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Annual Report / Shareholder Update ANNUAL REPORT AND ACCOUNTS 2010 CREATING THE UK’S BEST FINANCIAL SERVICES PROVIDER Lloyds Banking Group Annual Report and Accounts 2010 View this report online CONTENTS A full version of our Annual Report and Accounts and information relating to Overview Lloyds Banking Group is available at: Group profile 1 www.lloydsbankinggroup.com Group structure 2 Group performance 3 Strategy and progress 4 Chairman’s statement 6 Group Chief Executive’s review 8 Addressing the key issues 10 Marketplace trends 12 Business review 13 Summary of Group results 14 Divisional results 26 Other financial information 52 Five year financial summary 56 Our people 57 Corporate responsibility 60 Risk management 65 Governance 109 Board of Directors 110 Directors’ report 112 Corporate governance report 114 Directors’ remuneration report 124 FORWARD LOOKING STATEMENTS This annual report includes certain forward looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995 with respect to the business, strategy and plans of Lloyds Banking Group and its current goals and expectations relating to Financial statements 143 its future financial condition and performance. Statements that are not historical facts, including statements about Lloyds Banking Group or its directors’ and/or management’s beliefs and expectations, are forward looking statements. Words such as ‘believes’, Report of the independent auditors ‘anticipates’, ‘estimates’, ‘expects’, ‘intends’, ‘aims’, ‘potential’, ’will’, ‘would’, ‘could’, ‘considered’, ‘likely’, ‘estimate’ and variations of on the consolidated financial statements 144 these words and similar future or conditional expressions are intended to identify forward looking statements but are not the exclusive means of identifying such statements. By their nature, forward looking statements involve risk and uncertainty because they relate to Consolidated financial statements 146 events and depend upon circumstances that will occur in the future. Examples of such forward looking statements include, but are not limited to, projections or expectations of the Group’s future financial Notes to the consolidated position including profit attributable to shareholders, provisions, economic profit, dividends, capital structure, expenditures or any financial statements 153 other financial items or ratios; statements of plans, objectives or goals of the Group or its management including in respect of certain synergy targets; statements about the future business and economic environments in the United Kingdom (UK) and elsewhere Report of the independent auditors on including future trends in interest rates, foreign exchange rates, credit and equity market levels and demographic developments; the parent company financial statements 272 statements about competition, regulation, disposals and consolidation or technological developments in the financial services industry; and statements of assumptions underlying such statements. Parent company financial statements 273 Factors that could cause actual business, strategy, plans and/or results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward looking statements made by the Group or on its behalf include, but are not limited Notes to the parent company to: general economic and business conditions in the UK and internationally; inflation, deflation, interest rates and policies of the financial statements 276 Bank of England, the European Central Bank and other G8 central banks; fluctuations in exchange rates, stock markets and currencies; the ability to access sufficient funding to meet the Group’s liquidity needs; changes to the Group’s credit ratings; the ability to derive cost savings and other benefits as well as the ability to integrate successfully the acquisition of HBOS; changing demographic Other information 283 developments including mortality and changing customer behaviour including consumer spending, saving and borrowing habits; changes to borrower or counterparty credit quality; technological changes; natural and other disasters, adverse weather and similar Shareholder information 284 contingencies outside the Group’s control; inadequate or failed internal or external processes, people and systems; terrorist acts and other acts of war or hostility and responses to those acts, geopolitical, pandemic or other such events; changes in laws, regulations, Glossary 285 taxation, accounting standards or practices; regulatory capital or liquidity requirements and similar contingencies outside the Group’s control; the policies and actions of governmental or regulatory authorities in the UK, the European Union (EU), the US or Abbreviations 290 elsewhere; 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 Index to annual report 291 assets as part of the Group’s EU State Aid obligations; the extent of any future impairment charges or write-downs caused by depressed asset valuations; market related trends and developments; exposure to regulatory scrutiny, legal proceedings or complaints; changes in competition and pricing environments; the inability to hedge certain risks economically; the adequacy of loss reserves; the actions of competitors; and the success of the Group in managing the risks of the foregoing. Lloyds Banking Group may also make or disclose written and/or oral forward looking statements in reports filed with or furnished to the US Securities and Exchange Commission, Lloyds Banking Group annual reviews, half-year announcements, proxy statements, offering circulars, prospectuses, press releases and other written materials and in oral statements made by the directors, officers or employees of Lloyds Banking Group to third parties, including financial analysts. Except as required by any applicable law or regulation, the forward looking statements contained in this annual report are made as of the date hereof, and Lloyds Banking Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this annual report to reflect any change in Lloyds Banking Group’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Overview Business review Governance Financial statements Other information 1 Group profile 1 Summary of Group results 14 Board of Directors 110 Report of the independent Shareholder information 284 Lloyds Banking Group Group structure 2 Divisional results 26 Directors’ report 112 auditors on the consolidated Glossary 285 financial statements 144 Annual Report Group performance 3 Other financial information 52 Corporate governance report 114 Abbreviations 290 and Accounts 2010 Consolidated Strategy and progress 4 Five year financial summary 56 Directors’ remuneration report 124 financial statements 146 Index to annual report 291 Chairman’s statement 6 Our people 57 Notes to the consolidated Group Chief Executive’s review 8 Corporate responsibility 60 financial statements 153 Addressing the key issues 10 Risk management 65 Report of the independent auditors on the parent company Marketplace trends 12 financial statements 272 Parent company financial statements 273 Notes to the parent company financial statements 276 GROUP PROFILE OUR VISION IS TO BE RECOGNISED AS THE BEST FINANCIAL SERVICES COMPANY IN THE UK BY SHAREHOLDERS, CUSTOMERS AND COLLEAGUES. Lloyds Banking Group is a leading UK based financial services group providing a wide range of banking and financial services, primarily in the UK, to personal and corporate customers. Lloyds Banking Group was formed in January 2009 following the acquisition of HBOS and our main business activities are retail, commercial and corporate banking, general insurance, and life, pensions and investment provision. The new Group also operates an international banking business with a global footprint in over 30 countries. The Group is the UK’s largest retail bank and has a large and diversified customer base. Services are offered through a number of well recognised brands including Lloyds TSB, Halifax, Bank of Scotland, Scottish Widows, Clerical Medical and Cheltenham & Gloucester, and a range of distribution channels including the largest branch network in the UK. Lloyds Banking Group is quoted on both the London Stock Exchange and the New York Stock Exchange and is one of the largest companies within the FTSE 100. Chairman’s statement Group Chief Executive’s review Addressing the key issues We have a great platform for the future and We achieved a step change in our financial An overview of the key issues currently have established a strong financial and performance, returning the Group to affecting the Group. operational trajectory. profitability while absorbing the substantial costs of reducing risk in the business. ➜ ➜ ➜ 6 8 10 Divisional results Details of our operating divisions, their strategy, achievements, financial results and progress. Our people A summary of our key people initiatives and how we are recruiting, retaining and rewarding our most valuable resource. ➜ 26 ➜ 57 2 Lloyds Banking Group Annual Report and Accounts 2010 GROUP STRUCTURE There are four primary operating divisions within the Group: Retail, Wholesale, Wealth and International, and Insurance. The key product markets in which they participate
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