value of plan assets and the present value
of scheme liabilities, at the balance sheet date for each plan. Surpluses are only recognised to the extent that they are recoverable through
reduced contributions in the future or through potential future refunds from the schemes. In assessing whether a surplus is recoverable, the
Group considers its current right to obtain a refund or a reduction in future contributions together with the rights of third parties, such as
trustees, at the balance sheet date.
Pension schemes
Defined benefit schemes
(i)Characteristics of and risks associated with the Group’s schemes
The Group has established a number of defined benefit pension schemes in the UK and overseas, both funded and unfunded. All significant
schemes are funded and based in the UK, with the most significant one being the HBOS Final Salary Pension Scheme. At 31 December 2025,
this scheme represented 95% of the Group’s total gross defined benefit pension assets (2024 : 95%). These schemes provide retirement benefits
calculated as a proportion of final pensionable salary depending upon the length of pensionable service.
All of the UK funded schemes are operated as separate legal entities under trust law, are in compliance with the Pensions Act 2004 and are
managed by a Trustee Board (the Trustee) whose role is to ensure that their scheme is administered in accordance with the scheme rules and
relevant legislation, and to safeguard the assets in the best interests of all members and beneficiaries.
A valuation to determine the funding status of each scheme is carried out at least every three years, whereby scheme assets are measured at
market value and liabilities (technical provisions) are measured using prudent assumptions. If a funding deficit is identified, a recovery plan is
agreed between the employer and the scheme Trustee and sent to the Pensions Regulator for review. The Group does not provide for
these deficit contributions as the future economic benefits arising from these contributions are expected to be available to the Group.
The Group’s overseas defined benefit pension schemes are subject to local regulatory arrangements.
The 31 December 2022 triennial valuation for the main defined benefit schemes was completed in 2023, and following the contributions paid in
2023, no further deficit contributions were paid for this triennial period (to 31 December 2025).
The Group pays regular contributions to meet benefits accruing over the year, and to cover the expenses of running the schemes. The Group
expects to pay contributions of at least £3 0 million to its defined benefit schemes in 2026.

39 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 10: Retirement benefit obligations continued
The Group provides additional security arrangements to the HBOS Final Salary Pension Scheme. The arrangements provide security for the
Group’s obligations to the scheme. At 31 December 2025, the security arrangement held assets of £1.3 billion. The security arrangement is fully
consolidated in the Group’s balance sheet.
The last funding valuations of other Group schemes were carried out on a number of different dates. In order to report the position under
IAS 19 as at 31 December 2025, the most recent valuation results for all schemes have been updated by qualified independent actuaries. The
funding valuations use a more prudent approach to setting the discount rate and more conservative longevity and inflation assumptions than
the IAS 19 valuations.
In July 2024, the Court of Appeal handed down a judgment (Virgin Media Limited v NTL Pension Trustees Limited) which potentially has
implications for the validity of amendments made by pension schemes that were contracted out on a salary-related basis between 6 April 1997
and the abolition of contracting-out in 2016. The Government in September 2025, recognising that schemes and sponsoring employers need
clarity around scheme liabilities, proposed legislation to give affected pension schemes the ability to retrospectively obtain written actuarial
confirmation that historic benefit changes met the necessary standards. The Group has not made any allowance for the possible impact of the
ruling as it is currently unclear whether any additional liabilities might arise, and if they were to arise, how they would be reliably measured. The
Group is continuing to review scheme amendments to decide whether any subsequent actions are required and will continue to monitor
developments.
(ii)Amounts in the financial statements

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Amount included in the balance sheet |  |  |  |  |
Present value of funded obligations | (9,257) | (9,305) |  | (9,078) | (9,119)
Fair value of scheme assets | 9,966 | 10,266 |  | 9,748 | 10,028
Net amount recognised in the balance sheet | 709 | 961 |  | 670 | 909

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Net amount recognised in the balance sheet |  |  |  |  |
At 1 January | 961 | 1,233 |  | 909 | 1,184
Net defined benefit pension charge | (5) | (11) |  | (6) | (12)
Actuarial gains on defined benefit obligation | 94 | 1,071 |  | 78 | 1,066
Return on plan assets | (408) | (1,410) |  | (377) | (1,406)
Employer contributions | 67 | 77 |  | 67 | 77
Exchange and other adjustments | – | 1 |  | (1) | –
At 31 December | 709 | 961 |  | 670 | 909

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Movements in the defined benefit obligation |  |  |  |  |
At 1 January | (9,305) | (10,342) |  | (9,119) | (10,137)
Current service cost | (33) | (40) |  | (33) | (40)
Interest expense | (500) | (475) |  | (494) | (469)
Remeasurements: |  |  |  |  |
Actuarial gains – demographic assumptions | 41 | 31 |  | 44 | 31
Actuarial (losses) gains – experience | (177) | 1 |  | (181) | 8
Actuarial gains – financial assumptions | 230 | 1,039 |  | 215 | 1,027
Benefits paid | 514 | 488 |  | 504 | 479
Past service cost | (17) | (19) |  | (17) | (19)
Settlements | 2 | 1 |  | 2 | 1
Exchange and other adjustments | (12) | 11 |  | 1 | –
At 31 December | (9,257) | (9,305) |  | (9,078) | (9,119)

40 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 10: Retirement benefit obligations continued

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Analysis of the defined benefit obligation |  |  |  |  |
Active members | (878) | (1,070) |  | (878) | (1,070)
Deferred members | (2,690) | (2,753) |  | (2,634) | (2,691)
Dependants | (421) | (391) |  | (421) | (391)
Pensioners | (5,268) | (5,091) |  | (5,145) | (4,967)
At 31 December | (9,257) | (9,305) |  | (9,078) | (9,119)

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Changes in the fair value of scheme assets |  |  |  |  |
At 1 January | 10,266 | 11,575 |  | 10,028 | 11,321
Return on plan assets excluding amounts included in interest income | (408) | (1,410) |  | (377) | (1,406)
Interest income | 554 | 532 |  | 546 | 524
Employer contributions | 67 | 77 |  | 67 | 77
Benefits paid | (514) | (488) |  | (504) | (479)
Settlements | (2) | (1) |  | (2) | (1)
Administrative costs paid | (9) | (9) |  | (8) | (8)
Exchange and other adjustments | 12 | (10) |  | (2) | –
At 31 December | 9,966 | 10,266 |  | 9,748 | 10,028

The expense recognised in the income statement for the year ended 31 December comprises:

| The Group
| 2025 £m | 2024 £m
Current service cost | 33 | 40
Net interest amount | (54) | (57)
Past service cost – plan amendments | 17 | 19
Plan administration costs incurred during the year | 9 | 9
Total defined benefit pension expense | 5 | 11

(iii)Composition of scheme assets

| 2025 |  | 2024
The Group | Quoted £m |  | Unquoted £m |  | Total £m |  | Quoted £m |  | Unquoted £m |  | Total £m
Debt instruments 1: |  |  |  |  |  |  |  |  |  |  |
Fixed interest government bonds | 2,435 |  | – |  | 2,435 |  | 2,935 |  | – |  | 2,935
Index-linked government bonds | 5,945 |  | – |  | 5,945 |  | 6,111 |  | – |  | 6,111
Corporate and other debt securities | 3,067 |  | – |  | 3,067 |  | 2,557 |  | – |  | 2,557
Asset-backed securities | 3 |  | – |  | 3 |  | – |  | – |  | –
| 11,450 |  | – |  | 11,450 |  | 11,603 |  | – |  | 11,603
Pooled investment vehicles | 229 |  | 2,038 |  | 2,267 |  | 187 |  | 2,476 |  | 2,663
Property | – |  | 132 |  | 132 |  | – |  | 130 |  | 130
Equity instruments | 4 |  | 20 |  | 24 |  | 5 |  | 23 |  | 28
Money market instruments, cash, derivatives and other assets and liabilities | 3 |  | (3,910) |  | (3,907) |  | 297 |  | (4,455) |  | (4,158)
At 31 December | 11,686 |  | (1,720) |  | 9,966 |  | 12,092 |  | (1,826) |  | 10,266

1 Of the total debt instruments, £10,923 million (2024: £10,815 million) were investment grade (credit ratings equal to or better than ‘BBB’).

41 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 10: Retirement benefit obligations continued

| 2025 |  | 2024
The Company | Quoted £m |  | Unquoted £m |  | Total £m |  | Quoted £m |  | Unquoted £m |  | Total £m
Debt instruments 1: |  |  |  |  |  |  |  |  |  |  |
Fixed interest government bonds | 2,419 |  | – |  | 2,419 |  | 2,904 |  | – |  | 2,904
Index-linked government bonds | 5,945 |  | – |  | 5,945 |  | 6,111 |  | – |  | 6,111
Corporate and other debt securities | 2,990 |  | – |  | 2,990 |  | 2,475 |  | – |  | 2,475
| 11,354 |  | – |  | 11,354 |  | 11,490 |  | – |  | 11,490
Pooled investment vehicles | 229 |  | 1,892 |  | 2,121 |  | 187 |  | 2,364 |  | 2,551
Property | – |  | 132 |  | 132 |  | – |  | 130 |  | 130
Equity instruments | 4 |  | 20 |  | 24 |  | 5 |  | 23 |  | 28
Money market instruments, cash, derivatives and other assets and liabilities | 3 |  | (3,886) |  | (3,883) |  | 297 |  | (4,468) |  | (4,171)
At 31 December | 11,590 |  | (1,842) |  | 9,748 |  | 11,979 |  | (1,951) |  | 10,028

1 Of the total debt instruments, £10,829 million (2024: £10,704 million) were investment grade (credit ratings equal to or better than ‘BBB’).
The assets of all of the funded plans are held independently of the Group’s assets in separate trustee-administered funds.
The pension schemes’ pooled investment vehicles comprise:

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Alternative credit funds | 420 | 634 |  | 335 | 560
Bond and debt funds | – | 21 |  | – | 21
Equity funds | 500 | 490 |  | 500 | 490
Hedge and mutual funds | – | 244 |  | – | 244
Infrastructure funds | 562 | 595 |  | 562 | 595
Liquidity funds | 478 | 388 |  | 445 | 375
Property funds | 279 | 266 |  | 279 | 266
Other | 28 | 25 |  | – | –
At 31 December | 2,267 | 2,663 |  | 2,121 | 2,551

The Trustee’s approach to investment is focused on acting in the members’ best financial interests, with the integration of ESG (environmental,
social and governance) considerations into investment management processes and practices. This policy is reviewed annually (or more
frequently as required) and has been shared with the schemes’ investment managers for implementation.
(iv)Assumptions
The principal actuarial and financial assumptions used in valuations of the defined benefit pension schemes were as follows:

| 2025 % | 2024 %
Discount rate | 5.57 | 5.55
Rate of inflation: |  |
Retail Price Index (RPI) | 2.66 | 2.85
Consumer Price Index (CPI) | 2.09 | 2.53
Rate of salary increases | 0.00 | 0.00
Weighted-average rate of increase for pensions in payment | 2.79 | 2.85

To determine the RPI assumption a term-dependent inflation curve has been used adjusting for an assumed inflation risk premium. A gap of
100 basis points has been assumed between RPI and CPI from 2025 to 2030; thereafter a 20 basis point gap has been assumed.

| Men |  | Women
| 2025 Years | 2024 Years |  | 2025 Years | 2024 Years
Life expectancy for average member aged 60, on the valuation date | 26.5 | 26.4 |  | 28.6 | 28.5
Life expectancy for average member aged 60, 15 years after the valuation date | 27.4 | 27.3 |  | 29.5 | 29.4

The mortality assumptions used in the UK scheme valuations are based on standard tables published by the Institute and Faculty of Actuaries
which were adjusted in line with the actual experience of the relevant schemes. The Group uses the 2023 CMI mortality projections model to
project future mortality improvements. In line with actuarial industry recommendations no weight is placed on 2020 and 2021 mortality
experience and 15% weight on 2022 and 2023 mortality experience.

42 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 10: Retirement benefit obligations continued
(v)Amount, timing and uncertainty of future cash flows
Risk exposure of the defined benefit schemes
While the Group is not exposed to any unusual, entity-specific or scheme-specific risks in its defined benefit pension schemes, it is exposed to a
number of significant risks, detailed below:
Inflation rate risk: The majority of the schemes’ benefit obligations are linked to inflation both in deferment and once in payment. Higher
inflation will lead to higher liabilities although this will be materially offset by holdings of inflation-linked gilts and, in most cases, caps on the
level of inflationary increases are in place to protect against extreme inflation.
Interest rate risk: The defined benefit obligation is determined using a discount rate derived from yields on AA-rated corporate bonds. A
decrease in corporate bond yields will increase plan liabilities although this will be materially offset by an increase in the value of bond holdings
and through the use of derivatives.
Longevity risk: The majority of the schemes’ obligations are to provide benefits for the life of the members so increases in life expectancy will
result in an increase in the schemes’ liabilities.
Investment risk: Scheme assets are invested in a diversified portfolio of debt securities, equities and other return-seeking assets. If the assets
underperform the discount rate used to calculate the defined benefit obligation, it will reduce the surplus or increase the deficit. Volatility in
asset values and the discount rate will lead to volatility in the net pension asset on the Group’s balance sheet and in other comprehensive
income. To a lesser extent this will also lead to volatility in the pension expense in the Group’s income statement.
In addition, the schemes themselves are exposed to liquidity risk with the need to ensure that liquid assets held are sufficient to meet benefit
payments as they fall due and there is sufficient collateral available to support their hedging activity.
The ultimate cost of the defined benefit obligations to the Group will depend upon actual future events rather than the assumptions made.
The assumptions made are unlikely to be borne out in practice and as such the cost may be higher or lower than expected.
Sensitivity analysis
The effect of changes in key assumptions on the Group’s income statement and on the net defined benefit pension scheme asset from the
change in value of scheme liabilities is set out below. The sensitivities provided assume that all other assumptions and the value of the
schemes’ assets remain unchanged. The calculations are approximate in nature and full detailed calculations could lead to a different result. It
is unlikely that isolated changes to individual assumptions will be experienced in practice. Due to the correlation of assumptions, aggregating
the effects of these isolated changes may not be a reasonable estimate of the actual effect of simultaneous changes in multiple assumptions.

| Effect of reasonably possible alternative assumptions on material schemes
| The Group |  | The Company
| Increase (decrease) in the income statement charge |  | Increase (decrease) in the net defined benefit pension scheme surplus |  | Increase (decrease) in the income statement charge |  | Increase (decrease) in the net defined benefit pension scheme surplus
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m |  | 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Inflation (including pension increases)1: |  |  |  |  |  |  |  |  |  |
Increase of 0.25% | 9 | 10 |  | (152) | (163) |  | 9 | 10 |  | (152) | (163)
Decrease of 0.25% | (9) | (10) |  | 144 | 158 |  | (9) | (10) |  | 144 | 158
Discount rate 2: |  |  |  |  |  |  |  |  |  |  |
Increase of 0.25% | (18) | (20) |  | 258 | 275 |  | (18) | (20) |  | 258 | 275
Decrease of 0.25% | 18 | 19 |  | (277) | (294) |  | 18 | 19 |  | (277) | (294)
Expected life expectancy of members: |  |  |  |  |  |  |  |  |  |
Increase of one year | 15 | 15 |  | (261) | (256) |  | 15 | 15 |  | (261) | (256)
Decrease of one year | (15) | (15) |  | 268 | 263 |  | (15) | (15) |  | 268 | 263

1 At 31 December 2025, the assumed rate of RPI inflation is 2.66% and CPI inflation 2.09% (2024: RPI 2.85% and CPI 2.53%).
2 At 31 December 2025, the assumed discount rate is 5.57% (2024: 5.55%).
Sensitivity analysis method and assumptions
The sensitivity analysis above reflects the impact on the liabilities of the Group’s most significant scheme which accounts for over 95% of the
Group’s defined benefit obligations. While differences in the underlying liability profiles for the remainder of the Group’s pension arrangements
mean that they may exhibit slightly different sensitivities to variations in these assumptions, the sensitivities provided above are indicative of
the impact across the Group as a whole.
The inflation assumption sensitivity applies to the assumed rate of increase in both the Consumer Price Index (CPI) and the Retail Price Index
(RPI), and includes the impact on the rate of increases to pensions, both before and after retirement. These pension increases are linked to
inflation (either CPI or RPI) subject to certain minimum and maximum limits.
The sensitivity analysis (including the inflation sensitivity) does not include the impact of any change in the rate of salary increases as
pensionable salaries have been frozen since 2 April 2014.
The life expectancy assumption has been applied by allowing for an increase/decrease in life expectation from age 60 of one year, based upon
the approximate weighted average age for each scheme. While this is an approximate approach and will not give the same result as a one year
increase in life expectancy at every age, it provides an appropriate indication of the potential impact on the schemes from changes in life
expectancy.
There was no change in the methods and assumptions used in preparing the sensitivity analysis from the prior year.
Asset-liability matching strategies
The main schemes’ assets are invested in a diversified portfolio which are independently determined by the responsible governance body for
each scheme and in consultation with the employer.

43 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 10: Retirement benefit obligations continued
A significant goal of the asset strategies adopted by the schemes is to reduce volatility caused by changes in market expectations of interest
rates and inflation. In the main schemes this is achieved by investing in liability-driven investment (LDI) strategies. The assets in these LDI
strategies represented c.45% of scheme assets at 31 December 2025.
The LDI strategies are actively managed to reflect both changing market conditions and changes to the liability profile. At 31 December 2025
the asset-liability matching strategy mitigated c.110% of the liability sensitivity to interest rate movements and c.145% of the liability sensitivity
to inflation movements. In addition, a small amount of interest rate sensitivity arises through holdings of corporate and other debt securities.
The higher level of hedging provides greater protection to the funding position of the schemes.
The main scheme holds a number of longevity insurance contracts, hedging c.60% of their longevity risk exposure at 31 December 2025. These
arrangements form part of the schemes’ investment portfolio and reduce the risk of members living longer than expected through the exchange
of fixed payments for actual payments.
At 31 December 2025 the value of scheme assets included longevity swaps valued at £(57) million.
Maturity profile of defined benefit obligation
The following table provides information on the weighted average duration of the defined benefit pension obligation and the distribution and
timing of benefit payments:

| The Group and Company
| 2025 Years | 2024 Years
Duration of the defined benefit obligation | 13 | 14

Maturity analysis of benefits expected to be paid:

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Within 12 months | 526 | 506 |  | 518 | 498
Between 1 and 2 years | 483 | 466 |  | 475 | 458
Between 2 and 5 years | 1,593 | 1,541 |  | 1,566 | 1,517
Between 5 and 10 years | 3,082 | 3,009 |  | 3,033 | 2,964
Between 10 and 15 years | 3,216 | 3,211 |  | 3,163 | 3,161
Between 15 and 25 years | 5,972 | 6,109 |  | 5,872 | 6,012
Between 25 and 35 years | 4,404 | 4,672 |  | 4,339 | 4,605
Between 35 and 45 years | 2,186 | 2,489 |  | 2,156 | 2,457
In more than 45 years | 599 | 749 |  | 591 | 740

Maturity analysis method and assumptions
The projected benefit payments are based on the assumptions underlying the assessment of the obligations, including allowance for expected
future inflation. They are shown in their undiscounted form and therefore appear large relative to the discounted assessment of the defined
benefit obligations recognised in the Group’s balance sheet. They are in respect of benefits that have been accrued prior to the respective year
end date only and make no allowance for any benefits that may have been accrued subsequently.
Defined contribution schemes
The Group operates a number of defined contribution pension schemes in the UK and overseas.
During the year ended 31 December 2025 the charge to the income statement in respect of defined contribution schemes was £105 million
(2024: £109 million), representing the contributions payable by the employer in accordance with each scheme’s rules.
Other retirement benefit schemes
The Group operates a number of schemes which provide post-retirement healthcare benefits to certain employees, retired employees and their
dependants.
For the principal post-retirement healthcare scheme, the latest actuarial valuation of the liability was carried out at 31 December 2025 by
qualified independent actuaries. The principal assumptions used were as set out above in section (iv), except that the long-term rate of
increase in healthcare premiums has been assumed at 10.00% (2024: 10.00%).
Movements in the other retirement benefits obligation:

| The Group and Company
| 2025 £m | 2024 £m
At 1 January | (17) | (19)
Actuarial gains | 1 | 2
Insurance premiums paid | 1 | 1
Charge for the year | (1) | (1)
Exchange and other adjustments | (1) | –
At 31 December | (17) | (17)

44 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 11: Auditors’ remuneration
Fees payable to the Company’s auditors are included within other operating expenses and are as follows:

| 2025 £m |  | 2024 £m
Fees payable for the: |  |  |
– audit of the Company’s current year Annual Report | 2.1 |  | 2.0
– audits of the Company’s subsidiaries | 5.7 |  | 5.5
– total audit fees in respect of the statutory audit of Group entities 1 | 7.8 |  | 7.5
– services normally provided in connection with statutory and regulatory filings or engagements | 0.3 |  | 0.3
Total audit fees 2 | 8.1 |  | 7.8
Other audit-related fees 2 | – |  | –
All other fees 2 | 0.3 |  | 0.4
Total non-audit services 3 | 0.3 |  | 0.4
Total fees payable to the Company’s auditors by the Group | 8.4 |  | 8.2

