COMMERCIAL BANKING UPDATE 1 LLOYDS BANKING GROUP ...

LLOYDS BANKING GROUP COMMERCIAL BANKING UPDATE

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WELCOME & INTRODUCTION António Horta-Osório Group Chief Executive

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COMMERCIAL BANKING UPDATE

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COMMERCIAL BANKING A core part of Lloyds Banking Group

A single division serving all the Group’s business clients

Strong core franchise across UK UK-centric approach, focused on meeting our clients’ needs Key to our support for the UK economic recovery Leveraging Commercial Banking as an integral part of the Group

Strategy and action plan fully aligned and integrated with Group Delivering cost and product synergies with other parts of the Group Supporting the Group’s funding and commercial needs A clear plan to improve Commercial Banking’s returns

Growing diversified, sustainable earnings streams Delivering increased operational and cost efficiencies through Simplification Optimising the balance sheet through clear participation choices and strong risk controls 2

COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking

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AGENDA

COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking BEST BANK FOR CLIENTS David Oldfield, Andrew England, Richard Moore, James Garvey CLOSING REMARKS AND Q&A Andrew Bester, Chief Executive, Commercial Banking 4


2015 Core RoRWA >2%

Relentless focus on Execution

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COMMERCIAL BANKING Building the best bank for clients

1.25m 1 25m SME clients Relationships with 91% of FTSE 100 Relationships with 83% of FTSE 250 c.40% active users of digital channel 500 business centres across the UK Network of over 4,000 client facing staff

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COMMERCIAL BANKING Personal reflections

Strengths

Unique client franchise

S Strong product d capability bili

Client-centric team

Macro environment

Shifting industry trends

Subdued environment

Regulatory challenges

Financial performance

Weak NIM

Large consumption of Group RWA

Insufficient returns

Transformation

Balance sheet normalisation

Legacy issues unwind

Create an integrated franchise

Fully leverage growth opportunities

Cost discipline

Robust RWA management / choices

Relentless execution

2015 Core RoRWA >2%

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COMMERCIAL BANKING Actions to date

Achieved already

What is different

Strategic review

Relentless execution of strategy

Aligned 16 business lines

Integrated daily P&L

New coverage model

Performance management framework

Appointed management team

Pricing independence

Re-segmentation

Business model drives collaboration

Performance management tools

Disciplined investment & participation

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COMMERCIAL BANKING Experienced & integrated leadership team

Andrew Bester Group Director & CEO Commercial Banking

Group Risk1

David Clare Edward Andy Oldfield Francis Thurman Cumming MD, MD,, MD,, MD,, SME & Global Financial Global MidCorporates Institutions Head of Markets; Non-Core Head of Lending

CLIENT RELATIONSHIPS

1. Independent Group functions


Andrew England MD,, Transaction Banking

Richard Moore MD,, Financial Markets

James Garvey MD,, Capital Markets

Darryl Eales MD,, LDC

PRODUCT MANAGEMENT

Karin Cook Chief Operating Officer

Adrian Walker MD,, Business Development & Transformation

Group Risk1

Group Finance1

Group HR1

Stephen Shelley Risk Director

Nick Slape Finance Director

Hugh McKay HR Director

DELIVERY / FUNCTIONAL SUPPORT

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COMMERCIAL BANKING Vision and strategy aligned to Group priorities STRENGTHEN Robust capital, liquidity and risk profile

Supports UK business

SIMPLIFY Scalable infrastructure

Cost leadership provides competitive advantage

Client centric UK focused Capital efficient

Returns above cost of capital with lower risk

RESHAPE Focused, value creating balance sheet

Delivers 100% of the bank to clients INVEST Client leadership 10

COMMERCIAL BANKING Supporting all of the Group’s business clients

Lloyds Banking Group Commercial Banking1,2

% of Group1,2 27%

Income

Lending Assets

SME

Mid-Markets

Global Corporates

£0-1m £1-25m t/o t/o

£25m-£750m t/o

£750m+ t/o

No. of clients

~1m ~250k

~5,000

~850

~2,000

Income split

37%

24%

23%

16%

Lending assets

27%

33%

30%

10%

73%

24%

Financial Institutions

76%

26%

Deposits

RWA

74%

46%

54%

Core RoRWA

Client at the centre of our model Commercial Banking

Rest of Group

1. Commercial Banking metrics as a % of Group based on 2012 Full Year News Release 2. Core only


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COMMERCIAL BANKING Our full product capability will service our client needs 9 37%

