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PRESS RELEASE : BoS half-year news release -11-

07/29/2021 | 10:26am EDT
Less than 1 year original maturity: 
Mortgage offers made                                                                        15,029      17,828 
Other commitments and guarantees                                                            25,994      26,203 
                                                                                            41,023      44,031 
1 year or over original maturity                                                            2,887       3,512 
Total commitments and guarantees                                                            43,917      47,572 

Of the amounts shown above in respect of undrawn formal standby facilities, credit lines and other commitments to lend, GBP18,127 million (31 December 2020: GBP20,919 million) was irrevocable.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 12: Fair values of financial assets and liabilities

The valuations of financial instruments have been classified into three levels according to the quality and reliability of information used to determine those fair values. Note 39 to the Group's 2020 financial statements details the definitions of the three levels in the fair value hierarchy.

Valuation control framework

Key elements of the valuation control framework, which covers processes for all levels in the fair value hierarchy including level 3 portfolios, include model validation (incorporating pre-trade and post-trade testing), product implementation review and independent price verification. Formal committees meet quarterly to discuss and approve valuations in more judgemental areas.

Transfers into and out of level 3 portfolios

Transfers out of level 3 portfolios arise when inputs that could have a significant impact on the instrument's valuation become market observable; conversely, transfers into the portfolios arise when sources of data cease to be observable.

Valuation methodology

For level 2 and level 3 portfolios, there is no significant change to the valuation methodology (techniques and inputs) disclosed in the Group's 2020 Annual Report and Accounts applied to these portfolios.

The table below summarises the carrying values of financial assets and liabilities presented on the Group's balance sheet. The fair values presented in the table are at a specific date and may be significantly different from the amounts which will actually be paid or received on the maturity or settlement date.

                                                  At 30 June 2021           At 31 December 2020 
                                                  Carrying     Fair         Carrying     Fair 
 
                                                  value        value        value        value 
                                                  GBPm           GBPm           GBPm           GBPm 
 
Financial assets at amortised cost 
Loans and advances to banks                       98           98           207          207 
Loans and advances to customers                   275,932      277,908      263,766      265,635 
Due from fellow Lloyds Banking Group undertakings 23,420       23,420       28,988       28,988 
 
Financial liabilities at amortised cost 
Deposits from banks                               9,368        9,368        14,695       14,695 
Customer deposits                                 169,941      170,007      163,001      163,148 
Due to fellow Lloyds Banking Group undertakings   96,782       96,782       91,953       91,953 
Debt securities in issue                          7,586        7,721        8,297        8,622 
Subordinated liabilities                          6,591        6,618        6,964        6,990 

Financial instruments classified as financial assets at fair value through profit or loss, derivative financial instruments, financial assets at fair value through other comprehensive income and financial liabilities at fair value through profit or loss are recognised at fair value.

The carrying amount of the following financial instruments is a reasonable approximation of fair value: cash and balances at central banks, items in the course of collection from banks, items in course of transmission to banks and notes in circulation.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 12: Fair values of financial assets and liabilities (continued)

The Group manages valuation adjustments for its derivative exposures on a net basis; the Group determines their fair values on the basis of their net exposures. In all other cases, fair values of financial assets and liabilities measured at fair value are determined on the basis of their gross exposures.

The following tables provide an analysis of the financial assets and liabilities of the Group that are carried at fair value in the Group's consolidated balance sheet, grouped into levels 1 to 3 based on the degree to which the fair value is observable. There were no significant transfers between level 1 and level 2 during the period.

                                                                     Level 1   Level 2    Level 3   Total 
Financial assets carried at fair value                               GBPm        GBPm         GBPm        GBPm 
 
At 30 June 2021 
Loans and advances to customers at fair value through profit or loss -         -          400       400 
Debt securities at fair value through other comprehensive income     -         2,181      -         2,181 
Derivative financial instruments                                     -         4,790      11        4,801 
 
At 31 December 2020 
Loans and advances to customers at fair value through profit or loss -         -          477       477 
Debt securities at fair value through other comprehensive income     -         2,395      -         2,395 
Derivative financial instruments                                     -         7,411      12        7,423 
                                                                      Level 1   Level 2    Level 3   Total 
Financial liabilities carried at fair value                           GBPm        GBPm         GBPm        GBPm 
 
At 30 June 2021 
Financial liabilities designated at fair value through profit or loss -         -          38        38 
Derivative financial instruments                                      -         5,852      206       6,058 
 
At 31 December 2020 
Financial liabilities designated at fair value through profit or loss -         -          45        45 
Derivative financial instruments                                      -         8,401      271       8,672 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 12: Fair values of financial assets and liabilities (continued)

Movements in level 3 portfolio

The table below analyses movements in the level 3 financial assets portfolio.

                                                            Financial assets at       Derivative   Total financial 
                                                            fair value through        assets       assets carried at 
                                                            profit or loss                         fair value 
                                                            GBPm                        GBPm           GBPm 
 
At 1 January 2021                                           477                       12           489 
Losses recognised in the income statement within other      (55)                      (1)          (56) 
income 
Purchases/increases to customer loans                       4                         -            4 
Sales/repayments of customer loans                          (26)                      -            (26) 
At 30 June 2021                                             400                       11           411 
Losses recognised in the income statement, within other 
income, relating to the change in fair value of those       (52)                      (1)          (53) 
assets held at 30 June 2021 
 
At 1 January 2020                                           463                       -            463 
Gains recognised in the income statement within other       18                        2            20 
income 
Sales/repayments of customer loans                          (13)                      -            (13) 
Transfers into the level 3 portfolio                        -                         11           11 
At 30 June 2020                                             468                       13           481 
Gains recognised in the income statement, within other 
income, relating to the change in fair value of those       9                         -            9 
assets held at 30 June 2020 

The table below analyses movements in the level 3 financial liabilities portfolio.

                                                                                                      Total financial 
                                                            Financial liabilities at    Derivative    liabilities 
                                                            fair value through profit   liabilities   carried at 
                                                            or loss 
                                                                                                      fair value 
                                                            GBPm                          GBPm            GBPm 
 
At 1 January 2021                                           45                          271           316 
Gains recognised in the income statement within other       (2)                         (46)          (48) 
income 
Redemptions                                                 (5)                         (19)          (24) 
At 30 June 2021                                             38                          206           244 
Gains recognised in the income statement, within other 
income, relating to the change in fair value of those       (2)                         (42)          (44) 
liabilities held at 30 June 2021 
 

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