1 As defined by the Financial Reporting Council (FRC).
2 As defined by the Securities and Exchange Commission (SEC).
3 As defined by the SEC. Total non-audit services as defined by the FRC include all fees other than audit fees in respect of the statutory audit of Group entities. These fees totalled
£0.6 million (2024: £0.7 million).
The following types of services are included in the categories listed above:
Audit fees: This category includes fees in respect of the audit of the Group’s annual financial statements and other services in connection with
regulatory filings.
Other audit-related fees: This category includes fees in respect of services for assurance and related services that are reasonably related to the
performance of the audit or review of the financial statements, for example acting as reporting accountants in respect of debt prospectuses
required by the Listing Rules.
All other fees: This category includes other assurance services not related to the performance of the audit or review of the financial
statements, for example, the review of controls operated by the Group on behalf of a third party. The auditors are not engaged to provide tax
services.
It is the Group’s policy to use the auditors only on non-audit assignments in cases where their knowledge of the Group means that it is neither
efficient nor cost effective to employ another firm of accountants.
The Group has procedures that are designed to ensure auditor independence, including prohibiting certain non-audit services. All audit and
non-audit assignments must be pre-approved by the Lloyds Banking Group Audit Committee on an individual engagement basis; for certain
types of non-audit engagements where the fee is ‘de minimis’ the Lloyds Banking Group Audit Committee has pre-approved all assignments
subject to confirmation by management. On a quarterly basis, the Lloyds Banking Group Audit Committee receives and reviews a report
detailing all pre-approved services and amounts paid to the auditors for such pre-approved services.
During the year the auditors also earned £0.1 million (2024: £0.1 million) payable by entities outside the consolidated HBOS Group in respect of
audits of the Group pension schemes.
Note 12: Impairment

Year ended 31 December 2025 | Stage 1 £m |  | Stage 2 £m |  | Stage 3 £m |  | Total £m
In respect of: |  |  |  |  |  |  |
Loans and advances to customers | (23) |  | (108) |  | 410 |  | 279
Due from fellow Lloyds Banking Group undertakings | (3) |  | – |  | – |  | (3)
Financial assets at amortised cost | (26) |  | (108) |  | 410 |  | 276
Loan commitments and financial guarantees | (8) |  | (14) |  | – |  | (22)
Total impairment (credit) charge | (34) |  | (122) |  | 410 |  | 254

Year ended 31 December 2024 | Stage 1 £m |  | Stage 2 £m |  | Stage 3 £m |  | Total £m
In respect of: |  |  |  |  |  |  |
Loans and advances to customers | (139) |  | (222) |  | 470 |  | 109
Due from fellow Lloyds Banking Group undertakings | (3) |  | – |  | – |  | (3)
Financial assets at amortised cost | (142) |  | (222) |  | 470 |  | 106
Loan commitments and financial guarantees | (10) |  | (4) |  | – |  | (14)
Total impairment (credit) charge | (152) |  | (226) |  | 470 |  | 92

45 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 13: Tax
Analysis of tax expense for the year

| 2025 £m |  | 2024 £m
UK corporation tax: |  |  |
Current tax on profit for the year | (339) |  | (207)
Adjustments in respect of prior years | 30 |  | (9)
Current tax expense | (309) |  | (216)
Deferred tax: |  |  |
Current year | (164) |  | (42)
Adjustments in respect of prior years | 35 |  | 13
Deferred tax expense | (129) |  | (29)
Tax expense | (438) |  | (245)

Factors affecting the tax expense for the year
The UK corporation tax rate for the year was 25.0 % (2024: 25.0%).
An explanation of the relationship between tax expense and accounting profit is set out below.

| 2025 £m | 2024 £m
Profit before tax | 1,918 | 1,098
UK corporation tax thereon | (480) | (275)
Impact of surcharge on banking profits | (44) | (21)
Non-deductible costs: conduct charges | 1 | 5
Non-deductible costs: bank levy | (12) | (14)
Other non-deductible costs | (31) | (8)
Non-taxable income | 2 | 8
Tax relief on coupons on other equity instruments | 59 | 51
Tax-exempt gains on disposals | 2 | 5
Adjustments in respect of prior years | 65 | 4
Tax expense | (438) | (245)

On 11 July 2023, the Government enacted its legislation implementing the G20-OECD Inclusive Framework Pillar 2 rules in the UK, including a
Qualified Domestic Minimum Top-Up Tax rule. This legislation seeks to ensure that UK-headquartered multinational enterprises pay a minimum
tax rate of 15% on UK and overseas profits arising after 31 December 2023. No provision for Pillar 2 current tax is included in tax expense for the
period on the basis that no additional liability is expected to fall due in respect of any of the jurisdictions in which we conduct business.
The Group paid corporation taxes of £296 million in the period, and received refunds of £902 million from other members of the Lloyds
Banking Group relating to settlement of prior period tax liabilities paid on their behalf by Bank of Scotland plc as part of its group payment
arrangement with HMRC. Refunds received in 2024 of £1,034 million included £970 million of overpaid taxes recovered from HMRC in respect
of previous periods.
Deferred tax
The Group’s and the Company’s deferred tax assets and liabilities are as follows:

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Statutory position |  |  |  |  |
Deferred tax assets | 1,515 | 1,577 |  | – | 7
Deferred tax liabilities | – | – |  | (163) | (228)
Net deferred tax asset (liability) at 31 December | 1,515 | 1,577 |  | (163) | (221)
Tax disclosure |  |  |  |  |
Deferred tax assets | 1,869 | 1,978 |  | 18 | 20
Deferred tax liabilities | (354) | (401) |  | (181) | (241)
Net deferred tax asset (liability) at 31 December | 1,515 | 1,577 |  | (163) | (221)

The statutory position reflects the deferred tax assets and liabilities as disclosed in the consolidated and the Company balance sheet and takes
into account the ability of the Group and the Company to net assets and liabilities where there is a legally enforceable right of offset and the
deferred tax assets and liabilities relate to income taxes levied by the same taxation authority. The tax disclosure of deferred tax assets and
liabilities ties to the amounts outlined in the tables below which splits the deferred tax assets and liabilities by type, before such netting.

46 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 13: Tax continued
Movements in deferred tax assets and liabilities (before taking into consideration the offsetting of balances within the same taxing jurisdiction)
can be summarised as follows:

The Group Deferred tax assets | Tax losses £m | Property, plant and equipment £m | Provisions £m | Share-based payments £m | Derivatives £m | Pension liabilities £m | Other temporary differences £m | Total £m
At 1 January 2024 | 1,857 | 32 | 82 | 5 | 30 | 20 | 6 | 2,032
Credit (charge) to the income statement | 5 | (41) | (16) | – | – | (70) | (1) | (123)
Credit to other comprehensive income | – | – | – | – | 1 | 68 | – | 69
At 31 December 2024 | 1,862 | (9) | 66 | 5 | 31 | 18 | 5 | 1,978
(Charge) credit to the income statement | (102) | 9 | (19) | – | (1) | – | (1) | (114)
Credit to other comprehensive income | – | – | – | – | 5 | – | – | 5
At 31 December 2025 | 1,760 | – | 47 | 5 | 35 | 18 | 4 | 1,869

The Group Deferred tax liabilities |  |  | Property, plant and equipment £m | Capitalised software enhancements £m | Acquisition fair value £m | Pension assets £m | Other temporary differences £m | Total £m
At 1 January 2024 |  |  | – | (8) | (60) | (319) | (108) | (495)
Credit to the income statement |  |  | – | 4 | 18 | 67 | 5 | 94
At 31 December 2024 |  |  | – | (4) | (42) | (252) | (103) | (401)
(Charge) credit to the income statement |  |  | (45) | 3 | 17 | (2) | 12 | (15)
Credit to other comprehensive income |  |  | – | – | – | 62 | – | 62
At 31 December 2025 |  |  | (45) | (1) | (25) | (192) | (91) | (354)

The Company Deferred tax assets |  | Pension liabilities £m
At 1 January 2024 |  | 22
Charge to the income statement |  | (2)
At 31 December 2024 |  | 20
Charge to the income statement |  | (2)
At 31 December 2025 |  | 18
The Company Deferred tax liabilities |  | Pension assets £m
At 1 January 2024 |  | (312)
Credit to the income statement |  | 2
Credit to other comprehensive income |  | 68
Exchange and other adjustments |  | 1
At 31 December 2024 |  | (241)
Credit to the income statement |  | 2
Credit to other comprehensive income |  | 58
Exchange and other adjustments |  | –
At 31 December 2025 |  | (181)

Estimation of income taxes includes the assessment of recoverability of deferred tax assets. Deferred tax assets are only recognised to the
extent that they are considered more likely than not to be recoverable based on existing tax laws and forecasts of future taxable profits
against which the underlying tax deductions can be utilised.
The Group has recognised a deferred tax asset of £1,760 million ( 2024: £1,862 million), in respect of trading losses carried forward. All of these
losses have arisen in Bank of Scotland plc and they will be utilised as taxable profits arise in this legal entity in future periods.
The Group’s expectations of future UK taxable profits require management judgement, and take into account the Group’s long-term financial
and strategic plans and anticipated future tax-adjusting items. In making this assessment, account is taken of business plans, the Board-
approved operating plan and the expected future economic outlook as set out in the strategic report, as well as the risks associated with future
regulatory, climate-related and other change, in order to produce a base case forecast of future UK taxable profits. Under current law there is
no expiry date for UK trading losses not yet utilised, and given the forecast of future profitability and the Group’s commitment to the UK
market, in management’s judgement it is more likely than not that the value of the losses will be recovered by the Group while still operating as
a going concern.
Banking tax losses that arose before 1 April 2015 can only be used against 25 % of taxable profits arising after 1 April 2016, and they cannot be
used to reduce the surcharge on banking profits. These restrictions in utilisation mean that the value of the deferred tax asset in respect of tax
losses is only expected to be fully recovered by 2036 ( 2024: 2033) in the base case forecast. It is possible that future tax law changes could
materially affect the timing of recovery and the value of these losses ultimately realised by the Group.

47 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 13: Tax continued
Deferred tax not recognised
Deferred tax assets of £nil million (2024: £2 million) for the Group and the Company have not been recognised in respect of UK tax losses and
other temporary differences which can only be used to offset future capital gains as all such deductions have now been utilised.
No deferred tax has been recognised in respect of foreign trade losses of £ 29 million (2024: £31 million) for the Group which will expire if not
used within 20 years.
As a result of parent company exemptions on dividends from subsidiaries and on capital gains on disposal there are no significant taxable
temporary differences associated with investments in subsidiaries, branches, associates and joint arrangements.
Critical accounting judgements and key sources of estimation uncertainty

Critical judgement: | The Group believes that its interpretation of the tax rules on group relief are correct

The Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which ceased
trading on 31 December 2010. In 2020, HMRC concluded its enquiry into the matter and issued a closure notice denying the group relief claim.
The Group appealed to the First Tier Tax Tribunal. The hearing took place in May 2023. In January 2025, the First Tier Tribunal concluded in
favour of HMRC. The Group believes it has applied the rules correctly and that the claim for group relief is correct. Having reviewed the
Tribunal’s conclusions and having taken appropriate advice the Group has appealed to the Upper Tier Tax Tribunal, and does not consider this
to be a case where an additional tax liability will ultimately fall due. If the final determination of the matter by the judicial process is that
HMRC’s position is correct, management believes that this would result in an increase in current tax liabilities of approximately £420 million
(including interest).Following the First Tier Tax Tribunal outcome, the tax has been paid to HMRC and recognised as a current tax asset, given
the Group’s view that the tax liability will not ultimately fall due. The appeal has been listed for hearing in March 2027, however final
conclusion of the judicial process may not be for several years.
There are a number of other open matters on which the Group is in discussions with HMRC (including the tax treatment of costs relating to
HBOS Reading) none of which is expected to have a material impact on the financial position of the Group.
Note 14: Measurement basis of financial assets and liabilities
The accounting policies in note 2 describe how different classes of financial instruments are measured, and how income and expenses,
including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the financial assets and liabilities by
category and by balance sheet heading.

| Derivatives designated as hedging instruments £m |  | Mandatorily held at fair value through profit or loss | Designated at fair value through profit or loss £m | At fair value through other comprehensive income £m |  | Held at amortised cost £m |  | Total £m
The Group |  | Held for trading £m |  | Other £m |  |
At 31 December 2025 |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and balances at central banks | – |  | – |  | – |  | – |  | – |  | 2,767 |  | 2,767
Financial assets at fair value through profit or loss | – |  | – |  | 253 |  | – |  | – |  | – |  | 253
Derivative financial instruments | 132 |  | 2,082 |  | – |  | – |  | – |  | – |  | 2,214
Loans and advances to banks | – |  | – |  | – |  | – |  | – |  | 131 |  | 131
Loans and advances to customers | – |  | – |  | – |  | – |  | – |  | 312,855 |  | 312,855
Debt securities | – |  | – |  | – |  | – |  | – |  | 1,041 |  | 1,041
Due from fellow Lloyds Banking Group undertakings | – |  | – |  | – |  | – |  | – |  | 14,153 |  | 14,153
Financial assets at amortised cost | – |  | – |  | – |  | – |  | – |  | 328,180 |  | 328,180
Financial assets at fair value through other comprehensive income | – |  | – |  | – |  | – |  | 102 |  | – |  | 102
Total financial assets | 132 |  | 2,082 |  | 253 |  | – |  | 102 |  | 330,947 |  | 333,516
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits from banks | – |  | – |  | – |  | – |  | – |  | 99 |  | 99
Customer deposits | – |  | – |  | – |  | – |  | – |  | 167,586 |  | 167,586
Repurchase agreements at amortised cost | – |  | – |  | – |  | – |  | – |  | 10,443 |  | 10,443
Due to fellow Lloyds Banking Group undertakings | – |  | – |  | – |  | – |  | – |  | 125,551 |  | 125,551
Financial liabilities at fair value through profit or loss | – |  | – |  | – |  | 17 |  | – |  | – |  | 17
Derivative financial instruments | 411 |  | 2,605 |  | – |  | – |  | – |  | – |  | 3,016
Notes in circulation | – |  | – |  | – |  | – |  | – |  | 2,118 |  | 2,118
Debt securities in issue at amortised cost | – |  | – |  | – |  | – |  | – |  | 8,933 |  | 8,933
Other | – |  | – |  | – |  | – |  | – |  | 390 |  | 390
Subordinated liabilities | – |  | – |  | – |  | – |  | – |  | 1,782 |  | 1,782
Total financial liabilities | 411 |  | 2,605 |  | – |  | 17 |  | – |  | 316,902 |  | 319,935

48 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 14: Measurement basis of financial assets and liabilities continued
Offsetting of financial assets and liabilities

|  |  |  |  |  |  | Related amounts where set off in the balance sheet not permitted 1 |  | Potential net amounts if offset of related amounts permitted £m
| Gross amounts of assets and liabilities £m |  | Amount offset in the balance sheet 2 £m |  | Net amounts presented in the balance sheet £m |  | Cash collateral (received)/ pledged £m |  | Non-cash collateral (received)/ pledged £m |  | Master netting and similar agreements £m |
At 31 December 2025 |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets | 2,214 |  | – |  | 2,214 |  | (93) |  | – |  | (1,910) |  | 211
Derivative liabilities | (3,016) |  | – |  | (3,016) |  | 870 |  | 34 |  | 1,910 |  | (202)
Net position | (802) |  | – |  | (802) |  | 777 |  | 34 |  | – |  | 9
Reverse repurchase agreements held at amortised cost | – |  | – |  | – |  | – |  | – |  | – |  | –
Repurchase agreements held at amortised cost | (10,443) |  | – |  | (10,443) |  | – |  | 10,443 |  | – |  | –
Net position | (10,443) |  | – |  | (10,443) |  | – |  | 10,443 |  | – |  | –

1 The Group enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard master netting
agreements. The Group holds and provides cash and securities collateral in respect of derivative transactions covered by these agreements. The right to set off balances under these
master netting agreements or to set off cash and securities collateral only arises in the event of non-payment or default and, as a result, these arrangements do not qualify for
offsetting under IAS 32.
2 The amounts offset in the balance sheet as shown above meet the criteria for offsetting under IAS 32.

| Derivatives designated as hedging instruments £m |  | Mandatorily held at fair value through profit or loss | Designated at fair value through profit or loss £m | At fair value through other comprehensive income £m |  | Held at amortised cost £m |  | Total £m
The Group |  | Held for trading £m |  | Other £m |  |
At 31 December 2024 |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and balances at central banks | – |  | – |  | – |  | – |  | – |  | 2,853 |  | 2,853
Financial assets at fair value through profit or loss | – |  | – |  | 278 |  | – |  | – |  | – |  | 278
Derivative financial instruments | 753 |  | 2,584 |  | – |  | – |  | – |  | – |  | 3,337
Loans and advances to banks | – |  | – |  | – |  | – |  | – |  | 111 |  | 111
Loans and advances to customers | – |  | – |  | – |  | – |  | – |  | 300,789 |  | 300,789
Debt securities | – |  | – |  | – |  | – |  | – |  | 1,350 |  | 1,350
Due from fellow Lloyds Banking Group undertakings | – |  | – |  | – |  | – |  | – |  | 15,024 |  | 15,024
Financial assets at amortised cost | – |  | – |  | – |  | – |  | – |  | 317,274 |  | 317,274
Financial assets at fair value through other comprehensive income | – |  | – |  | – |  | – |  | 103 |  | – |  | 103
Other | – |  | – |  | – |  | – |  | – |  | 47 |  | 47
Total financial assets | 753 |  | 2,584 |  | 278 |  | – |  | 103 |  | 320,174 |  | 323,892
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits from banks | – |  | – |  | – |  | – |  | – |  | 179 |  | 179
Customer deposits | – |  | – |  | – |  | – |  | – |  | 165,053 |  | 165,053
Repurchase agreements at amortised cost | – |  | – |  | – |  | – |  | – |  | 22,168 |  | 22,168
Due to fellow Lloyds Banking Group undertakings | – |  | – |  | – |  | – |  | – |  | 106,931 |  | 106,931
Financial liabilities at fair value through profit or loss | – |  | – |  | – |  | 22 |  | – |  | – |  | 22
Derivative financial instruments | 139 |  | 3,351 |  | – |  | – |  | – |  | – |  | 3,490
Notes in circulation | – |  | – |  | – |  | – |  | – |  | 2,121 |  | 2,121
Debt securities in issue at amortised cost | – |  | – |  | – |  | – |  | – |  | 8,654 |  | 8,654
Other | – |  | – |  | – |  | – |  | – |  | 488 |  | 488
Subordinated liabilities | – |  | – |  | – |  | – |  | – |  | 2,183 |  | 2,183
Total financial liabilities | 139 |  | 3,351 |  | – |  | 22 |  | – |  | 307,777 |  | 311,289

49 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 14: Measurement basis of financial assets and liabilities continued
Offsetting of financial assets and liabilities

|  |  |  |  |  |  | Related amounts where set off in the balance sheet not permitted 1 |  | Potential net amounts if offset of related amounts permitted £m
| Gross amounts of assets and liabilities £m |  | Amount offset in the balance sheet 2 £m | Net amounts presented in the balance sheet £m |  | Cash collateral (received)/ pledged £m |  | Non-cash collateral (received)/ pledged £m |  | Master netting and similar agreements £m |
At 31 December 2024 |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets | 3,337 |  | – |  | 3,337 |  | (172) |  | (2) |  | (2,224) |  | 939
Derivative liabilities | (3,490) |  | – |  | (3,490) |  | 190 |  | 25 |  | 2,224 |  | (1,051)
Net position | (153) |  | – |  | (153) |  | 18 |  | 23 |  | – |  | (112)
Reverse repurchase agreements held at amortised cost | – |  | – |  | – |  | – |  | – |  | – |  | –
Repurchase agreements held at amortised cost | (22,168) |  | – |  | (22,168) |  | – |  | 22,168 |  | – |  | –
Net position | (22,168) |  | – |  | (22,168) |  | – |  | 22,168 |  | – |  | –

1 The Group enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard master netting
agreements. The Group holds and provides cash and securities collateral in respect of derivative transactions covered by these agreements. The right to set off balances under these
master netting agreements or to set off cash and securities collateral only arises in the event of non-payment or default and, as a result, these arrangements do not qualify for
offsetting under IAS 32.
2 The amounts offset in the balance sheet as shown above meet the criteria for offsetting under IAS 32.

| Derivatives designated as hedging instruments £m |  | Held at amortised cost £m |  | Total £m
The Company |  |
At 31 December 2025 |  |  |  |  |
Financial assets |  |  |  |  |
Derivative financial instruments | – |  | – |  | –
Due from fellow Lloyds Banking Group undertakings | – |  | 2,690 |  | 2,690
Total financial assets | – |  | 2,690 |  | 2,690
Financial liabilities |  |  |  |  |
Due to fellow Lloyds Banking Group undertakings | – |  | 2,257 |  | 2,257
Subordinated liabilities | – |  | 225 |  | 225
Total financial liabilities | – |  | 2,482 |  | 2,482
At 31 December 2024 |  |  |  |  |
Financial assets |  |  |  |  |
Derivative financial instruments | 13 |  | – |  | 13
Due from fellow Lloyds Banking Group undertakings | – |  | 3,141 |  | 3,141
Total financial assets | 13 |  | 3,141 |  | 3,154
Financial liabilities |  |  |  |  |
Due to fellow Lloyds Banking Group undertakings | – |  | 2,326 |  | 2,326
Subordinated liabilities | – |  | 628 |  | 628
Total financial liabilities | – |  | 2,954 |  | 2,954

Note 15: Fair values of financial assets and liabilities
At 31 December 2025 , the carrying value of the Group’s financial instrument assets held at fair value was £2,569 million (2024 : £3,718 million),
and its financial instrument liabilities held at fair value was £3,033 million (2024: £3,512 million).
(A)Fair value measurement
Fair value is the price that would be received on sale of an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. It is a measure as at a specific date and may be significantly different from the amount which will
actually be paid or received on maturity or settlement date.
Wherever possible, fair values have been calculated using unadjusted quoted market prices in active markets for identical instruments to those
held by the Group. Where quoted market prices are not available, or are unreliable because of poor liquidity, fair values have been determined
using valuation techniques which, to the extent possible, use market observable inputs, but in some cases use non-market observable inputs.
Valuation techniques used include discounted cash flow analysis and pricing models and, where appropriate, comparison to instruments with
characteristics similar to those of the instruments held by the Group. The Group measures valuation adjustments for its derivative exposures on
the same basis as the derivatives are managed.
The carrying amount of the following financial instruments is a reasonable approximation of fair value: cash and balances at central banks,
items in the course of collection from banks, items in course of transmission to banks and notes in circulation.