9 24%

9 23%

9 16%

SME

Mid-Markets

Global Corporates


Loan Syndication Acquisition Finance LDC2 Liquidity FX Money Markets Management Deposits Current a/cs Call Deposits Overdrafts Term Loans Commercial Mortgages

Cash Mgmt. Payments Credit Cards CRE Loans

M&A ECM Secondary Equities

Equity Derivatives Prime Brokerage

Bonds Conduits Project Finance

Term Securitisation Private Placements

Risk Management

Market Research Wealth Products

Factoring Invoice Discounting Leasing Asset Finance

Trade Finance Supply Chain Finance International Payments

Share of 2012 Core Client Income1

Investment 8 Banking

Capital 9 14% Markets

Financial 9 23% Markets

Transaction 9 50% Banking

Revolving Credit Lending 9 13%

1. Excludes own account / non-client 2. Focus on equity support into UK Mid-Markets companies

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COMMERCIAL BANKING All coverage areas will improve current returns

Strategy

Actions

SME

Growth “Local Execution”

9 9 9

Higher-value switchers Greater relationship manager capacity enabled by investment Increase digital take-up

Mid-Markets

Growth “Local Execution”

9 9 9

Targeted geographic expansion More relationship managers Leverage SME success in Mid-Markets

Global Corporates

Disciplined Participation

9 9 9

Improve share of wallet Focus on UK-linked clients Optimisation of low return relationships



9 9 9

Improve share of wallet Refocused coverage Support Group, Commercial Banking franchise and UK financial services industry

Relentless execution focus across four client segments 13


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COMMERCIAL BANKING SME: Grow by winning locally

Client numbers vs. Income1 SME

~80%

78% Number of Clients Income

22%

~20%

Mid-Markets 2%

9 Capital optimisation 9 Active portfolio management 9 Lower risk origination discipline

Relentless execution 19


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AGENDA


IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking BEST BANK FOR CLIENTS David Oldfield, Andrew England, Richard Moore, James Garvey CLOSING REMARKS AND Q&A Andrew Bester, Chief Executive, Commercial Banking 20

IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking

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COMMERCIAL BANKING Core Financial Performance…key drivers to improve our returns 11

Normalisation of funding costs Income Growth

Strategic investments in product capability p p y Franchise growth SME / MidMarkets

Simplification Cost Control

Scalable integrated platforms Centres of Excellence

Balance Sheet & Risk Mgt

Capital optimisation Active portfolio management Lower risk origination discipline

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1. Core Commercial Banking only

COMMERCIAL BANKING Half yearly performance

NII

2,755

Income Growth

Cost Control

Income1 (£m)

Other income

2,326

2,320

2,364

1 378 1,378

1,114 ,

, 1,128

1,287

948

1,206

1,236

H1’11

H2’11

H1’12

H2’12

1,181

1,111

1,162

1,070

1,468

Legacy issues driving margin compression Other Income progression

Costs1 (£m)

Strict cost discipline Simplification creates capacity

H1’11

H2’11

H1’12

H2’12

1,055


704

Impairment1

AQR of 67bps

(£m)

Impairments normalising 2011



33% YoY fall in impairments

2012

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COMMERCIAL BANKING Diversified client-led income profile

Client vs non-client income1,2 10%

Income Growth

Client Non Client

90% of income client driven

90%

Cost Control

Client income split by product1,2 23%

Low-risk products

Income by client segment1,2

13%

Diversified client franchise

16%

Leverage SME success

37% 23%

14%

Disciplined participation

50%


24% Term Lending

SME

Transaction Banking

Mid Markets

Capital Markets

Global Corps

Financial Markets

Fin. Institutions

1. FY 2012 2. Core Commercial Banking only

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COMMERCIAL BANKING Normalisation of funding costs will benefit margin

Net interest margin1

‘Cost of money’ better understood

(32bps)

Income Growth

2.54%

Enhanced commercial behaviours 2.22%

Legacy long duration asset margin drag Active portfolio management Client-led solutions to reduce duration

