Lloyds Bank Offshore Pension Scheme

31 December 2015

Annual Report and Financial Statements

Lloyds Bank Offshore Pension Scheme Contents Pages Trustee Directors and advisers 1 Chair’s Statement 3 Trustee's annual report 5 Annual statement regarding governance 20 Independent Auditors’ report to the Trustee of Lloyds Bank Offshore Pension Scheme 24 Fund Account 26 Statement of Net Assets Available for Benefits 27 Notes to the financial statements 28 Independent Auditors’ Statement about Contributions to the Trustee of Lloyds Bank Offshore Pension Scheme 43 Trustee Summary of Contributions payable under the Schedules of Contributions 44 Schedule of Contributions 45 Appendix: Statement of investment principles 47

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Lloyds Bank Offshore Pension Scheme Trustee Directors and advisers Principal employer Lloyds Bank plc 25 Gresham Street, London, EC2V 7HN Participating employers Lloyds Bank International Limited Black Horse Offshore Limited Corporate trustee Lloyds Bank Offshore Pension Trust Limited (the "Trustee") Trustee directors Independent Trustee:

The Law Debenture Trust Corporation (Channel Islands) Limited * Employer appointed: A S Prescott P H Reid A Thomas (Resigned 29 February 2016) R D Willcox Member nominated: C D Taylor (Pensioner) P W Gallichan (Pensioner) T P Wild (Pensioner) (Resigned 6 May 2015) P M P McAuley (Appointed 18 August 2015)

* The Law Debenture Trust Corporation (Channel Islands) Limited acts as Chairman of the Trustee board

Secretary Lloyds Corporate Services (Jersey) Limited – Secretary to the Trustee BWCI Group (appointed 3 February 2015) – Secretary to the Scheme Group pensions Lloyds Banking Group – Pensions Department 5th Floor, 125 London Wall, London, EC2Y 5AS E-mail: grouppensions.grouppensions@lloydsbanking.com Scheme administrator Equiniti Limited Pensions Administration, PO Box 2712, Bristol, BS1 9WD Tel: 0845 300 5797 E-mail: pensionadminenquiries@equiniti.com Actuary and investment advisers Willis Towers Watson – J C Wintle Watson House, London Road, Reigate, Surrey, RH2 9PQ Independent auditors PricewaterhouseCoopers LLP 2 Glass Wharf, Bristol, BS2 0FR Advocates Mourant Ozannes PO Box 87, 22 Grenville Street, St Helier, Jersey, JE4 8PX Cains Advocates Limited Fort Anne, Douglas, Isle of Man, IM1 5PD Allen & Overy LLP One Bishops Square, London, E1 6AD Covenant adviser KPMG LLP 15 Canada Square, Canary Wharf, London, E14 5GL Tax advisor KPMG LLP (appointed 15 June 2016) 15 Canada Square, Canary Wharf, London, E14 5GL

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Lloyds Bank Offshore Pension Scheme Trustee Directors and advisers (continued) Investment managers Benchmark Plus Management LLC CB Richard Ellis Collective Investors UK Limited

Legal & General Assurance (Pensions Management) Limited Rockspring Hanover Real Estate Investment Management Limited Custodian The Bank of New York Mellon – Asset Servicing 1 Canada Square, Canary Wharf, London, E14 5AL Nominee company BNY Mellon Nominees Limited Bankers Lloyds Bank plc

City Office, PO Box 72, Bailey Drive, Gillingham Business Park, Kent, ME8 0LS

Scheme advisers There are written agreements in place between the Trustee and each of the Scheme's advisers listed on pages 1 and 2.

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Lloyds Bank Offshore Pension Scheme Chair’s Statement On behalf of the Board of Directors of the Trustee, we are pleased to present the annual report for the Scheme year 1 January 2015 to 31 December 2015. Managing the Scheme The Board of Directors has sole responsibility for ensuring that the benefits are provided to members in accordance with the deed and rules and relevant legislation. The assets of the Scheme are separate from those of the Lloyds Bank plc (the ‘Employer’), though we rely on the Employer to contribute to the Scheme in respect of future service benefits and any deficits relating to accrued benefits. The Board has a duty to act in the best interests of Scheme members at all times. We would like to take this opportunity to thank our fellow Directors for their efforts in helping to ensure the smooth running of the Scheme. We are fortunate in having the support that is provided by the Group Pensions Department and various professional advisors, details of whom can be found on pages 1 and 2. Day-to-day administration is carried out by Equiniti Limited, who report regularly to the Trustee. In addition to the quarterly Board meetings, a Standing Sub Committee (SSC) meets to take forward Trustee business and the Valuation Working Group (VWG) meets as required to progress work on the actuarial valuation and associated matters. The SSC has a remit to progress matters between full Board meetings and this allows more time to be focused on matters such as administration. The Board regularly reviews the performance of the investment managers and maintains what it considers to be an appropriate strategy with the aim of ensuring that investment returns are maximised with due regard to an acceptable level of risk. The Directors are reviewing the investment strategy and discussing, as appropriate, with the Employer to ensure that the strategy is appropriate. An Investment Committee is being formed to meet quarterly and review the investment requirements and strategy for the Scheme. The Board has a Business Plan and Risk Register in place, and these are regularly reviewed by the Board with a view to ensuring good Scheme governance. The Trustee continued to participate in two joint working groups, the Defined Contribution Investment Committee and the Defined Contribution Operations Committee, with trustees from other defined contribution schemes across the Lloyds Banking Group. In addition a DC Governance & Risk Committee was established which aims to ensure that the Lloyds Bank Offshore Pension Scheme remains at the forefront of best practice and is able to react quickly to the increasingly frequent changes in legislation, regulation and general environment in which defined contribution pensions exist. The following events occurred within the Scheme year: • Factors: As is common practice, following the conclusion of the 2012 Valuation in March 2015, the Scheme

factors were reviewed, new factors were agreed with the Scheme actuary and after consultation with Employer and these were implemented in September 2015.

• Administration: Following the conclusion of due diligence, Request for Information and Request for Quote

processes, the decision was taken to change Scheme administrators and a contract with the new administrator, Willis Towers Watson, was signed on 23 December 2015. The administration is expected to move to Willis Towers Watson in October 2016.

• Member communications: The Pension Update newsletter and Benefit Statements were made bespoke to

the Offshore population and distributed as planned. • Rules and Policies: The rules were amended by deed in 2015 to conform to the Bank’s new opting out

policy. Following legislation changes in Jersey, the flexible retirement policy was amended, with agreement from the Employer, to allow Jersey members to flexibly retire from age 55.

• Trustee Changes: Tony Wild resigned as a Member Nominated Director (MND) with effect from 6 May 2015,

and was replaced by Paul McAuley on 18 August 2015, who had the next highest number of votes in the MND election held in November 2014. Andrew Thomas resigned as an Employer Appointed Director with effect from 29 February 2016.

This report includes a summary of the financial statements for the year. How the Scheme is doing The Directors believe that it is extremely important to work closely with Lloyds Bank International Limited and the wider Lloyds Banking Group to ensure that your benefits are adequately funded, secured and governed. A formal actuarial valuation is carried out every three years by the Scheme Actuary. The Scheme valuation for the period ending 31 December 2012 has been concluded and the results are included in this report. As part of this process a Contingent Asset arrangement was put in place and further information can be found on page 9.

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Lloyds Bank Offshore Pension Scheme Trustees’ annual report The Trustee of the Scheme presents the annual report for the year ended 31 December 2015. Constitution of the Scheme The Scheme provides a defined benefit section governed by a Trust Deed dated 2 September 2002, as amended from time to time, and a defined contribution section (the PIP) introduced by an amendment to the Trust Deed dated 28 December 1995. These are not legally segregated and the Trustee holds all of the Scheme’s assets on trust to apply them for the purpose of paying pensions and other benefits in accordance with the Trust Deed and Rules of the Scheme. The Scheme comprises two sections (which are not legally segregated): • the defined benefit section which provides benefits based on a member’s salary and length of service; and • the defined contribution section (the PIP) which provides benefits based on a member’s accumulated fund,

calculated by reference to a notional portfolio rather than reflecting the underlying assets in which it is invested and subject to a defined benefit underpin. This means that if a member’s accumulated fund is not sufficient to provide the minimum pensions that the Scheme is required to provide under the rules of the PIP, the member’s fund will be uplifted in order to provide these.

The defined benefit section of the Scheme is closed to new entrants. The Trustee continues to look after the future accrual of active defined benefit members’ benefits and the benefits of deferred defined benefit members. The defined contribution section of the Scheme (the PIP) was closed to new members and future accrual with effect from 1 August 2011. From this date defined contribution PIP members were eligible to join the Your Tomorrow Pension Scheme for future contributions. The Trustee Board continues to be responsible for the deferred defined contribution benefits in respect of contributions paid to the PIP up to and including 31 July 2011. The Scheme allows members to pay additional voluntary contributions (DC AVCs) to enable defined benefit members to acquire additional benefits on a money purchase basis. These DC AVCs are invested on a notional basis within the same funds available to defined contribution PIP members. Rule changes During the year the following changes to the Rules were agreed: • The rules were amended by deed in Q4 2015 to conform to Lloyds Banking Group’s new opting out policy. • Following legislation changes in Jersey, the flexible retirement policy was amended, with agreement from the

Employer, to allow Jersey members to flexibly retire from age 55. • The Section Rules Re-write project was progressed and the aim is to agree this with the Employer and during

2016. • New Trust Deed and Deed of Amendment to the General Rules: The revised deeds, updated to incorporate

Jersey tax changes and other local law changes since the date of the last drafts of the deeds, have been substantively agreed with the Employer’s legal advisers, subject to final sign-off from the Employer. We expect the Deeds to be approved by the Employer and signed in Q2/Q3 2016.

Transfers All transfer values paid to or received from other pension schemes during the year were calculated and verified by the Scheme actuary. There were no transfers made at less than their cash equivalent. Management of the Scheme Under the Trust Deed and Rules, Lloyds Bank plc as principal employer may, by deed, appoint and remove Trustees or appoint a corporate body to act as Trustee. The Scheme is managed by a corporate Trustee, Lloyds Bank Offshore Pension Trust Limited (the Trustee) whose role, exercised through its Board, is to ensure that the Scheme is administered in accordance with the Scheme rules, and to safeguard the assets in the best interests of all members and beneficiaries. The Trustee has sole responsibility for ensuring that the benefits are provided to members in accordance with the deed and rules and relevant legislation. The assets of the Scheme are separate from those of the Employer, though we rely on the Employer to contribute to the Scheme in respect of future service benefits and any deficits relating to accrued benefits. The Trustee has a duty to act in the best interests of Scheme members at all times. The Trustee directors who served during the year are listed on page 1.

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Lloyds Bank Offshore Pension Scheme Trustees’ annual report (continued) Management of the Scheme (continued) The Scheme’s trust deed contains provisions for appointment and removal of the trustee from time to time of the Scheme. Under these provisions the power of appointment and removal of the trustee is vested in the principal employer of the Scheme. The articles of association contain provisions regarding the appointment and removal of directors of the current Trustee. This vests the power of appointment and removal of the directors in Lloyds Banking Group plc. Under the Trustee’s current member nominated Trustee director arrangements, at least three of the Trustee directors are nominated by Scheme members. Member nominated Trustee directors can serve for a maximum term of four years after which they must stand down and can stand for re-election. Employer appointed Trustee directors can serve until removed by the Employer. Tony Wild resigned as a Member Nominated Director with effect from 6 May 2015, and was replaced by Paul McAuley on 18 August 2015, who had the next highest number of votes in the MND election held in November 2014. During the year the Trustee Board met seven times, consisting of four quarterly meetings and three extraordinary meetings. All decisions are taken by a simple majority with the Chairman having the casting vote. The Trustee has established or has representation on the following committees: • The Standing Sub Committee (SSC) (quarterly); • The Valuation Working Group (VWG); • The Defined Contribution Investment Committee (DCI) (quarterly); • The Defined Contribution Operations Committee (DCO) (quarterly); • The Defined Contribution Governance & Risk Committee (quarterly).

