2010 LloydsBG Results Presentation

8/7/2019 2010 LloydsBG Results Presentation

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2010 RESULTS25 Februar 2011

Eric DanielsGroup Chief Executive


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BUSINESS HIGHLIGHTSA year of significant progress

STRONG OPERATINGPERFORMANCE RISK REDUCED

Step change in profitability Balance sheet reduction planahead of schedule

Sharp fall in impairments Funding risk much reduced

Good franchise momentum

Inte ration ro ramme on

Capital position furtherstrengthened

track More predictable assetportfolios

A much stronger business


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THE BUILDING BLOCKS FOR A STRONG BUSINESSDriving customer value, earnings, capital and returns

SUSTAINABLE GROWTHValue

Efficiency, effectiveness

Customer valueDeep relationshipsQualit market share

PROFITABILITY

Complete integrationDrive elements of profit

CONTROL

Optimise capital andliquidity

Li uidit rofileImpairmentsIntegrationRisk frameworkCa ital

2009 / 2010 2010 / 2011 2011 onwards


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STEP CHANGE IN PROFITABILITY IN 2010Combined businesses results

22.9bn 23.6bn

INCOME (1) UP 3%

2009 2010

COSTS DOWN 6%

11.6bn 10.9bn 2.2bn

2009 2010 2009 2010

.

IMPAIRMENTSDOWN 45%

24.0bn

13.2bn

(1) Excluding liability management gains and fair value movement of the ECN conversion feature

2009 2010


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SHARP FALL IN IMPAIRMENTSLloyds risk disciplines showing through in more predictable

UK, USIMPAIRMENTS DOWN AS

IRELAND, AUSTRALIAIMPAIRMENTS HIT BY

WHOLESALE RETAIL

15.7bn0.8

5.6bn4.2bn4.4bn

14.9

0.82009 2010

4.3

.

2.90.9.

2009 2010

2.7bn

0.32.43.4

2009 2010

4.2

.

(1) Includes Corporate North America

Asset FinanceCorporate Markets (1)

UnsecuredSecured

AustraliaIreland


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GOOD FRANCHISE MOMENTUM IN 2010Building the drivers of future growth

GROWING THEFRANCHISE

SUPPORTING THEECONOMIC RECOVERY

1.9 million new personalcurrent accounts 30 billion gross mortgage

5.2 million new savingsaccounts, 5% growth in retailsavings book

en ng nc u ngremortgages)

Over 100,000 new start-upcommercial customers

lending to UK businesses

Focus on supporting recovery17,000 new private bankingcustomers

and growth in the SME sector

Lending commitments will be

-initiatives to build relationships


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INTEGRATING THE BUSINESSIntegration in the final phase

RUN-RATE COST SAVINGSKEY DEVELOPMENTS

Standardised operating

Harmonised terms and2,000m

conditions

Standardised rocurement766m

1,379m

and property processes

2009 2010 2011 target


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BALANCE SHEET REDUCTION AHEAD OF SCHEDULE

KEY POINTSASSETS TARGETED

FOR RUN-DOWN

Asset reduction programmehalfway to goal Goal: 200 billion asset

run-off236bn195bn

41 on re uct onachieved in 2010

Across all target assetgroups

Value-based approach2008 2009 2010

Sale of non-core businesses


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FUNDING RISK MUCH REDUCED

WHOLESALE FUNDING


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CAPITAL POSITION FURTHER STRENGTHENED

STRONG CAPITAL POSITIONCORE TIER 1 RATIO

Reduced our risk profile in

Well placed for Basel III8.1%

10.2%

Robust performance in

stress tests

5.6%

Core tier 1 ratio including31 Dec 31 Dec 31 Dec

.2008 2009 2010


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PERFORMING IN LINE WITH OUR 2010 GUIDANCENow getting more predictable financials

GUIDANCE 2010 (1)

REVENUE (2) GROWTH High single digit growth

within 2 yearsMar in ex ected to

COST:INCOME RATIO c.200 p.a. basis pointsimprovement

increase to c.2%

INTEGRATION BENEFITS Run rate savings of2 billion p.a. by end of 2011

BALANCE SHEET 200 billion asset

IMPAIRMENTS-

improvement to continuethrough 2010

REDUCTION reduction(1) Combined businesses basis(2) From core businesses, excludes liability management transactions


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SUMMARYA year of significant progress

RISK REDUCEDRETURN TO PROFITABILITY

Group delivering profits in2010

Good franchise momentumacross all divisions

a ance s eet e ngrestructured

Integration programme ontrack

Funding position enhanced

Trajectory is clear

A much stronger business, positioned for growth


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2010 RESULTS25 February 2011

Tim TookeGroup Finance Director


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DELIVERING

13


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BUSINESS PERFORMANCEIncome statement

m 2009UNDERLYING

% CHANGE 2010HEADLINE % CHANGE

Income (1) 23,44423,964 3% (2) (2)%

Core +7% Non-core (9)%

Impairments (13,181)(23,988) 45%

Costs (11,078)(11,609) 6% (3)