50 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 15: Fair values of financial assets and liabilities continued
Because a variety of estimation techniques are employed and significant estimates made, comparisons of fair values between financial
institutions may not be meaningful. Readers of these financial statements are thus advised to use caution when using this data to evaluate the
Group’s financial position.
Fair value information is not provided for items that are not financial instruments or for other assets and liabilities which are not carried at fair
value in the Group’s consolidated balance sheet. These items include intangible assets, property, plant and equipment, and shareholders’
equity. These items are material and accordingly the Group believes that any fair value information presented would not represent the
underlying value of the Group.
Valuation control framework
The key elements of the control framework for the valuation of financial instruments include model validation, product implementation review
and independent price verification. These functions are carried out by appropriately skilled risk and finance teams, independent of the business
area responsible for the products.
Model validation covers both qualitative and quantitative elements relating to new models. In respect of new products, a product
implementation review is conducted pre and post-trading. Pre-trade testing ensures that the new model is integrated into the Group’s systems
and that the profit and loss and risk reporting are consistent throughout the trade lifecycle. Post-trade testing examines the explanatory power
of the implemented model, actively monitoring model parameters and comparing in-house pricing to external sources. Independent price
verification procedures cover financial instruments carried at fair value and are performed at a minimum on a monthly basis. Valuation
differences in breach of established thresholds are escalated to senior management. The results from independent pricing and valuation
reserves are reviewed monthly by senior management.
Formal committees, consisting of senior risk, finance and business management, meet at least quarterly to discuss and approve valuations in
more judgemental areas, in particular for structured credit, derivatives and the credit valuation adjustment (CVA), funding valuation
adjustment (FVA) and other valuation adjustments.
Valuation of financial assets and liabilities
Assets and liabilities carried at fair value or for which fair values are disclosed have been classified into three levels according to the quality and
reliability of information used to determine the fair values.
Level 1
Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities. Products
classified as level 1 predominantly comprise government securities.
Level 2
Level 2 valuations are those where quoted market prices are not available, for example where the instrument is traded in a market that is not
considered to be active or valuation techniques are used to determine fair value and where these techniques use inputs that are based
significantly on observable market data. Examples of such financial instruments include most over-the-counter derivatives, financial institution
issued securities, certificates of deposit and certain asset-backed securities.
Level 3
Level 3 portfolios are those where at least one input which could have a significant effect on the instrument’s valuation is not based on
observable market data. Certain of the Group’s loans and advances recognised at fair value and derivatives are also classified as level 3.
Transfers in or out of the level 3 portfolio arise when inputs that could have a significant impact on the instrument’s valuation become
unobservable or observable, or where an unobservable input becomes significant or insignificant to an instrument’s value.
(B)Financial assets and liabilities carried at fair value
(1)Financial assets (excluding derivatives)
Valuation hierarchy
At 31 December 2025, the Group’s financial assets (excluding derivatives) carried at fair value totalled £355 million (2024: £381 million). The
table below analyses these financial assets by balance sheet classification, asset type and valuation methodology (level 1, 2 or 3, as described
above). The fair value measurement approach is recurring in nature. There were no significant transfers between level 1 and 2 during the year.

| 2025 |  | 2024
The Group | Level 1 £m | Level 2 £m | Level 3 £m | Total £m |  | Level 1 £m | Level 2 £m | Level 3 £m | Total £m
Loans and advances to customers classified as financial assets at fair value through profit or loss | – | – | 253 | 253 |  | – | – | 278 | 278
Debt securities classified as financial assets at fair value through other comprehensive income | 102 | – | – | 102 |  | 103 | – | – | 103
Total financial assets at fair value (excluding derivatives) | 102 | – | 253 | 355 |  | 103 | – | 278 | 381

51 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 15: Fair values of financial assets and liabilities continued
Movements in level 3 portfolio
The table below analyses movements in level 3 financial assets (excluding derivatives) at fair value, recurring basis.

The Group | 2025 £m |  | 2024 £m
At 1 January | 278 |  | 266
(Losses) gains recognised in the income statement within other income | (15) |  | 41
Purchases/increases to customer loans | 19 |  | 4
Sales/repayments of customer loans | (29) |  | (33)
At 31 December | 253 |  | 278
(Losses) gains recognised in the income statement, within other income, relating to the change in fair value of those assets held at 31 December | (14) |  | 36

Valuation methodology for financial assets (excluding derivatives)
Loans and advances to customers
The fair value of these assets is determined using discounted cash flow techniques. The discount rates are derived from market observable
interest rates, a risk margin that reflects loan credit ratings and an incremental illiquidity premium based on historical spreads at origination on
similar loans.
Debt securities
Where there is limited trading activity in debt securities, the Group uses valuation models, consensus pricing information from third party
pricing services and broker or lead manager quotes to determine an appropriate valuation. Debt securities are classified as level 3 if there is a
significant valuation input that cannot be corroborated through market sources or where there are materially inconsistent values for an input.
(2)Financial liabilities (excluding derivatives)
Valuation hierarchy
At 31 December 2025 , the Group’s financial liabilities (excluding derivatives) carried at fair value, comprised its financial liabilities at fair value
through profit or loss and totalled £17 million ( 2024: £22 million).
The table below analyses these financial liabilities by balance sheet classification and valuation methodology (level 1, 2 or 3, as described on
page 5 0). The fair value measurement approach is recurring in nature. There were no significant transfers between level 1 and 2 during the year.

| 2025 |  | 2024
The Group | Level 1 £m | Level 2 £m | Level 3 £m | Total £m |  | Level 1 £m | Level 2 £m | Level 3 £m | Total £m
Debt securities in issue designated at fair value through profit or loss | – | – | 17 | 17 |  | – | – | 22 | 22

Movements in level 3 portfolio
The table below analyses movements in the level 3 financial liabilities (excluding derivatives) at fair value portfolio.

The Group | 2025 £m | 2024 £m
At 1 January | 22 | 23
(Gains) losses recognised in the income statement within other income | (2) | 3
Redemptions | (3) | (4)
At 31 December | 17 | 22
(Gains) losses recognised in the income statement, within other income, relating to the change in fair value of those liabilities held at 31 December | (2) | 3

(3)Derivatives
Valuation hierarchy
All of the Group’s derivative assets and liabilities are carried at fair value. At 31 December 2025, such assets totalled £2,214 million (2024:
£3,337 million) and liabilities totalled £3,016 million (2024: £3,490 million).
The table below analyses these derivative balances by valuation methodology (level 1, 2 or 3, as described on page 52). The fair value
measurement approach is recurring in nature. There were no significant transfers between level 1 and level 2 during the year.

| 2025 |  | 2024
The Group | Level 1 £m | Level 2 £m | Level 3 £m | Total £m |  | Level 1 £m | Level 2 £m | Level 3 £m | Total £m
Derivative assets | – | 2,214 | – | 2,214 |  | – | 3,337 | – | 3,337
Derivative liabilities | – | (2,903) | (113) | (3,016) |  | – | (3,351) | (139) | (3,490)

52 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 15: Fair values of financial assets and liabilities continued
Movements in level 3 portfolio
The table below analyses movements in level 3 derivative assets and liabilities carried at fair value.

| 2025 |  | 2024
The Group | Derivative assets £m | Derivative liabilities £m |  | Derivative assets £m | Derivative liabilities £m
At 1 January | – | (139) |  | – | (132)
Gains (losses) recognised in the income statement within other income | – | 7 |  | – | (32)
Sales | – | 19 |  | – | 25
At 31 December | – | (113) |  | – | (139)
Gains (losses) recognised in the income statement, within other income, relating to the change in fair value of those assets or liabilities held at 31 December | – | 6 |  | – | (27)

Valuation methodology for derivatives
The Group’s derivatives are valued using techniques including discounted cash flow and options pricing models, as appropriate. The types of
derivatives classified as level 2 and the valuation techniques used include:
• Interest rate swaps which are valued using discounted cash flow models; the most significant inputs into those models are interest rate yield
curves which are developed from publicly quoted rates
• Foreign exchange derivatives that do not contain options which are priced using rates available from publicly quoted sources
• Credit derivatives are valued using standard models with observable inputs, including publicly available yield and credit default swap (CDS)
curves
• Less complex interest rate and foreign exchange option products which are valued using volatility surfaces developed from publicly available
interest rate cap, interest rate swaption and other option volatilities; option volatility skew information is derived from a market standard
consensus pricing service
Complex interest rate products where inputs to the valuation are significant and unobservable are classified as level 3.
Derivatives where the counterparty becomes distressed from a credit perspective are generally reclassified to level 3 given limited observability
in all traded levels.
(4)Sensitivity of level 3 valuations
Critical accounting judgements and key sources of estimation uncertainty

Key sources of estimation uncertainty: | Interest rate spreads, credit spreads, and interest rate volatility

The Group’s valuation control framework and a description of level 1, 2 and 3 financial assets and liabilities is set out in section (A) above. The
valuation techniques for level 3 financial instruments involve management judgement and estimates, the extent of which depends on the
complexity of the instrument and the availability of market observable information. In addition, in line with market practice, the Group applies
credit, debit and funding valuation adjustments in determining the fair value of its uncollateralised derivative positions. A description of these
adjustments is set out in section (3) above.

|  |  | 2025 |  | 2024
|  |  |  |  | Effect of reasonably possible alternative assumptions 1 |  |  |  | Effect of reasonably possible alternative assumptions 1
| Valuation techniques | Significant unobservable inputs 2 | Carrying value £m |  | Favourable changes £m | Unfavourable changes £m |  | Carrying value £m |  | Favourable changes £m |  | Unfavourable changes £m
Financial assets at fair value through profit or loss
Loans and advances to customers | Discounted cash flows | Interest rate spreads (+/- 6%)3 | 253 |  | 19 |  | (17) |  | 278 |  | 19 |  | (18)
Level 3 financial assets carried at fair value | 253 |  |  |  |  |  | 278 |  |  |  |
Financial liabilities at fair value through profit or loss
Securitisation notes | Discounted cash flows | Interest rate spreads (+/- 50bps)4 | 17 |  | 1 |  | (1) |  | 22 |  | 1 |  | (1)
Derivative financial liabilities
Shared appreciation right | Market values – property valuation | HPI (+/- 1%)5 | 113 |  | 11 |  | (10) |  | 139 |  | 12 |  | (11)
Level 3 financial liabilities carried at fair value | 130 |  |  |  |  |  | 161 |  |  |  |

1 Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table.
2 Ranges are shown where appropriate and represent the highest and lowest inputs used in the level 3 valuations.
3 2024: +/- 50bps.
4 2024: +/- 50bps.
5 2024: +/- 1%.

53 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 15: Fair values of financial assets and liabilities continued
Unobservable inputs
Significant unobservable inputs affecting the valuation of debt securities and derivatives relate to v olatility parameters representing key
attributes of option behaviour; higher volatilities typically denote a wider range of possible outcomes.
Reasonably possible alternative assumptions
Valuation techniques applied to many of the Group’s level 3 instruments often involve the use of two or more inputs whose relationship is
interdependent. The calculation of the effect of reasonably possible alternative assumptions included in the table above reflects such
relationships.
(C)Financial assets and liabilities carried at amortised cost
(1)Financial assets
Valuation hierarchy
The table below analyses the fair values of those financial assets of the Group which are carried at amortised cost by valuation methodology
(level 1, 2 or 3, as described on page 5 0). Financial assets carried at amortised cost are mainly classified as level 3 due to significant
unobservable inputs used in the valuation models. Where inputs are observable, debt securities are classified as level 1 or 2.

| Carrying value £m | Fair value £m |  | Valuation hierarchy
The Group |  | Level 1 £m | Level 2 £m | Level 3 £m
At 31 December 2025 |  |  |  |  |  |
Loans and advances to banks | 131 | 131 |  | – | – | 131
Loans and advances to customers | 312,855 | 313,834 |  | – | – | 313,834
Debt securities | 1,041 | 1,036 |  | – | 41 | 995
Due from fellow Lloyds Banking Group undertakings | 14,153 | 14,153 |  | – | – | 14,153
At 31 December 2024 |  |  |  |  |  |
Loans and advances to banks | 111 | 111 |  | – | – | 111
Loans and advances to customers | 300,789 | 298,373 |  | – | – | 298,373
Debt securities | 1,350 | 1,343 |  | – | – | 1,343
Due from fellow Lloyds Banking Group undertakings | 15,024 | 15,024 |  | – | – | 15,024

The carrying amount of the following financial instruments is a reasonable approximation of fair value: cash and balances at central banks and
notes in circulation.
Valuation methodology
Loans and advances to banks
The carrying value of short-dated loans and advances to banks is assumed to be their fair value. The fair value of other loans and advances to
banks is estimated by discounting the anticipated cash flows at a market discount rate adjusted for the credit spread of the obligor or, where
not observable, the credit spread of borrowers of similar credit quality.
Loans and advances to customers
The Group provides loans and advances to commercial, corporate and personal customers at both fixed and variable rates.
To determine the fair value of loans and advances to customers, loans are segregated into portfolios of similar characteristics. A number of
techniques are used to estimate the fair value of fixed rate lending; these take account of expected credit losses based on historic trends,
prevailing market interest rates and expected future cash flows. For retail exposures, fair value is usually estimated by discounting anticipated
cash flows (including interest at contractual rates) at market rates for similar loans offered by the Group and other financial institutions.
Certain loans secured on residential properties are made at a fixed rate for a limited period, typically two to five years, after which the loans
revert to the relevant variable rate. The fair value of such loans is estimated by reference to market rates for similar loans of maturity equal to
the remaining fixed interest rate period. The fair value of commercial loans is estimated by discounting anticipated cash flows at a rate which
reflects the effects of interest rate changes, adjusted for changes in credit risk.
Debt securities
The fair values of debt securities are determined predominantly from lead manager quotes and, where these are not available, by alternative
techniques including reference to credit spreads on similar assets with the same obligor, market standard consensus pricing services, broker
quotes and other research data.

54 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 15: Fair values of financial assets and liabilities continued
(2)Financial liabilities
Valuation hierarchy
The table below analyses the fair values of those financial liabilities of the Group which are carried at amortised cost by valuation methodology
(level 1, 2 or 3, as described on page 5 0).

| Carrying value £m | Fair value £m |  | Valuation hierarchy
The Group |  | Level 1 £m | Level 2 £m | Level 3 £m
At 31 December 2025 |  |  |  |  |  |
Deposits from banks | 99 | 99 |  | – | 99 | –
Customer deposits | 167,586 | 168,476 |  | – | 168,476 | –
Repurchase agreements at amortised cost | 10,443 | 10,443 |  | – | 10,443 | –
Due to fellow Lloyds Banking Group undertakings | 125,551 | 125,551 |  | – | 125,551 | –
Debt securities in issue at amortised cost | 8,933 | 8,925 |  | – | 8,925 | –
Subordinated liabilities | 1,782 | 1,789 |  | – | 1,789 | –
At 31 December 2024 |  |  |  |  |  |
Deposits from banks | 179 | 179 |  | – | 179 | –
Customer deposits | 165,053 | 165,478 |  | – | 165,478 | –
Repurchase agreements at amortised cost | 22,168 | 22,168 |  | – | 22,168 | –
Due to fellow Lloyds Banking Group undertakings | 106,931 | 106,931 |  | – | 106,931 | –
Debt securities in issue at amortised cost | 8,654 | 8,705 |  | – | 8,705 | –
Subordinated liabilities | 2,183 | 2,200 |  | – | 2,200 | –

Valuation methodology
Deposits from banks and customer deposits
The fair value of bank and customer deposits repayable on demand is assumed to be equal to their carrying value.
The fair value for all other deposits is estimated using discounted cash flows applying either market rates, where applicable, or current rates for
deposits of similar remaining maturities.
Repurchase agreements at amortised cost
The carrying amount is deemed a reasonable approximation of fair value given the short-term nature of these instruments.
Debt securities in issue at amortised cost
The fair value of short-term debt securities in issue is approximately equal to their carrying value. Fair value for other debt securities in issue is
calculated based on quoted market prices where available. Where quoted market prices are not available, fair value is estimated using
discounted cash flow techniques at a rate which reflects market rates of interest and the Lloyds Banking Group’s own credit spread.
Subordinated liabilities
The fair value of subordinated liabilities is determined by reference to quoted market prices where available or by reference to quoted market
prices of similar instruments. Subordinated liabilities are classified as level 2, since the inputs used to determine their fair value are largely
observable.
(D)Reclassifications of financial assets
There have been no reclassifications of financial assets in 2024 or 2025.

55 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 16: Derivative financial instruments
The fair values and notional amounts of derivative instruments are set out in the following table:

| 2025 |  | 2024
| Contract/ notional amount £m |  | Fair value |  | Contract/ notional amount £m |  | Fair value
The Group |  | Assets £m |  | Liabilities £m |  |  | Assets £m |  | Liabilities £m
Trading and other |  |  |  |  |  |  |  |  |  |  |
Exchange rate contracts | 7,130 |  | 20 |  | 146 |  | 8,323 |  | 129 |  | 264
Interest rate contracts | 35,059 |  | 2,055 |  | 2,350 |  | 43,919 |  | 2,452 |  | 2,945
Credit derivatives | 1,072 |  | 7 |  | 4 |  | 1,380 |  | 2 |  | 12
Other contracts | 29 |  | – |  | 105 |  | 64 |  | 1 |  | 130
Total derivative assets/liabilities – trading and other | 43,290 |  | 2,082 |  | 2,605 |  | 53,686 |  | 2,584 |  | 3,351
Hedging |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps designated as fair value hedges | 93,749 |  | 132 |  | 411 |  | 83,131 |  | 753 |  | 139
Total recognised derivative assets/liabilities | 137,039 |  | 2,214 |  | 3,016 |  | 136,817 |  | 3,337 |  | 3,490

The notional amount of the contract does not represent the Group’s exposure to credit risk, which is limited to the current cost of replacing
contracts with a positive value to the Group should the counterparty default. To reduce credit risk the Group uses a variety of credit
enhancement techniques such as netting and collateralisation, where security is provided against the exposure; a large proportion of the
Group’s derivatives are held through exchanges such as London Clearing House and are collateralised through those exchanges. Further details
are provided in note 35 in the section ‘Credit risk’.
The Group holds derivatives as part of the following strategies:
• Customer driven, where derivatives are held as part of the provision of risk management products to Group customers
• To manage and hedge the Group’s interest rate and foreign exchange risk arising from normal banking business. The hedge accounting
strategy adopted by the Group is to utilise a combination of fair value and cash flow hedge approaches as described in note 35
The principal derivatives used by the Group are as follows:
• Interest rate related contracts that include interest rate swaps, forward rate agreements and options. An interest rate swap is an agreement
between two parties to exchange fixed and floating interest payments, based upon interest rates defined in the contract, without the
exchange of the underlying principal amounts. Forward rate agreements are contracts for the payment of the difference between a
specified rate of interest and a reference rate, applied to a notional principal amount at a specific date in the future. An interest rate option
gives the buyer, on payment of a premium, the right, but not the obligation, to fix the rate of interest on a future loan or deposit, for a
specified period and commencing on a specified future date
• Exchange rate related contracts that include forward foreign exchange contracts, currency swaps and options. A forward foreign exchange
contract is an agreement to buy or sell a specified amount of foreign currency on a specified future date at an agreed rate. Currency swaps
generally involve the exchange of interest payment obligations denominated in different currencies. A currency option gives the buyer, on
payment of a premium, the right, but not the obligation, to sell specified amounts of currency at agreed rates of exchange on or before a
specified future date
• Credit derivatives, principally credit default swaps, are used by the Group as part of its trading activity and to manage its own exposure to
credit risk. A credit default swap is a swap in which one counterparty receives a premium at pre-set intervals in consideration for
guaranteeing to make a specific payment should a negative credit event take place
The Group’s hedged items and gains and losses arising from hedge accounting are summarised as follows:

| Carrying amount of the hedged item |  | Accumulated amount of fair value adjustment on the hedged item |  | Change in fair value of hedged item for ineffectiveness assessment £m |  | Hedge ineffectiveness recognised in the income statement 3 £m
The Group At 31 December 2025 |  |  |
Assets £m |  | Liabilities £m |  | Assets £m |  | Liabilities £m |  |
Fair value hedges |  |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |
Fixed rate issuance 1 | – |  | 204 |  | – |  | 26 |  | (4) |  | –
Fixed rate mortgages 2 | 94,715 |  | – |  | 460 |  | – |  | 438 |  | (2)
Total | 94,715 |  | 204 |  | 460 |  | 26 |  | 434 |  | (2)
At 31 December 2024 |  |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |
Fixed rate issuance 1 | – |  | 716 |  | – |  | 23 |  | 16 |  | –
Fixed rate mortgages 2 | 83,280 |  | – |  | 25 |  | – |  | (634) |  | 13
Total | 83,280 |  | 716 |  | 25 |  | 23 |  | (618) |  | 13

1 Included within debt securities in issue at amortised cost and subordinated liabilities.
2 Included within loans and advances to customers.
3 Hedge ineffectiveness is included in the income statement within net trading income.