The SSC has a remit to progress matters between full Trustee Board meetings and this allows more time to be focused on matters such as administration. The VWG meets as required to progress work on the actuarial valuation and associated matters. The DCI and DCO committees are joint working groups containing representation from all Lloyds Banking Group defined contribution staff pension arrangements. The DCI recommends investment strategy and monitors investment performance and the DCO monitors the services provided by the Scheme administrator. Trustee directors are not paid additionally by the Scheme for their services except for Independent Trustee directors, who are paid in accordance with the written agreement in place with the Trustee. The Trustee has agreed a business plan to support its governance arrangements. This includes periodic review of registers of risks and conflicts to ensure that appropriate internal controls are put in place and remain effective. The Trustee has the support of the Lloyds Banking Group Pensions Department and the Lloyds Banking Group Pensions Investment and Finance Team and has appointed professional advisers and other organisations to support it in delivering the Scheme’s objectives. These individuals and organisations are listed on pages 1 and 2 and written agreements are in place between the Trustee and each of them. Requests for additional information about the Scheme generally, or queries relating to member benefits, should be made to the Scheme’s administrator, Equiniti Limited, using the contact details on page 1. Any issue about the running of the Scheme, or for the Trustee Board, should be addressed to Lloyds Banking Group Pensions Department, whose address is on page 1 of this report. Financial development of the Scheme The financial statements of the Scheme for the year ended 31 December 2015, as set out on pages 26 to 42 have been prepared in accordance with Regulation 12 of the Isle of Man (IOM) Retirement Benefits Schemes (Domestic Schemes) (General Administration) Regulations 2004, Section 15 of the IOM Retirement Benefits Scheme Act 2000, Financial Reporting Standard (FRS) 102 – The Financial Reporting Standard applicable in the UK and Republic of Ireland issued by the Financial Reporting Council (“FRS 102”) and the guidance set out in the Statement of Recommended Practice “Financial Reports of Pension Schemes” (revised November 2014) (“the SORP”) except that the suggested approach of separate columns for defined benefit and defined contribution has not been followed, as the assets of the defined contribution PIP section and other defined contribution assets of the Scheme are calculated by reference to a notional portfolio rather than reflecting underlying assets and not segregated from those of the defined benefit section, and the Trustee considers this approach appropriate. In adopting FRS 102, the Trustee has adopted the provisions of ‘Amendments to FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland – Fair value hierarchy disclosures (March 2016)’ early.

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Lloyds Bank Offshore Pension Scheme Trustees’ annual report (continued) Financial development of the Scheme (continued) A summary of the Scheme’s financial statements is set out in the table below: Year ended Year ended 31 December 31 December 2015 2014 £'000 £'000 Member related income 8,868 21,013 Member related payments (13,696) (9,503) ───────────── ─────────────

Net (withdrawals) / additions from dealings with members (4,828) 11,510 Net returns on investments 4,187 39,262 ───────────── ─────────────

Net (decrease) / increase in the Scheme (641) 50,772 Net assets at the start of the year 302,953 252,181 ───────────── ─────────────

Net assets at the end of the year 302,312 302,953 ═════════════ ═════════════

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Lloyds Bank Offshore Pension Scheme Trustees’ annual report (continued) Report on Actuarial Liabilities The most recent actuarial valuation of the Scheme, performed by the Actuaries, P M Stoaling and J C Wintle of Willis Towers Watson Limited was completed as at 31 December 2012 (the valuation date) and the Actuary’s report was published on 5 March 2015. JC Wintle replaced PM Stoaling as the Scheme Actuary with effect from 16 December 2014. The delay in publication of this report was due to the sign off and set up of a contingent asset which was put in place to address the funding deficit. The main purpose of the valuation is to examine the financial position of the Scheme at the valuation date relative to the Scheme’s funding objective, in order to determine an appropriate level of contributions to be paid by the Employers on an ongoing basis. The funding objective is that the Scheme should have sufficient and appropriate assets at a given date to cover, on agreed assumptions, the prospective benefits arising from service up to that date, including allowance for the effect of capped future pensionable salary increases, known as the Scheme’s “technical provisions”. Following discussions with Lloyds Bank plc (“the principal employer”), acting on behalf of all employers participating in the Scheme, and the Actuary, the Trustee agreed the assumptions to be used to calculate the technical provisions. The technical provisions are calculated by projecting the benefits (which are mostly pension payments) expected to be paid in each year after the valuation date and then discounting the resulting cash flows to obtain a present value. Benefits accrued in respect of service only up to the valuation date are taken into account in this calculation (although an allowance is made for an assumed level of future pensionable earnings increases for employed members). The projections allow for benefit payments being made from the Scheme over the next 90 or so years. Most of these payments depend on future increases in price inflation statistics subject to specified limits. The main financial assumptions underlying the valuation calculations were: Financial assumptions as at 31 December 2012: Nominal % pa UK price inflation (RPI) 3.25 Offshore price inflation (RPI) 3.75 Salary increases 2.00 Deferred pension revaluation (LPI 5%) 3.75 Pension increases (LPI 5%) 3.75 Pension increases 3.50 Discount rate in excess of index-linked gilt real yield curve: %pa January 2013 - December 2022 1.78 January 2023 - December 2037 0.20 Post December 2037 0.60 The mortality assumptions underlying the valuation calculations are based on the standard SAPS S1 tables issued by the Continuous Mortality Investigation Bureau (CMIB) projected from 2002 in line with the CMI_2012 1.5% model and then adjusted as follows, S1NMA with a multiplier of 89% for male pensioners; S1DFA_L with a multiplier of 101% for female pensioners, S1NMA with a multiplier of 106% for male dependents and S1DFA_L with a multiplier of 107% for female dependents. Future improvements in longevity are in line with the CMI_2012 model for the appropriate gender, with a 1.75% long term rate. The resulting life expectancies for male and female pensioners aged 60 at the valuation date are 28.9 years and 31.2 years respectively, of which 3.3 years represents the impact of the assumed allowance for future improvements in mortality.

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Lloyds Bank Offshore Pension Scheme Trustees’ annual report (continued) Report on Actuarial Liabilities (continued) A summary of the funding position at the valuation date is as follows: Valuation date: 31 December 2012 30 June 2009 Market value of assets: £219.1m £118.0m Technical provisions: £315.0m £210.4m Past service deficit: £95.9m £92.4m Funding ratio: 70% 56% The previous valuation of the Scheme, performed by the then Actuary, P M Stoaling of Willis Towers Watson Limited was carried out as at 30 June 2009 and showed a funding ratio of 56%. The improvement in the funding position since the previous valuation was due to a combination of factors affecting both assets and liabilities. If the Scheme had no surplus (or shortfall) and its assets were exactly equal to the technical provisions, contributions would normally still be required to cover the cost of benefits expected to accrue to members in the future. The Trustee and the principal employer have agreed a revised Schedule of Contributions taking into account the results of the triennial actuarial valuation. The Schedule of contributions was signed on 5 March 2015 and is shown on pages 45 and 46. Recovery Plan and Contingent Asset As there were insufficient assets to cover the Scheme’s technical provisions at the valuation date, the Trustee and Lloyds Bank plc on behalf of the participating employers in the Scheme, have agreed deficit contributions such that: • the Employer paid additional contributions to the Scheme at a rate of £16.081million per annum from 1

January 2013 to 31 December 2014 and will pay £23.304 million per annum from 1 January 2020 to 31 December 2023;

• the Employer will make an additional deficit contribution in each year from 1 January 2015 onwards equal to

the IAS19 deficit, if any, at the preceding year end subject to a maximum of £23.304million each year. The contribution should be made by 31 March immediately following the year end.

In conjunction with the above schedule of contributions, and to provide additional security to the Scheme, the Employer and the Trustee have put in place a special purpose vehicle to guarantee the contributions to be made by the employers to the Scheme. The special purpose vehicle holds a pool of assets and grants a guarantee and charge over the assets in favour of the Trustee. The detail around the value of the contingent asset pool is as follows: • the Employer provided a contingent asset of approximately £170 million (after a reduction from the market

value to allow for the risk of holding the securities) to the Scheme. If the assumptions included within this valuation are borne out in practice, the deficit will be removed by 31 December 2023. A Schedule of Contributions reflecting these agreed contributions dated 5 March 2015 has been adopted by the Trustee and the Participating Employers and is shown on pages 45 and 46. Wind up position of the Scheme The results set out above are calculated on the assumption that the Scheme is ongoing, with members in active service accruing further benefits each year, and benefits being linked to future pay levels. As part of the valuation process, the Trustee also considered the scenario where the Scheme was discontinued. In the event that the Scheme is discontinued, the benefits of employed members would become deferred benefits in the Scheme. There would be no entitlement to further accrual of benefits. On discontinuance, the Trustee could seek to buy out the liabilities of the Scheme with an insurance company (Employer agreement would be required to wind up the Scheme, if the Employer was not insolvent). Payments would be due from the remaining participating employers to ensure that the Scheme had sufficient assets to secure all members’ benefits in full. However, in the event of Employer insolvency, the Employers may be unable to make these payments. The benefits that members would then receive would be scaled back to those that could be secured with the assets available (in accordance with the Trust Deed and Rules and relevant legislation).

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Lloyds Bank Offshore Pension Scheme Trustees’ annual report (continued) Wind up position of the Scheme (continued) This estimate of the Scheme’s solvency liabilities reflects the terms that might typically be available in the UK to insure UK pension liabilities and it should be recognised that it may be significantly more expensive, if indeed it is possible at all, to insure Offshore pension liabilities. This means that the cost of securing the Scheme’s benefits with an insurer, if indeed this were possible, is higher than the amount the Trustee has determined with the Employer’s agreement to be required to make provision for the Scheme’s liabilities. Typically this is because the support of the Employer means that the Trustee is able to hold riskier assets that are expected to provide higher investment returns than the assets an insurer would hold. An assumption has been made that the insurance company price would be calculated on an actuarial basis similar to that implied by bulk annuity quotations seen by Willis Towers Watson at around the valuation date. It is also assumed that the cost of implementing the winding-up to be 1.4% of the estimated value of the solvency liabilities (leading to assumed winding-up costs of £6.5 million). The table below summarises the main assumptions used to estimate the Scheme’s solvency position as at 31 December 2012: Financial assumptions as at 31 December 2012: % pa Pensioner discount rate Gilts Non-pensioner discount rate Gilts - 0.5% Deferred pension revaluation 3.75% Pension increases (LPI 5%) 3.75% An estimate of the solvency position of the Scheme at the valuation date is as follows: Valuation date: 31 December 2012 Market value of assets: £219.1m Technical provisions: £476.8m Past service deficit: £257.7m Funding ratio: 46% Any queries on the valuation of the Scheme, or for the Trustee Board, should be addressed to: Lloyds Banking Group – Pensions Department 5th Floor 125 London Wall London EC2Y 5AS

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Lloyds Bank Offshore Pension Scheme Trustees’ annual report (continued) Membership The membership of the Scheme at the beginning and end of the year and changes during the year are set out below:

Active members Defined Benefit

Contributory membership at the start of the year 251 Miscellaneous adjustments * 2 253 Leavers and exits during the year: Retirements (27) Deferred pensioners (7) (34) Contributory membership at the end of the year 219

Pensioners Defined Benefit Defined

Contribution In payment at the start of the year 359 42 New pensioners in the year resulting from: Miscellaneous adjustments * 1 2 Retirement of active members 27 - Retirement of deferred members 12 - 399 44 Deaths in retirement (4) - In payment at the end of the year 395 44

Deferred members Defined Benefit Defined

Contribution At the start of the year 362 601 New deferred pensioners 7 - 369 601 Cessation of deferred pensions resulting from: Retirements (12) - Retirements with trivial commutation - (2) Transfers-out (5) (3) Deaths in deferment - (2) (17) (7) At the end of the year 352 594 Total Scheme membership: 966 638 * Miscellaneous adjustments are in respect of data cleansing within the membership records maintained by the Scheme administrator.