2011

Cost Control

Focus on better quality deposits

2012

Lending maturity profile1 Over 5 18%

LTSB 5 year CDS spreads (bps) years2

Under 5 years

500 336

400 300 200


100

82%

0 01/08

122

106

07/08

01/09

07/09

01/10

07/10

01/11

07/11

01/12

07/12

01/13

Commercial behaviour driving further NIM improvement 1. Core Commercial Banking 2. Based on specific portfolios with a weighted average life of over 5 years and includes Social Housing & Structured Finance


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COMMERCIAL BANKING Leveraging client focused product capability to drive other income Other Income growth Income Growth

+9% 2,442 2,235

Cost Control

Existing pockets of strong product capability

2011

Investment in client focused products

2012

Other Income by product1,2 10%

Term Lending Transaction Banking

31%

Capital Markets3 28%


Quarter on quarter growth Increasing share of wallet Not increasing risk

Financial Markets

31% 1. FY 2012 2. Core Commercial Banking only 3. Capital Markets includes LDC

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COMMERCIAL BANKING Cost savings reinvested to create income growth

Income Growth

Cost Control


Simplification

Headroom for Investment

Invest for Income Growth

Over 100 projects

Process automation

Centres of Excellence

Channels & products

Cost discipline

Simplification cost savings of £0.2bn pa

Creating capacity

£0.5bn targeted incremental investment over three years

Capability build across Transaction Banking and Markets

Investing in return enhancing capital light products

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COMMERCIAL BANKING Active portfolio management to enhance returns

Core RWAs (£bn) (10%)

Income Growth

133-138 5-10

128 38

15-20 ~125 5-10

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Cost Control

2012 Non-Lending


CRD IV and other Regulatory Reg lator change

2012 CRD IV pro forma


Growth

2015

Lending

Lending RWAs £90bn correspond to £102bn of Loans and Advances to Customers Modest impact of CRD IV and regulatory change Disciplined participation and active portfolio management Creating capacity for supporting our clients and participating in FLS Growth includes franchise growth, maturities and repayments 28

COMMERCIAL BANKING Deliver sustainable returns above the cost of equity

Income Growth

Cost Control

FY111

FY121

2.54%

2.22%

5.1

4.7

Other Income as a % of income

44%

52%

Cost:Income Ratio

45%

48%

0.95%

0.67%

129

128

~125

1.32%

1.36%

>2.00%

Banking net interest margin Income (£bn)

Impairment charge as a % of average advances Balance Sheet & Risk Mgt

RWA (£bn) Return on Risk-Weighted Assets



2015

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AGENDA

COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking

MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking BEST BANK FOR CLIENTS David Oldfield, Andrew England, Richard Moore, James Garvey CLOSING REMARKS AND Q&A Andrew Bester, Chief Executive, Commercial Banking 30

MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking

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MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking

Prudent Prudent riskrisk appetite appetite

Active Active portfolio portfolio management management

Low Lower riskrisk portfolio portfolio

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COMMERCIAL BANKING Lower risk business underpinned by the prudent heritage LTSB appetite

A erage AQR1 2008-2009 Average 2008 2009 (bps) 669

153

HBOS

LTSB lower risk approach

Legacy HBOS portfolio largely exited or in non-core

Prudent LTSB approach is already embedded

LTSB

1. Commercial Banking excluding Wholesale Europe International Portfolios


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COMMERCIAL BANKING Independent Enterprise-wide Risk Framework

SME

MidMarkets

Global Financial Corporates Institutions

Market Risk

Risk types

Market Risk

Credit Risk

Small relative to peers Average 95 per cent 1-day trading Value at Risk (VaR) was £7m for year to December 2012

Insurance Risk

Conduct Risk Capital Risk

Enhancements to product design, sales processes, root cause analysis

Operational Risk

Credit Risk Funding & Liquidity Risk

Prudent and through the cycle credit risk appetite

Financial Reporting Risk

People Risk

Regulatory Risk

Conduct Risk

Clearly defined levels of authority Early identification and management of deteriorating credits

Governance Risk

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COMMERCIAL BANKING We are executing a robust conduct risk strategy

Product Governance

Rigorous product risk assessment Product implementation reviews Annual product reviews E h Enhanced d record d kkeeping i