45%

5%

Profit before tax (4) 2,212(6,300)

Integration savings run-rate 1,379766

Margin 2.10%1.77%

14

The Group has delivered a good performance in 2010(1) Net of insurance claims (2) Excluding liability management gains and fair value movement of the ECN conversion feature(3) Excluding impairment of fixed assets (4) Combined businesses basis


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RETURN TO PROFITABILITYBusiness performance and statutory profit

PROFIT BEFORE TAX (m) (1) 2009 H2 2010H1 2010 2010

(7,371) 1,421988 2,409Divisional performance

Liability management gains 4231,498 - 423

Fair value movement of ECNconversion feature 192(427) (812) (620)2,21, , 2

-Volatility arising in insurance businesses 306478

Integration costs (1,653)(1,096)

,

Pension curtailment ain 910-

Negative goodwill credit -11,173

Amortisation (2) and goodwill impairment (629)(993)

Pre-acquisition results of HBOS plc -280

Customer goodwill and payments provision (500)-

Loss on disposal of businesses (365)-

15

(1) Combined businesses basis (2) of purchased intangibles

Profit before tax - statutory 2811,042


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REVENUE TRENDSGood underlying income growth

42322,893 23,641

23,964 23,444

m +3%

11,238

(1,498)

10,167 9, 6229, 819

(348)427

(620)

13,822

1,096

12,726 12,726 ,

2009 LiabilityMgmt

Underlying2009

LiabilityMgmt

Underlying2010

2010

Net Interest Income Other Operating Income less insurance claims

MTM onECNs (1)

MTM onECNs (1)

NII OOI

16

Good underlying income growth driven by NII(1) Fair value movement of the ECN conversion feature


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NET INTEREST INCOME DRIVERSGood performance driven by increased asset pricing

IMPACT ON NIIbn

VOLUME

Non-core lending continues to fall

Customer deleveraging continuesAssets (0.4)

Liabilities Growth in relationship depositsCompetitive pressures remain

PRICING

0.1

Increase driven by risk re-pricingRepricing largely complete in line with previous guidanceAsset pricing

Margins remain depressed

2.6

Focus on relationship products reduces margin strain

FUNDING VOLUME

.

(0.2)FUNDING RATE0.4

17

NON BANKING INCOME (0.3)1.1


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NET INTEREST INCOME DRIVERSGood performance despite increasing funding costs

IMPACT ON NIIbn

FUNDING VOLUME

PRICING.

1.5

Significant reduction in customer funding gap requirement

Term issuance 2010 issuance requirements exceeded

.

(0.2)

FUNDING RATE

.

NON BANKING INCOME (0.3)

18

.


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OTHER OPERATING INCOMEUnderlying income fell 3% (1)

(m)

10 167(3)%

(70) 9,819(100) (61)

Underlying2009

OtherImpact of PPInew

business

Overdraftcharges

Underlying2010

Assetsales

19

(1) Underlying income excludes liability management gains and the fair value movement of the ECN conversion feature

c osure


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ECONOMIC ASSUMPTIONSExpect slow recovery, in line with consensus

BASE RATEGDP

2.6

Market implied rate2.0

2.5

3.0

e r a g e1.9

2.4

2.12.11.9

Group assumption1.0

1.5

% q u

a r t e r a v.

2010 2011 2012 2011 20120.0

.

Group Consensus from HMT OBR data

House prices Commercial property prices Unemployment

Scenario

forecasts Nov and Dec 2010

20

Down 2% in 2011 Up 2% in 2012

Down 2% in 2011 Up 3% in 2012

Expected to peak in 2011at 8.1%


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DRIVERS OF FUTURE MARGINLimited core income growth in 2011 given by flat Net Interest Margin

Continued subdued lendin markets

2011

Further reduction in non-core assetsOpportunity for growth in core

businessGrowth in customer deposits

VOLUME

2.08% 2.12% 2.10%

PRICING

Asset re-pricing offset by elevatedWholesale funding costs

Liability margins depressed by lowbase rate and competitive markets

1.77%

o ur er progress on nexpected in 2011

FYH2FY H1 FYFUNDING Expect wholesale term funding coststo remain elevated 2010

2009

21

No further progression in NIM expected in 2011


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DRIVERS OF FUTURE MARGIN

BANK BASE RATE, WHOLESALE ISSUANCE COSTS & MARGIN OUTLOOK

3.21% Higher absolute issuance costsbut at lower spreads over timeWHOLESALE ISSUANCE COSTS(1)

0.50% Lloyds Banking Group forecast3.75%BANK BASE RATE

. Limited further improvement

0.97% Increases facilitated by baserate movements

LIABILITY MARGIN

>2.5% driven by liability margin

22

(1) Based on market rates as at 31 December 2010 for a 5 year benchmark senior floating rate note

2.10% growth and reduced wholesaleissuance spreadsNIM


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COST PERFORMANCEContinued strong cost control

m (6)%

11 609

393 10,928 (1)(247)

(827)