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Lloyds Bank Offshore Pension Scheme Trustees’ annual report (continued) Pension increases In accordance with the rules, pensions in payment and deferred pensions were increased with effect from 1 December 2014 (except for the GMP element for some IOM members which is increased in April each year) as follows: Jersey 1.9% (excluding (Hill Samuel) Section C Jersey members, who received an increase of 3%), Guernsey 2.5% and IOM 2.6%, and with effect from 1 December 2015 the increases were: Jersey 0.1% (excluding (Hill Samuel) Section C Jersey members, who received an increase of 3%), Guernsey 0.7% and IOM 2.6%. Custody Custodian services are provided by The Bank of New York Mellon. In accordance with normal practice, the Scheme’s segregated investments are registered in the name of the custodian’s own nominee company with designation for the Scheme. The Scheme primarily holds pooled investment vehicles however the investment portfolio includes a segregated cash account held with The Bank of New York Mellon. Investment management The Trustee delegates the day to day management to professional external investment managers. The Trustee sets the investment strategy for the Scheme after taking advice from the Scheme’s Investment Adviser. The Trustee has put in place investment mandates with its investment managers which implement this strategy. The Trustee’s policy is to delegate responsibility for the exercise of rights attaching to investments to the investment managers. This includes voting rights and a requirement to consider social, ethical and environmental factors when making investment decisions. The Trustee periodically reviews reports from investment managers in respect of these matters. A Statement of Investment Principles (SIP) has been prepared by the Trustee which incorporates the investment strategy. A copy of the Statement may be obtained by writing to the following address: Lloyds Banking Group – Pensions Department 5th Floor 125 London Wall London, EC2Y 5AS. Investment objective The main investment objective of the defined benefit section is the acquisition of suitable assets of appropriate liquidity which will generate income and capital growth to meet, together with new contributions from members and the Employer, the cost of current and future benefits which the Scheme provides as set out in the Trust Deed and Rules. The investment objective of the defined contribution PIP section is to make available to members a programme of investment via notional pooled funds which seek to generate income and capital growth which will provide a fund at retirement. Defined Contribution PIP members’ benefits are dependent on the amount of money paid into their individual accounts, the rules of the PIP, the performance of notional investments and, if electing to purchase a pension, annuity rates at retirement. The monies of defined contribution members’ and defined benefit members with DC AVCs are invested with the investment assets of the defined benefit section of the Scheme forming a combined investment portfolio which is managed by the Trustees in accordance with the investment strategy explained below. Investment strategy The Trustees set the investment strategy for the defined benefit section taking into account considerations such as the strength of the employer covenant, the long term liabilities and the funding agreed with the Employer. The assets of defined contribution members’ and defined benefit members with DC AVCs are physically invested in accordance with the investment strategy of the defined benefit section however the returns allocated to these members reflect the performance of the notional funds within which they have chosen to invest, as explained on pages 14 and 15. The investment strategy is set out in the SIP. The current strategy is to hold broadly: 50% in investments that move in line with the long term liabilities of the Scheme. This is referred to as liability matching assets and comprise UK and overseas government and corporate bonds to hedge against the impact of interest rate movement on long term liabilities.

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Lloyds Bank Offshore Pension Scheme Trustees’ annual report (continued) Investment strategy (continued) 50% in return seeking investments comprising UK and overseas equities, property and a fund of hedge funds. Following the conclusion of the 2012 actuarial valuation the Trustee is considering a new investment strategy, aiming to increase the efficiency of the portfolio in meeting the Scheme’s liabilities. The actual asset allocation of the Scheme’s combined investment portfolio at the year end is shown below: Asset Class

Pooled investment

vehicles £’000

Segregated funds

£’000

Market value total

£’000

Market value total

%

SIP Target

%

Index-linked Gilts 130,217 - 130,217 43.5 39.0 UK corporate bonds 36,511 - 36,511 12.3 11.0 Liability matching assets 166,728 - 166,728 55.8 50.0 UK equities 41,676 - 41,676 13.9 13.0 Overseas developed equities 55,913 - 55,913 18.7 17.0 Emerging market equities 13,607 - 13,607 4.5 5.0 UK property 3,446 - 3,446 1.2 2.0 European property 2,109 - 2,109 0.7 3.0 Fund of hedge funds 3,515 - 3,515 1.2 10.0 Cash - 12,066 12,066 4.0 0.0 Return-seeking assets 120,266 12,066 132,332 44.2 50.0 Total assets 286,994 12,066 299,060 100.0 100.0 The table above is used by the Trustee Board to monitor the asset allocation of the Scheme against the asset allocation targets, as set out in SIP. The SIP also includes permitted ranges, within which, the assets may deviate from target and these ranges are monitored by the Trustee. During the year there was a technical breach of the SIP due to the Schemes disinvestment from the fund of hedge funds managed by Benchmark Plus. The SIP is currently under review following the completion of the triennial valuation on 5 March 2015 and will be updated in due course to reflect a revised investment strategy. Within this table all assets are classified into one of the above categories, therefore ‘other investment balances’ are allocated to the appropriate classification. Pooled investment vehicles are shown against the underlying investment category. Included within total assets is an amount of £11,566k (2014: 11,875k) relating to the notional units held on behalf of the defined contribution PIP members, and an amount of £280k (2014: £245k) relating to the notional units held on behalf of defined benefit members with DC AVCs. These AVCs enable the defined benefit members to acquire additional benefits on a money purchase basis. The table below provides further information on the distribution of assets between the investment managers appointed by the Scheme and the associated benchmarks: Fund manager

Asset class

Benchmark

Market value total

£’000

Market value total

% Legal & General Multi asset Benchmark per asset class 277,924 92.9 Rockspring UK property IPD UK pooled property index 3,446 1.2 CBRE European property 8-10% per annum 2,109 0.7 Benchmark Plus Fund of hedge funds 5-10% per annum over US LIBOR 3,515 1.2 Bank of New York Cash N/A 12,066 4.0 Total assets 299,060 100.0

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Lloyds Bank Offshore Pension Scheme Trustees’ annual report (continued) Investment strategy (continued) The Scheme disinvested the assets from Benchmark Plus, the fund of hedge funds during the year and the proceeds will form part of the updated investment strategy currently being considered. Benchmark Plus have retained 5% of the value of the Scheme’s investment in cash, pending completion of the funds annual audit, and this will be paid to the Scheme on its completion in June 2016. The investments with Benchmark Plus, CBRE and Rockspring are invested through subscription agreements into pooled investment vehicles. The investments managed by Legal and General are multi asset passive investments via open ended investment companies (OEICs). Investment management fees for the Scheme comprise ad-valorem base fees, where the managers are paid fees based on the market value of the assets under management. In addition, the property managers and the fund of hedge funds manager are paid a performance-related fee based on the level of outperformance above the relevant benchmark. Fee levels and fee structures are taken into consideration when reviewing and appointing managers. The Scheme’s investments in index linked, fixed interest and equity funds managed by Legal and General are priced and traded weekly by the investment manager and are therefore considered to be marketable on a short term basis. The investments with Legal and General and CBRE are regulated in the United Kingdom, the investment with Rockspring is regulated in Jersey. The assets of defined contribution PIP members’ and defined benefit members with DC AVCs are invested with the investment assets of the defined benefit section of the Scheme. However notional units are allocated as if the investment had been made within the fund choices available to members of the Lloyds Banking Group defined contribution staff pension arrangements (The Your Tomorrow Pension Scheme) . The performance of the notional units is derived from the funds managed by Legal & General Investment Management Limited (Legal & General) and BlackRock Investment Management (UK) Limited (BlackRock). These investment managers are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. As the assets of the defined contribution PIP members’ and defined benefit members with DC AVCs are invested with the assets of the defined benefit section of the Scheme, the actual returns on these assets will mirror those of the Scheme’s combined investment portfolio. The Scheme bears the risk that the actual returns on the invested assets will be less than the returns on the funds against which the defined contribution PIP members’ and defined benefit members with DC AVCs notional investments are priced. Conversely, if the funds in which these assets are actually invested outperform the funds in which the assets are notionally invested, the investment return passed on to members will be limited to the return on the notional investments. The Trustee is responsible for selecting the underlying funds for the Scheme. The Trustee Board received advice and recommendations from specialist independent investment advisers before approving the fund choices. The investment structure offers members broad and diverse fund options. The notional investment choices include fourteen investment funds under two investment approaches; LifePlan and PersonalChoice. LifePlan The LifePlan approach splits the investment choices between Growth Funds and Approaching Retirement Funds. Investments will initially be notionally invested in accordance with the member’s chosen Growth Fund and will then notionally be switched to the Approaching Retirement Fund in accordance with the member’s chosen switching period. The LifePlan investment funds and the underlying fund managers are as follows: LifePlan Growth Funds • Your Journey (Managed by BlackRock) • Your Journey Extra (Managed by BlackRock) • Global Journey (Managed by Legal & General)

15

Lloyds Bank Offshore Pension Scheme Trustees’ annual report (continued) Investment strategy (continued) LifePlan Approaching Retirement Funds • Your Destination - Increasing Income (Managed by Legal & General) • Your Destination - Level Income (Managed by Legal & General) • Destination Cash (Managed by Legal & General) PersonalChoice The PersonalChoice approach offers members complete control of their investment choices with decisions on fund choice and switching not being pre-defined. Members utilising the PersonalChoice approach can notionally choose from the six funds offered under LifePlan and an additional eight funds as shown below: PersonalChoice Additional Funds • UK Equity Fund • North America Equity Fund • Continental Europe Equity Fund • Japan Equity Fund • Asia Pacific Equity Fund • Emerging Markets Fund • Property Fund • Corporate Bond Fund All of the PersonalChoice additional funds are managed by Legal & General. All of the underlying funds are well-established pooled funds, with the exception of Your Journey and Your Journey Extra which are bespoke diversified growth funds created for other DC arrangements elsewhere in the group (but are based on similar pooled funds already offered by the fund manager). The notional units are priced with reference to the daily prices of the underlying funds provided by the investment manager. Annual management charges (AMCs) are calculated as a percentage of the value of the notional investment funds and reflected in the prices provided by the investment manager. The AMCs applicable to each fund are shown below: Fund AMC

% Your Journey 0.37 Your Journey Extra 0.45

Global Journey 0.049

Your Destination – Increasing Income 0.03 Your Destination – Level Income 0.0425 Destination Cash 0.05 UK Equity Fund 0.0275 North America Equity Fund 0.04 Continental Europe Equity Fund 0.0425 Japan Equity Fund 0.045 Asia Pacific Equity Fund 0.0475 Emerging Markets Equity Fund 0.30 Property Fund 0.55 Corporate bond Fund 0.0425

16

Lloyds Bank Offshore Pension Scheme Trustees’ annual report (continued) Investment performance The performance of the combined investment portfolio is measured against the Scheme’s benchmark, which is set and reviewed by the Trustee. Each investment manager is measured against their investment benchmark and general market conditions. The Trustee has considered the nature, disposition, marketability, security and valuation of the Scheme’s investments and considers them to be appropriate relative to the reasons for holding each class of investment. More details about investments are given in the notes to the financial statements. The table below sets out the investment returns for the combined investment portfolio of the Scheme. 1 year 3 years 5 years % % %

Scheme 1.5 8.5 7.8 Scheme benchmark 2.5 8.6 8.2 The performance of the notional investments held on behalf of defined contribution PIP members and defined benefit members with DC AVCs can be analysed as follows: Fund 1 year 3 years 5 years