Client Treatment

Responsible lending Post sales processes ensure best outcomes

Culture, Recruitment Reward and Training

Best bank for clients Client outcome measures drive reward

Complaint Handling

Root cause analysis Client outcome testing Rectification framework

Conduct Risk Appetite Qualitative statements and core metrics, regularly reviewed at Board level Supported by more detailed divisional appetite statements and limits Further evolving MI to enhance Conduct Risk Appetite Metrics

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COMMERCIAL BANKING Established credit risk approach supports our UK-centric strategy

Risk appetite

Conservative, through the cycle approach Target market and risk acceptance criteria

2012 Core asset portfolio1 5%

Hold policy

Credit policy

Single counterparty and selective sector concentration limits Caps for higher risk sectors and asset classes 95%

Minimum obligor quality rating criteria for bulk of new business Sector and product specific parameters

UK

International

Robust processes with strong oversight are in place

1. UK defined as all UK-booked business

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COMMERCIAL BANKING Improving credit risk profile

Improved obligor quality Core CB (excl. Financial Markets): Probability of Default (commitments)

Sector concentrations under control Obligor quality is stable Heritage LTSB approach to origination Adhered to credit risk appetite for FLS

Commercial/Residential Property1 Total £43.7bn

UK Good Book £18.0bn

UK Business Support Unit £12.7bn

1. 2012 Full Year News Release 2. Overseas includes £7.4bn of Ireland assets


Core

BSU transfers do down n 37%

Non-Core

Real Estate exposure under control

Overseas2 £13.0bn

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COMMERCIAL BANKING Lower impairments via prudent risk management

Core impairment charge (£bn) (33%)

1.1 0.7

2011

2012

Core impairments down 33% Core AQR 67bps

Core AQR (bps)

Good book forborne loans minimal

((28bps) p )

95 67

2011

2012 38

COMMERCIAL BANKING Active portfolio management

Origination discipline

New centralised pricing controls Pricing models reflect full Basel III impacts Portfolio Management team approve all larger transactions

Optimise low return clients

Built client return metrics combining all product revenues and risks Client management plans to deepen wallet Optimisation of long dated low margin loans

RWA optimisation

Disciplined origination reducing capital requirements for new business Stronger distribution focus

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AGENDA

COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking

BEST BANK FOR CLIENTS David Oldfield, Andrew England, Richard Moore, James Garvey CLOSING REMARKS AND Q&A Andrew Bester, Chief Executive, Commercial Banking 40

BEST BANK FOR CLIENTS SME & Mid-Markets – David Oldfield

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COMMERCIAL BANKING SME supports clients’ needs across the UK

SME UK geographic spread

Market share by client turnover1

21%

21%

£0m-£1m t/o: ~1m clients

19% 17%

£1m-£25m t/o: ~250,000 clients £0m-£1m

£1m-£2m

£2m-£10m

£10m-£25m

~2,500 client facing staff Market share by region1,2 500 business centres 20 Area Director groups

19%

16%

London and East

Midlands and North

Area Director and Support Centres

40%

34% 3 %

31%

33%

31%

25%

Scotland

Lloyds Banking Group

South and West

33% 19%

Overall UK

Market Leader

1. Charterhouse UK Business Banking Survey Q4 2012 (including Verde clients) 2. £1m-£25m turnover clients. Market share at Dec-2012

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COMMERCIAL BANKING Opportunity to grow underpenetrated Mid-Markets regions

Mid-Markets UK geographic spread

2012 Income by region1 11%

£25m-£750m t/o: ~5,000 clients

London and South East Midlands, East and South West

40%

19%

North Scotland

165+ RMs 30%

20 Area Director groups

Market share by region2

29% 21% 15%

London and South East

30%

26%

Midlands, East and South West

North


29% 19%

17%

Lloyds Banking Group 1. Comprises Medium-Sized Business and Mid-Cap only 2. Experian PH, market shares as at Dec-2012. Market share of trading businesses with turnover £25m-£500m

34% 34%

Scotland

Overall UK

Market Leader

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COMMERCIAL BANKING The best Relationship Managers local to clients

Our proposition

addresses “client needs” 9 Experienced and knowledgeable RMs, many with 20+ years experience 9 Named, local RM support 9 RM portfolios comprise similar size / sector clients leading to deep insight

Best RMs “know the business”

9 9 9 9

Helping Britain prosper “support UK SME”