Investment/Other

2009Operatingexpenses

Operatinglease

depreciation

Costsynergies

2010Operatingexpenses

23

(1) Excluding impairment of fixed assets acquired after debt restructuring

Continued strong cost control and delivery of synergy programmes


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SYNERGY PROGRESSIONStrong delivery of synergy programmes

RUN RATE STRONG PERFORMANCE IN 2010

non- ranc proper es ex e(162 since start of programme)

236 million procurement benefits

2,000

complete

Improved processes implemented

766

,

,Internet Banking and Asset Finance

Branch, ATM and mortgage sales ITplatforms roll out commenced and on

Dec2009

End2011

target

Dec2010

24

On track to deliver end 2011 target


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REDUCTIONS IN UNDERLYING COST : INCOME RATIO

50.7%

UNDERLYING COST : INCOME RATIO (1)

46.2%

c.40%

Excl. Bank Levy

201420102009

25

(1) Excluding liability management gains, fair value movement of the ECN conversion feature and impairment of fixed assets

Costs broadly flat in 2011


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GROUP IMPAIRMENT CHARGESignificant reduction, primarily driven by Wholesale

10.8 billion (45%) reduction in Groupimpairment charge

bn

1.5 billion (35%) reduction in Retailimpairment charge

11.2 billion (72%) reduction in Wholesaleimpairment charge

13.412.4

24.0 (45)%

primarily driven by a reduction incommercial real estate and relatedportfolios

1.9 billion (47%) increase in Wealth and

10.6

13.2

International charge

Driven by further deterioration in Irelandin second half

2.5

..

exposures

Ahead of original 2009 year end guidance for2010H1/08 H2/08 H1/09 H2/09 H1/10 H2/10

26

Further reduction in impairment charge expected in 2011

IRISH PORTFOLIO


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IRISH PORTFOLIOCoverage level increased due to economic uncertainties

IMPAIRED/UNIMPAIRED ASSETS

Market sentiment adverselyimpacted by downturn and EU-IMFbail out

54%

expected to be depressed forlonger

Coverage ratio increased to 54%37%

42%40%

deferred realisation of asset values

Downside risks still remain14%33%

44%

UnimpairedImpaired Coverage ratio

27

,rundown driven by experienced BSU team

RETAIL GOOD PERFORMANCE


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RETAIL GOOD PERFORMANCEGood performance driven by income growth and lower impairment

Profit before tax increased toPROFIT BEFORE TAX (bn)

4.70.7 . ,income growth, tight cost controland a significantly lowerimpairment charge1.0

IncomeCore +1.0 billion

Non-core +0.2 billion

result of continued repricing ofrisk, mortgage customers

moving onto SVR and a decreasein the LIBOR to Base Rate

(0.1)1.2

0.5

spread

Operating expenses tightlycontrolled

1.4

mpa rment c arge owndriven by reduced impairment onboth secured and unsecuredportfoliosDec

2009Dec2010

Income Costs SecuredImpair-

UnsecuredImpair-ment

IncreaseIn fair

28

unwind

WHOLESALE IMPAIRMENT SIGNIFICANTLY LOWER


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WHOLESALE IMPAIRMENT SIGNIFICANTLY LOWERReturn to profitability driven by reduction in impairment

Profit before tax increased to

PROFIT BEFORE TAX (bn)

(3.7).

3.3 billion principally driven bysignificant reduction inimpairment charge

IncomeCore +0.2 billion

Non-core -0.5 billion

11.2

than last year at 4.4 billion butcontinues to be driven by HBOSheritage corporate real estateand related portfolios

3.3

Income down 4%, primarilydriven by lower interest earningasset balances, in line with

targeted balance sheet. reductions and lower income inTreasury and Trading

Good progress in reducingoperating expenses

29

(0.3) 0.2Dec2009

Dec2010

Income Costs Impair-ment

Other Decreasein fair

value unwind

INSURANCE SOLID PERFORMANCE


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INSURANCE SOLID PERFORMANCECapital intensity reduced

SALESDOWN

SALES PVNBP (20)%

3.5%EEV

Margin MARGINS

UPINCREASED

PROFITABILITY

(140)bps

2009 2010

2.5%

IFRS1,102m

+13%

NEWBUSINESSCAPITAL

IMPROVED (1)

1.9%

.

GI COMBINED

2009 2010

83%79%

(400)bps 2009 2010

RATIOIMPROVED

2009 2010

30

Focus on value over volume, driving improved returns(1) New business capital divided by sales

DELIVERING


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DELIVERING

31

GOOD PROGRESS ON ASSET REDUCTIONS


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GOOD PROGRESS ON ASSET REDUCTIONS105 billion asset reduction since end 2008

bn300 105bn

236(1)

(9) 195

(8)(20) (3) (1)

2009 Impairments RetailTreasuryassets

2010InternationalWholesale2008

32

minimal losses to date on disposal over impaired values(1) Reduced from 240bn following a reclassification of assets between core and non-core


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BALANCE SHEET DE RISKING


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BALANCE SHEET DE-RISKINGReducing the capital intensity of our business

RISK-WEIGHTED ASSETS (bn)

Overall RWA reduction driven by: Asset reductions

493.3

406.4 Reclassification of certain assets to

Foundation IRB (23bn impact)

Further risk-weighted asset reductions

Non-core 188.7

141.0

expecte over next ew years

Further asset reduction

Improving economic conditionsCore 304.6

265.4

December2009

December2010

34

Further reduction of risk-weighted assets expected over next few years

A STRONG CAPITAL POSITION


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A STRONG CAPITAL POSITIONImproving quality and quantity of capital

CORE TIER 1 RATIO (%)

8.1%

.