Fund Target Fund Target Fund Target

% % % % % %

Your Journey 0.0 4.2 2.5 4.8 2.7 5.7 Your Journey Extra 0.0 6.2 3.8 6.8 3.6 7.7

Global Journey 1.8 1.8 10.7 10.7 7.8 7.7

Your Destination – Increasing Income (0.3) (0.3) 9.1 9.1 10.1 10.0 Your Destination – Level Income (0.2) (0.2) 4.7 4.7 7.7 7.7 Destination Cash 0.5 0.4 0.5 0.4 0.6 0.4 UK Equity Fund 1.0 1.0 7.4 7.3 6.1 6.0 North America Equity Fund 5.0 5.0 17.0 17.0 12.3 12.3 Continental Europe Equity Fund 6.0 5.8 10.1 10.0 6.0 5.8 Japan Equity Fund 17.4 17.4 14.6 14.5 6.2 6.1 Asia Pacific Equity Fund (2.6) (2.7) 0.8 0.8 1.4 1.3 Emerging Markets Equity Fund (10.7) (10.5) (3.2) (3.1) (3.7) (3.6) Property Fund 11.9 12.5 12.6 11.9 9.1 7.8 Corporate bond Fund 0.5 0.5 4.0 4.0 6.0 6.0 Fund performance shown above is measured on a mid to mid basis with underlying fund valuation dates aligned with the comparator benchmark dates. Actual unit price movements will reflect any bid/offer swings in the underlying fund valuation and depending on the valuation point of the individual fund, may lag the comparator benchmark by 1 or 2 days. The notional units of the defined contribution PIP members and defined benefit members with DC AVCs are priced daily by the investment manager. The principal economic factors which have affected the investment performance of the combined investment portfolio and the investments of defined contribution PIP members and defined benefit members with DC AVCs were as follows: Summary Key features of 2015 were differentiation in economic policy and liquidity conditions, and uncertainty around the severity of the Chinese economic slowdown. Over the course of this year there has been divergence between developed and emerging economies, and also amongst them. In December 2015 the ECB both decreased its overnight deposit and announced it was extending its stimulus programme by six months to March 2017. Less than two weeks later, the Federal Reserve hiked its own interest rate for the first time since 2006. Relative to expectations at the start of the year, this process of rate

17

Lloyds Bank Offshore Pension Scheme Trustees’ annual report (continued) Summary (continued) rises by the Fed has been slow. Similar to the ECB, The Bank of Japan remains committed to a large, open-ended quantitative easing programme until its price stability target of 2% is reached sustainably. The regime shift in the renminbi, a correction in the Chinese equity market overvaluation, uncertainty around the severity of the Chinese economic slowdown and concerns over policymakers’ competence have all worked to increase risk aversion over the latter part of the year. Broader Asia, with its significant exposure to Chinese growth, suffered as a result. The wider global economy is no longer insulated from China either, with risk aversion spiking partly as a result of these Chinese issues. Towards the end of the year Chinese equities recovered slightly as it was observed that the services sector has remained healthy even whilst the manufacturing side of the Chinese economy has slowed down measurably. Sterling has moved markedly against the US dollar and the Japanese yen over the 12 month period, depreciating by 5.5% and 5.2% respectively. Conversely, sterling has appreciated versus the euro by 5.3% over the same period. Equity markets Equity market returns were broadly positive over the year, with the FTSE All-World Index returning 4.0% (in sterling terms). Japanese equities did particularly well (returning 17.6% in sterling terms), in part due to the ongoing quantitative easing measures put in place by the Japanese central government. Emerging market equities have fallen considerably over the past year as the region’s markets have been hit by the dual forces of weaker commodity prices and a slowdown in China which has dampened investor confidence, notably in Asia. The FTSE Emerging Index returned -10.3% (in sterling terms) over 2015. The FTSE 100 broke through the 7,000 level for the first time in its history in March, having overcome its dotcom level peak after a wait of over 15 years (it should be noted that the market has since fallen below that level – it was sat around the 6,242 mark as at 31 December 2015). Bond markets As at year end, yields were broadly similar to at the start of the year. These broader moves, however mask more significant yield changes during the course of the year, with volatility in global bond markets increasing significantly. This increased volatility was set against a backdrop of uncertainty over both future market conditions and when the Federal Reserve and the Bank of England will raise interest rates, along with a continued battle against deflation in both Japan and Europe. Over the year, emerging market government bonds performed reasonably in hard currency terms, with the JPM EMBI Global Diversified Index returning 1.3% over the year in sterling hedged terms. However, as emerging currencies suffered, local currency returns, as measured by the JPM GBI-EM Global Diversified Index, returned -10.0% for the year (in sterling unhedged terms). Alternative investment markets Oil prices have declined considerably, falling by almost 30% over the 12 months (in sterling terms). The major cause of the falls over the 12 months was the significant increase in non-OPEC related supply (such as from US shale). Falls in prices were further exacerbated by a deal struck in July 2015 between Iran and the permanent members of the UN Security council, in which Iran agreed to scale back its nuclear programme in exchange for economic sanction relief. As news of the deal broke, WTI and Brent oil prices fell considerably on the possibility of Iranian oil output increases. Slowing Chinese growth has been a key dynamic across most industrial metals as the country imports around 40 – 45% of global metal production. As the economy transitions to a less resource-intensive path of growth, those metals which were geared towards heavy industries and construction activities have suffered. UK commercial property has returned 13.8% over the 12 month period to end of December 2015 (as measured by IPD). The largely unexpected Conservative majority win at the May general election has helped to stimulate buyers and sellers in the UK housing market by removing uncertainty surrounding new restrictions or the possibility of a mansion tax being implemented. Post year end events On 23 June 2016 the UK electorate voted to leave the European Union. This decision is expected to begin an exit process that could take up to two years to complete under the relevant legislation and the UK remains a member of the European Union until such time as this process is effected.

18

Lloyds Bank Offshore Pension Scheme Trustees’ annual report (continued) Post year end events The result of the referendum is likely to result in a period of uncertainty for the UK economy and financial markets and potentially significant volatility in the valuation of investment assets, including from fluctuations from the impact in foreign exchange rates. The longer term impact of the referendum decision is clearly yet to be determined and trustees will consider the potential impact on investment strategy and related risk management over the coming months. Employer related investment Details of employer related investments are given in note 17 to the financial statements. Additional voluntary contributions The Scheme allows for members to pay AVCs to enable defined benefit members to acquire additional benefits on a money purchase basis. These AVCs are invested on a notional basis within the same funds available to defined contribution PIP members. These funds and the notional values held are listed above. Added Years Contributions The Scheme allows for members to pay added years contributions, in accordance with the Trust Deed and Rules, to enable defined benefit members to acquire additional benefits. The added years facility was closed to new payers with effect from 1st December 2012. Statement of Trustee's responsibilities Trustee's responsibilities in respect of the financial statements The financial statements, which are prepared in accordance with UK Accounting Standards, including the Financial Standard applicable in the UK and Republic of Ireland (“FRS 102”), are the responsibility of the Trustee. IOM pension scheme legislation and regulations requires the Trustee to make available to the IOM Financial Services Authority, audited financial statements for each scheme year which: • show a true and fair view of the financial transactions of the Scheme during the Scheme year and of the

amount and disposition at the end of the Scheme year of its assets and liabilities, other than liabilities to pay relevant benefits after the end of the Scheme year;

• state whether applicable United Kingdom Accounting Standards, including FRS 102, have been followed,

subject to any material departures disclosed and explained in the financial statements; and • contain the information specified in Schedule 2 of the IOM Retirement Benefits Schemes (Domestic

Schemes) (General Administration) Regulations 2004, including a statement whether the financial statements have been prepared in accordance with the Statement of Recommended Practice “Financial Reports of Pension Schemes” (Revised November 2014).

The Trustee is responsible for supervising the preparation of the financial statements and for agreeing suitable accounting policies, to be applied consistently, making any estimates and judgements on a prudent and reasonable basis. The Trustee is also responsible for making available certain other information about the Scheme in the form of an annual report. The Trustee also has a general responsibility for ensuring that adequate accounting records are kept and for taking such steps as are reasonably open to it to safeguard the assets of the Scheme and to prevent and detect fraud and other irregularities, including the maintenance of an appropriate system of internal control. Trustee's responsibilities in respect of contributions The Scheme’s Trustee is responsible under pensions legislation for ensuring that there is prepared, maintained and from time to time revised a Schedule of Contributions showing rates of contributions payable towards the Scheme by or on behalf of the Employer and the active members of the Scheme and the dates on or before which such contributions are to be paid. The Trustee is also responsible for keeping records of contributions received in respect of any active member of the Scheme and for monitoring whether contributions are made to the Scheme by the employer in accordance with the Schedule of Contributions.

20

Lloyds Bank Offshore Pension Scheme Annual Statement Regarding Governance of the DC benefits (PIP and AVCs) 1. Introduction Since 6 April 2015, legislation has placed greater governance and transparency requirements on the trustees of defined contribution (DC) arrangements in the UK. While these UK requirements do not apply to the trustee of the Scheme (the “Trustee”) as a matter of law, the Trustee has prepared this statement to describe how it administers the DC arrangements in the Scheme in keeping with the spirit of those requirements and to give you a better understanding of your DC pension investments. The UK governance requirements relate to:

• the default arrangement(s) (for the purposes of this statement, this means the default fund in which your benefits are automatically invested* if you do not self-select which investment fund your benefits are invested* in),

• requirements for processing financial transactions, • assessment of charges and transaction costs, and • requirements for trustee knowledge and understanding.

This statement relates the period between 6 April 2015 (when the UK requirements came into force in the UK) and 30 December 2015 (which is the end of this Scheme year). 2. Default arrangement Members of the Pension Investment Plan section of the Scheme (the “PIP”) who do not choose which investment fund they wish their PIP account to be invested in have their account automatically invested* in the following PIP default arrangement: Your Journey Extra switching to Your Destination (Increasing Income) and Cash Members of the Scheme who make DC additional voluntary contributions (“AVCs”) to the Scheme and who do not choose which investment fund they would like their AVC account to be invested in have their AVC account automatically invested* in the following AVC default arrangement: Your Journey Extra switching to Your Destination (Increasing Income) and Cash * As an offshore pension arrangement, the Scheme was unable to participate in the same investment funds platform as the UK based PIP section of the Lloyds Bank Pension Scheme No. 1 (the “No. 1 Scheme”) or Your Tomorrow. However the same investment options are made available by the Scheme operating a notional investment platform to replicate the choices under the No1 Scheme for PIP Members and under Your Tomorrow for AVCs. The investment options are “notional” because while the investment return you are credited with is that which you would have received had your member’s account actually been invested in the investment funds available in the PIP section of the No. 1 Scheme or Your Tomorrow (as applicable), the assets in your member’s account are in fact held along with the other assets of the Scheme in a common trust fund. As a result, if the actual returns on the invested assets are less than the returns on the funds in which your account has been notionally invested, the Scheme will meet the cost of this difference. Similarly, if the funds in which your account is actually invested outperform the funds in which your account is notionally invested, the investment return you receive will be limited to the return on the notional investments. Separately, the fact that the assets relating to each member’s account are held as part of a common trust fund and are not earmarked for individual members means that in certain limited circumstances, such as the winding up of the scheme on an underfunded basis, assets held in respect of members’ accounts could be used to fund other Scheme benefits. In this situation members might not receive the full value of their member’s account. This statement reports the charges, transactions costs and value for money in relation to the investment funds in which Scheme members’ accounts are notionally invested, rather than the investment funds in which the Scheme’s assets are actually invested. The Trustee has obtained this information through its participation in the Lloyds Banking Group DC Operations Committee (“DCO”) and Lloyds Banking Group DC Investment Committee (“DCI”). These committees are comprised of representatives of the No. 1 Scheme, Your Tomorrow and the Scheme and focus on these schemes’ DC arrangements.