Core capabilities

Net lending to SME 4% up in a market that declined 4% in 2012 Net lending to Mid-Markets in H2 2012 broadly flat in a market that declined 6% Providing discounted lending to SMEs through NLGS and FLS Support in excess of 100k business start ups annually

9 Direct access to RMs through client’s preferred channels 9 Reduced time to cash by almost 50%

“make make it easy” easy

Franchise growth

9 Access through RMs to broader product/sector specialists 9 Range of industry accredited key market RMs providing tailored service

“help access expertise”

Leveraging the combined geographic reach 44

COMMERCIAL BANKING Committed to supporting UK clients through a number of government schemes

FLS

Discounts of 1% per annum to all qualifying clients First bank to participate in scheme gross funds to end 2012 Committed in excess of £11bn in g

Enterprise Finance Guarantee (EFG) Scheme

One of the most active EFG lenders By the end of 2012 we provided – More than 5,200 EFG loans worth in excess of £400m – Represent 26% of all loans granted through the scheme

Business Finance Taskforce

UK Business Angels Association

Key contributor to the Government Business Finance taskforce 400 business volunteer mentors – 42% of the UK wide bank mentor population SME and Mid Mid-Markets Markets Charters Client lending appeals 200 client outreach events in 2012

Supporting efforts to help SMEs secure equity from private investors We are the only bank represented on the Board of the UKBAA £850m early stage equity with advice from angels complements our debt finance support 45


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COMMERCIAL BANKING Winning new clients

Agriculture

Schools

Largest provider of finance

Bank 57% of all academies

to UK agriculture

34% share of lending to f farmers

Support 9 in 10 deals presented to us

Clients cite service excellence, strength of proposition iti and dd depth th off sector knowledge as deciding factors

Manufacturing

Attracted a switcher after 150 year relationship with previous bank

Proposition P iti diff differentiated ti t d through sector knowledge

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BEST BANK FOR CLIENTS Transaction Banking – Andrew England

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COMMERCIAL BANKING Significant volumes across Transaction Banking platforms

Leveraging platforms post integration Payment volumes (m)1 EUROMONEY TRADE FINANCE April 2012 Best Domestic Trade Finance Provider

4% 541

CARD & PAYMENT AWARDS February 2013 Best Merchant Acquiring Initiative – London 2012

518

2011

2012

Helping clients with their working capital needs 1. Includes domestic payments for SME, Mid-Markets and Global Corporates. Market grew by up to 1% in 2012

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COMMERCIAL BANKING Consolidation and simplification of infrastructure to create a sustainable platform for growth

2011 – post LTSB/HBOS Fragmented landscape

Lloyds TSB Channels Account platform Limited liquidity

2012 / 2013

2014

Investment / transformation

Delivery of integrated platforms

Consolidation of account systems

Build new online channel

HBOS Channels Account platform

Invest in product systems

Single core account platform – SME to Global

Single new electronic channel

Market leading liquidity solutions l i

Integrated Trade business

Simplifying the operating model, building capability and increasing product offering 49


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COMMERCIAL BANKING Investment delivers strong core capabilities

Maximise opportunity in payments payments, trade finance, liquidity and cards - Develop product propositions - Improve access through modern online channel and seamless access to domestic and international payments

Enhance Transaction Banking platform

- Deliver real-time Sterling account platform - Partnering with International banks to build Trade capability - Specialist sales teams

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COMMERCIAL BANKING Delivering capability to fulfil client needs

Airline

Simplify and standardise banking interfaces

Direct access to the appropriate i t paymentt systems

UK Manufacturer

Long-term banking partner High-volume Trade Finance facility

Flexible Trade Lending solution

Award-winning tailored solution

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BEST BANK FOR CLIENTS Financial Markets – Richard Moore

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COMMERCIAL BANKING Simple products serving client needs

5 key product areas across coverage segments

Low risk, client-driven income streams

Measure and manage to good client outcomes Competitive capability Generate capital efficient returns

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COMMERCIAL BANKING Investing to serve the different needs of our clients

Complete core Financial Markets infrastructure build in 2013 –

Capability to respond to regulation, automation and capital challenges

Alignment to coverage and product partners is critical to stable and diversified income –