0.5%(0.1)%

Core tier 1 ratio including ECNswould be 12.1%

10.2%

Tier 1 ratio: 11.6%

Total capital ratio: 15.2%

Improved quality of capital base

Return to profitabilityaccelerates deferred tax assetconsumption

December2009

Other December2010

RWAreductions

Capitalissuance

35

IMPACT OF BASEL CHANGES


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IMPACT OF BASEL CHANGESImpact of Basel 2.5/3 changes on pro-forma Core tier 1 ratio (1)

Impact of insurance3.7%

2.0%

(1.2)%

14.7%

2014 is c.0.3%B2.5

B3

20%

80%

10.2%

Dec 2010CT1 ratioBasel 2

Consensusretained earnings

(2011 2013)

Illustrative60bn RWA non-core

reduction

Increase in RWAsfrom Basel 2.5/3

Dec 2013CT1 ratioBasel 3

(transitional rules)before new business growth

36

impact of Basel proposals(1) See preparation notes in appendix

DELIVERING


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DELIVERING

37

FURTHER REDUCTIONS IN OUR WHOLESALE FUNDING


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FURTHER REDUCTIONS IN OUR WHOLESALE FUNDINGand maturity profile maintained

WHOLESALE FUNDING 298BNWHOLESALE FUNDING MATURITY PROFILE

bn 13 % 50%

12 years47bn

25 years

52bn > 5 years50bn

343326

298

44% 16450%

> yr

14950%

22% reduction

19256% 162

50%

< 1 yr 14950%

Dec 2008 Dec 2009 Dec 2010Less than 1 year

149bn

r mary quasset

coverage (1)

38

,progress on reducing liquidity risk(1) Primary liquidity of 98 billion

FURTHER REDUCTIONS IN GOVERNMENT & CENTRAL


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FURTHER REDUCTIONS IN GOVERNMENT & CENTRALBANK FUNDING

REDUCING GOVERNMENT &CENTRAL BANK FUNDING

61 billion reduction ingovernment and central bank

157.2

Other (1)

107.2

Further 13 billion repayment of

government and central bankfunding since year end

96.6

No remaining ECB or US Fedfunding

Other (2)51.2

Dec 2009

50.0

Dec 2010

CGS45.4

All facilities mature by Q4/2012

39

(1) Other: UK Special Liquidity Scheme facilities, US Federal Reserve, ECB, Bank of Japan and Reserve Bank of Australia(2) Other: UK Special Liquidity Scheme facilities and Reserve Bank of Australia

FURTHER REDUCTIONS IN OUR LOAN TO DEPOSIT RATIO


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FURTHER REDUCTIONS IN OUR LOAN TO DEPOSIT RATIOLoan to deposit ratio now at 154% - Core book ratio is 119%

REPORTED RATIO CORE BUSINESS RATIO

169% 154%128% 119%

(900)bps

2009 2010 2009 2010

Loan to deposit ratio continues to improve due to:

Excellent relationship deposit growth

Subdued new lending demand

Loan to deposit ratio on core book significantly lower at 119%

40

Continue to expect reported loan to deposit ratio to fall to below 140% over next few yearsLiquidity Coverage Ratio : 71% / Net Stable Funding Ratio : 88%

FUNDING SUMMARY


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FUNDING SUMMARYExecuting a broad funding strategy

Reduced absolute level of wholesale funding

Good deposit growth

Reducing reliance on short-term funding

Reduced government and central bank funding by 61 billion

Substantial liquid asset buffer (98 billion) provides 2011 flexibility

Completed c.50 billion of term issuance in 2010, well ahead of plan

Diverse range of funding products and sourcesPlans to reduce wholesale funding further while reinvesting for growth

41

A strengthened funding position

DELIVERING


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DELIVERING

42

A PROFITABLE, STRENGTHENED BUSINESS


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A PROFITABLE, STRENGTHENED BUSINESSGood progress towards our medium term targets

Strong progress in balance sheet reduction

Fundin and li uidit osition much im roved

Further reduction in risk in the business

Stronger capital ratios

2010 margin improvements delivered

On track to deliver improved shareholder returns

43

Strong prospects over the medium term


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LOANS AND ADVANCES TO CUSTOMERS


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LOANS AND ADVANCES TO CUSTOMERS

31 Dec 2010

LOANS AND ADVANCES TO CUSTOMERS 611 BILLION (1)

Property companies13%

Financial, business & other services10%

Construction1%

Personal other6%

Personal mortgages58%

Corporate other1%

Manufacturing2%

Lease financing & hire purchase2%

Agriculture, forestry & fishery1%

45

(1) Before allowance for impairment losses totalling 18.4 billion and fair value adjustments

Transport, distribution & hotels6%

MORTGAGE PORTFOLIO


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31 Dec 2010

UK MORTGAGE PORTFOLIO 341.1 BILLION

Specialist29.3bn

Mainstream

Buy to let46.4bn

.