21

Lloyds Bank Offshore Pension Scheme Annual Statement Regarding Governance of the DC benefits (PIP and AVCs) (continued) Statement of investment principles A statement of investment principles governs decisions about investments and sets out the aims and objectives of a scheme’s investment strategy. Appended to this report are relevant extracts from the latest statement of investment principles in relation to the PIP and Your Tomorrow sections of the No. 1 Scheme, which shows show the investment strategies in relation to the default funds mentioned above. 3. Requirements for processing financial transactions The new UK governance standards require trustees of DC arrangements to ensure that “core financial transactions” are processed promptly and accurately. “Core financial transactions” for this purpose include (but are not limited to):

• investment of contributions in the Scheme; • transfers of assets relating to members into and out of the Scheme; • transfers of assets relating to members between different investments within the Scheme; and • payments from the Scheme to, or in respect of, members.

Members’ AVC contributions are notionally invested* in the relevant No. 1 Scheme or Your Tomorrow funds (as applicable) on the working day on which contributions in respect of the member have been received and reconciled by the Scheme administrator. Investment switches requested by PIP members and members with AVCs are completed within 6 working days of receipt by the Scheme administrator of the member’s instruction to change the fund(s) in which he is invested*. As regards transfers of assets into and out of the Scheme, and payments from the Scheme to or in respect of members, the Trustee ensured, through its participation in the DCO, that these were processed promptly and accurately by regularly monitoring the administrator’s service levels, and qualitative sampling of certain transactions. The service levels were within the agreed parameters set out in the administration contract. The AAF (Audit and Assurance Faculty of the Institute of Chartered Accountants in England and Wales) Report on the effectiveness of the Scheme administrator’s controls did not, however, specifically test all controls in respect of core financial transactions during the period, however the Trustee’s own monitoring as set out above did not identify any material issues or delays. 4. Assessment of member-borne charges and transaction costs 4.1 Level of member-borne charges and transaction costs The new UK governance standards require trustees of certain DC arrangements to calculate the charges and, so far as they are able to do so, the transaction costs, borne by members of the arrangement for the period. For these purposes:

• “charges” means administration charges other than: o “transaction costs” (i.e. the costs incurred as a result of the buying, selling, lending or

borrowing of investments), o costs, where a court order provides for the recovery by the trustee of costs incurred in

complying with the order, o certain pension sharing costs, o winding up costs (i.e. the costs of winding up a pension scheme including (but not limited

to) the cost of legal advice, tracing, consulting and communicating with members, advice on exiting investments and selection of an alternative scheme or investments),

o costs solely associated with the provision of death benefits. • “transaction costs” means the costs incurred as a result of the buying, selling, lending or borrowing

of investments.

22

Lloyds Bank Offshore Pension Scheme Annual Statement Regarding Governance of the DC benefits (PIP and AVCs) (continued) 4.1 Level of member-borne charges and transaction costs (continued) During the period 6 April 2015 to 30 December 2015, the ranges of the levels of charges applicable to the default arrangements were as follows:

Fund Minimum and maximum annual management charges (depends on the asset allocation for each member)

Your Journey Extra switching to Your Destination (Increasing Income) and Cash

0.035% to 0.45%

This information has been provided by the DCI. The charges were therefore below the charge cap limit of 0.75% that is set under UK regulations for certain UK DC arrangements. The range of the levels of charges and transaction costs applicable to all PIP and AVC investment funds which are not part of the above default PIP and AVC arrangements and in which assets relating to PIP members and members’ DC AVC accounts were invested* was between 0.0275% and 0.55%. The DCI was unable to obtain information in respect of transaction costs as these are implicit within the unit price of the funds and are not currently quantified and disclosed separately by the investment managers of the funds in which the assets are notionally invested. The investment returns that are passed on to members of the PIP and members who make DC AVCs to the Scheme are net of charges. 4.2 Value assessment In terms of the cost sharing between members and the employers:

• Members pay investment-related charges only (i.e. the annual management charges set out above). • The employers pay for all other costs and charges incurred by the Scheme.

The trustees of the No. 1 Scheme and Your Tomorrow have also assessed the level of member-borne charges in the default arrangements set out above against the benefits attributable to those charges, including:

• a review of the performance of the investment funds in the context of their investment objectives; and • a comparison of Lloyds Banking Group’s DC arrangements with other similar schemes in the market.

This analysis has indicated that the charges members are required to pay in relation to these arrangements are low compared to other schemes. They are also below the charge cap limit of 0.75% that is set under UK regulations for certain UK DC arrangements. 5. Trustee knowledge and understanding The combined knowledge and understanding of the members of the Trustee board, together with the advice which is available to it, enables it to properly exercise its function as the Trustee. The Trustee board includes individuals who are professional independent trustees with a long and broad experience of the pensions industry, and individuals who, outside of their Trustee role, work for the Scheme’s participating employers in business areas including risk, operations, commercial and HR. The members of the Trustee board therefore bring a broad range of technical knowledge that is relevant to the Scheme. In addition, the Trustee receives advice on investment, legal and other matters from a number of advisers including: Allen & Overy LLP – legal advice (UK) Cains Advocates Limited – legal advice (Isle of Man) Mourant Ozannes – legal advice (Jersey & Guernsey) Willis Towers Watson – investment advice KPMG – tax and employer covenant advice

24

Lloyds Bank Offshore Pension Scheme Independent Auditors’ report to the Trustee of the Lloyds Bank Offshore Pension Scheme Report on the financial statements Our opinion In our opinion, Lloyds Bank Offshore Pension Scheme’s financial statements: • show a true and fair view of the financial transactions of the Scheme during the year ended 31 December

2015, and of the amount and disposition at that date of its assets and liabilities, other than liabilities to pay relevant benefits after the end of the year;

• have been properly prepared in accordance with United Kingdom Accounting Standards; and • contain the information specified in Schedule 2 of the IOM Retirement Benefit Schemes (Domestic

Schemes) (General Administration) Regulations 2004, made under the IOM Retirement Benefits Schemes Act 2000.

What we have audited Lloyds Bank Offshore Pension Scheme’s financial statements comprise: • the statement of net assets available for benefits as at 31 December 2015;

• the fund account for the year then ended; and • the notes to the financial statements, which include a summary of significant accounting policies and other

explanatory information. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and United Kingdom Accounting Standards, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”. In applying the financial reporting framework, the Trustee has made a number of subjective judgments, for example in respect of significant accounting estimates. In making such estimates, the Trustee has made assumptions and considered future events.

Other matters on which we are required to report by exception

Adequacy of information received Under Regulation 12 of the IOM Retirement Benefits Schemes (Domestic Schemes) (General Administration) Regulations 2004 we are required to report to you if, in our opinion, we have failed to obtain all the information which, to the best of our knowledge and belief, was necessary for the purposes of our audit. We have no exceptions to report arising from this responsibility. Responsibilities for the financial statements and the audit Our responsibilities and those of the Trustee As explained more fully in the statement of Trustee responsibilities, the Trustee is responsible for the preparation of the financial statements and being satisfied that they show a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK & Ireland) (“ISAs (UK & Ireland)”). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinion, has been prepared for and only for the Trustee as a body in accordance with Regulation 12 of the IOM Retirement Benefits Schemes (Domestic Schemes) (General Administration) Regulations 2004 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Lloyds Bank Offshore Pension Scheme

Independent Auditors’ report to the Trustee of the Lloyds Bank Offshore PensionScheme (continued)

What an audit of financial statements involves

We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about theamounts and disclosures in the financial statements sufficient to give reasonable assurance that the financialstatements are free from material misstatement, whether caused by fraud or error. This includes an assessmentof:

• whether the accounting policies are appropriate to the scheme’s circumstances and have beenconsistently applied and adequately disclosed;

• the reasonableness of significant accounting estimates made by the Trustee; and

• the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the Trustee’s judgement against available evidence,forming our own judgements, and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we considernecessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing theeffectiveness of controls, substantive procedures or a combination of both.

In addition, we read all the financial and non-financial information in the annual report to identify materialinconsistencies with the audited financial statements and to identify any information that is apparently materiallyincorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing theaudit. If we become aware of any apparent material misstatements or inconsistencies we consider theimplications for our report.

Iv\

PricewaterhouseCoopers LLPChartered AccountantsBristolDate: ) C

26

Lloyds Bank Offshore Pension Scheme Fund Account for the Year ended 31 December 2015 Year ended Year ended 31 December 31 December 2015 2014 £'000 £'000 Employer contributions 8,782 20,823 Employee contributions 86 87 ───────────── ─────────────

Total contributions 6 8,868 20,910 Transfers from other plans 7 - 103 ───────────── ─────────────

8,868 21,013 ───────────── ─────────────

Benefits paid or payable 8 (7,320) (6,549) Transfers to other plans 9 (5,049) (1,964) Administrative expenses 10 (1,325) (990) Other payments 11 (2) - ───────────── ─────────────

(13,696) (9,503) ───────────── ─────────────

Net (withdrawals) / additions from dealings with members (4,828) 11,510 ───────────── ─────────────

Returns on investments Investment income 12 837 1,241 Change in market value of investments 13 3,533 38,182 Investment management expenses 14 (183) (161) ───────────── ─────────────

Net return on investments 4,187 39,262 ───────────── ─────────────

Net (decrease) / increase in the Scheme during the year (641) 50,772

Opening net assets of the Scheme 302,953 252,181 ───────────── ─────────────

Closing net assets of the Scheme 302,312 302,953 ═════════════ ═════════════

The notes on pages 28 to 42 form part of these financial statements

28

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 1. General information The Scheme provides a defined benefit section governed by a Trust Deed dated 2 September 2002, as

amended from time to time, and a defined contribution section (the PIP) introduced by an amendment to the Trust Deed dated 28 December 1995. These are not legally separated and the Trustee holds all of the Scheme’s assets on trust to apply them for the purpose of paying pensions and other benefits in accordance with the Trust Deed and Rules of the Scheme.

The defined benefit section of the Scheme is closed to new entrants. The Trustee continues to be

responsible for the future accrual of active defined benefit members’ benefits and the benefits of deferred defined benefit members.

The defined contribution section of the Scheme was closed to future accrual with effect from 1 August 2011

and all defined contribution members transferred to the Your Tomorrow Pension Scheme for future contributions. The Trustee Board continues to be responsible for the deferred defined contribution benefits in respect of contributions paid to 31 July 2011.

2. Statement of compliance The financial statements of Lloyds Bank Offshore Pension Scheme have been prepared in accordance with

Regulation 12 of the IOM Retirement Benefits Schemes (Domestic Schemes) (General Administration) Regulations 2004, Section 15 of the IOM Retirement Benefits Scheme Act 2000, Financial Reporting Standard (FRS) 102 – The Financial Reporting Standard applicable in the UK and Republic of Ireland issued by the Financial Reporting Council (“FRS 102”) and the guidance set out in the Statement of Recommended Practice “Financial Reports of Pension Schemes” (revised November 2014) (“the SORP”) except that the suggested approach of separate columns for defined benefit and defined contribution has not been followed, as the assets of the defined contribution section are calculated by reference to a notional portfolio rather than the underlying asset and not segregated from those of the defined benefit section, and the Trustee considers this approach appropriate.

In adopting FRS 102, the Trustees have adopted the provisions of ‘Amendments to FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland – Fair value hierarchy disclosures (March 2016)’ early.

3. Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below.

These policies have been consistently applied to all years presented, unless otherwise stated. The Scheme has adopted FRS 102 in these financial statements for the first time. Details of the transition to

FRS 102 are disclosed in note 21. Currency The Scheme’s functional currency and presentational currency is pounds sterling (GBP).