Top 3 core banks command 80% share of wallet Financial Markets Role

Client Segments

Simple FX & Interest Rate Hedging Products Money Market Deposits

SME

Access to market li idit liquidity through multiple channels

Mid-Markets

FX & Interest Rate Risk Management Liquidity Management

Global Corporates

FX & Interest Rate Risk Management Bond Distribution Liquidity & Collateral Management


Access to market liquidity in FX, Rates & Credit Bond Distribution Securitisation Distribution 54

COMMERCIAL BANKING Effective intermediation to deliver for the client

“We bring together UK focused clients and relevant investors”

Clients

Lending / reciprocity

Capital Markets

Financial Markets

private side

public side

Origination

Syndication

Pricing and Liquidity

Distribution

Investors

Research and Insight

Structuring and solutions

UK Gateway Strategy 55


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COMMERCIAL BANKING Delivering solutions in capital light products

ARENA

Broadcaster

GEMM

Gilt Edged Market Maker Single, customisable

Supported the c.£3.6bn

e-trading interface for FX and Money Market deposits with insight, analysis and reporting

Built for our clients by our

refinance of Arqiva existing debt facilities

Lloyds acted as bookrunner on the Senior and Junior notes

clients

Rapid growth and increased credibility Market leading position Flagship FM product and gateway to our core proposition

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BEST BANK FOR CLIENTS Capital Markets – James Garvey

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COMMERCIAL BANKING Supporting clients with financing & risk management

Support relationship managers and their client franchise ambitions

Build a competitive range of client-centric financing and risk management products

Focus on Debt Financing and Risk Management Partner with Coverage and Financial Markets to drive distribution in support of originate-to-distribute model

Seek to maximise share of wallet by addressing client needs Conservative risk profile with strong oversight and control

58

COMMERCIAL BANKING Established a competitive range of client solution capabilities

Supporting UK clients

How we are structured to succeed

Largest provider of syndicated lending to the UK economy

An established UK corporate bond franchise

Leading UK corporate Risk Management Solutions team help clients manage their balance sheet risks

Building an enhanced financing and risk management product suite for our clients

Financing

Risk Management

Loans

Bonds

Asset Backed Solutions

Risk Management Solutions

Loan Markets

Corp / FI DCM

Asset Backed Bonds

Product Solutions

Infrastructure & Energy

Short Term Financing

Acquisition Finance

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CAPITAL MARKETS Strong growth in Capital Markets franchise

Total UK Corporate DCM Service Quality Important DCM Relation nships

60%

UK competitors

50%


40%

#2 for ‘Best Domestic Bond Distribution’

2012

30%

Lloyds Banking Group improvement in

2011 20%

2010

0% -150

-100

overall DCM specialist capability was the largest among major competitors

IB providers

10%

-50

0

50

100

150

DCM Origination Quality* Difference from average

Interest Rate Derivative Service Quality Estimated Market Share

10%


6%

2011 2010

4%

UK competitors

IB providers

2% 0% -150

#1 in UK corporate IRD Market Share

2012

8%

#1 in UK corporate IRD Sterling Swaps Penetration

#1 jointly for Quality Index and Quality Index Sales

-100

-50

0

50

150

100

Service Quality Difference from average

#1 for ‘Best’ & ‘Top 3’ Sales Rep 60

COMMERCIAL BANKING Increasing the availability of UK housing stock through public bond issues

Housing Association Bond League Table FY 20121 Rank Bookrunner

Amount (£m)

No.3

Market share

1


883

9

27.7%

2

Peer 1

801

8

25.1%

3

Peer 2

634

7

19.9%

4

Peer 3

300

4

9.4%

5

Peer 4

233

4

7.3%

Peer 5

100

1

3.1%

Total2

2,785

16

100%

6

Case Study: Saxon Weald

£225m 5.375% notes due 2042 Bookrunner

May 2012

Saxon Weald issued £225m, 30 yr amortising bonds

Excludes aggregation vehicle transactions and private placements

1. Dealogic 2. Total Amount and Market Share includes banks not in the top 6 3. Each deal may have more than one Bookrunner


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COMMERCIAL BANKING Supporting the UK economy £150m Bond / $240m USPP / $121m swap