46


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MORTGAGE PORTFOLIO LTVs


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BUY TO LET GROUPSPECIALISTMAINSTREAM

New business LTVs

Average LTVs

66.5%

75.6%

60.9%

55.6%

n/a

72.9%

60.0%

51.9%

90100% LTV 19.1% 13.6%20.0%11.9%

>

Value > 100% LTV

18.5%

8.6bn

13.2%

44.9bn

19.4%

5.7bn

11.6%

30.7bn

48

Indexed by value at 31 Dec 2010Specialist lending is closed to new business


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MORTGAGE ARREARS TRENDS


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% OF TOTAL CASES >3 MONTHS IN ARREARS

8%

6%

7%

Market4%

5%

.

2%

3%

Q4 08Q3 07 Q3 08Q2 08Q1 08Q4 07Q2 07Q1 07 Q2 09Q1 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10

0%

1%

50

(1) Source: Council of Mortgage Lenders (2) CML Q4 10Note: chart shows mortgages >3 months in arrears excluding possessions stock as a proportion of total cases

CML total market (1) Mainstream Buy to LetSpecialist


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MORTGAGE PORTFOLIO PROPERTIES IN REPOSSESSION


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NEW REPOSSESSIONS(% OF TOTAL MORTGAGE CASES)PROPERTIES IN REPOSSESSION(% OF TOTAL MORTGAGE CASES)

0.11%

0.05%0.07%

.

LloydsBankingGroup (2)

CMLaverage (1)

31 Dec 201031 Dec 2010

LloydsBankingGroup (2)

CMLaverage (1)

52

(1) Council of Mortgage Lenders Q4 2010 (2) Lloyds Banking Group Q4 2010

MORTGAGE PORTFOLIO PROPERTIES IN REPOSSESSION


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% of mortgage cases

PROPERTIES IN REPOSSESSION

0.13%

Council of Mortgage Lenders0.20%

0.25%

Lloyds Banking Group0.05%

0.10%

0.15%

0.00%

Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10

53

MORTGAGE PORTFOLIO NEW REPOSSESSIONS


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% of total cases

NEW REPOSSESSIONS

0.05%0.07%

0.06%0.09%

31 Dec 2010

LBGCML

31 Dec 2009

LBGCML

54

REPOSSESSIONS FLOW


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FLOW TO REPOSSESSION0.14%

0.12%

0.08%

.

0.04%

0.06%

0.02%

55

Lloyds Banking Group Council of Mortgage Lenders

Q4 08 Q4 09 Q4 10.

UNSECURED LENDING PORTFOLIO


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31 DEC 200932.1bn 31 DEC 201027.9bn

Creditcards

11.2bnOther0.2bn

Creditcards

12.3bnOther0.3bn

PersonalCurrent

Accounts2.6bn

PersonalCurrent

Accounts2.6bn

Loans13.9bn

Loans16.9bn

Impairment charge as a % of average lending

56

LoansCards11.4% 7.7%

LoansCards9.5% 5.9%


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LOANS AND ADVANCES TO CORPORATE CUSTOMERS


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31 Dec 2010

LOANS AND ADVANCES TO CORPORATE CUSTOMERS 219.7BN (1)

Transportdistribution and

hotels15%

Post and communications1%

Propertycompanies

36%Manufacturing

6%

Construction4%

Corporate other1%

Lease financing

gr cu ure, ores ryand fishing

2%

Financial business and other services

58

7%

28%

(1) Before allowance for impairment losses and fair value adjustments

COMMERCIAL/RESIDENTIAL PROPERTY &


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HOUSEBUILDER LENDING

83.7bn

Lloyds Banking Group UK56.3bn

Lloyds Banking Group Overseas (1)

27.4bn33%67%

LBG UK

LBG Overseas

59

Gross (pre FV adjustment and impairment). Includes Joint Ventures(1) Includes lending to non UK residents, and excludes residential mortgages

UK COMMERCIAL/RESIDENTIAL PROPERTY &


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HOUSEBUILDER LENDING

COMMERCIAL PROPERTY 35.7bn

56.3bn (1)RESIDENTIAL PROPERTY 17.3bn

Through the cycle policy, 54% Housing Associationssupporting existing customerfranchise

Some concentration seen inSouth East and London,

(local authority cash flows)

Larger residential propertycompanies

although well spread acrossremaining UK

Portfolio weighted towardinvestment over development 63%

31%

HOUSEBUILDERS 3.3bnKey development originationcriteria:

LTSB heritage exposuremainly to the national

Lower of 60% of gross

6%

.