Assets and liabilities in foreign currencies are expressed in sterling at the rates of the exchange ruling at the year end. Foreign currency transactions are translated into sterling at the spot exchange rate at the date of the transaction. Gains and losses arising on conversion or translation are dealt with as part of the change in market value of investments.

Contributions

Employers’ normal contributions are accounted for on an accruals basis on the date the payroll is run. Contributions made by the employer are based upon pensionable salaries at such rates as set out on the Schedule of Contributions on pages 45 and 46.

Employers’ augmentation contributions are accounted for in accordance with the agreement under which

they are paid, or in the absence of such an agreement, on a receipts basis.

29

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 (continued) 3. Accounting policies (continued) Contributions (continued)

Employers’ deficit funding contributions are accounted for in accordance with the agreement under which

they are paid, or in the absence of an agreement, on a receipts basis.

Employers’ other contributions are accounted for in accordance with the agreement under which they are paid, or in the absence of an agreement, on a receipts basis. Members’ additional voluntary contributions are accounted for on an accruals basis on the date the payroll is run.

Members’ added years contributions are accounted for on a receipts basis. Transfers from other plans

Individual transfers in from other pension schemes represent capital sums receivable in respect of individual members from other pension schemes of previous employers. They are accounted for on an accruals basis on the date the Trustee accepts the liability. The liability normally transfers when a payment is made, unless the Trustee agrees to accept the liability in advance of receiving the funds.

Benefits Pensions are accounted for on an accruals basis on the date the payroll is run.

Commutation & lump sum retirement benefits are accounted for on an accruals basis on the later of the date of retirement or the date the member exercises their option to take a lump sum with reduced pension.

Lump sum death benefits are accounted for on an accruals basis on the date of death. Transfers to other plans

Individual transfers to other pension schemes represent the capital sums payable in respect of individual members transferring to other pension schemes. They are accounted for on an accruals basis on the date the Trustee of the receiving Scheme accepts the liability. The liability normally transfers when a payment is made, unless the Trustee of the receiving Scheme agrees to accept the liability in advance. Administration expenses Administration expenses are accounted for on an accruals basis. Investment income Interest on cash deposits is accounted for on an accruals basis. Income distributed from pooled investment vehicles is accounted for on an accruals basis. All other income generated by pooled investment vehicles is not distributed, is retained within the fund and reflected in the market value of units. Other investment income is accounted for on an accruals basis. Irrecoverable taxation relates to withholding tax reclaims which are no longer deemed recoverable. These are recognised on the date the claim is deemed irrecoverable. Investment management fees Investment management fees are accounted for on an accruals basis. Foreign bank and safe custody charges / bank charges are accounted for on an accruals basis. Investment assets The fund of hedge funds are valued at fair value as determined by the investment manager, using audited financial statements where available. These are estimated monthly. Resultant gains and losses are reflected in the change in market value of investments in the fund account.

30

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 (continued) 3. Accounting policies (continued) Investment assets (continued)

Units held in pooled investment vehicles are stated at bid price at the year end, as advised by the investment manager. Where the fund is single priced, the fund is stated at this single price at the year end, as advised by the investment manager. Resultant gains and losses are reflected in the change in market value of investments in the fund account. Property funds are valued either using audited financial statements as at the year end or at net asset value as calculated by the investment manager at the latest quarterly valuation. The net asset values are determined using property values assessed by independent valuers, audited fund values where available, or fair value as determined by discounted rental values, or for non listed real estate funds the INREV guidance has been adopted. Resultant gains and losses are reflected in the change in market value of investments in the fund account. Acquisition and disposal costs are included within purchases and sales in the year they arise. Realised and unrealised capital gains and losses are reflected in the change in market value of investments in the fund account.

4. Defined Benefit section

Income and investment assets attributable to the defined benefit section of the Scheme are not separately reported from investments deemed attributable to members’ defined contribution benefits.

5. Defined Contribution section Notional units are allocated as if the investment had been made within the Lloyds Banking Group defined contribution staff pension arrangements (The Your Tomorrow Pension Scheme). The Trustee Board has agreed the number of investment options. The value of the notional units held, as at 31 December 2015 was £11,464k (2014: £11,765k). This value includes members’ additional voluntary contributions. Additionally contributions received are invested as above. The notional value of units held as at 31 December 2015 was £280k (2014: £245k) for DB members, and £102k (2014: £110k) for DC members. Year ended Year ended 31 December 31 December 2015 2014 £'000 £'000

6. Contributions

Employers: Normal 3,575 3,522 Augmentation 948 1,221 Deficit funding 2,856 16,080 Other 1,403 - Members: AVCs 68 65 Added years 18 22 ───────────── ─────────────

8,868 20,910

31

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 (continued) 6. Contributions (continued)

On the advice of the Scheme’s Actuary, subject to review during future actuarial valuations, deficit contributions remain payable at a rate of £1.340083 million per month until 31 December 2014, nil from 1 January 2015 until 31 December 2019 and £1.942 million per month with effect from 1 January 2020 to 31 December 2023.

Other contributions relate to the reimbursement of all management expenses incurred by the Scheme in accordance with the Schedule of Contributions on pages 45 and 46. £3,000 of Members AVC’s for the year ended 31 December 2014, relate to compensation payments which were sacrificed by defined benefit members under the agreement to reduce the pensionable pay cap to zero with effect from 2 April 2014. Added years contributions are payable by defined benefit members who elect to make these contributions in accordance with the Trust Deed and Rules. The added year’s facility was closed to new payers with effect from 1st December 2012.

7. Transfers from other plans

Individual transfers in from other schemes - 103 ───────────── ─────────────

- 103 There were no payments within transfers which related to defined contribution members (2014: £nil). 8. Benefits

Pensions 5,660 5,096 Commutations & lump sum retirement benefits 1,654 1,437 Lump sum death benefits 6 16 ───────────── ─────────────

7,320 6,549 Included within benefits is an amount of £5k (2014: £11k) in relation to commutation and lump sum retirement benefits for defined contribution members. Included within pensions are payments in relation to defined contribution members who, at retirement, were calculated a pension benefit on a defined benefit basis after electing to utilise the Schemes in-house annuity rate.

32

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 (continued)

Year ended Year ended 31 December 31 December 2015 2014 £'000 £'000

9. Transfers to other plans

Individual transfers to other schemes 5,049 1,964 ───────────── ─────────────

5,049 1,964 Included within individual transfers to other schemes is an amount of £225k (2014: £206k) in relation to defined contribution members.

10. Administrative expenses

Operating costs 4 3 Trustee fees & expenses 84 70 Professional fees 1,177 847 Member administration 60 70 ───────────── ─────────────

1,325 990

All administrative expenses are funded by the payment of employers’ other contributions in accordance with the Schedule of Contributions on pages 45 and 46. Audit fees of £33k (2014: £33k) have been paid and are included under professional fees.

11. Other payments

Other payments 2 - ───────────── ─────────────

2 -

12. Investment income

Interest on cash deposits 3 2 Net income from property funds 852 1,250 ───────────── ─────────────

855 1,252 Less: irrecoverable taxation (18) (11) ───────────── ─────────────

837 1,241

Investment income shown above reflects income earned by the investments within the defined benefit section. All income earned on notional pooled investment units held by the defined contributions section is accounted for within the notional value of those funds.

33

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 (continued) 13. Investment assets

Value at 31 December

2014

Purchases at cost

Sales proceeds

Change in market value

Value at 31 December

2015 £'000 £'000 £'000 £'000 £'000 Pooled investment vehicles 301,437 4,184 (22,029) 3,402 286,994 Cash deposits - 12,130 (195) 131 12,066 ──────────── ──────────── ──────────── ──────────── ────────────

301,437 16,314 (22,224) 3,533 299,060 The change in market value of investments during the year comprises all increases and decreases in

market value of investments held at any time during the year, including profits and losses realised on sales of investments during the year.

As the Scheme does not hold any segregated investments in equities, bonds etc there has been no direct

transaction costs incurred such as fees, commissions, stamp duty and other fees. Indirect transaction costs are incurred through the bid-offer spread on investments within the pooled investment vehicles and are not separately identifiable.

The Scheme’s holdings of pooled investment vehicles are analysed below:

As at As at 31 December 31 December 2015 2014 £'000 £'000

Pooled investment vehicles

Bond funds – UK registered 166,728 170,716 Equity funds – UK registered 111,196 109,464 Fund of hedge funds – non UK registered 3,515 15,481 Property funds – UK registered 3,446 2,592 Property funds – non UK registered 2,109 3,184 ───────────── ─────────────

286,994 301,437 Included in the total pooled investment vehicles is an amount of £11,566k (2014: 11,875k) relating to the

notional units held on behalf of the defined contribution PIP members, and an amount of £280k (2014: £245k) relating to the notional units held on behalf of defined benefit members with DC AVCs. These DC AVCs enable the defined benefit members to acquire additional benefits on a money purchase basis.

In addition, included in the total pooled investment vehicles of the Scheme is an amount in relation to

defined benefit members who have made added years contributions. These contributions have been pooled with the defined benefit contributions of the Scheme and invested as part of the Schemes normal investment operations to secure these members additional benefits within the Scheme.

All of the Scheme’s pooled investment vehicles are unquoted managed funds. The Scheme does not hold any investments which are registered in the Isle of Man.

34

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 (continued) 13. Investment assets The notional units held on behalf of the defined contribution PIP members and defined benefit members

with DC AVCs are analysed below:

Defined Defined Defined Defined Benefit Contribution Benefit Contribution As at As at As at As at 31 December 31 December 31 December 31 December 2015 2015 2014 2014 £'000 £'000 £'000 £'000

Pooled investment vehicles

Diversified growth funds – UK registered 203 7,292 123 7,677 Bond funds – UK registered 24 2,188 65 2,208 Equity funds – UK registered 38 1,684 30 1,718 Property funds – UK registered 14 144 13 79 Cash funds – UK registered 1 258 14 193 ───────────── ───────────── ───────────── ─────────────

280 11,566 245 11,875 The notional units held on behalf of the defined contribution PIP members and defined benefit members

with DC AVCs can be further analysed at fund level below:

Fund Fund Defined Defined Defined Defined Type Benefit Contribution Benefit Contribution As at As at As at As at 31 December 31 December 31 December 31 December 2015 2015 2014 2014 £'000 £'000 £'000 £'000

Global Journey Equity 2 995 2 1,024 Your Journey Extra DGF 203 7,192 123 7,580 Your Journey DGF - 100 - 97 Your Destination - Increasing Income Bonds 24 2,177 65 2,197 Your Destination - Level Income Bonds - - - - Destination Cash Cash 1 258 14 193 UK Equity Fund Equity 8 250 8 244 North America Equity Fund Equity 17 185 11 160 Continental Europe Equity Fund Equity 7 32 7 29 Japan Equity Fund Equity 1 39 - 30 Asia Pacific Equity Fund Equity 2 66 1 68 Emerging Markets Equity Fund Equity 1 117 1 163 Property Fund Property 14 144 13 79 Corporate bond Fund Bonds - 11 - 11 ───────────── ───────────── ───────────── ─────────────

280 11,566 245 11,875

35

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 (continued) 13. Investment assets (continued)

As at As at 31 December 31 December 2015 2014 £'000 £'000

Cash deposits

Sterling 12,066 - ───────────── ─────────────

12,066 - Fair value determination

The fair value of financial instruments has been estimated using the following fair value hierarchy: Level 1 Unadjusted quoted price in an active market for the identical instruments that the entity

can access at the measurement date. Level 2 Inputs (other than quoted prices) that are observable for the instrument, either directly

or indirectly. Level 3 Inputs are unobservable, i.e. for which market data is unavailable. The Scheme's investment assets have been fair valued using the hierarchy categories above as follows: At 31 December 2015 Level 1 Level 2 Level 3 Total

£'000 £'000 £'000 £'000 Pooled investment vehicles 3,515 277,924 5,555 286,994 Cash deposits 12,066 - - 12,066 ──────────── ──────────── ──────────── ─────────────

15,581 277,924 5,555 299,060 ════════════ ════════════ ════════════ ═════════════

At 31 December 2014 Level 1 Level 2 Level 3 Total

£'000 £'000 £'000 £'000 Pooled investment vehicles - 280,180 21,257 301,437 ──────────── ──────────── ──────────── ─────────────

- 280,180 21,257 301,437 ════════════ ════════════ ════════════ ═════════════

36

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 (continued) 13. Investment assets (continued)

Investment risks Financial Reporting Standard 102 (FRS 102) requires the disclosure of information in relation to certain

investment risks. These risks are set out by FRS 102 as follows: Credit risk: this is the risk that one party to a financial instrument will cause a financial loss for the other

party by failing to discharge an obligation. Market risk: this comprises currency risk, interest rate risk and other price risk.