$500m Senior Bond

£300m Senior Retail Bond

£760m Senior/Index Link Bond

£150m Aquisition Facilities $240m Private Placement $121m USD Swap

$500m 5.6% Notes due 2023

£300m 4.7% Notes due 2021

£610m 5.6% Notes due 2038 £150m 1.6% Notes due 2038

Bookrunner

Bookrunner

Bookrunner

Bookrunner

Bookrunner

October 2012

January 2013

October 2012

February 2013

September 2012

€1.0bn Senior Bond

£1.25bn Hybrid Perpetual Bond

£600m Senior Bond

€1.25bn Senior Bond

£750m Senior Bond

€1,000m Notes due 2021

£1,250m 6.0%

£300m 4.4% Notes due 2034 £300m 4.6% Notes due 2046

€1,250m 4.125% notes due 2018

Bookrunner

Bookrunner

Bookrunner

Bookrunner

Bookrunner

March 2013

January 2013

June 2012

March 2012

January 2013

£1.75bn Senior Bond

£750m 3.2% Notes due 2024 £1,000m 4.3% Notes due 2042

£750m 5.6% Notes due 2038

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AGENDA

COMMERCIAL BANKING STRATEGY Andrew Bester, Chief Executive, Commercial Banking IMPROVING COMMERCIAL BANKING RETURNS Nick Slape, Finance Director, Commercial Banking MANAGING RISK APPROPRIATELY Stephen Shelley, Risk Director, Commercial Banking BEST BANK FOR CLIENTS David Oldfield, Andrew England, Richard Moore, James Garvey

CLOSING REMARKS AND Q&A Andrew Bester, Chief Executive, Commercial Banking 63


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COMMERCIAL BANKING Deliver sustainable returns above the cost of equity

Transformation Journey Income Growth

9 Normalisation of funding costs 9 Strategic investments in product capability 9 Franchise growth SME / Mid-Markets

Cost Control

9 Simplification 9 Scalable integrated platforms 9 Centres of Excellence

Balance Sheet and Risk Management

2015 Core RoRWA >2%

9 Capital optimisation 9 Active portfolio management 9 Lower risk origination discipline

Relentless execution 64

LLOYDS BANKING GROUP COMMERCIAL BANKING UPDATE

Best Bank for Clients 65


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APPENDIX

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APPENDIX: MANAGEMENT BIOGRAPHIES Andrew Bester – CEO, Commercial Banking

Andrew Bester, Group Director and Chief Executive, Commercial Banking, was appointed on 1 July 2012. He has worked in Financial Services for 22 years in a wide variety of client origination, product specialist, finance and general management roles across 3 continents. He has spent most of his senior career transforming businesses. Andrew started his banking career with Standard Chartered and rejoined in 2004. Most recently within Consumer Banking he was Global COO having also been the Chief Financial Officer. Prior to this he was Co-Head of Wholesale Banking for Greater China and before that undertook the same role for the Africa region. He also served on the Boards of Standard Chartered in China, Korea and Taiwan. Before joining Standard Chartered, Andrew was the Group Finance Director for Xchanging, a leading European outsourcing firm. Prior to this, he worked at Deutsche Bank in Europe. Andrew qualified as a Chartered Accountant with Deloitte & Touche. He is a member of the South African Institute of Chartered Accountants, Accountants the Chartered Institute of Management Accountants and is a Chartered Global Management Accountant. Andrew is also a member of the Association of Corporate Treasurers. Andrew is the Chairman of Lloyds Development Capital (LDC) and sits on the Boards of both the Global Financial Markets Association (GFMA) and the Association of Financial Markets in Europe (AFME). Andrew reports to António Horta-Osório and is a member of the Group Executive Committee 67


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APPENDIX: MANAGEMENT BIOGRAPHIES Client Relationships Leadership

David Oldfield – MD, SME & MidMarkets Head of Lending Markets,

Clare Francis – MD, Global Corporates

David has worked Lloyds Banking Group and has over 25 years of banking experience

Clare has worked for Lloyds Banking Group, HSBC and NatWest, and has over 20 years of banking experience

Edward Thurman – MD, Financial Institutions

Andy Cumming – MD, Global Head of Non-Core

Ed has worked for Lloyds Banking Group, Bear Stearns, ABN AMRO, McKinsey & Company, the Financial Services Authority and the Bank of England, and has 15 years of banking experience

Andy has worked for Lloyds Banking Group and has over 35 years of banking experience