56 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 16: Derivative financial instruments continued

| Gain (loss) recognised in other comprehensive income £m |  | Amounts reclassified from reserves to income statement as: |  | Cash flow hedge reserve |  | Change in fair value of hedged item for ineffectiveness assessment £m |  | Hedge ineffectiveness recognised in the income statement 3 £m
The Group At 31 December 2025 |  | Hedged item affected income statement £m | Continuing hedges £m | Discontinued hedges £m
Cash flow hedges |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |
Customer loans 1 | (10) |  | (7) |  | – | (148) |  | – |  | –
Customer deposits 2 | – |  | – |  | – | 23 |  | – |  | –
Total | (10) |  | (7) |  | – | (125) |  | – |  | –
At 31 December 2024 |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |
Customer loans 1 | 4 |  | (7) |  | – | (131) |  | – |  | –
Customer deposits 2 | (1) |  | 1 |  | – | 23 |  | – |  | –
Total | 3 |  | (6) |  | – | (108) |  | – |  | –

1 Included within loans and advances to customers.
2 Included within customer deposits.
3 Hedge ineffectiveness is included in the income statement within net trading income. The reported hedge ineffectiveness includes an adjustment for off-market derivatives.
The accumulated amount of fair value hedge adjustments remaining in the balance sheet for hedged items that have ceased to be adjusted for
hedging gains and losses is a liability of £22 million (2024: liability of £37 million).
Details of the Group’s hedging instruments are set out below:

The Group At 31 December 2025 | Maturity |  | Changes in fair value used for calculating hedge ineffectiveness £m
Up to 1 month £m |  | 1 to 3 months £m | 3 to 12 months £m |  | 1 to 5 years £m | Over 5 years £m |  | Total £m
Fair value hedges |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  |  |  |  |  |  |  |  |  |  |  |  |
Notional | – |  | 1,500 |  | 24,200 |  | 67,450 |  | 599 |  | 93,749 |  | (436)
Average fixed interest rate | – |  | 3.94% |  | 4.53% |  | 3.77% |  | 4.37% |  |  |  |
At 31 December 2024 |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  |  |  |  |  |  |  |  |  |  |  |  |
Notional | – |  | 366 |  | 36,500 |  | 44,650 |  | 1,615 |  | 83,131 |  | 631
Average fixed interest rate | – |  | 4.57% |  | 4.71% |  | 4.29% |  | 4.15% |  |  |  |

There were no amounts reclassified from the cash flow hedging reserve in 2024 or 2025 for which hedge accounting had previously been used
but for which the hedged future cash flows are no longer expected to occur.
At 31 December 2025 £2,154 million of total recognised derivative assets of the Group and £2,793 million of total recognised derivative
liabilities of the Group (2024: £2,894 million of assets and £3,199 million of liabilities) had a contractual residual maturity of greater than one
year.

| 2025 |  | 2024
| Contract/ notional amount £m |  | Fair value |  | Contract/ notional amount £m |  | Fair value
The Company |  | Assets £m |  | Liabilities £m |  |  | Assets £m |  | Liabilities £m
Trading and other |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts | – |  | – |  | – |  | 9 |  | – |  | –
Hedging |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps designated as fair value hedges | – |  | – |  | – |  | 366 |  | 13 |  | –
Total recognised derivative assets/liabilities | – |  | – |  | – |  | 375 |  | 13 |  | –

57 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 16: Derivative financial instruments continued
The Company’s hedged items and gains and losses arising from hedge accounting are summarised as follows:

The Company At 31 December 2025 | Carrying amount of the hedged item |  | Accumulated amount of fair value adjustment on the hedged item |  | Change in fair value of hedged item for ineffectiveness assessment £m |  | Hedge ineffectiveness recognised in the income statement 2 £m
Assets £m |  | Liabilities £m |  | Assets £m |  | Liabilities £m |
Fair value hedges |  |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |
Fixed rate issuance 1 | – |  | – |  | – |  | – |  | 1 |  | –
At 31 December 2024 |  |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |
Fixed rate issuance 1 | – |  | 375 |  | – |  | – |  | 3 |  | –

1 Included within subordinated liabilities.
The accumulated amount of fair value hedge adjustments remaining in the balance sheet for hedged items that have ceased to be adjusted for
hedging gains and losses is a liability of £nil (2024: liability of £nil).
T here was no hedge ineffectiveness on fair value hedges recognised in the income statement in either 2024 or 2025.
There were no amounts reclassified from the cash flow hedging reserve in 2024 or 2025 for which hedge accounting had previously been used
but for which the hedged future cash flows are no longer expected to occur.
At 31 December 2025 £nil of total recognised derivative assets of the Company and £nil of total recognised derivative liabilities of the Company
(2024: £nil of assets and £nil of liabilities) had a contractual residual maturity of greater than one year.
Details of the Company’s hedging instruments are set out below:

The Company At 31 December 2025 | Maturity |  | Changes in fair value used for calculating hedge ineffectiveness £m
Up to 1 month £m |  | 1 to 3 months £m | 3 to 12 months £m |  | 1 to 5 years £m | Over 5 years £m |  | Total £m |
Fair value hedges |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  |  |  |  |  |  |  |  |  |  |  |  |
Notional | – |  | – |  | – |  | – |  | – |  | – |  | (1)
Average fixed interest rate | – |  | – |  | – |  | – |  | – |  |  |  |
At 31 December 2024 |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  |  |  |  |  |  |  |  |  |  |  |  |
Notional | – |  | 366 |  | – |  | – |  | – |  | 366 |  | (3)
Average fixed interest rate | – |  | 4.50% |  | – |  | – |  | – |  |  |  |

58 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 17: Loans and advances to customers

| Gross carrying amount |  | Allowance for expected credit losses
The Group | Stage 1 £m |  | Stage 2 £m |  | Stage 3 £m |  | Total £m |  | Stage 1 £m |  | Stage 2 £m |  | Stage 3 £m |  | Total £m
At 1 January 2025 | 264,286 |  | 32,246 |  | 6,023 |  | 302,555 |  | 243 |  | 618 |  | 905 |  | 1,766
Exchange and other adjustments | 433 |  | – |  | – |  | 433 |  | (2) |  | 1 |  | 13 |  | 12
Transfers to Stage 1 | 4,311 |  | (4,259) |  | (52) |  | – |  | 113 |  | (107) |  | (6) |  | –
Transfers to Stage 2 | (6,136) |  | 6,816 |  | (680) |  | – |  | (15) |  | 63 |  | (48) |  | –
Transfers to Stage 3 | (633) |  | (1,312) |  | 1,945 |  | – |  | (7) |  | (88) |  | 95 |  | –
Net change in ECL due to transfers |  |  |  |  |  |  |  |  | (74) |  | 107 |  | 141 |  | 174
Impact of transfers between stages | (2,458) |  | 1,245 |  | 1,213 |  | – |  | 17 |  | (25) |  | 182 |  | 174
Other changes in credit quality |  |  |  |  |  |  |  |  | (28) |  | (54) |  | 367 |  | 285
Additions and repayments | 16,143 |  | (3,101) |  | (1,118) |  | 11,924 |  | (12) |  | (29) |  | (139) |  | (180)
(Credit) charge to the income statement |  |  |  |  |  |  |  |  | (23) |  | (108) |  | 410 |  | 279
Disposals and derecognition | – |  | – |  | – |  | – |  | – |  | – |  | – |  | –
Advances written off |  |  |  |  | (744) |  | (744) |  |  |  |  |  | (744) |  | (744)
Recoveries of amounts previously written off |  |  |  |  | 133 |  | 133 |  |  |  |  |  | 133 |  | 133
At 31 December 2025 | 278,404 |  | 30,390 |  | 5,507 |  | 314,301 |  | 218 |  | 511 |  | 717 |  | 1,446
Allowance for expected credit losses | (218) |  | (511) |  | (717) |  | (1,446) |  |  |  |  |  |  |  |
Net carrying amount | 278,186 |  | 29,879 |  | 4,790 |  | 312,855 |  |  |  |  |  |  |  |
Drawn ECL coverage 1 (%) | 0.1 |  | 1.7 |  | 13.0 |  | 0.5 |  |  |  |  |  |  |  |

1 Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.

| Gross carrying amount |  | Allowance for expected credit losses
The Group | Stage 1 £m |  | Stage 2 £m |  | Stage 3 £m |  | Total £m |  | Stage 1 £m |  | Stage 2 £m |  | Stage 3 £m |  | Total £m
At 1 January 2024 | 247,818 |  | 40,066 |  | 6,855 |  | 294,739 |  | 383 |  | 857 |  | 1,029 |  | 2,269
Exchange and other adjustments | (628) |  | – |  | – |  | (628) |  | – |  | (4) |  | 27 |  | 23
Transfers to Stage 1 | 20,940 |  | (20,904) |  | (36) |  | – |  | 262 |  | (257) |  | (5) |  | –
Transfers to Stage 2 | (18,641) |  | 19,147 |  | (506) |  | – |  | (25) |  | 73 |  | (48) |  | –
Transfers to Stage 3 | (553) |  | (1,684) |  | 2,237 |  | – |  | (7) |  | (113) |  | 120 |  | –
Net change in ECL due to transfers |  |  |  |  |  |  |  |  | (195) |  | 193 |  | 164 |  | 162
Impact of transfers between stages | 1,746 |  | (3,441) |  | 1,695 |  | – |  | 35 |  | (104) |  | 231 |  | 162
Other changes in credit quality |  |  |  |  |  |  |  |  | (125) |  | (59) |  | 405 |  | 221
Additions and repayments | 15,889 |  | (3,754) |  | (1,133) |  | 11,002 |  | (49) |  | (59) |  | (166) |  | (274)
(Credit) charge to the income statement |  |  |  |  |  |  |  |  | (139) |  | (222) |  | 470 |  | 109
Disposals and derecognition 1 | (539) |  | (625) |  | (840) |  | (2,004) |  | (1) |  | (13) |  | (67) |  | (81)
Advances written off |  |  |  |  | (688) |  | (688) |  |  |  |  |  | (688) |  | (688)
Recoveries of amounts previously written off |  |  |  |  | 134 |  | 134 |  |  |  |  |  | 134 |  | 134
At 31 December 2024 | 264,286 |  | 32,246 |  | 6,023 |  | 302,555 |  | 243 |  | 618 |  | 905 |  | 1,766
Allowance for expected credit losses | (243) |  | (618) |  | (905) |  | (1,766) |  |  |  |  |  |  |  |
Net carrying amount | 264,043 |  | 31,628 |  | 5,118 |  | 300,789 |  |  |  |  |  |  |  |
Drawn ECL coverage 2 (%) | 0.1 |  | 1.9 |  | 15.0 |  | 0.6 |  |  |  |  |  |  |  |

1 Relates to the securitisations of primarily legacy Retail mortgages.
2 Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.
At 31 December 2025 £297,364 million (2024: £285,180 million) of loans and advances to customers of the Group had a contractual residual
maturity of greater than one year.
The movement tables above are compiled by comparing the position at the end of the period to that at the beginning of the year. Transfers
between stages are deemed to have taken place at the start of the reporting period, with all other movements shown in the stage in which the
asset is held at the end of the period.
Additions and repayments comprise new loans originated and repayments of outstanding balances throughout the reporting period.
The Group’s impairment charge comprises impact of transfers between stages, other changes in credit quality and additions and repayments.
Advances written off have first been transferred to Stage 3 and then acquired a full allowance through other changes in credit quality.
Recoveries of amounts previously written off are shown at the full recovered value, with a corresponding entry in repayments and release of
allowance through other changes in credit quality.

59 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 18: Allowance for expected credit losses
The Group recognises an allowance for expected credit losses (ECLs) for loans and advances to customers, debt securities held at amortised
cost, amounts due from fellow Lloyds Banking Group undertakings and certain loan commitment and financial guarantee contracts. At 31
December 2025, the Group’s expected credit loss allowance was £1,538 million (2024: £1,882 million), of which £ 1,447 million (2024: £1,769
million) was in respect of drawn balances.
The Group’s total impairment allowances were as follows:

| At 31 December 2025 |  | At 31 December 2024
| Stage 1 £m | Stage 2 £m | Stage 3 £m | Total £m |  | Stage 1 £m | Stage 2 £m | Stage 3 £m | Total £m
In respect of: |  |  |  |  |  |  |  |  |
Loans and advances to customers | 218 | 511 | 717 | 1,446 |  | 243 | 618 | 905 | 1,766
Debt securities | – | – | 1 | 1 |  | – | – | 1 | 1
Due from fellow Lloyds Banking Group undertakings | – | – | – | – |  | 2 | – | – | 2
Drawn balances | 218 | 511 | 718 | 1,447 |  | 245 | 618 | 906 | 1,769
Provisions in relation to loan commitments and financial guarantees | 53 | 38 | – | 91 |  | 61 | 51 | 1 | 113
Total | 271 | 549 | 718 | 1,538 |  | 306 | 669 | 907 | 1,882

The calculation of the Group’s expected credit loss allowances and provisions against loan commitments and guarantees, which are set out
above , requires the Group to make a number of judgements, assumptions and estimates. The most significant are set out below:
Critical accounting judgements and key sources of estimation uncertainty

Critical judgements: | Determining an appropriate definition of default against which a probability of default, exposure at default and loss given default parameter can be evaluated
| Establishing the criteria for a significant increase in credit risk (SICR)
| The individual assessment of material cases and the use of judgemental adjustments made to impairment modelling processes that adjust inputs, parameters and outputs to reflect risks not captured by models
Key source of estimation uncertainty: | Base case and multiple economic scenarios (MES) assumptions, including the rate of unemployment and the rate of change of house prices, required for creation of MES scenarios and forward-looking credit parameters

Definition of default
The probability of default (PD) of an exposure, both over a 12-month period and over its lifetime, is a key input to the measurement of the ECL
allowance. Default has occurred when there is evidence that the customer is experiencing significant financial difficulty which is likely to affect
the ability to repay amounts due. The definition of default adopted by the Group is described in note 2(H) Impairment of financial assets. A
Stage 3 asset that is no longer credit-impaired is transferred back to Stage 2 as no general probation period is applied to assets in Stage 3. UK
mortgages is an exception to this rule where a probation period is enforced for non-performing forborne and defaulted exposures in
accordance with prudential regulation.
Significant increase in credit risk
An ECL allowance equivalent to 12 months’ expected losses is established against assets in Stage 1; assets classified as Stage 2 carry an ECL
allowance equivalent to lifetime expected losses. Assets are transferred from Stage 1 to Stage 2 when there has been a significant increase in
credit risk (SICR) since initial recognition. Credit-impaired assets are transferred to Stage 3 with a lifetime expected losses allowance. If an
exposure that is classified as Stage 2 no longer meets the SICR criteria, which in some cases capture customer behaviour in previous periods, it
is moved back to Stage 1.
The Group uses both quantitative and qualitative indicators to determine whether there has been a SICR for an asset. The setting of precise
trigger points combined with risk indicators requires judgement and the use of different trigger points may have a material impact upon the
ECL allowance. The Group monitors the effectiveness of SICR criteria on an ongoing basis.
For UK mortgages a doubling of PD since origination is set as a quantitative SICR trigger. All originations post IFRS 9 adoption incorporate
forward looking information, and for recent Interest Only accounts the likelihood of default occurring at the end of term. This is supplemented
by qualitative triggers including where customers have surpassed their original contractual term through use of term extensions, where fraud is
evident, or where an account is in arrears.
For credit cards, loans and overdrafts an increase of three PD grades since origination on the retail master scale (RMS) shown below is set as a
quantitative SICR trigger. Assets are also assumed to have suffered a SICR if they have either been in arrears on three occasions, or in default
once, in the past 12 months.

RMS grade | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14
PD boundary 1 (%) | 0.10 | 0.40 | 0.80 | 1.20 | 2.50 | 4.50 | 7.50 | 10.00 | 14.00 | 20.00 | 30.00 | 45.00 | 99.99 | 100.00

1 Probability-weighted annualised lifetime probability of default.
For Commercial Banking a doubling of PD with a minimum increase in PD of 1% since origination is treated as a SICR. This is complemented
with the use of internal credit risk classifications and ratings as qualitative indicators to identify a SICR.
The Group does not use the low credit risk exemption in its staging assessments, though more simplistic SICR criteria are applied for portfolios
not listed above. All financial assets are assumed to have suffered a SICR if they are more than 30 days past due.

60 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 18: Allowance for expected credit losses continued
Individual assessments and application of judgement in adjustments to modelled ECL
The table below analyses total ECL allowance, separately identifying the amounts that have been modelled, those that have been individually
assessed and those arising through the application of judgemental adjustments.

| Modelled ECL £m | Individually assessed £m | Judgemental adjustments £m | Total ECL £m
At 31 December 2025 | 1,312 | 59 | 167 | 1,538
At 31 December 2024 | 1,634 | 146 | 102 | 1,882

Individually assessed ECL
The Stage 3 ECL relating to commercial clients largely assessed on an individual basis by the Business Support Unit using bespoke assessment of
loss for each specific client based on potential recovery strategies. While these assessments are based on the Group’s latest economic view, the
use of Group-wide multiple economic scenarios and weightings is not considered appropriate for these cases due to their individual
characteristics. In place of this, a range of case-specific outcomes are considered with any alternative better or worse outcomes that carry a
25% likelihood taken into account in establishing a probability-weighted ECL.
Application of judgement in adjustments to modelled ECL
Impairment models fall within the Group’s model risk framework with model monitoring, periodic validation and back testing performed on
model components, such as probability of default. Limitations in the models or data inputs may be identified through these assessments and
review of model outputs, which may require appropriate judgemental adjustments to the ECL. These adjustments are determined by
considering the particular attributes of exposures which have not been adequately captured by the impairment models and range from
changes to model inputs and parameters, at account level (in-model adjustments), through to more qualitative post-model adjustments.
Other judgements
These adjustments principally comprise:
Repossession risk: £88 million (2024: £114 million)
Additional ECL continues to be held judgementally to capture the potential repossession and recovery risk from specific subsets of largely long-
term defaulted cases. This is alongside an adjustment to capture a longer duration between default and repossession than model assumptions
use on existing and future defaults. The reduction in the period reflects methodology refinement and latest data points on the population
judged at risk.
Lifetime extension: £37 million (2024: £40 million)
An adjustment is required to extend the lifetime used for Stage 2 exposures on Retail revolving products from a three-year modelled lifetime,
which reflected the outcome data available when the ECL models were developed, to a more representative lifetime. Incremental defaults
beyond year three are calculated through the extrapolation of the default trajectory observed throughout the three years and beyond.
Adjustment for specific segments: £13 million (2024: £14 million)
The Group monitors risks across specific segments of its portfolios which may not be fully captured through collective models. The judgement
for fire safety and cladding uncertainty remains in place as the only Mortgages segment sufficiently material to address, given evidence of cases
with defective cladding, or other fire safety issues.
Adjustments to loss given defaults: £3 million (2024: £(52) million)
A number of adjustments were previously made to the loss given default (LGD) assumptions used within unsecured credit models. The previous
adjustments reflected the impact of changes in collection debt sale strategy on the Group’s LGD models, incorporating up to date customer
performance and forward flow debt sale pricing. These impacts have now been integrated into the model solution following model
refinements.
In preceding years, adjustments have been required to mitigate limitations identified in the modelling approach which were causing loss given
defaults to be inflated. These included the lack of benefit from amortisation of exposures relative to collateral values at default, and the need
to reflect an exposure-weighted calculation. These two adjustments have been released following respective enhancements to models. One
remaining adjustment remains for a specific segment of the SME portfolio which judgementally applies a more appropriate blended LGD rate
from credit risk profile segments more aligned to experience.
Corporate insolvency rates: £(9) million (2024: £(35) million)
The volume of UK corporate insolvencies continues to exhibit an elevated trend beyond December 2019 levels, revealing a marked
misalignment between observed UK corporate insolvencies and the Group’s equivalent credit performance. This dislocation gives rise to
uncertainty over the drivers of the observed trends in the metric and the appropriateness of the Group’s Commercial Banking model response
which uses observed UK corporate insolvencies data to anchor future loss estimates to. Given the Group’s stable credit performance, a
negative adjustment is applied by reverting judgementally to the long-term average of the insolvency rate. The scale of the negative adjustment
reduced in the period reflecting both the reduction in observed actual UK corporate insolvencies rates, narrowing the gap of the misalignment,
as well from changes due to the interaction with the implementation of loss rate model enhancements in the period.
Global tariff and geo-political disruption risks: £3 million (2024: £nil)
This new adjustment is to recognise the potential risks to specific drivers across various corporate sectors not reflected in broad
macroeconomic model drivers. These are potential nuanced risks to businesses inherent in the base case which could also worsen in the
downside scenarios. This assessment is judgemental and apportioned across all sectors given the uncertainty of how these risks would emerge.

61 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 18: Allowance for expected credit losses continued
Generation of multiple economic scenarios
The estimate of expected credit losses is required to be based on an unbiased expectation of future economic scenarios. The approach used to
generate the range of future economic scenarios depends on the methodology and judgements adopted. The Group’s approach is to start from
a defined base case scenario, used for planning purposes, and to generate alternative economic scenarios around this base case. The base case
scenario is a conditional forecast underpinned by a number of conditioning assumptions that reflect the Group’s best view of key future
developments. If circumstances appear likely to materially deviate from the conditioning assumptions, then the base case scenario is updated.
The base case scenario is central to a range of future economic scenarios generated by simulation of an economic model, for which the same
conditioning assumptions apply as in the base case scenario. These scenarios are ranked by using estimated relationships with industry-wide
historical loss data. With the base case already pre-defined, three other scenarios are identified as averages of constituent scenarios located
around the 15th, 75th and 95th percentiles of the distribution. The full distribution is therefore summarised by a practical number of scenarios
to run through ECL models representing an upside, the base case, and a downside scenario weighted at 30% each, together with a severe
downside scenario weighted at 10%. The scenario weights represent the distribution of economic scenarios and not subjective views on
likelihood. The inclusion of a severe downside scenario with a smaller weighting ensures that the non-linearity of losses in the tail of the
distribution is adequately captured. Macroeconomic projections may employ reversionary techniques to adjust the paths of economic drivers
towards long-run equilibria after a reasonable forecast horizon. The Group does not use such techniques to force the MES scenarios to revert to
the base case planning view. Utilising such techniques would be expected to be immaterial for expected credit losses since loss sensitivity is
minimal after the initial five years of the projections.
A forum under the chairmanship of the Chief Economist meets at least quarterly to review and, if appropriate, recommend changes to the
method by which economic scenarios are generated, for approval by the Chief Financial Officer and Chief Risk Officer. Since 30 September
2025, the non-modelled adjustments previously applied to UK Bank Rate and CPI inflation in the severe downside scenario have been removed.
This is because the incremental ECL impact is no longer considered sufficiently material to justify their application. Accordingly, its removal has
had no material impact on ECL.
Base case and MES economic assumptions
The Group’s base case economic scenario has been updated to reflect global developments and changes in domestic economic policy. The
Group’s updated base case scenario has the following conditioning assumptions. First, developments in global conflicts, technology or financial
sector issues do not cause a significant degree of financial market volatility. Second, the US effective tariff rate is maintained at levels
prevailing at the balance sheet date pending a switch to a sector-based tariff framework. Third, the UK’s macroeconomic framework for
monetary and fiscal policy remains in place, alongside broader continuity on other areas of government policy.
Based on these assumptions and incorporating the economic data published for the third quarter of 2025, the Group’s base case scenario is for
a slow expansion in gross domestic product (GDP) and a further rise in the unemployment rate alongside small gains in residential and
commercial property prices. With underlying inflationary pressures expected to recede, modest further reductions in UK Bank Rate are
expected to continue in 2026. Risks around this base case economic view lie in both directions and are largely captured by the generation of
alternative economic scenarios.
The Group has taken into account the latest available information at the reporting date in defining its base case scenario and generating
alternative economic scenarios. The scenarios include forecasts for key variables as at the fourth quarter of 2025. Actual data for this period, or
restatements of past data, may have since emerged prior to publication and have not been included.
Scenarios by year
The key UK economic assumptions made by the Group are shown in the following tables across a number of measures explained below.
Annual assumptions
Gross domestic product (GDP) growth and Consumer Price Index (CPI) inflation are presented as an annual change, house price growth and
commercial real estate price growth are presented as the growth in the respective indices over each year. Unemployment rate and UK Bank
Rate are averages over the year.
Five year average
The five-year average reflects the average annual growth rate, or level, over the five-year period. It includes movements within the current
reporting year, such that the position as at 31 December 2025 covers the five years 2025 to 2029. The inclusion of the reporting year within the
five-year period reflects the need to predict variables which remain unpublished at the reporting date and recognises that credit models utilise
both level and annual changes. The use of calendar years maintains a comparability between the annual assumptions presented.
Five year start to peak and trough
The peak or trough for any metric may occur intra year and therefore not be identifiable from the annual assumptions, so they are also
disclosed. For GDP, house price growth and commercial real estate price growth, the peak, or trough, reflects the highest, or lowest cumulative
quarterly position reached relative to the start of the five-year period, which as at 31 December 2025 is 1 January 2025. Given these metrics
may exhibit increases followed by greater falls, the start to trough movements quoted may be smaller than the equivalent ‘peak to trough’
movement (and vice versa for start to peak). Unemployment, UK Bank Rate and CPI inflation reflect the highest, or lowest, quarterly level
reached in the five-year period.