HBOS previously focusedon regional housebuilders

development value or 65%project costs

Min 100% cover from pre-lets

Avoid pure speculative

Commercial property

Residential Property

60

(1) Gross (pre FV adjustment and impairment)

OVERSEAS PROPERTY LENDING


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27.4bn (1)IRELAND 11.7bn AUSTRALIA 6.1bn

,of which 66% is impaired

45% Property Development,of which 94% is impaired

,which 51% is impaired

56% Property Development, ofwhich 61% is impaired

43%

22%

,& OTHER 9.6bn

Split Non-UK residents 8.6billion and North America 1.0Ireland

35%

billion

2.9bn of Non-UK residentsexposure relates to WholesaleEurope (WE) business

Australia

Other

61

(1) Includes lending to non UK residents and excludes residential mortgages

LEVERAGED FINANCE LENDING


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LLOYDS ACQUISITION FINANCE11.6bn14.5 bn

LLOYDS INTERNATIONAL2.9bn

ey pro uc s cas owlending. The business

originates, executes andportfolio manages deals

Well spread by industrysector

95% of country risk inportfolio is Australia or New

reduced by c.2.6 billion in2010 with new business

offset by asset repaymentsand sales

ea an , w t rema n errelating to Asia

0.8bn considered substandard/ impaired20%80%

A highly selective originationstrategy

Predominantly UK focused

Underwriting criteria same asfor held assets

Assets monitored closely,with c.6.0 billion of the

Lloyds Acquisition Finance

Lloyds International

62

portfolio consideredsubstandard/impaired

RISK CAPITAL PORTFOLIO AT CARRY VALUE (1)


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MANAGE FOR GROWTHLLOYDS DEVELOPMENT CAPITAL (1.2bn)

4.1 bn (2)Ongoing direct equity business being

MANAGE FOR VALUEFUND INVESTMENTS (2.3bn)

Generally, Limited Partner Investments inmanaged for growthLDC has been profitable throughout thelast economic cyclePortfolio is highly diversified by sector,UK geography and, through investing

private equity funds; well diversifiedunderlying exposure principally in UK andEurope

Includes a small direct investment portfolioof private equity deals.

cons s en y roug e cyc e, y v n ageyearPortfolio consists of c.85 investments,average size of investment is c.14m

During H2, 70% of the Bosif portfolio wassold to Cavendish Square Partners LP. A30% stake retained in the new Cavendishvehicle is managed by the FundInvestments Team

JOINT VENTURES (0.15bn)

Asset backed investments, principal sectorsReal Estate (UK & Europe), Hotels andHouse builders

PROJECT FINANCE (0.3bn)

Portfolio of high-quality, predominantlyoperational, PFI/PPP assets largelybased in the UK.

3%30%8%

3%

Primarily availability driven, theseinvestments are structured with theobjective of providing long-term, securecash flows

BUSINESS SUPPORT UNIT (0.15bn)

To manage equity positions resulting from

MANAGE FOR RECOVERYFunds InvestmentJoint Ventures

Business Support Unit

Pro ect Finance

63

(1) Excludes undrawn commitments of c.1.4bn(2) Excludes 0.1bn of funds investments managed by BoS USA and 0.1bn carry value of Risk Capital held by W&I Division

other legacy assetsLloyds Development Capital

TREASURY DEBT SECURITIES PORTFOLIO


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31 DEC 10 LOANS ANDADVANCESbn

TOTALbn

FAIR VALUETHROUGH P&Lbn

AVAILABLEFOR SALEbn

Asset Backed Securities 24.2 9.4 1.1 34.7

Covered bonds - 3.5 - 3.5

Bank / Financial InstitutionFixed and Floating Rate Notes 0.8 8.7 1.8 11.3

- . . .

Treasury Bills and other bills - 5.9 0.2 6.1

. . . .

Total 25.3 28.0 12.2 65.5

64

ASSET BACKED SECURITIES PORTFOLIO


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Mortgage Backed Securities

%bn CARRY VALUENET EXPOSURE31 DEC 10

7715.6853.5CMBS

927.9Non-US RMBS 554.2US RMBS

370.1Other 924.7CLO 530.3Commercial Real Estate 850.1Corporate

860.9Personal loans

972.1Credit Cards 980.9Auto loans

Personal sector855.2

791.1Other ABS937.8Student loans

943.9

65

8334.7Total ABS901.1Negative basis

.o a uncovere

IMPAIRMENT LOSSES ON LOANS AND ADVANCES TOCUSTOMERS


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CUSTOMERS

% OF AVERAGE LENDINGIMPAIRMENT 2010m 201020092009m

Retail 2,747 0.74 1.114,221

Secured (mortgages) 292 0.09 0.23 789

Unsecured 2,455 8.119.94 3,432

Wholesale 4,226 2.08 5.92 14,031

Wealth and International 5,985 8.90 6.04 4,058

Total 12,95822,310

66

IMPAIRMENT CHARGESignificant reduction primarily driven by Wholesale


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Significant reduction, primarily driven by Wholesale

RETAILGROUP

unsecured impairmentsImproving asset quality expected tosupport future trends

Reduction primarily driven by reductions inWholesale, partially offset by the impact ofIreland

(45)%24.0

13.412.4

10.6

(35)%6.66.6

13.2

2.02.3 2.21.31.4

2.51.4

2.7.

