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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
.