62 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 18: Allowance for expected credit losses continued

At 31 December 2025 | 2025 % | 2026 % | 2027 % | 2028 % | 2029 % | 2025 to 2029 average % | Start to peak % | Start to trough %
Upside |  |  |  |  |  |  |  |
Gross domestic product growth | 1.4 | 2.0 | 2.3 | 1.6 | 1.6 | 1.8 | 9.4 | 0.7
Unemployment rate | 4.8 | 4.2 | 3.2 | 3.1 | 3.2 | 3.7 | 5.1 | 3.0
House price growth | 0.8 | 3.5 | 7.1 | 6.9 | 6.0 | 4.8 | 26.4 | (0.1)
Commercial real estate price growth | 1.2 | 7.9 | 4.9 | 1.7 | 0.8 | 3.2 | 17.3 | 0.6
UK Bank Rate | 4.13 | 3.94 | 4.59 | 5.07 | 5.33 | 4.61 | 5.39 | 3.75
CPI inflation | 3.4 | 2.6 | 2.4 | 2.8 | 3.1 | 2.9 | 3.8 | 2.1
Base case |  |  |  |  |  |  |  |
Gross domestic product growth | 1.4 | 1.2 | 1.4 | 1.5 | 1.6 | 1.4 | 7.6 | 0.7
Unemployment rate | 4.8 | 5.2 | 4.8 | 4.6 | 4.5 | 4.8 | 5.3 | 4.5
House price growth | 0.8 | 1.6 | 1.9 | 2.2 | 3.1 | 1.9 | 9.8 | (0.1)
Commercial real estate price growth | 1.2 | 0.6 | 1.7 | 0.5 | 0.2 | 0.9 | 4.4 | 0.6
UK Bank Rate | 4.13 | 3.44 | 3.25 | 3.44 | 3.50 | 3.55 | 4.50 | 3.25
CPI inflation | 3.4 | 2.6 | 2.2 | 2.2 | 2.3 | 2.6 | 3.8 | 2.1
Downside |  |  |  |  |  |  |  |
Gross domestic product growth | 1.4 | (0.3) | (0.5) | 1.1 | 1.6 | 0.7 | 3.6 | 0.1
Unemployment rate | 4.8 | 6.6 | 7.5 | 7.4 | 7.0 | 6.7 | 7.6 | 4.5
House price growth | 0.8 | (0.2) | (4.7) | (5.7) | (2.8) | (2.6) | 0.9 | (12.2)
Commercial real estate price growth | 1.2 | (7.1) | (4.2) | (2.7) | (2.3) | (3.1) | 1.3 | (14.4)
UK Bank Rate | 4.13 | 2.74 | 1.09 | 0.75 | 0.52 | 1.85 | 4.50 | 0.45
CPI inflation | 3.4 | 2.6 | 2.0 | 1.4 | 1.0 | 2.1 | 3.8 | 0.8
Severe downside |  |  |  |  |  |  |  |
Gross domestic product growth | 1.4 | (1.9) | (1.8) | 0.7 | 1.4 | 0.0 | 1.3 | (2.8)
Unemployment rate | 4.8 | 8.3 | 10.2 | 9.9 | 9.4 | 8.5 | 10.3 | 4.5
House price growth | 0.8 | (1.2) | (11.1) | (12.2) | (7.8) | (6.5) | 0.8 | (28.4)
Commercial real estate price growth | 1.2 | (17.4) | (9.8) | (7.4) | (5.4) | (8.0) | 1.3 | (34.0)
UK Bank Rate | 4.13 | 1.91 | 0.10 | 0.03 | 0.01 | 1.24 | 4.50 | 0.01
CPI inflation | 3.4 | 2.6 | 1.7 | 0.5 | (0.4) | 1.6 | 3.8 | (0.7)
Probability-weighted |  |  |  |  |  |  |  |
Gross domestic product growth | 1.4 | 0.7 | 0.8 | 1.3 | 1.6 | 1.2 | 6.1 | 0.7
Unemployment rate | 4.8 | 5.6 | 5.7 | 5.5 | 5.4 | 5.4 | 5.8 | 4.5
House price growth | 0.8 | 1.3 | 0.2 | (0.2) | 1.1 | 0.6 | 2.8 | (0.1)
Commercial real estate price growth | 1.2 | (1.3) | (0.3) | (0.9) | (0.9) | (0.4) | 1.3 | (2.6)
UK Bank Rate | 4.13 | 3.23 | 2.69 | 2.78 | 2.81 | 3.13 | 4.50 | 2.64
CPI inflation | 3.4 | 2.6 | 2.2 | 2.0 | 1.9 | 2.4 | 3.8 | 1.8

Base case scenario by quarter 1 At 31 December 2025 | First quarter 2025 % | Second quarter 2025 % | Third quarter 2025 % | Fourth quarter 2025 % | First quarter 2026 % | Second quarter 2026 % | Third quarter 2026 % | Fourth quarter 2026 %
Gross domestic product growth | 0.7 | 0.3 | 0.1 | 0.3 | 0.3 | 0.3 | 0.4 | 0.4
Unemployment rate | 4.5 | 4.7 | 5.0 | 5.1 | 5.3 | 5.3 | 5.2 | 5.1
House price growth | 2.9 | 2.7 | 1.3 | 0.8 | 1.3 | 1.6 | 1.6 | 1.6
Commercial real estate price growth | 2.5 | 2.6 | 2.6 | 1.2 | 0.5 | 0.2 | 0.1 | 0.6
UK Bank Rate | 4.50 | 4.25 | 4.00 | 3.75 | 3.75 | 3.50 | 3.25 | 3.25
CPI inflation | 2.8 | 3.5 | 3.8 | 3.7 | 3.3 | 2.6 | 2.2 | 2.2

1 Gross domestic product growth is presented quarter-on-quarter. House price growth, commercial real estate growth and CPI inflation are presented year-on-year, i.e. from the
equivalent quarter in the previous year. Unemployment rate and UK Bank Rate are presented as at the end of each quarter.

63 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 18: Allowance for expected credit losses continued

At 31 December 2024 | 2024 % | 2025 % | 2026 % | 2027 % | 2028 % | 2024 to 2028 average % | Start to peak % | Start to trough %
Upside |  |  |  |  |  |  |  |
Gross domestic product growth | 0.8 | 1.9 | 2.2 | 1.5 | 1.4 | 1.6 | 8.9 | 0.7
Unemployment rate | 4.3 | 3.5 | 2.8 | 2.7 | 2.8 | 3.2 | 4.4 | 2.7
House price growth | 3.4 | 3.7 | 6.5 | 6.6 | 5.4 | 5.1 | 28.2 | 0.4
Commercial real estate price growth | 0.7 | 7.8 | 6.7 | 3.2 | 0.5 | 3.7 | 20.0 | (0.8)
UK Bank Rate | 5.06 | 4.71 | 5.02 | 5.19 | 5.42 | 5.08 | 5.50 | 4.50
CPI inflation | 2.6 | 2.8 | 2.6 | 2.9 | 3.0 | 2.8 | 3.5 | 2.0
Base case |  |  |  |  |  |  |  |
Gross domestic product growth | 0.8 | 1.0 | 1.4 | 1.5 | 1.5 | 1.2 | 7.0 | 0.7
Unemployment rate | 4.3 | 4.7 | 4.7 | 4.5 | 4.5 | 4.5 | 4.8 | 4.2
House price growth | 3.4 | 2.1 | 1.0 | 1.4 | 2.4 | 2.0 | 10.5 | 0.4
Commercial real estate price growth | 0.7 | 0.3 | 2.5 | 1.9 | 0.0 | 1.1 | 5.4 | (0.8)
UK Bank Rate | 5.06 | 4.19 | 3.63 | 3.50 | 3.50 | 3.98 | 5.25 | 3.50
CPI inflation | 2.6 | 2.8 | 2.4 | 2.4 | 2.2 | 2.5 | 3.5 | 2.0
Downside |  |  |  |  |  |  |  |
Gross domestic product growth | 0.8 | (0.5) | (0.4) | 1.0 | 1.5 | 0.5 | 3.2 | 0.0
Unemployment rate | 4.3 | 6.0 | 7.4 | 7.4 | 7.1 | 6.4 | 7.5 | 4.2
House price growth | 3.4 | 0.6 | (5.5) | (6.6) | (3.4) | (2.4) | 4.0 | (11.4)
Commercial real estate price growth | 0.7 | (7.8) | (3.1) | (0.9) | (2.3) | (2.7) | 0.7 | (12.9)
UK Bank Rate | 5.06 | 3.53 | 1.56 | 0.96 | 0.68 | 2.36 | 5.25 | 0.59
CPI inflation | 2.6 | 2.8 | 2.3 | 1.8 | 1.2 | 2.1 | 3.5 | 0.9
Severe downside |  |  |  |  |  |  |  |
Gross domestic product growth | 0.8 | (1.9) | (1.5) | 0.7 | 1.3 | (0.1) | 1.2 | (2.4)
Unemployment rate | 4.3 | 7.7 | 10.0 | 10.0 | 9.7 | 8.4 | 10.2 | 4.2
House price growth | 3.4 | (0.8) | (12.4) | (13.6) | (8.8) | (6.7) | 3.4 | (29.2)
Commercial real estate price growth | 0.7 | (17.4) | (8.5) | (5.5) | (5.7) | (7.5) | 0.7 | (32.3)
UK Bank Rate – modelled | 5.06 | 2.68 | 0.28 | 0.08 | 0.02 | 1.62 | 5.25 | 0.02
UK Bank Rate – adjusted 1 | 5.06 | 4.03 | 2.70 | 2.23 | 1.95 | 3.19 | 5.25 | 1.88
CPI inflation – modelled | 2.6 | 2.8 | 1.9 | 1.0 | 0.1 | 1.7 | 3.5 | (0.2)
CPI inflation – adjusted 1 | 2.6 | 3.6 | 2.1 | 1.4 | 0.8 | 2.1 | 3.9 | 0.7
Probability-weighted |  |  |  |  |  |  |  |
Gross domestic product growth | 0.8 | 0.5 | 0.8 | 1.2 | 1.4 | 1.0 | 5.7 | 0.7
Unemployment rate | 4.3 | 5.0 | 5.5 | 5.4 | 5.3 | 5.1 | 5.5 | 4.2
House price growth | 3.4 | 1.8 | (0.7) | (1.0) | 0.4 | 0.8 | 5.3 | 0.4
Commercial real estate price growth | 0.7 | (1.7) | 1.0 | 0.7 | (1.1) | (0.1) | 0.7 | (1.3)
UK Bank Rate – modelled | 5.06 | 4.00 | 3.09 | 2.90 | 2.88 | 3.59 | 5.25 | 2.88
UK Bank Rate – adjusted 1 | 5.06 | 4.13 | 3.33 | 3.12 | 3.08 | 3.74 | 5.25 | 3.06
CPI inflation – modelled | 2.6 | 2.8 | 2.4 | 2.2 | 1.9 | 2.4 | 3.5 | 1.8
CPI inflation – adjusted 1 | 2.6 | 2.9 | 2.4 | 2.3 | 2.0 | 2.4 | 3.5 | 1.9

1 The adjustment to UK Bank Rate and CPI inflation in the severe downside was considered to better reflect the risks around the Group’s base case view in an economic environment
where the risks of supply and demand shocks are more balanced.

Base case scenario by quarter 1 At 31 December 2024 | First quarter 2024 % | Second quarter 2024 % | Third quarter 2024 % | Fourth quarter 2024 % | First quarter 2025 % | Second quarter 2025 % | Third quarter 2025 % | Fourth quarter 2025 %
Gross domestic product growth | 0.7 | 0.4 | 0.0 | 0.1 | 0.2 | 0.3 | 0.3 | 0.3
Unemployment rate | 4.3 | 4.2 | 4.3 | 4.4 | 4.5 | 4.6 | 4.7 | 4.8
House price growth | 0.4 | 1.8 | 4.6 | 3.4 | 3.6 | 4.0 | 3.0 | 2.1
Commercial real estate price growth | (5.3) | (4.7) | (2.8) | 0.7 | 1.8 | 1.4 | 0.9 | 0.3
UK Bank Rate | 5.25 | 5.25 | 5.00 | 4.75 | 4.50 | 4.25 | 4.00 | 4.00
CPI inflation | 3.5 | 2.1 | 2.0 | 2.5 | 2.4 | 3.0 | 2.9 | 2.7

1 Gross domestic product growth is presented quarter-on-quarter. House price growth, commercial real estate growth and CPI inflation are presented year-on-year, i.e. from the
equivalent quarter in the previous year. Unemployment rate and UK Bank Rate are presented as at the end of each quarter.

64 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 18: Allowance for expected credit losses continued
ECL sensitivity to economic assumptions
The following table shows the Group’s ECL for the probability-weighted, upside, base case, downside and severe downside scenarios. The stage
allocation for an asset is based on the overall probability-weighted probability of default and hence the staging of assets is constant across all
the scenarios. In each economic scenario the ECL for individual assessments is held constant reflecting the basis on which they are evaluated.
Judgemental adjustments applied through changes to model inputs or parameters, or more qualitative post model adjustments, are
apportioned across the scenarios in proportion to modelled ECL where this better reflects the sensitivity of these adjustments to each scenario.
The probability-weighted view shows the extent to which a higher ECL allowance has been recognised to take account of multiple economic
scenarios relative to the base case; the uplift on a statutory basis being £228 million compared to £287 million at 31 December 2024.

| At 31 Deember 2025 |  | At 31 December 2024
| Probability- weighted £m | Upside £m | Base case £m | Downside £m | Severe downside £m |  | Probability- weighted £m | Upside £m | Base case £m | Downside £m | Severe downside £m
ECL allowance | 1,538 | 1,074 | 1,310 | 1,802 | 2,822 |  | 1,882 | 1,265 | 1,595 | 2,174 | 3,721

The impact of isolated changes in the UK unemployment rate and House Price Index (HPI) has been assessed on a univariate basis. Although
such changes would not be observed in isolation, as economic indicators tend to be correlated in a coherent scenario, this gives insight into the
sensitivity of the Group’s ECL to gradual changes in these two critical economic factors.
The impacts are assessed as changes to probability-weighted modelled ECL inclusive of the impacts upon staging of assets, excluding post
model adjustments. In previous assessments, impacts were assessed as changes to base case modelled ECL only (at 100% weighting) with
staging held flat to the reported view, and similarly excluded post model adjustments. The updated approach addresses the limitations of the
prior methodology and provides a more representative view of the potential impact of these sensitivities.
The ECL impact due to a change in unemployment has reduced in 2025 compared to 2024 as a result of lower loss rates within the Commercial
Banking model. The HPI reduction versus 2024 is due to lower default rates and a reduced proportion of assets in Stage 2 for UK mortgages,
following strong credit performance in the year.
The table below shows the impact on the Group’s ECL resulting from a 1 percentage point increase or decrease in the UK unemployment rate.
The increase or decrease is presented based on the adjustment phased evenly over the first 10 quarters of all four scenarios. A more immediate
increase or decrease would drive a more material ECL impact as it would be fully reflected in both 12-month and lifetime probability of
defaults.

| At 31 December 2025 |  | At 31 December 2024 1
| 1pp increase in unemployment £m | 1pp decrease in unemployment £m |  | 1pp increase in unemployment £m | 1pp decrease in unemployment £m
ECL impact | 46 | (44) |  | 81 | (70)

1 For 2025, impacts are assessed as changes to probability-weighted modelled ECL inclusive of the impacts upon staging of assets, excluding post model adjustments. The
comparative period has been represented on a consistent basis.
The table below shows the impact on the Group’s ECL in respect of UK mortgages of an increase or decrease in loss given default for a
10 percentage point increase or decrease in HPI. The increase or decrease is presented based on the adjustment phased evenly over the first 10
quarters of all four scenarios.

| At 31 December 2025 |  | At 31 December 2024 1
| 10pp increase in HPI £m | 10pp decrease in HPI £m |  | 10pp increase in HPI £m | 10pp decrease in HPI £m
ECL impact | (155) | 233 |  | (184) | 275

1 For 2025, impacts are assessed as changes to probability-weighted modelled ECL inclusive of the impacts upon staging of assets, excluding post model adjustments. The
comparative period has been represented on a consistent basis.
Note 19: Finance lease receivables
The Group’s finance lease receivables are classified as loans and advances to customers and accounted for at amortised cost. These balances
are analysed as follows:

| The Group
| 2025 £m | 2024 £m
Not later than 1 year | 238 | 188
Later than 1 year and not later than 2 years | 219 | 194
Later than 2 years and not later than 3 years | 186 | 166
Later than 3 years and not later than 4 years | 143 | 90
Later than 4 years and not later than 5 years | 45 | 79
Later than 5 years | 40 | 70
Gross investment | 871 | 787
Unearned future finance income | (117) | (115)
Net investment | 754 | 672

Equipment leased to customers under finance lease receivables relates to financing transactions to fund the purchase of motor vehicles, ships,
sea freight transportation, and waste water treatment facilities. There was an allowance for uncollectable finance lease receivables included in
the allowance for impairment losses for the Group of £10 million (2024: £9 million).

65 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 20: Goodwill

| The Group
| 2025 £m | 2024 £m
Cost | 452 | 452
Accumulated impairment losses | – | –
At 1 January and 31 December | 452 | 452

The goodwill held in the Group’s balance sheet is tested at least annually for impairment. This compares the estimated recoverable amount,
being the higher of a cash-generating unit’s fair value less costs to sell and its value in use, with the carrying value. When this indicates that the
carrying value is not recoverable it is written down through the income statement as goodwill impairment. For the purposes of impairment
testing the goodwill is allocated to the appropriate cash generating unit; the entire balance of £452 million has been allocated to the Bank of
Scotland cash generating unit.
The recoverable amount of goodwill carried at 31 December 2025 has been based on a value in use calculation using post-tax cash flow
projections based on financial budgets and plans approved by management covering a four-year period and a discount rate (post tax) of 10.5%,
based on the Group’s cost of equity. This is equivalent to a pre-tax rate of 14.0%. The budgets and plans are based upon past experience and
having regard to expected market conditions and competitor activity. The cash flows beyond the plan period are extrapolated using a growth
rate of 3.5% which does not exceed the long-term average for the markets in which Bank of Scotland participates. Management believes that
any reasonably possible change in the key assumptions would not cause the recoverable amount to fall below the balance sheet carrying value.
Note 21: Investment in subsidiary undertakings of the Company

| 2025 £m | 2024 £m
At 1 January | 22,687 | 22,664
Capital contributions | 9 | 23
At 31 December | 22,696 | 22,687

Details of the subsidiaries and related undertakings are given on pages 81 to 82 and are incorporated by reference.
Certain subsidiary companies currently have insufficient distributable reserves to make dividend payments, however, there were no further
significant restrictions on any of the Company’s subsidiaries in paying dividends or repaying loans and advances. Regulated banking subsidiaries
are required to maintain capital at levels agreed with the regulators; this may impact those subsidiaries’ ability to make distributions.
Note 22: Other assets

| The Group
| 2025 £m |  | 2024 £m
Property, plant and equipment: |  |  |
Premises | 537 |  | 490
Equipment | 121 |  | 107
Right-of-use assets (note 23) | 326 |  | 371
| 984 |  | 968
Purchased credit card relationships | 99 |  | 170
Capitalised software enhancements | 313 |  | 276
Prepayments | 197 |  | 171
Other assets | 110 |  | 171
Total other assets | 1,703 |  | 1,756

Note 23: Lessee disclosures
The table below sets out the movement in the Group’s right-of-use assets, which are primarily in respect of premises, and are recognised within
other assets (note 22).

The Group | 2025 £m |  | 2024 £m
At 1 January | 371 |  | 415
Exchange and other adjustments | (1) |  | (3)
Additions | 21 |  | 34
Disposals | (3) |  | (11)
Depreciation charge for the year | (62) |  | (64)
At 31 December | 326 |  | 371

The Group’s lease liabilities are recognised within other liabilities (note 25). The maturity analysis of the Group’s lease liabilities on an
undiscounted basis is set out in the liquidity risk section of note 35.
The total cash outflow for leases in the year ended 31 December 2025 was £84 million (2024: £90 million). The amount recognised within
interest expense in respect of lease liabilities is disclosed in note 4.