67

H2/08 H1/09 H2/09 H1/10H1/08H1/08 H2/08 H1/09 H2/09 H1/10 H2/10 H2/10Secured Unsecured

IMPAIRMENT CHARGESignificant reduction primarily driven by Wholesale


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Significant reduction, primarily driven by Wholesale

WHOLESALE W&I

commercial real estate and related portfoliosTraditional business impairmentsperforming as expected

second halfSome effect from specific Australianexposures

(72)%15.7

9.7

47%

4.4 4.16.0

.

6.0

1.1

3.0

1.40.1 0.7

1.52.6 2.2

3.8

68

Other Ireland

H1/08 H2/08 H1/09 H2/09H1/10

H2/10 H1/08 H2/08 H1/09 H2/09 H1/10 H2/10

IMPAIRED ASSET RATIOS GROUP


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WHOLESALE GROUPRETAIL WEALTH & INTL2010

Loans and advancesto customers (gross) 188bn 626bn369bn 66bn

Impaired loans 35bn 65bn10bn 20bn

Impaired loans as % . .. .

Impairment provisions 16bn 30bn3bn 11bn

Impairment provisions as %of impaired loans 45.9% 45.9%31.8% 52.5%

69

IRISH PORTFOLIOStatic loan book with increased provisioning across the business


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Static loan book with increased provisioning across the business

31 Dec 2009 31 Dec 2010

PORTFOLIO BREAKDOWNbn

8.37.7

.

9.18.1

.

4.3

0.6

.

11.7 11.7

2.4

Impairedloan

Impairmentprovision

6.1

Loanbook

2.2Loanbook

Impairedloan

.

Impairmentprovision

4.8

70

a ance

Commercial Real Estate RetailCorporate & Other

a ance

ASSET & LIABILITY MARGINSAsset repricing gains but deposit spread pressure


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Asset repricing gains but deposit spread pressure

ASSET MARGIN LIABILITY MARGIN

45bp

674bn

637bn 353bn

1.56%

347bn

3bp

0.97%(28)bp 3 b

1.11%(3)bp 1.28%

2010Depositspread

2009 Assetpricing

Assetmix

2009 Other2010Other

71

FAIR VALUE UNWIND


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bn

3.1

c2.0

c.0.6

c.0.2

2010 2011 2012 2013 2014

(c.0.4)

72

Further fair value unwind expected

NET TANGIBLE ASSETS


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NET TANGIBLE ASSETS (bn) NET TANGIBLE ASSETS PER SHARE (p)

0.4 0.6 40.3

58.1

(0.3)

0.4 1.0 59.2

37.1

31 Dec2009

Exchangeoffers

2010Earnings

Other 31 Dec2010

31 Dec2009

Exchangeoffers

2010Earnings

Other 31 Dec2010

73

mpact mpact

BUSINESS PERFORMANCEBalance Sheet


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Balance Sheet

2009 % IMPROVED 2010

Funded assets 655bn715bn

Liquid assets 98bn88bn 11%

8%

Core Tier 1 ratio 10.2%8.1%

Strong capital and funding position:

Loan/deposit ratio 154%169%

Central bank & government funding 97bn157bn 38%

Wholesale funding requirement 298bn326bn 9%

Wholesale funding >1 year 50%50%

74

Further strengthening of capital and funding position

GOOD PROGRESS ON ASSET REDUCTIONSOn target to achieve 200 billion asset run-off


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On target to achieve 200 billion asset run off

300bn 105bn

236

195

100

Treasury assets

Commercial Real Estate

49

27

Other Wholesale

Internationalc.20 for

eachportfolio

51

37

2008 2009 Target

e a

2010

75

Balance sheet reduction on track(1) Primarily made up of self cert and sub prime mortgages. Excludes mortgage assets associated with state aid mandated divestments

REDUCING OUR WHOLESALE FUNDING REQUIREMENTSMaintaining broad spread of wholesale funding


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Maintaining broad spread of wholesale funding

DEC 2009bn DEC 2010

49Bank deposits

51Certificates of deposit

90Medium-term notes

26

42

88

Clear benefit delivered bymanaging balance sheet down

28Covered bonds

35Commercial paper

36Securitisation

32

33

39

Good relationship customerdeposit growth of 12 billion

Primary liquid asset holding of

37Subordinated debt

Wholesale (excl. customer deposits) 326

38

298

371Customer deposits (1)

697Total Group funding

383

681

76

down of central bank funding

(1) Excluding repos

SUCCESSFUL TERM ISSUANCE - 50bn ACHIEVEDUtilising a wide variety of funding products and sources