• Currency risk: this is the risk that the fair value or future cash flows of a financial asset will fluctuate because of changes in foreign exchange rates.

• Interest rate risk: this is the risk that the fair value or future cash flows of a financial asset will

fluctuate because of changes in market interest rates.

• Other price risk: this is the risk that the fair value or future cash flows of a financial asset will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.

The Scheme has exposure to these risks because of the investments it makes to implement the investment

strategies of the defined benefit and defined contribution sections, as described in the Trustees Report. The Trustee manages investment risks associated with the Schemes combined investment portfolio,

including credit risk and market risk, within agreed risk limits which are set taking into account the Schemes strategic investment objectives. These investment objectives and risk limits are implemented through the investment management agreements in place with the Schemes investment managers and monitored by the Trustees by regular reviews of the investment portfolios, as supported by regulated investment advisors. The key objective is to maximise the return per unit of risk, and minimise risks that are not rewarded.

The assets of defined contribution PIP members’ and defined benefit members with DC AVCs are invested

with the investment assets of the defined benefit section of the Scheme, with notional units being allocated as if the investment had been made within the fund choices available to members of the Lloyds Banking Group defined contribution staff pension arrangements on the mainland. These members will be subject to credit risk and market risk associated with the Scheme’s combined investment portfolio however this risk would only be realised in the event that the Scheme were to become insolvent. The performance of the notional units is derived from the funds managed by Legal & General Investment Management Limited (Legal & General) and BlackRock Investment Management (UK) Limited (BlackRock). These investment managers are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. As the assets of the defined contribution members’ and defined benefit members with DC AVCs are invested with the assets of the defined benefit section of the Scheme, the actual returns on these assets will mirror those of the Scheme’s combined investment portfolio. The Scheme bears the risk that the actual returns on the invested assets will not match the returns of the funds against which the defined contribution PIP members’ and defined benefit members with DC AVCs notional investments are priced.

The defined contribution PIP members and defined benefit members with DC AVCs are not exposed to

direct credit risk as a result of their notional investments. These investments are made on a notional basis therefore there is no physical transfer of funds to the pooled investment managers who manage the underlying funds against which these members’ investments are notionally priced.

The indirect risks associated with the assets of defined contribution PIP members and defined benefit

members with DC AVCs are borne by the individual members. The Trustee recognises that defined contribution members have differing attitudes towards investment risk and that these attitudes can change during the course of members' working lives. The Trustee believes that defined contribution members should be able to make their own investment decisions based on their own individual circumstances. The table on page 40 details the fund options which are exposed to indirect credit and market risks.

37

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 (continued) 13. Investment assets (continued) Credit risk The Scheme’s combined investment portfolio is subjected to credit risk through the investments it makes in

pooled investment vehicles. Direct credit risks arise in relation to the investments made with the pooled investment vehicle managers and indirect credit risk arises on the financial instruments held within the funds managed by the pooled investment vehicle managers.

Analysis of direct credit risk 2015

Non-

Investment

grade investment

grade Unrated Total £'000 £'000 £'000 £'000 Pooled investment vehicles - - 286,994 286,994 ───────────── ───────────── ───────────── ─────────────

- - 286,994 286,994 ═════════════ ═════════════ ═════════════ ═════════════

2014

Non-

Investment

grade investment

grade Unrated Total £'000 £'000 £'000 £'000 Pooled investment vehicles - - 301,437 301,437 ───────────── ───────────── ───────────── ─────────────

- - 301,437 301,437 ═════════════ ═════════════ ═════════════ ═════════════

The Scheme's holdings in pooled investment vehicles are unrated. Direct credit risk arising from pooled

investment vehicles is mitigated by the underlying assets being ring-fenced from the pooled investment vehicle managers. The Trustee carries out due diligence checks on the appointment of new pooled investment vehicle managers and, on an ongoing basis, monitors any changes to the regulatory and operating environment of these managers.

The defined contribution PIP members and defined benefit members with DC AVCs are not exposed to

direct credit risk as a result of their notional investments. These investments are made on a notional basis therefore there is no physical transfer of funds to the pooled investment managers who manage the underlying funds against which these members’ investments are notionally priced.

The Scheme’s combined holdings of pooled investment vehicles are analysed below:

2015 2014 £'000 £'000 Bond funds 166,728 170,716 Equity funds 111,196 109,464 Fund of hedge funds 3,515 15,481 Property funds 5,555 5,776 ───────────── ─────────────

286,994 301,437 ═════════════ ═════════════

Indirect credit risk arises in relation to the underlying investments held in the bond funds. This risk is

mitigated by the bond funds only investing in at least investment grade credit rated securities.

38

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 (continued) 13. Investment assets (continued) Credit risk (continued)

The value of the units of the LBG UK DC funds in which the DC assets are notional invested on behalf of the defined contribution PIP members and defined benefit members with DC AVCs are analysed below: Defined Defined Defined Defined Benefit Contribution Benefit Contribution As at As at As at As at 31 December 31 December 31 December 31 December 2015 2015 2014 2014 £'000 £'000 £'000 £'000

Pooled investment vehicles

Diversified growth funds 203 7,292 123 7,677 Bond funds 24 2,188 65 2,208 Equity funds 38 1,684 30 1,718 Property funds 14 144 13 79 Cash funds 1 258 14 193 ───────────── ───────────── ───────────── ─────────────

280 11,566 245 11,875 Defined contribution PIP members and defined benefit members with DC AVCs may be subject to indirect

credit risk arising from the underlying investments held in the funds against which their notional investments are priced. Member level risk exposures will be dependent on the funds in which they invest. The table on page 40 details the fund options which are exposed to indirect credit risk.

Currency risk The Scheme’s combined investment portfolio is subject to currency risk because some of the Scheme’s

investments are held in overseas markets, via pooled investment vehicles. The Trustee limits overseas currency exposure through a currency hedging policy.

The Scheme's total net unhedged exposure by major currency at the year end was as follows:

2015 2014 £'000 £'000

Currency

USD 13,126 25,286 EUR 9,176 8,660 JPY 4,858 4,165 Other 18,627 18,371 ───────────── ─────────────

45,787 56,482 ═════════════ ═════════════

39

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 (continued) 13. Investment assets (continued) Interest rate risk The Scheme’s combined investment portfolio is subject to interest rate risk on the LDI investments held

through pooled investment vehicles. At the year end the LDI portfolio comprised:

2015 2014 £'000 £'000

Indirect

Bonds 166,728 170,716 ───────────── ─────────────

166,728 170,716 ═════════════ ═════════════

Other price risk Other price risk arises principally in relation to the Scheme’s combined return seeking portfolio which

includes equity funds, a fund of hedge funds and property fund. The Scheme manages this exposure to other price risk by constructing a diverse portfolio of investments

across various markets. At the year end, the Scheme's exposure to investments subject to other price risk was:

2015 2014 £'000 £'000

Indirect

Equity funds 111,196 109,464 Fund of hedge funds 3,515 15,481 Property funds 5,555 5,776 ───────────── ─────────────

120,266 130,721 ═════════════ ═════════════

Market risk (defined contribution PIP members and defined benefit members with DC AVCs)

Defined contribution members and defined benefit members with DC AVCs are also subject to indirect currency risk, interest rate risk and other price risk arising from the underlying investments held in the funds against which their notional investments are priced. Member level risk exposures will be dependent on the funds in which they notionally invest. The table on page 40 details the fund options which are exposed to indirect currency risk, interest rate risk and other price risk.

40

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 (continued) 13. Investment assets (continued)

Market risk (defined contribution PIP and defined benefit members with DC AVCs) (continued)

The funds and the associated indirect risk exposures are listed in the table below: Fund Credit

Risk Currency

Risk Interest

Rate Risk

Other Price Risk

Global Journey

Your Journey Extra Your Journey Your Destination – Increasing Income Your Destination – Level Income Destination Cash UK Equity Fund North America Equity Fund Continental Europe Equity Fund Japan Equity Fund Asia Pacific Equity Fund Emerging Markets Equity Fund Property Fund Corporate bond Fund

Concentration of investments The following investments amounted to more than 5% of the total net assets of the Scheme: 2015 2014

Market value % of Total Market value % of Total £'000 £'000 2055 Index-Linked Gilts 70,369 23.2% 76,098 25.1% All Stocks Index-Linked Gilts 59,848 19.8% 59,420 19.6% UK Equity Index 41,676 13.8% 40,975 13.5% AAA-AA-A Bonds All Stocks Index 36,510 12.1% 35,198 11.6%

Year ended Year ended 31 December 31 December 2015 2014 £'000 £'000

14. Investment management expenses

Investment managers fees 176 153 Foreign bank and safe custody charges / bank charges 7 8 ───────────── ─────────────

183 161 In addition to the above, there are annual management charges (AMCs), which are calculated as a percentage of the value of the notional units held on behalf of defined contribution PIP members and defined benefit members with DC AVCs. These are reflected in the unit prices provided by the investment providers.

41

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 (continued)

As at As at 31 December 31 December 2015 2014 £'000 £'000

15. Current assets

Contributions due from employer 129 - Cash balances 3,691 1,892 ───────────── ─────────────

3,820 1,892 Contributions due from the employer have been paid in accordance with the timescales set out in the Schedules of Contributions.

16. Current liabilities

Unpaid benefits - 41 Other creditors 568 335 ───────────── ─────────────

568 376 17. Related party transactions

Included below are the transactions with related parties. In addition to contributions received from employees and payments made to the Scheme members, the Scheme undertook the following transactions: Trustee Directors: All Trustee Directors noted as pensioners are in receipt of a pension from the Scheme calculated in accordance with the Scheme Rules. All other employer nominated Trustee Directors and Member Elected Trustee Directors who are contributors accrue pension in accordance with the Trust Deed and Rules. During the year, Christopher Taylor retired from active status and is now in receipt of a pension from the Scheme and Simon Prescott transferred his benefits out of the Scheme. The benefits payable to each of these Trustee Directors were calculated in accordance with the Trust Deed and Rules. As at 31 December 2015, there are two spouses of Trustee Directors who are members of the Scheme and contribute or receive benefits in accordance with the Trust Deed and Rules. Trustee fees: Payments totaling £80k (2014: £66k) were made to The Law Debenture Trust Corporation (Channel Islands) Limited for the provision of services as Trustee.

Support services: Administrative, Secretarial, Investment Management and Accounting support services are provided to the Scheme by the Lloyds Banking Group Pensions Department and Pensions Investment and Finance Team. These services were provided at nil cost to the Scheme. Banking: The Scheme holds a bank account with Lloyds Bank plc. The balance within this account as at 30 June 2015 was £3,691k (2014: £1,892k). Employer related investment: The Scheme invests in pooled investment vehicles, managed by Legal & General. These funds are benchmarked against indices, of which, in some instances Lloyds Banking Group is a constituent. The Scheme’s exposure to Lloyds Banking Group securities within these funds did not exceed 5% of the net assets of the Scheme.