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APPENDIX: MANAGEMENT BIOGRAPHIES Product Management Leadership

Andrew England – MD, Transaction Banking

Richard Moore – MD, Financial Markets

Andrew has worked for Lloyds Banking Group, UniCredit, Deutsche Bank and Citibank, and has over 30 years of banking experience

Richard has worked for Lloyds Banking Group and Citigroup, and has over 25 years of banking experience

James Garvey – MD, Capital Markets

Darryl Eales – MD, LDC

James has worked for Lloyds Banking Group, Goldman Sachs, West LB, UBS and Citicorp, and has over 25 years of banking experience

Darryl has worked for Lloyds Banking Group and has over 25 years of banking experience

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APPENDIX: MANAGEMENT BIOGRAPHIES Delivery / Functional Support Leadership

Karin Cook – Chief Operating Officer Karin has worked for Lloyds Banking Group, HSBC, Goldman Sachs and Morgan Stanley Stanley, and has over 20 years of banking experience

Adrian Walker – MD, Business Development and Transformation Adrian has worked for Lloyds Banking Group RBS and NatWest Group, NatWest, and Royal Bank of Canada and has over 25 years of banking experience

Stephen Shelley – Risk Director

Nick Slape – Finance Director

Stephen has worked for Lloyds Banking Group and Barclays, and has over 20 years of banking experience

Nick has worked for Lloyds Banking Group, Lehman Brothers, Merrill Lynch, Deutsche Bank and Dresdner Kleinwort, and has over 25 years of banking experience

Hugh McKay – HR Director Hugh has worked for Lloyds Banking Group and has over 30 years of banking experience

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FORWARD LOOKING STATEMENTS AND BASIS OF PRESENTATION FORWARD LOOKING STATEMENTS This presentation contains forward looking statements with respect to the business, strategy and plans of the Lloyds Banking Group, its current goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about the Group or the Group’s management’s beliefs and expectations, are forward looking statements. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will or may occur in the future The Group future. Group’s s actual future business, business strategy, strategy plans and/or results may differ materially from those expressed or implied in these forward looking statements as a result of a variety of risks, uncertainties and other factors, including, but not limited to, UK domestic and global economic and business conditions; the ability to derive cost savings and other benefits, including as a result of the Group’s simplification programme; the ability to access sufficient funding to meet the Group’s liquidity needs; changes to the Group’s credit ratings; risks concerning borrower or counterparty credit quality; instability in the global financial markets, including Eurozone instability and the impact of any sovereign credit rating downgrade or other sovereign financial issues; market related risks including, but not limited to, changes in interest rates and exchange rates; changing demographic and market related trends; changes in customer preferences; changes to laws, regulation, accounting standards or taxation, including changes to regulatory capital or liquidity requirements; the policies and actions of governmental or regulatory authorities in the UK, the European Union, or jurisdictions outside the UK, including other European countries and the US; the implementation of the draft EU crisis management framework directive and banking reform following the recommendations made by the Independent Commission on Banking; the ability to attract and retain senior management and other employees; requirements or limitations imposed on the Group as a result of HM Treasury’s investment in the Group; the ability to complete satisfactorily the disposal of certain assets as part of the Group’s EC state aid obligations; the extent of any future impairment charges or write-downs caused by depressed asset valuations, market disruptions and illiquid markets; the effects of competition and the actions of competitors competitors, including non non-bank bank financial services and lending companies; exposure to regulatory scrutiny, legal proceedings, regulatory investigations or complaints, and other factors. Please refer to the latest Annual Report on Form 20-F filed with the US Securities and Exchange Commission for a discussion of certain factors together with examples of forward looking statements. The forward looking statements contained in this presentation are made as at the date of this presentation, and the Group undertakes no obligation to update any of its forward looking statements. BASIS OF PRESENTATION The results of the Group and its business are presented in this presentation on a management basis and include certain income statement, balance sheet and regulatory capital analysis between core and non-core portfolios to enable a better understanding of the Group’s core business trends and outlook. Please refer to the Basis of Presentation in the 2012 Results News Release which sets out the principles adopted in the preparation of the management basis of reporting as well as certain factors and methodologies regarding the allocation of income, expenses, assets and liabilities in respect of the Group's core and non-core portfolios.


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