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Utilising a wide variety of funding products and sources

c.30 billion of ublic

TERM ISSUANCE 2010 PUBLIC TERMISSUANCE BY CURRENCY2010 PUBLIC TERMISSUANCE BY PRODUCT

term issuancecompleted in 2010

GBP18%

Other10%

USD39%

Tier14%

MTN33%

Lower

Tier 211%

ona c. onof term funding viaprivate placements

completed

Expected public termissuance ofc.20-25 billion per EURO

Securitisations

39%

CoveredBonds

13%

years

77

Diverse range of funding products and sources

WHOLESALE FUNDING COSTSFunding spreads have continued to increase through 2010


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Funding spreads have continued to increase through 2010

LLOYDS 5 YEAR CDS (bps)250

The cost of wholesale funding hascontinued to increase through 2010 higheraverage H2/10 issuance costs than H1/10

150

200

Weighted average cost of wholesale fundingrising as older, cheaper debt matures

Throughout the sovereign debt crisis we2010

50

100

were a e o ssue e u a a s gn can ygreater cost

Over time, spreads expected to normalise

(bps) (1)

150

190

125

205

78

(1) Z spreadBased on trading for: Lloyds 6.375% 6/17 - Lloyds 3,75% 7/15

Unsecured09 10 5yr Senior CDS09 10

PEER GROUP CORE TIER 1 RATIOS


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CORE TIER 1 RATIO

10.2% (1)10.7% 10.8% 10.5%. 9.0%

Lloyds RBS (3) Barclays (3) HSBC (4) Standard5

79

(1) Excluding effect of ECNs (2) APS benefit (3) Reported FY10 (4) Reported Q310 (5) Reported H110

Group (3)

IMPACT OF BASEL 3Preparation notes


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p

Please find below preparation notes regarding slide 25The 2013 Core Tier 1 ratio presented is illustrative.

.provided estimates for the full 3 year period. Lloyds Banking Group neither endorses nor verifies the estimatesused.

The significant items included in Increase in RWAs from Basel 2.5/3, without any mitigation, are:increased RWA for certain securitisation and resecuritisation exposures and Market Risk (Basel 2.5)

increased RWA associated with counterparty credit risk, exposures to Financial institutions andsecuritisation exposures, net of the impact of adding back securitisation deductions to Core Tier 1 capital(Basel 3)

risk weighting the element of the investment in insurance under the 10% of Core Tier 1 limit at 250%

To illustrate the potential impacts on RWA of the planned disposal of non-core assets, a reduction of 60bn hasbeen included. The Group plans to reduce non-core assets from 195bn to 100bn over the next 3 years.Based upon the average risk weighting of non-core assets held on the balance sheet as at 31 December 2010 of72%, this equates to a 69bn reduction in RWAs.

The following are not included in presented 2013 Core Tier 1 ratio:

Basel 3 deductions from Core Tier 1 capital for Material Holdings (i.e. insurance holding), Expected Losses inexcess of impairments, Minority Interests and Deferred Tax Assets. Any such deductions would transition in, at20% per annum, from 1 January 2014 to 1 January 2018. The additional impact in 2014 of the deduction inrelation to Insurance holdings is estimated at 0.3%, based on current net asset value and therefore takes no

80

account of any further action taken to mitigate this impact.The impacts of possible changes to accounting in relation to pensions, insurance and expected loss provisioningwhich, in combination with Basel 3 regulations, may impact the Core Tier 1 ratio.

FORWARD LOOKING STATEMENTS


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This announcement contains forward looking statements with respect to the business, strategy and plans of theLloyds Banking Group, its current goals and expectations relating to its future financial condition and performance.

,expectations, are forward looking statements. By their nature, forward looking statements involve risk and uncertaintybecause they relate to events and depend on circumstances that will occur in the future. The Groups actual futurebusiness, strategy, plans and/or results may differ materially from those expressed or implied in these forward lookingstatements as a result of a variet of risks uncertainties and other factors includin without limitation UK domestic andglobal economic and business conditions; the ability to derive cost savings and other benefits, as well as the ability tointegrate successfully the acquisition of HBOS; the ability to access sufficient funding to meet the Groups liquidity needs;changes to the Groups credit ratings; risks concerning borrower or counterparty credit quality; market related trends anddevelopments; changing demographic trends; changes in customer preferences; changes to regulation, accountingstandards or taxation, including changes to regulatory capital or liquidity requirements; the policies and actions ofGovernmental or regulatory authorities in the UK, the European Union, or jurisdictions outside the UK, including otherEuropean countries and the US; the ability to attract and retain senior management and other employees; requirementsor limitations imposed on the Group as a result of HM Treasurys investment in the Group; the ability to complete

sa s ac or y e sposa o cer a n asse s as par o e roup s a e o ga ons; e ex en o any u ureimpairment charges or write-downs caused by depressed asset valuations; exposure to regulatory scrutiny, legalproceedings or complaints, actions of competitors and other factors. Please refer to the latest Annual Report on form 20-Ffiled with the US Securities and Exchange Commission for a discussion of such factors together with examples of forward

.

Documents

2010 LloydsBG Results Presentation