66 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 24: Debt securities in issue

| The Group
| 2025 |  | 2024
| At fair value through profit or loss £m | At amortised cost £m | Total £m |  | At fair value through profit or loss £m | At amortised cost £m | Total £m
Senior unsecured notes issued | – | 5,698 | 5,698 |  | – | 5,899 | 5,899
Securitisation notes | 17 | 3,235 | 3,252 |  | 22 | 2,755 | 2,777
Total debt securities in issue | 17 | 8,933 | 8,950 |  | 22 | 8,654 | 8,676

Securitisation programmes
The Group’s securitisation vehicles issue notes that are held both externally and internally, and are secured on loans and advances to
customers amounting to £25,662 million (2024: £25,738 million ), the majority of which have been sold by subsidiary companies to bankruptcy
remote structured entities. As the structured entities are funded by the issue of debt on terms whereby the majority of the risks and rewards of
the portfolio are retained by the subsidiary, the structured entities are consolidated fully and all of these loans are retained on the Group’s
balance sheet.
Cash deposits of £1,070 million (2024: £1,020 million ) which support the debt securities issued by the structured entities, the term advances
related to legal obligations, are held by the Group. Additionally, the Group has certain contractual arrangements to provide liquidity facilities
to some of these structured entities. At 31 December 2025 these obligations had not been triggered; the maximum exposure under these
facilities was £4 million (2024: £4 million).
The Group recognises the full liabilities associated with its securitisation programmes within debt securities in issue, although the obligations of
the Group in respect of its securitisation issuances are limited to the cash flows generated from the underlying assets. The Group could be
required to provide additional support to a number of the securitisation programmes to support the credit ratings of the debt securities issued,
in the form of increased cash reserves and the holding of subordinated notes. Further, certain programmes contain contractual obligations that
require the Group to repurchase assets should they become credit-impaired or as otherwise required by the transaction documents. The Group
has not provided financial or other support by voluntarily offering to repurchase assets from any of its public securitisation programmes during
2025 (2024: none).
At 31 December 2025 £8,203 million ( 2024: £7,220 million) of debt securities in issue at amortised cost of the Group had a contractual residual
maturity of greater than one year.
Note 25: Other liabilities

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Lease liabilities | 390 | 430 |  | – | –
Other creditors and accruals 1 | 678 | 891 |  | – | 4
Total other liabilities | 1,068 | 1,321 |  | – | 4

1 Includes settlement balances and accruals and deferred income.
The maturity analysis of the Group’s lease liabilities on an undiscounted basis is set out in the liquidity risk section of note 35.
At 31 December 2025 £ 321 million (2024: £359 million) of lease liabilities had a contractual residual maturity of greater than one year.
Note 26: Provisions
Critical accounting judgements and key sources of estimation uncertainty

Critical judgement: | Determining whether a present obligation exists and whether it is more likely than not that an outflow of resources will be required to settle that obligation

Determining the amount of the provisions, which represent management’s best estimate of the cost of settling these issues, requires the
exercise of significant judgement and estimation. It will often be necessary to form a view on matters which are inherently uncertain, such as
the scope of reviews required by regulators, and to estimate the number of future complaints, the extent to which they will be upheld, the
average cost of redress and the impact of decisions reached by legal and other review processes that may be relevant to claims received.
Consequently, the continued appropriateness of the underlying assumptions is reviewed on a regular basis against actual experience and other
relevant evidence and adjustments made to the provisions where appropriate.

The Group | Provisions for financial commitments and guarantees £m | Regulatory and legal provisions £m | Other £m | Total £m
At 1 January 2025 | 113 | 300 | 98 | 511
Provisions applied | – | (118) | (196) | (314)
Charge for the year | (22) | 46 | 187 | 211
At 31 December 2025 | 91 | 228 | 89 | 408

67 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 26: Provisions continued
Provisions for financial commitments and guarantees
Provisions are recognised for expected credit losses on undrawn loan commitments and financial guarantees.
Regulatory and legal provisions
In the course of its business, the Group is engaged on a regular basis in discussions with UK and overseas regulators and other governmental
authorities on a range of matters, including legal and regulatory reviews and, from time to time, enforcement investigations (including in
relation to compliance with applicable laws and regulations, such as those relating to prudential regulation, consumer protection, investment
advice, employment, business conduct, systems and controls, environmental, sustainability, competition/anti-trust, tax, anti-bribery, anti-
money laundering and sanctions). Any matters discussed or identified during such discussions and inquiries may result in, among other things,
further inquiry or investigation, other action being taken by governmental and/or regulatory authorities, increased costs being incurred by the
Group, remediation of systems and controls, public or private censure, restriction of the Group’s business activities and/or fines. The Group also
receives complaints and pre-action correspondence in connection with its past conduct and claims brought or threatened by or on behalf of
current and former employees, customers (including their appointed representatives), investors and other third parties and is subject to legal
proceedings and other legal actions from time to time. Any of these matters, events or circumstances could have a material adverse effect on
the Group’s financial position, operations or cash flows. Provisions are held where the Group can reliably estimate a probable outflow of
economic resources. The ultimate liability of the Group may be significantly more, or less, than the amount of any provision recognised. If the
Group is unable to determine a reliable estimate, a contingent liability is disclosed. The recognition of a provision does not amount to an
admission of liability or wrongdoing on the part of the Group. During the full year to 31 December 2025 the Group charged a further £46 million
in respect of legal actions and other regulatory matters and the unutilised balance at 31 December 2025 was £228 million (31 December 2024:
£300 million). The most significant items are outlined below.
HBOS Reading – review
The Group continues to apply the recommendations from Sir Ross Cranston’s review, issued in December 2019, including a reassessment of
direct and consequential losses by an independent panel (the Foskett Panel), an extension of debt relief and a wider definition of de facto
directors. The Foskett Panel’s full scope and methodology was published on 7 July 2020. The Foskett Panel’s stated objective is to consider
cases via a non-legalistic and fair process and to make its decisions in a generous, fair and common sense manner, assessing claims against an
expanded definition of the fraud and on a lower evidential basis.
In June 2022, the Foskett Panel announced an alternative option, in the form of a fixed sum award which could be accepted as an alternative
to participation in the full re-review process, to support earlier resolution of claims for those deemed by the Foskett Panel to be victims of the
fraud.
All of the population have now had an initial decision, with a small number of the populations’ challenges to the Panel’s initial decision ongoing
through the published process, with operational costs, redress and tax costs associated with the re-reviews recognised within the amount
provided.
Notwithstanding the settled claims and the increase in outcomes which builds confidence in the full estimated cost, uncertainties remain and
the final outcome could be different. There is no confirmed timeline for the completion of the re-review process nor the separate review by
Dame Linda Dobbs. The Group remains committed to implementing the recommendations in full.
Payment protection insurance (PPI)
The Group continues to challenge PPI litigation cases, with mainly operational costs and legal fees associated with litigation activity recognised
within regulatory and legal provisions.
Other
Provisions are also made for staff and other costs related to Group restructuring initiatives at the point at which the Group becomes
committed to the expenditure; at 31 December 2025 provisions of £39 million (31 December 2024: £25 million) were held.
Note 27: Subordinated liabilities
The movement in subordinated liabilities during the year was as follows:

| The Group |  | The Company
| Preferred securities £m |  | Undated £m |  | Dated £m |  | Total £m |  | Preferred securities £m |  | Undated £m |  | Dated £m |  | Total £m
At 1 January 2024 | – |  | 37 |  | 2,168 |  | 2,205 |  | – |  | 8 |  | 630 |  | 638
Foreign exchange movements | – |  | – |  | (13) |  | (13) |  | – |  | – |  | (14) |  | (14)
Other movements (cash and non-cash)2 | – |  | – |  | (9) |  | (9) |  | – |  | – |  | 4 |  | 4
At 31 December 2024 | – |  | 37 |  | 2,146 |  | 2,183 |  | – |  | 8 |  | 620 |  | 628
Repurchases and redemptions during the year 1: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
4.50% Fixed Rate Step-up Subordinated Notes 2030 (€441 million) | – |  | – |  | (371) |  | (371) |  | – |  | – |  | (371) |  | (371)
5.75% Undated Step-up Subordinated Notes callable 2025 (£9 million) | – |  | (9) |  | – |  | (9) |  | – |  | (9) |  | – |  | (9)
| – |  | (9) |  | (371) |  | (380) |  | – |  | (9) |  | (371) |  | (380)
Foreign exchange movements | – |  | – |  | (13) |  | (13) |  | – |  | – |  | (11) |  | (11)
Other movements (cash and non-cash)2 | – |  | 1 |  | (9) |  | (8) |  | – |  | 1 |  | (13) |  | (12)
At 31 December 2025 | – |  | 29 |  | 1,753 |  | 1,782 |  | – |  | – |  | 225 |  | 225

1 The repurchases and redemptions in the year resulted in cash outflows of £380 million for the Group and £380 million for the Company (2024: £nil for the Group and £nil for the
Company)
2 Other movements include hedge accounting movements and cash payments in respect of interest on subordinated liabilities in the year amounting to £127 million for the Group
and £30 million for the Company (2024: £140 million for the Group and £31 million for the Company) offset by the interest expense in respect of subordinated liabilities of £114
million for the Group and £17 million for the Company (2024: £141 million for the Group and £31 million for the Company).

68 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 27: Subordinated liabilities continued
At 31 December 2025 £279 million of the subordinated liabilities of the Group and £225 million of the Company (2024 : £1,796 million and £241
million) had a contractual residual maturity of greater than one year.
These securities will, in the event of the winding-up of the issuer, be subordinated to the claims of depositors and all other creditors of the
issuer, other than creditors whose claims rank equally with, or are junior to, the claims of the holders of the subordinated liabilities. The
subordination of specific subordinated liabilities is determined in respect of the issuer and any guarantors of that liability. The claims of holders
of preference shares and preferred securities are generally junior to those of the holders of undated subordinated liabilities, which in turn are
junior to the claims of holders of the dated subordinated liabilities.
The Company has in issue preference shares which are all classified as liabilities under accounting standards. The rights and obligations
attaching to these shares are set out in the Company’s articles of association, a copy of which can be obtained from Companies House, and in
the form SH01 uploaded by Companies House on 22 January 2010.
Note 28: Share capital
(1)Authorised share capital
As permitted by the Companies Act 2006, the Company has removed references to authorised share capital from its articles of association.
(2)Issued and fully paid share capital

| The Group and the Company
| 2025 Number of shares 1 | 2024 Number of shares |  | 2025 £m | 2024 £m
Issued and fully paid ordinary shares |  |  |  |  |
Ordinary shares of 25p each |  |  |  |  |
At 1 January and 31 December | 15,113,262,841 | 15,113,262,841 |  | 3,778 | 3,778
Issued and fully paid preference shares |  |  |  |  |
Preference shares of £1 each |  |  |  |  |
At 1 January and 31 December | 100 | 100 |  | – | –
Issued and fully paid non-voting deferred shares |  |  |  |  |
Non-voting deferred shares of £0.25 each |  |  |  |  |
At 1 January and 31 December | 1 | 1 |  | – | –
Total share capital at 31 December |  |  |  | 3,778 | 3,778

1 Ordinary shares represent effectively 100% of total share capital in issue as the issued preference shares represent below 0.01%
(3)Share capital and control
There are no limitations on voting rights or restrictions on the transfer of shares in the Company other than as set out in the articles of
association, and certain restrictions which may from time to time be imposed by law and regulations (for example, insider trading laws).
Ordinary shares
The holders of ordinary shares are entitled to receive the Company’s report and accounts, attend, speak and vote at general meetings and
appoint proxies to exercise voting rights. Holders of ordinary shares may also receive a dividend (subject to the provisions of the Company’s
articles of association) and in the event of a winding up, may share in the assets of the Company.
Preference shares
The Company has in issue preference shares which are all classified as liabilities under accounting standards and which are included in note 27.
Non-voting deferred shares
The Company has in issue one non-voting deferred share.

69 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 29: Other reserves

| The Group |  | The Company
| 2025 £m |  | 2024 £m |  | 2025 £m |  | 2024 £m
Merger reserve and other reserves |  |  |  |  |  |  |
At 1 January and 31 December | 10,051 |  | 10,051 |  | 9,537 |  | 9,537
Capital redemption reserve |  |  |  |  |  |  |
At 1 January and 31 December | 141 |  | 141 |  | 141 |  | 141
Non-distributable capital contribution reserve |  |  |  |  |  |  |
At 1 January and 31 December | 1,054 |  | 1,054 |  | – |  | –
Revaluation reserve in respect of debt securities held at fair value through other comprehensive income |  |  |  |  |  |  |
At 1 January | 9 |  | 12 |  | – |  | –
Movements recognised in comprehensive income | (8) |  | (3) |  | – |  | –
At 31 December | 1 |  | 9 |  | – |  | –
Cash flow hedging reserve |  |  |  |  |  |  |
At 1 January | (78) |  | (76) |  | – |  | –
Movements recognised in comprehensive income | (12) |  | (2) |  | – |  | –
At 31 December | (90) |  | (78) |  | – |  | –
Foreign currency translation reserve |  |  |  |  |  |  |
At 1 January | – |  | – |  | – |  | –
Movements recognised in comprehensive income | 2 |  | – |  | – |  | –
At 31 December | 2 |  | – |  | – |  | –
Total other reserves at 31 December | 11,159 |  | 11,177 |  | 9,678 |  | 9,678

Note 30: Dividends on ordinary shares
During the year the Company paid cumulative interim dividends of £980 million (2024: £ 1,050 million). The directors have not recommended a
final dividend for the year ended 31 December 2025 (2024: £nil).
Dividends paid during the year were as follows:

| 2025 £m | 2024 £m
Interim dividends | 980 | 1,050

In February 2026, the directors approved the payment of an interim dividend of £480 million, which was paid on 16 February 2026.
Note 31: Related party transactions
Key management personnel
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of an
entity; the Group’s key management personnel are the members of the Lloyds Banking Group plc Group Executive Committee together with its
non-executive directors.
The table below details, on an aggregated basis, key management personnel compensation:

Compensation | 2025 £m | 2024 £m
Salaries and other short-term benefits | 7 | 7
Share-based payments | 11 | 9
Total compensation | 18 | 16

The aggregate of the emoluments of the directors was £5.3 million (2024: £4.6 million).
There were no aggregate contributions in respect of key management personnel to defined contribution pension scheme (2024: £nil).
The total for the highest paid director (Charlie Nunn) was £ 3,049,000 (2024: Charlie Nunn: £2,483,000); this did not include any gain on
exercise of Lloyds Banking Group plc shares in any year.

Share plans settled in Lloyds Banking Group plc shares | 2025 million | 2024 million
At 1 January | 114 | 55
Granted, including certain adjustments (includes entitlements of appointed key management personnel) | 42 | 69
Exercised/lapsed (includes entitlements of former key management personnel) | (9) | (10)
At 31 December | 147 | 114

The tables below detail, on an aggregated basis, balances outstanding at the year end and related income and expense, together with
information relating to other transactions between the Group and its key management personnel:

Loans | 2025 £m | 2024 £m
At 1 January | 1 | 1
Advanced (includes loans to appointed key management personnel) | 1 | 1
Repayments (includes loans to former key management personnel) | (1) | (1)
At 31 December | 1 | 1

70 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 31: Related party transactions continued
The loans are on both a secured and unsecured basis and are expected to be settled in cash. The loans attracted interest rates of between
3.67% and 31.80% in 2025 (2024: 2.03% and 32.40%).
No provisions have been recognised in respect of loans given to key management personnel (2024: £nil ).

Deposits | 2025 £m | 2024 £m
At 1 January | 8 | 14
Placed (includes deposits of appointed key management personnel) | 43 | 31
Withdrawn (includes deposits of former key management personnel) | (44) | (37)
At 31 December | 7 | 8

Deposits placed by key management personnel attracted interest rates of up to 6.25% (2024: 6.25%).
At 31 December 2025 the Group did not provide any guarantees in respect of key management personnel (2024: none).
At 31 December 2025, transactions, arrangements and agreements entered into by the Lloyds Banking Group and its banking subsidiaries with
directors and connected persons included amounts outstanding in respect of loans and credit card transactions of £36.1 thousand with three
directors and one connected person (2024: £29.0 thousand with five directors and no connected persons).
Balances and transactions with fellow Lloyds Banking Group undertakings
Balances and transactions between members of the HBOS Group
In accordance with IFRS 10 Consolidated Financial Statements, transactions and balances between the Company and its subsidiary
undertakings, and between those subsidiary undertakings, have all been eliminated on consolidation and thus are not reported as related party
transactions of the Group.
The Company, as a result of its position as parent of a banking group, has a large number of transactions with various of its subsidiary
undertakings; these are included on the balance sheet of the Company as follows:

| 2025 £m | 2024 £m
Assets, included within: |  |
Derivative financial instruments | – | 13
Financial assets at amortised cost: due from fellow Lloyds Banking Group undertakings | 2,690 | 3,139
Liabilities, included within: |  |
Due to fellow Lloyds Banking Group undertakings | 2,257 | 2,324

Due to the size and volume of transactions passing through these accounts, it is neither practical nor meaningful to disclose information on
gross inflows and outflows. During 2025 the Company earned interest income on the above asset balances of £124 million (2024: £144 million)
and incurred interest expense on the above liability balances of £77 million (2024: £80 million).
Intercompany recharges are recognised within other operating income.
Balances and transactions with Lloyds Banking Group plc and fellow subsidiaries of the Lloyds Banking Group
The Company and its subsidiaries have balances due to and from the Company’s ultimate parent company, Lloyds Banking Group plc and
fellow subsidiaries of the Lloyds Banking Group. These are included on the balance sheet as follows:

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Assets, included within: |  |  |  |  |
Derivative financial instruments | 1,878 | 2,893 |  | – | –
Financial assets at amortised cost: due from fellow Lloyds Banking Group undertakings | 14,153 | 15,024 |  | – | 2
Liabilities, included within: |  |  |  |  |
Due to fellow Lloyds Banking Group undertakings | 125,551 | 106,931 |  | – | 2
Derivative financial instruments | 2,702 | 3,028 |  | – | –
Debt securities in issue at amortised cost | 5,449 | 5,363 |  | – | –
Subordinated liabilities | 1,503 | 1,504 |  | – | –

Due to the size and volume of transactions passing through these accounts, it is neither practical nor meaningful to disclose information on
gross inflows and outflows. During 2025 the Group earned £757 million and the Company earned £nil interest income on the above asset
balances (2024: Group £984 million, Company £nil); the Group incurred £5,838 million and the Company incurred £nil interest expense on the
above liability balances (2024: Group £5,532 million, Company £nil).
Other related party transactions
Pension funds
At 31 December 2025, customer deposits of £22 million (2024: £20 million) related to the HBOS Group’s pension funds.
Joint ventures and associates
At 31 December 2025 there were loans and advances to customers of £22 million (2024: £23 million) outstanding and balances within customer
deposits of £1 million (2024: £1 million) relating to joint ventures and associates.

71 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 32: Contingent liabilities, commitments and guarantees
Contingent liabilities, commitments and guarantees
At 31 December 2025 contingent liabilities, such as performance bonds and letters of credit, arising from the banking business were £133 million
(31 December 2024: £98 million ).
The contingent liabilities of the Group arise in the normal course of its banking business and it is not practicable to quantify their future
financial effect. Total commitments and financial guarantees were £63,919 million (31 December 2024: £65,069 million) , of which in respect of
undrawn formal standby facilities, credit lines and other commitments to lend, £18,752 million (31 December 2024: £18,025 million)
was irrevocable.
Capital commitments
There was no capital expenditure contracted but not provided for at 31 December 2025 (2024: £nil).
Interchange fees
With respect to multi-lateral interchange fees (MIFs), the Lloyds Banking Group is not a party in the ongoing or threatened litigation which
involves the card schemes Visa and Mastercard or any settlements of such litigation. However, the Group is a member/licensee of Visa and
Mastercard and other card schemes.
Litigation has been brought by or on behalf of retailers against both Visa and Mastercard in the English Courts, in which retailers are seeking
damages on grounds that Visa and Mastercard’s MIFs breached competition law. This includes a final judgment of the Supreme Court in 2020
that certain historic interchange arrangements of Mastercard and Visa infringed competition law and a subsequent judgment of the
Competition Appeal Tribunal in June 2025 finding that all default interchange fee rules of Mastercard and Visa (including after the Interchange
Fee Regulation) infringed competition law.
Separate litigation was brought on behalf of UK consumers in the English Courts against Mastercard (settlement of which was approved by the
Competition Appeal Tribunal in the first half of 2025).
Any impact on the Group of the litigation against Visa and Mastercard remains uncertain at this time, such that it is not practicable for the
Group to provide an estimate of any potential financial effect. Insofar as Visa is required to pay damages to retailers for interchange fees set
prior to June 2016, contractual arrangements to allocate liability have been agreed between various UK banks (including the Lloyds Banking
Group) and Visa Inc, as part of Visa Inc’s acquisition of Visa Europe in 2016. These arrangements cap the maximum amount of liability to which
the Lloyds Banking Group may be subject and this cap is set at the cash consideration received by the Lloyds Banking Group for the sale of its
stake in Visa Europe to Visa Inc in 2016. In 2016, the Lloyds Banking Group received Visa preference shares as part of the consideration for the
sale of its shares in Visa Europe. A release assessment is carried out by Visa on certain anniversaries of the sale (in line with the Visa Europe sale
documentation) and as a result, some Visa preference shares may be converted into Visa Inc Class A common stock from time to time. Any such
releases and any subsequent sales of Visa common stock do not impact the contingent liability.
LIBOR and other trading rates
Certain Lloyds Banking Group companies, together with other panel banks, were previously named as defendants in private lawsuits in the US
in connection with their roles as panel banks contributing to the setting of US dollar, Japanese yen and Sterling London Interbank Offered Rate.
Certain Group company dismissals from these lawsuits remain subject to appeal.
Certain Lloyds Banking Group companies are also named as defendants in two Dutch class actions, raising LIBOR manipulation allegations and
one English claim Lloyds Banking relating to the alleged mis-sale of interest rate hedging products which also includes an allegation of LIBOR
manipulation.
It is currently not possible to predict the scope and ultimate outcome on the Lloyds Banking Group of any private lawsuits . As such, it is not
practicable to provide an estimate of any potential financial effect.
Tax authorities
The Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which ceased
trading on 31 December 2010. In 2020, HMRC concluded its enquiry into the matter and issued a closure notice denying the group relief claim.
The Group appealed to the First Tier Tax Tribunal. The hearing took place in May 2023. In January 2025, the First Tier Tribunal concluded in
favour of HMRC. The Group believes it has applied the rules correctly and that the claim for group relief is correct. Having reviewed the
Tribunal’s conclusions and having taken appropriate advice the Group has appealed to the Upper Tier Tax Tribunal, and does not consider this
to be a case where an additional tax liability will ultimately fall due. If the final determination of the matter by the judicial process is that
HMRC’s position is correct, management believes that this would result in an increase in current tax liabilities of approximately £420 million
(including interest). Following the First Tier Tax Tribunal outcome, the tax has been paid to HMRC and recognised as a current tax asset, given
the Group’s view that the tax liability will not ultimately fall due. The appeal has been listed for hearing in March 2027, however final
conclusion of the judicial process may not be for several years.
There are a number of other open matters on which the Group is in discussions with HMRC (including the tax treatment of costs relating to
HBOS Reading) none of which is expected to have a material impact on the financial position of the Group.
Arena and Sentinel litigation claims
The Group is facing claims brought by (i) Arena Television Limited and Arena Holdings Limited and (ii) Sentinel Broadcast Limited, alleging
breach of duty and/or mandate in connection with an external fraud. The Group’s application for permission to appeal the Court’s decision not
to determine a central legal issue on a summary basis was refused on 29 January 2026. The Group is continuing to defend the claims, which are
now proceeding to trial. At this stage, it is not practicable to estimate the timing of any such trial, the final outcome of the matter or its
financial impact (if any) to the Group.
Other legal actions and regulatory matters
In addition, in the course of its business the Group is subject to other complaints and threatened or actual legal proceedings (including class or
group actions) brought by or on behalf of current or former employees, customers (including their appointed representatives), investors or
other third parties, as well as legal and regulatory reviews, enquiries and examinations, requests for information, audits, challenges,
investigations and enforcement actions, which could relate to a number of issues. This includes matters in relation to compliance with
applicable laws and regulations, such as those relating to prudential regulation, employment, consumer protection, investment advice, business
conduct, systems and controls, environmental, sustainability, competition/anti-trust, tax, anti-bribery, anti-money laundering and sanctions,
some of which may be beyond the Group’s control, both in the UK and overseas. Where material, such matters are periodically reassessed, with
the assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability. The Group
does not currently expect the final outcome of any such case to have a material adverse effect on its financial position, operations or cash
flows. Where there is a contingent liability related to an existing provision the relevant disclosures are included within note 26.