42

Lloyds Bank Offshore Pension Scheme Notes to the financial statements for the year ended 31 December 2015 (continued) 17. Related party transactions (continued):

Employer related investment (continued): The funds holding Lloyds Banking Group securities, the value of these securities and the % of the Scheme’s net assets are shown below:

2015 2014 Market value % of Total Market value % of Total £'000 £'000 AAA-AA-A Bonds All Stocks Index 1,070 0.35 809 0.27 UK Equity Index 942 0.31 983 0.32 N America Net US WHT GBP Hedged 1 0.00 1 0.00 N America Equity (Net US WHT) 1 0.00 2 0.00 Europe (exUK) Net WHT Index GBP Hedged - 0.00 1 0.00

Europe (exUK) Equity (Net WHT)Index - 0.00 1 0.00 ───────────── ───────────── ───────────── ─────────────

2,014 0.66 1,797 0.59

18. Commitments Total Amount Total Amount Commitment remaining to Commitment remaining to Fund Manager Currency drawdown drawdown 2015 2015 2014 2014 £'000 £’000 £'000 £’000 CBRE GBP 5,500 138 5,500 138

19. Contingent liabilities

In the opinion of the Trustee Board, other than the liability to pay pensions, there are no contingent liabilities at the Scheme year end (2014: nil) requiring recognition on the statement of net assets available for benefits.

20. Subsequent events

On 23 June 2016 the UK electorate voted to leave the European Union. This decision is expected to begin an exit process that could take up to two years to complete under the relevant legislation and the UK remains a member of the European Union until such time as this process is effected. The result of the referendum is likely to result in a period of uncertainty for the UK economy and financial markets and potentially significant volatility in the valuation of investment assets, including from fluctuations from the impact in foreign exchange rates. The longer term impact of the referendum decision is clearly yet to be determined. The Trustee will keep the situation under review over the coming months, including implications for investment strategy and risk management. There were no other subsequent events requiring disclosure in these financial statements (2014:nil).

21. Transition to FRS 102

This is the first year that the Scheme has presented financial statements under FRS 102 and the new SORP. The last financial statements under existing UK GAAP and the previous SORP (revised May 2007) were for the year ended 31 December 2014. The date of transition to FRS102 was 1 January 2014. There has been no impact on the net assets of the Scheme as a result of the transition. Additional disclosures arising from the transition have been provided, as required, throughout the notes to the financial statements.

Lloyds Bank Offshore Pension Scheme

Independent Auditors’ Statement about Contributions to the Trustee of the LloydsBank Offshore Pension Scheme

Statement about contributions

Our opinion

In our opinion, the contributions required by the Schedules of Contributions for the Scheme year ended 31December 2015 as reported in Lloyds Bank Offshore Pension Scheme’s summary of contributions have beenpaid in accordance with the Schedules of Contributions dated 14 October 2011 and 5 March 2015.

What we have examined

Lloyds Bank Offshore Pension Scheme’s summary of contributions for the Scheme year ended 31 December2015 is set out on the following page.

Responsibilities for the statement about contributions

Our responsibilities and those of the Trustee

As explained more fully in the statement of Trustee responsibilities, the Scheme’s Trustee is responsible forensuring that there is prepared, maintained and from time to time revised, a schedule of contributions and formonitoring whether contributions are made to the Scheme by the employer in accordance with relevantrequirements.

It is our responsibility to provide a statement about contributions and to report our opinion to you.

This report, including the opinion, has been prepared for and only for the Trustee as a body in accordance withRegulation 12 of the IOM Retirement Benefits Schemes (Domestic Schemes) (General Administration)Regulations 2004 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility forany other purpose or to any other person to whom this report is shown or into whose hands it may come savewhere expressly agreed by our prior consent in writing.

What an examination of the summary of contributions involves

Our examination involves obtaining evidence sufficient to give reasonable assurance that contributions reported inthe summary of contributions have, in all material respects, been paid in accordance with the relevantrequirements. This includes an examination, on a test basis, of evidence relevant to the amounts of contributionspayable to the Scheme under the Schedules of Contributions and the timing of those payments.

We test and examine information, using sampling and other techniques, to the extent we consider necessary toprovide a reasonable basis for us to draw conclusions. We obtain evidence through testing the effectiveness ofcontrols, substantive procedures or a combination of both.

(‘

PricewaterhouseCoopers LLPChartered AccountantsBnstolDate

45

Lloyds Bank Offshore Pension Scheme Schedule of Contributions Name of Principal Employer: Lloyds Bank plc Period covered by schedule: from 1 January 2013 to 31 December 2023 This schedule of contributions has been prepared by Lloyds Bank Offshore Pension Trust Limited, the Trustee of the Lloyds Bank Offshore Pension Scheme (“the Scheme”), after obtaining the advice of P M Stoaling, the Scheme Actuary. The Trustee has discussed and agreed this Schedule of Contributions with Lloyds Bank plc, the Principal Employer, acting on behalf of all employers participating in the Scheme (“the Employers”). The total contributions are the sum of the normal future service contributions, deficit contributions and any additional contributions as set out below. 1. Rates of contribution – normal future service contributions and expenses By employed members: Nil. By the Employers: 42.6% of members’ capped pensionable salaries with effect from the date of

this Schedule where, for the purpose of this section of this schedule, ‘capped pensionable salary’ means Pensionable Salary as defined in the Rules of the Scheme as modified by agreement between the member and his or her employer.

All management expenses of the Scheme to be paid to the Scheme on a

monthly basis from the date of this Schedule. Management expenses incurred by the Scheme since Feb 2014 in

establishing the contingent asset arrangement will be paid to the Scheme in the month following the date of this Schedule.

Rates of contribution – deficit contributions payable by the Employers The Trustee has agreed with the Principal Employer that the £95.9 million shortfall that existed at 31 December 2012 will be met by the Employers paying contributions as follows: - £1.340083 million per month (equivalent to £16.081 million per annum) for twenty four months commencing on 1 January 2013 - nil from 1 January 2015 until 31 December 2019 - £1.942 million per month (equivalent to £23.304 million per annum) with effect from 1 January 2020 to 31 December 2023 - In certain specified circumstances, as set out in the ‘Consequences of a Change in Law’ clause of the Framework Agreement covering the Guarantee and Charge for the Scheme in force as at the date of this Schedule, a “Shadow Schedule of Contributions” will become payable, as set out in the Framework Agreement. - In the event of the Scheme being in deficit on an IAS19 accounting basis (as reported annually by the Principal Employer to the Trustee in respect of a financial year-end of the Principal Employer arising on 31 December 2014 up to and including 31 December 2019), then the Employers will make a contribution (IAS19 Payment) equivalent to that deficit subject to a maximum of £23.304m per annum. 2. Rates of contribution - additional contributions

By the employed members: Any additional voluntary contributions

By the employers: Additional contributions as may be required under the Supplemental Instrument in specific circumstances, for example to cover augmentations.

Additional payments in such other circumstances as may from time to time be agreed by the Trustee and employers.

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Lloyds Bank Offshore Pension Scheme Schedule of Contributions - continued 3. Due dates of payment

Member contributions: Due on the last working day on or before the 19th (including AVCs): of each month after that in which contributions are

deducted from earnings. Employer contributions: Due on the last working day on or before the 19th

of each month after the end of the calendar month to which they relate.

The additional deficit contributions based on the IAS19 deficit (if any) should be made by 31 March immediately following the year end. Expenses to be paid by the end of the month following the month in which reimbursement was requested by the Scheme.

Additional Employer Within three months of the Trustee requesting contributions, including all payment. augmentation payments: Nothing in this Schedule shall preclude the payment of higher contributions as may from time to time be agreed between the Trustee and the participating Employers.

4. Calculation errors

The Principal Employer and the other Employers participating in the Scheme from time to time may contribute lower amounts than those described in the previous paragraphs, provided that:

1 the lower amounts are paid as a result of calculation errors;

2 the shortfall between the Employer contributions due and those paid at any one time does not

exceed £100,000; and

3 the Employers or Principal Employer shall make good such shortfall as soon as reasonably practicable after becoming aware of such error.

Agreed on behalf of the Trustee of the Agreed on behalf of Lloyds Bank plc (acting on Lloyds Bank Offshore Pension Scheme behalf of all Employers participating in the Scheme)

Name Ross Davey Willcox Name Mark Bradshaw

Signed Signed

Date: 5 March 2015 Date 5 March 2015

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APPENDIX

Relevant Extracts from the

Lloyds Bank Pension Scheme No.1

Statement of Investment Principles (Your Tomorrow Section and PIP Section)

November 2015

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Section 3: Objective and Investment Strategy 3.1 The YT Section and the PIP Section are defined contribution sections and therefore members’ benefits are dependent on the amount of money paid into their individual accounts, performance of investments and annuity rates at retirement. Investment Objective 3.3 The Trustee’s objective is to make available to members a programme of investment via pooled funds which seeks to generate income and capital growth which will provide a fund at retirement from which members can purchase a pension, take a cash lump sum and/or transfer to another arrangement to drawdown an income. Investment Strategy 3.4 A full list of the range of funds offered is shown in Appendix A. This includes the 'LifePlan’ as the Scheme’s lifestyling option. 3.5 The assets in excess of the member accounts are to be invested in cash and cash-like assets to meet expected cashflow requirements over a 12 month period. Default Option 3.6 The Trustee offers members the option to invest in the range of funds described in Appendix A entirely at their discretion. Expected Risk and Return 3.8 The investment options invest in the following assets and have the following risk and expected return characteristics:

(i) Equities – expected to produce returns in excess of rates of salary and price inflation in the medium to long term. Capital values may be highly volatile in the short term.

(ii) Diversified assets – expected to produce returns in excess of rates of salary and price inflation in the medium to long term. Capital values may be volatile in the short term although this is expected to be less than for equities.

(iii) Bonds – capital values are likely to be less volatile than equities but tend to produce lower returns in the medium to long term. The value of bonds is expected to move broadly in line with the price of annuities, providing some protection to the ‘purchasing power’ of a member’s account near retirement.

(iv) Cash – low risk to capital and asset values are easily realisable with limited investment returns associated with the low risk nature of the assets.

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Appendix A: Fund range for members The following investment options are open to all members:

Investment Option Invests in LifePlan See below Your Journey Diversified range of asset classes Your Journey Extra Diversified range of asset classes Global Journey Global equities including UK and emerging markets Your Destination (Increasing Income)

Index-linked bonds

Your Destination (Level Income)

Fixed interest bonds

Destination Cash Cash deposits and money market instruments UK Equity Fund UK equities North America Equity Fund US and Canadian equities Continental Europe Equity Fund European (excluding UK) equities Japan Equity Fund Japanese equities Asia Pacific Equity Fund (Excluding Japan)

Asian and Pacific rim equities (excluding Japan)

Emerging Markets Equity Fund Emerging markets equities Property Fund Commercial property Corporate Bond Fund Corporate bonds

Your Journey, Your Journey Extra, Destination Cash and Property Fund are actively managed. All other funds are passively managed.

LifePlan

LifePlan is the name for the Scheme's lifestyling option(s). Members are able to choose different elements of LifePlan as follows:

Growth phase choices: Your Journey Your Journey Extra Global Journey Switching period choices: 5 years 10 years 15 years and a choice of target retirement age Pre-retirement choices: Your Destination (Increasing Income) Your Destination (Level Income) Your Journey (Drawdown) Destination Cash The Scheme has been closed to new members since July 2010, but for members who joined before that date and who did not specify an investment choice when they joined, a default investment option was applied. The default investment option is one of the LifePlan routes and the specific elements of this were as follows: Growth phase: Your Journey Extra Switching period: 10 years Pre-retirement funds: 75% into Your Destination (Increasing Income) and 25% into Destination

Cash