Balance sheet
Total assets were £2,910 million higher at £602,849 million at 31 December 2021 compared to £599,939 million at 31 December 2020. Cash and
balances at central banks were £4,391 million, or 9 per cent, higher at £54,279 million compared to £49,888 million at 31 December 2020
reflecting increased liquidity holdings as a result of the inflow of customer deposits; and retirement benefit assets were £2,817 million higher at
£4,531 million compared to £1,714 million at 31 December 2020 as a result of actuarial gains and employer contributions. Financial assets at
amortised cost decreased by £1,650 million to £490,316 million compared to £491,966 million at 31 December 2020. Loans and advances to
customers increased in the year by £5,135 million to £430,829 million, compared to £425,694 million at 31 December 2020, however this was
more than offset by a decrease in reverse repurchase agreements, held for liquidity purposes, of £6,365 million, or 11 per cent, from
£56,073 million at 31 December 2020 to £49,708 million at 31 December 2021. The increase in loans and advances to customers reflected growth
in the open mortgage book, partly offset by reductions in the closed mortgage book, other Retail balances and Commercial lending (in part
due to optimisation activities). Derivative financial instruments were £2,830 million lower at £5,511 million compared to £8,341 million at 31
December 2020, driven by movements in the yield curve.
Total liabilities were £3,256 million, or 1 per cent, higher at £562,077 million compared to £558,821 million at 31 December 2020. Customer
deposits were £24,221 million, or 6 per cent, higher at £449,373 million at 31 December 2021 compared to £425,152 million at 31 December
2020. There has been continued growth in retail current account and savings balances, reflecting reduced consumer spending during the
coronavirus pandemic, which has only been partly offset by lower levels of commercial deposits. Repurchase agreement balances were
£1,922 million, or 7 per cent, higher at £30,106 million compared to £28,184 million at 31 December 2020 however deposits from banks were
£2,867 million lower at £3,363 million compared to £6,230 million at 31 December 2020 reflecting a reduced need for this source of funding.
Debt securities in issue were £10,569 million lower at £48,724 million at 31 December 2021 compared to £59,293 million at 31 December 2020 as
the availability of Government support and liquidity measures and increased levels of customer deposits have reduced the need for new
funding issuance. Amounts due to fellow Lloyds Banking Group undertakings were £5,385 million lower at £1,490 million compared to
£6,875 million at 31 December 2020 and derivative liabilities were £3,585 million lower at £4,643 million compared to £8,228 million at 31
December 2020, again driven by movements in the yield curve.
Total equity has decreased by £346 million, or 1 per cent, from £41,118 million at 31 December 2020 to £40,772 million at 31 December 2021 as
retained profits for the year have been offset by dividends paid and a net redemption of other equity instruments; and a negative movement on
the Group's cash flow hedging reserve has been offset by a positive remeasurement in respect of the Group's post-retirement defined benefit
schemes.
Capital
The Group’s common equity tier 1 (CET1) capital ratio has increased to 16.7 per cent (31 December 2020: 15.5 per cent) largely reflecting profits
for the year and a reduction in risk-weighted assets, partially offset by dividends paid (net of the brought forward foreseeable dividend accrual),
pension contributions made to the defined benefit pension schemes and a release of IFRS 9 transitional relief which largely offset the
impairment credit through profits.
Risk-weighted assets reduced by £9,286 million, or 5 per cent, from £170,862 million at 31 December 2020 to £161,576 million at 31 December
2021. This was primarily as a result of optimisation activity undertaken in Commercial Banking, partially offset by balance sheet growth in the
business. Credit migrations have had a limited impact on the risk-weighted asset position, in part due to the increase in house prices.
The transitional total capital ratio remained at 23.5 per cent, with the benefit of the increase in CET1 capital and reduction in risk-weighted
assets broadly offset by reductions in Additional Tier 1 (AT1) and Tier 2 capital instruments. The latter largely reflected the reduction in
transitional limits applied to legacy tier 1 and tier 2 capital instruments and calls made on both AT1 and tier 2 capital instruments, partially offset
by new issuances.
The UK leverage ratio reduced to 5.3 per cent (31 December 2020: 5.5 per cent) as a result of the reduction in the fully loaded total tier 1 capital
position which was partially offset by the reduction in the leverage exposure measure, the latter primarily reflecting movements in securities
financing transactions and off-balance sheet items, net of increased balance sheet lending.
Future developments
Information about future developments is provided within the Principal risks and uncertainties section below.
Reflecting the needs of stakeholders in Board decisions
The Board is responsible for the long-term success of the Bank, setting and overseeing culture, purpose, values and strategy. The Board’s
understanding of stakeholders’ interests is central to these responsibilities, and informs key aspects of Board decision-making.
Acknowledging the breadth of the Bank’s stakeholders and the size of the organisation, stakeholder engagement takes place at a number of
levels. In addition to direct engagement by members of the Board, the Board considers the stakeholder impacts of all proposals submitted to it
from across the Bank. Stakeholder interests are central to the Board’s delegation of the management of the business to the Executive.
In turn the Executive, including the Group Chief Executive and Chief Financial Officer, routinely provide the Board with details of non-Board
stakeholder interaction and feedback through their regular business updates. Stakeholder interests are also identified by the Executive for
consideration in all other proposals put to the Board.
Interaction has again mostly been undertaken virtually this year where necessary, in compliance with the government’s COVID-19 requirements.
Section 172(1) Statement
In accordance with the Companies Act 2006 (the Act), the Directors provide this statement describing how they have had regard to the matters
set out in section 172(1) of the Act, when performing their duty to promote the success of the Bank under section 172. Further details on key
actions are also contained within the Corporate Governance Statement on pages 10 to 13. The Directors remain mindful in all their deliberations of the long-term consequences of their decisions, as well as the importance of the Bank
maintaining a reputation for high standards of business conduct and the Board engaging with, and taking account of the views of, key
stakeholders.
Key Stakeholder Engagement
The Non-Executive Directors undertook an engagement programme which allowed them to hear directly from customers, clients and
colleagues, to help understand what matters in their lives, the role the Bank plays in supporting them and how the Bank is performing in that
regard. A range of activities took place, which will extend into 2022, including meeting with customers, attending client visits and sitting with
colleagues to understand the Bank’s culture and discuss future ways of working. The Non-Executive Directors found these sessions to be of
great benefit, giving many valuable insights which they take account of, as appropriate, in their decision-making.