72 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 33: Structured entities
The Group’s interests in structured entities are both consolidated and unconsolidated. Details of the Group’s interests in consolidated
structured entities are set out in note 24 for securitisation vehicles, and note 10 for structured entities associated with the Group’s pension
schemes. Details of the Group’s interests in unconsolidated structured entities are included below.
Unconsolidated structured entities
The Group considers itself the sponsor of a structured entity where it is primarily involved in the design and establishment of the structured
entity and further where the Group transfers assets to the structured entity, markets products associated with the structured entity in its own
name and/or provides guarantees regarding the structured entity’s performance.
The following table describes the types of structured entities that the Group does not consolidate but in which it holds an interest.

|  |  | Total assets of structured entities
Type of entity | Nature and purpose of structured entities | Interest held by the Group | 2025 £bn | 2024 £bn
Securitisation vehicles | These vehicles issue asset-backed notes to investors and facilitate the management of the Group’s balance sheet. | • Interest in notes issued by the vehicles • Fees for loan servicing | 3 | 4

The following table sets out an analysis of the carrying amount of interest held by the Group in the unconsolidated structured entities. The
maximum exposure to loss is the carrying amounts of the assets held.

Carrying amount | Recognised within; | 2025 £m | 2024 £m
Notes held in securitisation vehicles | Financial assets at fair value through profit or loss; and Financial assets at amortised cost | 1,044 | 1,408

During the year the Group has not provided any non-contractual financial or other support to these entities and has no current intention of
providing any non-contractual financial or other support in the future.
The carrying amount of assets transferred to securitisation vehicles at the time of transfer was £nil (2024: £2,004 million) and the Group
recognised £nil gain or loss on transfer (2024: gain of £11 million).
Continuing involvement in financial assets that have been derecognised
The Group has derecognised financial assets in their entirety following transactions with securitisation vehicles, as noted above. The continuing
involvement largely arises from funding provided to the vehicles through the purchase of issued notes. The majority of these notes are
recognised as debt securities held at amortised cost, with the remaining notes held by the Group recognised at fair value through profit or loss.
The carrying amount of these interests and the maximum exposure to loss is included in the table above. At 31 December 2025 the fair value of
the retained notes was £1,039 million (2024: £1,400 million). The income from the Group’s interest in these structures for the year ended 31
December 2025 was £31 million (2024: £108 million) and cumulatively for the lifetime was £253 million (2024: £222 million).
Note 34: Transfers of financial assets
Transferred financial assets derecognised in their entirety with ongoing exposure
Through asset securitisations, the Group has transferred financial assets which were derecognised in their entirety, with some continuing
involvement. Further details are available in note 33.
Transferred financial assets that continue to be recognised
Details of transferred financial assets that continue to be recognised in full are as follows.
The Group enters into repurchase and securities lending transactions in the normal course of business that do not result in derecognition of the
financial assets as substantially all of the risks and rewards, including credit, interest rate, prepayment and other price risks are retained by the
Group. In all cases, the transferee has the right to sell or repledge the assets concerned.
As set out in note 24 , included within financial assets measured at amortised cost are loans transferred under the Group’s securitisation
programmes. As the Group retains all or a majority of the risks and rewards associated with these loans, including credit, interest rate,
prepayment and liquidity risk, they remain on the Group’s balance sheet. Assets transferred into the Group’s securitisation programmes are not
available to be used by the Group while the assets are within the programmes. However, where the Group has retained some of the notes
issued by securitisation programmes, the Group has the ability to sell or pledge these retained notes.
The table below sets out the carrying values of the transferred assets and the associated liabilities. For repurchase and securities lending
transactions, the associated liabilities represent the Group’s obligation to repurchase the transferred assets. For securitisation programmes, the
associated liabilities represent the external notes in issue (note 24). The liabilities shown in the table below have recourse to the transferred
assets.

| 2025 |  | 2024
The Group | Assets £m | Liabilities £m |  | Assets £m | Liabilities £m
Repurchase and securities lending transactions |  |  |  |  |
Debt securities held at amortised cost | 522 | – |  | 750 | –
Securitisation programmes |  |  |  |  |
Financial assets at amortised cost: |  |  |  |  |
Loans and advances to customers 1 | 25,662 | 3,252 |  | 25,738 | 2,777

1 The carrying value of associated liabilities for the Group excludes securitisation notes held by the Group of £15,880 million (31 December 2024: £16,708 million).

73 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 35: Financial risk management
Financial instruments are fundamental to the Group’s activities and the associated risks represent a significant component of the overall risks
faced by the Group.
The primary risks affecting the Group through its use of financial instruments are: market risk, credit risk, liquidity risk and capital risk. The
following disclosures provide quantitative and qualitative information about the Group’s exposure to these risks.
Market risk
(A)Interest rate
The Group’s risk management policy is to optimise reward while managing its market risk exposures within the risk appetite defined by the
Lloyds Banking Group Board. The Group’s largest residual interest rate risk exposure arises from balances that are deemed to be insensitive to
changes in market rates (including current accounts, a portion of variable rate deposits and investable equity). The risk is managed through the
Lloyds Banking Group’s structural hedge which consists of longer-term fixed rate assets and interest rate swaps. The notional balance and
duration of the structural hedge is reviewed regularly by the Lloyds Banking Group Asset and Liability Committee.
The Lloyds Banking Group establishes hedge accounting relationships for interest rate risk components using cash flow hedges and fair value
hedges. The Lloyds Banking Group is exposed to cash flow interest rate risk on its variable rate loans and deposits together with its floating rate
subordinated debt. The derivatives used to manage the Lloyds Banking Group structural hedge may be designated into cash flow hedges to
manage income statement volatility. The economic items related to the Lloyds Banking Group structural hedge, for example current accounts,
are not eligible hedged items under IAS 39 for inclusion into accounting hedge relationships. The Lloyds Banking Group is exposed to fair value
interest rate risk on its fixed rate customer loans, its fixed rate customer deposits and the majority of its subordinated debt. The Lloyds Banking
Group applies netting between similar risks before applying hedge accounting.
Hedge ineffectiveness arises during the management of interest rate risk due to residual unhedged risk. Sources of ineffectiveness, which the
Group may decide to not fully mitigate, can include basis differences, timing differences and notional amount differences. The effectiveness of
accounting hedge relationships is assessed between the hedging derivatives and the documented hedged item, which can differ to the
underlying economically hedged item.
(B)Foreign exchange
The Group’s exposure to foreign exchange risk is not significant.
All non-structural foreign exchange exposures in the non-trading book are managed centrally within allocated exposure limits. Trading book
exposures in the authorised trading centres are allocated exposure limits. The limits are monitored daily by the local centres and reported to
the market and liquidity risk function in London.
Credit risk
Credit risk appetite is set at Board level and is described and reported through a suite of metrics devised from a combination of accounting and
credit portfolio performance measures, which include the use of various credit risk rating systems as inputs and assess credit risk at a
counterparty level using three components: (i) the probability of default by the counterparty on its contractual obligations; (ii) the current
exposures to the counterparty and their likely future development, from which the Group derives the exposure at default; and (iii) the likely
loss ratio on the defaulted obligations, the loss given default. The Group uses a range of approaches to mitigate credit risk, including internal
control policies, obtaining collateral, using master netting agreements and other credit risk transfers, such as asset sales and credit derivatives
based transactions. The Group’s credit risk exposure is predominantly in the United Kingdom.
(A)Maximum credit exposure
The maximum credit risk exposure of the Group in the event of other parties failing to perform their obligations is considered to be the balance
sheet carrying amount or, for non-derivative off-balance sheet transactions and financial guarantees, their contractual nominal amounts (not
taking into account any collateral held).
Further details can be seen in note 14 and note 32.

74 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 35: Financial risk management continued
Concentrations of exposure
The Group’s management of concentration risk includes portfolio controls on certain industries, sectors and products to reflect risk appetite as
well as individual, customer and bank limit risk tolerances. Credit policies and appetite statements are aligned to the Lloyds Banking Group’s
risk appetite and restrict exposure to higher risk countries and potentially vulnerable sectors and asset classes. Exposures are monitored to
prevent both an excessive concentration of risk and single name concentrations. The Group’s largest credit limits are regularly monitored by the
Lloyds Banking Group Board Risk Committee and reported in accordance with regulatory requirements. As part of its credit risk policy, the
Group considers sustainability risk (which incorporates environmental (including climate), social and governance) in the assessment of
commercial facilities.
At 31 December 2025 the most significant concentrations of exposure were in mortgages.

| The Group
| 2025 £m | 2024 £m
Agriculture, forestry and fishing | 499 | 509
Construction | 441 | 606
Energy and water supply | 100 | 23
Financial, business and other services | 554 | 601
Manufacturing | 150 | 173
Mining and Quarrying | 4 | 5
Personal: |  |
Mortgages 1 | 291,639 | 279,702
Lease financing 2 | 625 | 672
Other | 16,671 | 16,356
Postal and telecommunications | 30 | 28
Property companies | 2,489 | 2,795
Transport, distribution and hotels | 1,099 | 1,085
Total loans and advances to customers before allowance for impairment losses | 314,301 | 302,555
Allowance for impairment losses (note 18) | (1,446) | (1,766)
Total loans and advances to customers | 312,855 | 300,789

1 Includes Wealth.
2 Lease financing, previously reported in aggregate, is presented separately according to whether the lending is personal or non personal. Non personal lease financing is allocated to
the industries or sectors relevant to the exposure. Comparatives are represented on a consistent basis.
Credit quality of other financial assets
Cash and balances at central banks
Substantially all of the Group’s cash and balances at central banks are due from the Bank of England.
Loans and advances to bank s
All of the Group’s loans and advances to banks are assessed as Stage 1.
Loans and advances to customers
The Group uses two credit ratings systems, according to the characteristics of exposures and the way that they are managed internally; these
credit ratings are set out below. All probabilities of default (PDs) include forward-looking information and are based on 12-month values, with
the exception of credit-impaired.

RMS |  | CMS
Quality classification | IFRS 9 PD range |  | Quality classification | IFRS 9 PD range
RMS 1–3 | 0.00–0.80% |  | CMS 1–5 | 0.000–0.100%
RMS 4–6 | 0.81–4.50% |  | CMS 6–10 | 0.101–0.500%
RMS 7–9 | 4.51–14.00% |  | CMS 11–14 | 0.501–3.000%
RMS 10 | 14.01–20.00% |  | CMS 15–18 | 3.001–20.000%
RMS 11–13 | 20.01–99.99% |  | CMS 19 | 20.001–99.999%
RMS 14 | 100.00% |  | CMS 20–23 | 100.000%

Stage 3 assets include balances of £39 million (2024: £30 million) (with outstanding amounts due of £345 million (2024: £290 million)) which
have been subject to a partial write-off and where the Group continues to enforce recovery action.
There were no (2024: £nil) modifications of Stage 2 and Stage 3 assets during the year and no material gain or loss was recognised by the
Group.
As at 31 December 2025 there were no (2024: £nil) significant assets that had been previously modified while classified as Stage 2 or Stage 3
and were classified as Stage 1.

75 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 35: Financial risk management continued

The Group Gross drawn exposures and expected credit loss allowance | Drawn exposures |  | Allowance for expected credit losses
Stage 1 £m |  | Stage 2 £m |  | Stage 3 £m |  | Total £m |  | Stage 1 £m |  | Stage 2 £m |  | Stage 3 £m |  | Total £m
At 31 December 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
RMS 1–3 | 254,481 |  | 16,832 |  | – |  | 271,313 |  | 51 |  | 97 |  | – |  | 148
RMS 4–6 | 17,338 |  | 7,243 |  | – |  | 24,581 |  | 100 |  | 79 |  | – |  | 179
RMS 7–9 | 1,571 |  | 1,940 |  | – |  | 3,511 |  | 52 |  | 86 |  | – |  | 138
RMS 10 | 44 |  | 496 |  | – |  | 540 |  | 2 |  | 32 |  | – |  | 34
RMS 11–13 | 82 |  | 3,175 |  | – |  | 3,257 |  | 1 |  | 173 |  | – |  | 174
RMS 14 | – |  | – |  | 5,275 |  | 5,275 |  | – |  | – |  | 655 |  | 655
| 273,516 |  | 29,686 |  | 5,275 |  | 308,477 |  | 206 |  | 467 |  | 655 |  | 1,328
CMS 1–5 | 726 |  | – |  | – |  | 726 |  | – |  | – |  | – |  | –
CMS 6–10 | 1,551 |  | 3 |  | – |  | 1,554 |  | 1 |  | – |  | – |  | 1
CMS 11–14 | 1,835 |  | 241 |  | – |  | 2,076 |  | 7 |  | 4 |  | – |  | 11
CMS 15–18 | 291 |  | 340 |  | – |  | 631 |  | 4 |  | 27 |  | – |  | 31
CMS 19 | – |  | 120 |  | – |  | 120 |  | – |  | 13 |  | – |  | 13
CMS 20–23 | – |  | – |  | 232 |  | 232 |  | – |  | – |  | 62 |  | 62
| 4,403 |  | 704 |  | 232 |  | 5,339 |  | 12 |  | 44 |  | 62 |  | 118
Other | 485 |  | – |  | – |  | 485 |  | – |  | – |  | – |  | –
Total loans and advances to customers | 278,404 |  | 30,390 |  | 5,507 |  | 314,301 |  | 218 |  | 511 |  | 717 |  | 1,446

The Group Gross drawn exposures and expected credit loss allowance | Drawn exposures |  | Allowance for expected credit losses
Stage 1 £m |  | Stage 2 £m |  | Stage 3 £m |  | Total £m |  | Stage 1 £m |  | Stage 2 £m |  | Stage 3 £m |  | Total £m
At 31 December 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
RMS 1–3 | 240,165 |  | 17,719 |  | – |  | 257,884 |  | 52 |  | 138 |  | – |  | 190
RMS 4–6 | 17,375 |  | 8,162 |  | – |  | 25,537 |  | 108 |  | 101 |  | – |  | 209
RMS 7–9 | 1,580 |  | 2,131 |  | – |  | 3,711 |  | 59 |  | 105 |  | – |  | 164
RMS 10 | 34 |  | 469 |  | – |  | 503 |  | 2 |  | 39 |  | – |  | 41
RMS 11–13 | 42 |  | 3,200 |  | – |  | 3,242 |  | 1 |  | 201 |  | – |  | 202
RMS 14 | – |  | – |  | 5,686 |  | 5,686 |  | – |  | – |  | 754 |  | 754
| 259,196 |  | 31,681 |  | 5,686 |  | 296,563 |  | 222 |  | 584 |  | 754 |  | 1,560
CMS 1–5 | 990 |  | – |  | – |  | 990 |  | – |  | – |  | – |  | –
CMS 6–10 | 1,098 |  | 7 |  | – |  | 1,105 |  | 1 |  | – |  | – |  | 1
CMS 11–14 | 2,307 |  | 74 |  | – |  | 2,381 |  | 12 |  | 1 |  | – |  | 13
CMS 15–18 | 631 |  | 383 |  | – |  | 1,014 |  | 8 |  | 21 |  | – |  | 29
CMS 19 | – |  | 101 |  | – |  | 101 |  | – |  | 12 |  | – |  | 12
CMS 20–23 | – |  | – |  | 337 |  | 337 |  | – |  | – |  | 151 |  | 151
| 5,026 |  | 565 |  | 337 |  | 5,928 |  | 21 |  | 34 |  | 151 |  | 206
Other | 64 |  | – |  | – |  | 64 |  | – |  | – |  | – |  | –
Total loans and advances to customers | 264,286 |  | 32,246 |  | 6,023 |  | 302,555 |  | 243 |  | 618 |  | 905 |  | 1,766

Debt securities held at amortised cos t
At 31 December 2025 significantly all of the Group’s debt securities held at amortised cost are investment grade.
Debt securities at fair value through other comprehensive income
At 31 December 2025 all of the Group’s financial assets at fair value through other comprehensive income are investment grade.
Derivative assets
The Group reduces exposure to credit risk by using master netting agreements and by obtaining collateral in the form of cash or highly liquid
securities.

76 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 35: Financial risk management continued

| 2025 |  | 2024
The Group | Investment grade 1 £m |  | Other £m |  | Total £m |  | Investment grade 1 £m |  | Other £m |  | Total £m
Trading and other | 169 |  | 167 |  | 336 |  | 401 |  | 43 |  | 444
Hedging | – |  | – |  | – |  | – |  | – |  | –
| 169 |  | 167 |  | 336 |  | 401 |  | 43 |  | 444
Due from fellow Lloyds Banking Group undertakings |  |  |  |  | 1,878 |  |  |  |  |  | 2,893
Total derivative financial instruments |  |  |  |  | 2,214 |  |  |  |  |  | 3,337

1 Credit ratings equal to or better than ‘BBB’.
Financial guarantees and loan commitments
The Group’s exposure to credit risk in respect of financial guarantees and loan commitments is not significant.
At 31 December 2025 £61,869 million were Stage 1 (2024: £62,716 million), £2,015 million were Stage 2 (2024: £2,293 million) and £35 million
were Stage 3 (2024: £61 million). Against these exposures the Group held an allowance for expected credit losses of £91 million (2024: £113
million).
Further details can be seen in note 18.
Collateral held as security for other financial assets
The principal types of collateral accepted by the Group include: residential and commercial properties; charges over business assets such as
premises, inventory and accounts receivable; financial instruments; cash; and guarantees from third parties. The Group holds collateral against
loans and advances, reverse repurchase agreements, irrevocable loan commitments, financial assets at fair value through profit or loss and
derivative assets.
The Group does not hold collateral against debt securities which are classified as financial assets held at amortised cost.
Loans and advances to customers
Retail lending
Mortgages
An analysis by loan-to-value ratio of the Group’s UK residential mortgage lending is provided below. The value of collateral used in determining
the loan-to-value ratios has been estimated based upon the last actual valuation, adjusted to take into account subsequent movements in
house prices. The market takes into account many factors, including environmental considerations such as flood risk and energy efficient
additions, in arriving at the value of a home.
In some circumstances, where the discounted value of the estimated net proceeds from the liquidation of collateral (i.e. net of costs, expected
haircuts and anticipated changes in the value of the collateral to the point of sale) is greater than the estimated exposure at default, no credit
losses are expected and no ECL allowance is recognised.

| 2025 |  | 2024
The Group Gross drawn exposures | Stage 1 £m | Stage 2 £m | Stage 3 £m | Total £m |  | Stage 1 £m | Stage 2 £m | Stage 3 £m | Total £m
Less than 60% | 124,942 | 22,293 | 3,297 | 150,532 |  | 125,836 | 24,391 | 3,685 | 153,912
60% to 70% | 45,844 | 2,504 | 753 | 49,101 |  | 46,795 | 2,780 | 818 | 50,393
70% to 80% | 44,747 | 1,282 | 402 | 46,431 |  | 38,435 | 1,112 | 412 | 39,959
80% to 90% | 35,997 | 1,154 | 227 | 37,378 |  | 29,101 | 904 | 189 | 30,194
90% to 100% | 6,640 | 160 | 91 | 6,891 |  | 4,245 | 120 | 85 | 4,450
Greater than 100% | 42 | 6 | 160 | 208 |  | 30 | 22 | 163 | 215
Total | 258,212 | 27,399 | 4,930 | 290,541 |  | 244,442 | 29,329 | 5,352 | 279,123

The Group’s credit risk disclosures for unimpaired other retail lending show assets gross of collateral and therefore disclose the maximum loss
exposure.
Commercial lending
Stage 1 and Stage 2 secured lending
For Stage 1 and Stage 2 secured commercial lending, the Group reports assets gross of collateral and therefore discloses the maximum
loss exposure.
Stage 1 and Stage 2 secured commercial lending is predominantly managed on a cash flow basis. On occasion, it may include an assessment of
underlying collateral, although, for Stage 3 lending, this will not always involve assessing it on a fair value basis. No aggregated collateral
information for the entire unimpaired secured commercial lending portfolio is provided to key management personnel.
Stage 3 secured lending
The value of collateral is re-evaluated and its legal soundness reassessed if there is observable evidence of distress of the borrower;
this evaluation is used to determine potential loss allowances and management’s strategy to either repair the business or recover the debt.
At 31 December 2025, Stage 3 secured commercial lending amounted to £82 million, net of an impairment allowance of £37 million (2024: £65
million, net of an impairment allowance of £32 million). The fair value of the collateral held in respect of impaired secured commercial lending
was £48 million (2024: £69 million). In determining the fair value of collateral, no specific amounts have been attributed to the costs of
realisation. For the purposes of determining the total collateral held by the Group in respect of impaired secured commercial lending, the value
of collateral for each loan has been limited to the principal amount of the outstanding advance in order to eliminate the effects of any over-
collateralisation and to provide a clearer representation of the Group’s exposure.

77 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 35: Financial risk management continued
Derivative assets, after offsetting of amounts under master netting arrangements
The Group reduces exposure to credit risk by using master netting agreements and by obtaining collateral in the form of cash or highly liquid
securities (see note 14).
Irrevocable loan commitments and other credit-related contingencies
The Group holds irrevocable loan commitments and other credit-related contingencies (see note 32). Collateral is held as security, in the event
that lending is drawn down, on £16,742 million for the Group (2024: £16,275 million for the Group) of these balances.
Collateral repossessed
During the year, £336 million for the Group of collateral was repossessed (2024: £256 million for the Group), consisting primarily of residential
property.
The Group generally does not take physical possession of properties or other assets held as collateral and uses external agents to realise the
value as soon as practicable, generally at auction, to settle indebtedness. Any surplus funds are returned to the borrower or are otherwise dealt
with in accordance with appropriate insolvency regulations. In certain circumstances the Group takes physical possession of assets held as
collateral against commercial lending. In such cases, the assets are carried on the Group’s balance sheet and are classified according to the
Group’s accounting policies.
Collateral pledged as security
The Group pledges assets primarily for repurchase agreements and securities lending transactions which are generally conducted under terms
that are usual and customary for standard secured borrowing contracts.
Repurchase agreements
The Group enters into repurchase agreements which include amounts due under the Bank of England’s Term Funding Scheme with additional
incentives for SMEs (TFSME) (see note 14).
Securities lending transactions
S ecurities held as collateral in the form of stock borrowed amounted to £1,789 million for the Group (2024: £1,902 million for the Group). Of
this amount, £401 million for the Group (2024: £212 million for the Group) had been resold or repledged as collateral for the Group’s own
transactions.
These transactions were generally conducted under terms that are usual and customary for standard secured lending activities.
Securitisations
In addition to the assets detailed above, the Group also holds assets that are encumbered through the Group’s securitisation programmes.
Further details of these assets are provided in note 24.

78 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 35: Financial risk management continued
Liquidity risk
Liquidity risk is defined as the risk that the Group has insufficient financial resources to meet its commitments as they fall due, or can only
secure them at excessive cost. Liquidity risk is managed through a series of measures, tests and reports that are primarily based on contractual
maturity. The Group carries out monthly stress testing of its liquidity position against a range of scenarios, including those prescribed by the
PRA. The Group’s liquidity risk appetite is also calibrated against a number of stressed liquidity metrics. The Group’s assets and liabilities may
be repaid or otherwise mature earlier or later than implied by their contractual terms.
The table below analyses financial instrument liabilities of the Group and Company on an undiscounted future cash flow basis according to
contractual maturity, into relevant maturity groupings based on the remaining period at the balance sheet date; balances with no fixed
maturity are included in the over 5 years category. In the case of dated subordinated liabilities, the maturity presented is based on call date
where applicable. The Group’s preference shares have partially discretionary coupons and have been included in the below analysis.

The Group | Up to 1 month £m |  | 1 to 3 months £m |  | 3 to 12 months £m |  | 1 to 5 years £m |  | Over 5 years £m |  | Total £m
At 31 December 2025 |  |  |  |  |  |  |  |  |  |  |
Deposits from banks | 6 |  | – |  | – |  | 93 |  | – |  | 99
Customer deposits | 143,616 |  | 6,878 |  | 14,490 |  | 4,168 |  | 9 |  | 169,161
Repurchase agreements at amortised cost | 855 |  | 255 |  | 678 |  | 6,297 |  | 3,147 |  | 11,232
Financial liabilities at fair value through profit or loss | – |  | – |  | – |  | – |  | 17 |  | 17
Notes in circulation | 2,118 |  | – |  | – |  | – |  | – |  | 2,118
Debt securities in issue at amortised cost | 45 |  | 97 |  | 1,376 |  | 7,159 |  | 1,278 |  | 9,955
Lease liabilities | – |  | 18 |  | 52 |  | 201 |  | 150 |  | 421
Subordinated liabilities | – |  | 22 |  | 1,544 |  | 68 |  | 293 |  | 1,927
Total non-derivative financial liabilities | 146,640 |  | 7,270 |  | 18,140 |  | 17,986 |  | 4,894 |  | 194,930
Derivative financial liabilities: |  |  |  |  |  |  |  |  |  |  |
Gross settled derivatives – outflows | 252 |  | 293 |  | 1,008 |  | 2,495 |  | 4,312 |  | 8,360
Gross settled derivatives – inflows | (260) |  | (23) |  | (1,086) |  | (759) |  | (3,912) |  | (6,040)
Gross settled derivatives – net flows | (8) |  | 270 |  | (78) |  | 1,736 |  | 400 |  | 2,320
Net settled derivative liabilities | 2,349 |  | – |  | – |  | – |  | 28 |  | 2,377
Total derivative financial liabilities | 2,341 |  | 270 |  | (78) |  | 1,736 |  | 428 |  | 4,697
At 31 December 2024 |  |  |  |  |  |  |  |  |  |  |
Deposits from banks | 8 |  | – |  | – |  | 172 |  | – |  | 180
Customer deposits | 141,557 |  | 5,362 |  | 16,286 |  | 2,755 |  | 8 |  | 165,968
Repurchase agreements at amortised cost | 268 |  | – |  | 13,617 |  | 9,322 |  | – |  | 23,207
Financial liabilities at fair value through profit or loss | – |  | – |  | – |  | 22 |  | – |  | 22
Notes in circulation | 2,121 |  | – |  | – |  | – |  | – |  | 2,121
Debt securities in issue at amortised cost | 145 |  | 201 |  | 1,524 |  | 6,665 |  | 1,309 |  | 9,844
Lease liabilities | 1 |  | 19 |  | 56 |  | 209 |  | 181 |  | 466
Subordinated liabilities | – |  | 407 |  | 93 |  | 1,594 |  | 349 |  | 2,443
Total non-derivative financial liabilities | 144,100 |  | 5,989 |  | 31,576 |  | 20,739 |  | 1,847 |  | 204,251
Derivative financial liabilities: |  |  |  |  |  |  |  |  |  |  |
Gross settled derivatives – outflows | 215 |  | 396 |  | 595 |  | 1,628 |  | 3,139 |  | 5,973
Gross settled derivatives – inflows | (51) |  | (382) |  | (630) |  | (638) |  | (2,570) |  | (4,271)
Gross settled derivatives – net flows | 164 |  | 14 |  | (35) |  | 990 |  | 569 |  | 1,702
Net settled derivative liabilities | 2,959 |  | – |  | – |  | 31 |  | – |  | 2,990
Total derivative financial liabilities | 3,123 |  | 14 |  | (35) |  | 1,021 |  | 569 |  | 4,692

The Company | Up to 1 month £m |  | 1 to 3 months £m |  | 3 to 12 months £m |  | 1 to 5 years £m |  | Over 5 years £m |  | Total £m
At 31 December 2025 |  |  |  |  |  |  |  |  |  |  |
Subordinated liabilities | – |  | – |  | 14 |  | 52 |  | 264 |  | 330
At 31 December 2024 |  |  |  |  |  |  |  |  |  |  |
Subordinated liabilities | – |  | 382 |  | 23 |  | 42 |  | 298 |  | 745

The principal amount for undated subordinated liabilities and preference shares with no redemption option is included within the over 5 years
column; interest of £4 million (2024: £4 million) for the Group per annum and £nil (2024: £nil) for the Company per annum which is payable in
respect of those instruments for as long as they remain in issue is not included beyond 5 years.

79 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 35: Financial risk management continued
The table below shows the contractual maturity of the Group’s contingents, commitments and financial guarantees. Commitments are shown
in the time band containing the earliest date the commitment can be drawn down. For financial guarantee contracts, the maximum amount of
the guarantee is allocated to the earliest period in which the guarantee could be called.

The Group | Within 1 year £m | 1 to 3 years £m | 3 to 5 years £m | Over 5 years £m | Total £m
At 31 December 2025 |  |  |  |  |
Total contingent liabilities | 41 | 28 | 11 | 53 | 133
Total commitments and guarantees | 63,896 | 3 | 3 | 17 | 63,919
Total contingents, commitments and guarantees | 63,937 | 31 | 14 | 70 | 64,052
At 31 December 2024 |  |  |  |  |
Total contingent liabilities | 23 | 13 | 1 | 61 | 98
Total commitments and guarantees | 65,043 | 2 | 7 | 17 | 65,069
Total contingents, commitments and guarantees | 65,066 | 15 | 8 | 78 | 65,167

Capital risk
Capital is actively managed on an ongoing basis for the Group’s principal banking subsidiary, Bank of Scotland plc.
Bank of Scotland plc maintains capital levels commensurate with a prudent level of solvency to achieve financial resilience and market
confidence. Bank of Scotland plc assesses both its regulatory capital requirements and the quantity and quality of capital resources it holds to
meet those requirements in accordance with the relevant provisions of the Capital Requirements Directive (CRD V) and Capital Requirements
Regulation (UK CRR). This is supplemented through additional regulation set out under the PRA Rulebook and through associated statements
of policy, supervisory statements and other regulatory guidance. Close monitoring of regulatory capital ratios is undertaken to ensure Bank of
Scotland plc meets regulatory requirements and risk appetite levels and deploys its capital resources efficiently.
Note 36: Cash flow statements
(A)Change in operating assets

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Change in amounts due from fellow Lloyds Banking Group undertakings | 873 | (190) |  | 1 | (4)
Change in other financial assets held at amortised cost | (11,460) | (7,458) |  | – | –
Change in financial assets at fair value through profit or loss | 25 | (12) |  | – | –
Change in derivative financial instruments | 1,109 | (481) |  | 26 | 4
Change in other operating assets | 38 | 822 |  | – | –
Change in operating assets | (9,415) | (7,319) |  | 27 | –

(B)Change in operating liabilities

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Change in deposits from banks | (80) | – |  | – | –
Change in customer deposits | 2,533 | 3,107 |  | – | –
Change in repurchase agreements | (11,725) | (8,229) |  | – | –
Change in amounts due to fellow Lloyds Banking Group undertakings | 18,620 | 14,784 |  | (69) | 18
Change in financial liabilities at fair value through profit or loss | (5) | (1) |  | – | –
Change in derivative financial instruments | (471) | (921) |  | – | –
Change in debt securities in issue at amortised cost | 279 | 44 |  | – | –
Change in other operating liabilities 1 | (274) | 401 |  | (4) | (1)
Change in operating liabilities | 8,877 | 9,185 |  | (73) | 17

1 Includes £40 million (2024: £51 million ) for the Group in respect of lease liabilities.

80 | HBOS plc Annual Report and Accounts 2025 |

Notes to the financial statements continued
for the year ended 31 December
Note 36: Cash flow statements continued
(C)Non-cash and other items

| The Group |  | The Company
| 2025 £m | 2024 £m |  | 2025 £m | 2024 £m
Interest expense and hedging valuation adjustments on subordinated liabilities 1 | 107 | 141 |  | (9) | 31
Depreciation and amortisation | 282 | 269 |  | – | –
Net charge in respect of defined benefit schemes | 6 | 12 |  | 7 | 13
Regulatory and legal provisions | 46 | 116 |  | – | –
Other provision movements | (9) | (68) |  | – | –
Allowance for loan losses | 276 | 106 |  | – | –
Write-off of allowance for loan losses, net of recoveries | (611) | (554) |  | – | –
Impairment credit relating to undrawn balances | (22) | (14) |  | – | –
Additional capital injections to subsidiaries | – | – |  | (9) | (23)
Dividends received from subsidiary undertakings | – | – |  | (980) | (1,050)
Foreign exchange impact on balance sheet 2 | 3 | 32 |  | (9) | (13)
Accretion of discounts and amortisation of premiums/issue costs | 1 | – |  | – | –
Other non-cash items | 31 | 47 |  | 9 | 27
Total non-cash items | 110 | 87 |  | (991) | (1,015)
Contributions to defined benefit schemes | (68) | (78) |  | (68) | (78)
Payments in respect of regulatory and legal provisions | (118) | (242) |  | – | –
Total other items | (186) | (320) |  | (68) | (78)
Non-cash and other items | (76) | (233) |  | (1,059) | (1,093)

1 Hedging valuation adjustments on subordinated debt, previously reported within other non-cash items, is presented together with interest expenses on subordinated liabilities.
2 When considering the movement on each line of the balance sheet, the impact of foreign exchange rate movements is removed in order to show the underlying cash impact.
(D)Analysis of cash and cash equivalents as shown in the balance sheet

| The Group |  | The Company
| 2025 £m |  | 2024 £m |  | 2025 £m |  | 2024 £m
Cash and balances at central banks | 2,767 |  | 2,853 |  | – |  | –
Loans and advances to banks | 131 |  | 111 |  | – |  | –
Less amounts with a maturity of three months or more | (103) |  | (81) |  | – |  | –
| 2,795 |  | 2,883 |  | – |  | –
Due from fellow Lloyds Banking Group Undertakings | – |  | – |  | 2,613 |  | 3,063
Total cash and cash equivalents | 2,795 |  | 2,883 |  | 2,613 |  | 3,063

Note 37: Other information
HBOS plc is incorporated as a public limited company and registered in Scotland with the registered number SC218813. HBOS plc’s registered
office is The Mound, Edinburgh, EH1 1YZ, and its principal executive offices are located at 33 Old Broad Street, London, EC2N 1HZ.
HBOS plc and its subsidiaries form a leading UK-based financial services group, whose businesses provide a wide range of banking and financial
services.
HBOS plc’s immediate parent undertaking is Lloyds Bank plc and its ultimate parent undertaking and controlling party is Lloyds Banking Group
plc which is incorporated in Scotland. Copies of the consolidated Annual Report and Accounts of Lloyds Banking Group plc may be obtained
from Lloyds Banking Group’s head office at 33 Old Broad Street, London EC2N 1HZ or downloaded via www.lloydsbankinggroup.com.

81 | HBOS plc Annual Report and Accounts 2025 |

Subsidiaries and related undertakings
In compliance with section 409 of the Companies Act 2006, the
following comprises a list of all related undertakings of the Group,
as at 31 December 2025. The list includes each undertaking’s
registered office and the percentage of the class(es) of shares held
by the Group. All shares held are ordinary shares unless indicated
otherwise in the notes.
Subsidiary undertakings
The Group directly or indirectly holds 100% of the share class or a
majority of voting rights (including where the undertaking does
not have share capital as indicated) in the following undertakings.
All material subsidiary undertakings are consolidated by Lloyds
Banking Group.

Name of undertaking | Notes
Anglo Scottish Utilities Partnership 1 | + *
Automobile Association Personal Finance Ltd | 4 i
Bank of Scotland (B G S) Nominees Ltd | 5 *
Bank of Scotland Edinburgh Nominees Ltd | 5 *
Bank of Scotland Equipment Finance Ltd | 8 i ‡
Bank of Scotland plc | 5 i v
Bank of Scotland Structured Asset Finance Ltd | 1 i
Bank of Scotland Transport Finance 1 Ltd | 8 i ‡
Bank of Wales Ltd | 8 i ‡
Barents Leasing Ltd | 1 i
BOS (Shared Appreciation Mortgages (Scotland)) Ltd | 4 i
BOS (Shared Appreciation Mortgages (Scotland) No. 2) Ltd | 4 i
BOS (Shared Appreciation Mortgages (Scotland) No. 3) Ltd | 4 i
BOS (Shared Appreciation Mortgages) No. 1 plc | 4 # i
BOS (Shared Appreciation Mortgages) No. 2 plc | 4 # i
BOS (Shared Appreciation Mortgages) No. 3 plc | 4 # i
BOS (Shared Appreciation Mortgages) No. 4 plc | 4 # i
BOS (Shared Appreciation Mortgages) No. 5 plc | 4 i
BOS (Shared Appreciation Mortgages) No. 6 plc | 4 i
BOS Personal Lending Ltd | 4 ii iii
BOSSAF Rail Ltd | 1 i
British Linen Leasing (London) Ltd | 5 i
British Linen Leasing Ltd | 5 i
British Linen Shipping Ltd | 5 i
Capital Bank Leasing 12 Ltd | 5 i
Capital Bank Leasing 3 Ltd | 8 i ‡
Capital Bank Leasing 5 Ltd | 2 i
Capital Bank Property Investments (3) Ltd | 2 i ‡
Capital Personal Finance Ltd | 4 i
Cawley (Chester) Ltd | 2 ii iii iv
CF Asset Finance Ltd | 8 i ‡
First Retail Finance (Chester) Ltd | 4 i
Forthright Finance Ltd | 2 i
Halifax Leasing (March No.2) Ltd | 1 i
Halifax Leasing (September) Ltd | 1 i
Halifax Loans Ltd | 4 i
Halifax Vehicle Leasing (1998) Ltd | 4 i
HBOS Social Housing Covered Bonds LLP | 2 *
HBOS UK Ltd | 5 i
Home Shopping Personal Finance Ltd | 4 i
Lex Vehicle Leasing (Holdings) Ltd | 8 ii iii vi ‡
Lex Vehicle Leasing Ltd | 8 i ‡

Name of undertaking | Notes
Lloyds Secretaries Ltd | 1 i
Loans.co.uk Ltd | 2 i
MBNA Ltd | 2 i
Membership Services Finance Ltd | 4 i
NWS Trust Ltd | 5 i
Pacific Leasing Ltd | 8 i ‡
Seaspirit Leasing Ltd | 1 i
Standard Property Investment (1987) Ltd | 5 ii #
Sussex County Homes Ltd | 4 i
The British Linen Company Ltd | 5 i
The Mortgage Business plc | 4 i
Thistle Leasing | + *
Tranquillity Leasing Ltd | 1 i
Waymark Asset Investments Ltd | 1 ii iii

Subsidiary undertakings continued
The Group has determined that it has the power to exercise
control over the following entities without having the majority of
the voting rights of the undertakings. Unless otherwise stated, the
undertakings do not have share capital or the Group does not hold
any shares.

Name of undertaking | Notes
Addison Social Housing Holdings Ltd | 3
Elland RMBS 2018 plc | 6
Elland RMBS Holdings Ltd | 6
Molineux RMBS 2016-1 plc | 7 ‡
Molineux RMBS Holdings Ltd | 6
Penarth Asset Securitisation Holdings Ltd | 6
Penarth Funding 1 Ltd | 6
Penarth Funding 2 Ltd | 6
Penarth Master Issuer plc | 6
Penarth Receivables Trustee Ltd | 6
Permanent Funding (No. 1) Ltd | 6
Permanent Funding (No. 2) Ltd | 6
Permanent Holdings Ltd | 6
Permanent Master Issuer plc | 6
Permanent Mortgages Trustee Ltd | 6
Permanent PECOH Holdings Ltd | 6
Permanent PECOH Ltd | 6
Syon Securities 2019 DAC | 9
Syon Securities 2020 DAC | 9
Syon Securities 2020-2 DAC | 9
Wilmington Cards 2021-1 plc | 6
Wilmington Cards Holdings Ltd | 6
Wilmington Receivables Trustee Ltd | 6

82 | HBOS plc Annual Report and Accounts 2025 |

Subsidiaries and related undertakings continued
Associated Undertaking
The Group has a participating interest in the following undertaking.

Name of undertaking | % of share class held by immediate parent company (or by the Group where this varies) | Registered office address | Notes
Addison Social Housing Ltd | 20% | 18a Capricorn Centre, Cranes Farm Road, Basildon, Essex, SS14 3JJ | i ‡

Notes
*The undertaking does not have share capital
+The undertaking does not have a registered office
#In relation to Subsidiary Undertakings, an undertaking external to the Group
holds shares
‡The undertaking is in Liquidation
(i) Ordinary Shares
(ii) A Ordinary Shares
(iii) B Ordinary Shares
(iv) C Ordinary Shares
(v) Preference Shares
(vi) Redeemable Preference Shares
Registered office addresses
(1) 25 Gresham Street, London, EC2V 7HN
(2) Cawley House, Chester Business Park, Chester, CH4 9FB
(3) 44 Esplanade, St. Helier, JE4 9WG, Jersey
(4) Trinity Road, Halifax, West Yorkshire, HX1 2RG
(5) The Mound, Edinburgh, EH1 1YZ
(6) 10th Floor 5 Churchill Place, London, E14 5HU
(7) 18a Capricorn Centre, Cranes Farm Road, Basildon, Essex, SS14 3JJ
(8) 1 More London Place, London, SE1 2AF
(9) 5th Floor, The Exchange, George’s Dock, IFSC, Dublin 1, D01 W3P9, Ireland