Lloyds Banking Group Annual Review 2017 About us Our purpose is to help Britain prosper. We are a UK financial services provider with around 27 million customers and a presence We are creating a responsible business that in nearly every community. Our main business activities are retail and better meets our customers’ needs and a commercial banking, general insurance and long-term savings, provided under culture where our colleagues put customers well recognised brands including Lloyds Bank, Halifax, Bank of Scotland and first. This is key to our long-term success and Scottish Widows. to fulfilling our aim to become the best bank Our shares are quoted on the London and New York stock exchanges and we are one of for customers, colleagues and shareholders. the largest companies in the FTSE 100 index. Reporting Just as we operate in an integrated way, See more about how we create value for we aim to report in an integrated way. all our stakeholders on pages 18–27 We have taken further steps towards this goal this year. As well as reporting our financial results, we also report on our approach to operating responsibly and take into account relevant economic, political, social, regulatory and environmental factors. This Annual Review contains forward looking statements with respect to certain of the Group’s plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives. For further details, reference should be made to the forward looking statements on the inside back cover. Inside this year’s Annual Review This icon appears throughout this Group highlights 01 report highlighting how we are Helping Chairman’s statement 02 Britain Prosper. Read more online at Group Chief Executive’s review 04 www.lloydsbankinggroup.com Key performance indicators 06 The external environment 08 Our business model 10 View our Annual Report and Accounts and other information What we have achieved over the last about Lloyds Banking Group at three years 12 www.lloydsbankinggroup.com Our strategic planning process 13 Our next chapter 14 Doing business responsibly 18 Running a responsible business for all our stakeholders 21 Environment 26 Divisional overview 28 Risk overview 32 Summary of Group results 38 Board of Directors 40 This Annual Review incorporates the Strategic Report which forms part of the 2017 Annual Report Remuneration at a glance 42 and Accounts along with some information about Shareholder information 44 the Board of Directors, a summary of Group results and detail on remuneration as well as some general shareholder information. On behalf of the Board Lord Blackwell Chairman Lloyds Banking Group 20 February 2018 Lloyds Banking Group Annual Review 2017 01 Group highlights Significant strategic progress and a strong financial performance £5.3bn £8.5bn 245bps 13.9% +24% +8% +55bps +0.9pp Statutory profit before tax Underlying profit increased Strong CET1 capital generation Pro forma CET1 ratio after increased significantly pre ordinary dividend and ordinary dividend and share buyback share buyback 3.05p 18bps 46.8% 62.0pts +20% +3bps -1.9pp -0.7pts Ordinary dividend per share Asset quality ratio remains Our market leading cost:income Our net promoter score, a strong, reflecting effective risk ratio further improved respected measure of customer management and the continued satisfaction, remains strong benign credit environment See our key performance indicators on pages 6–7 How we’ve helped Britain prosper in 2017 >708,000 >124,000 >£20m individuals, charities businesses of all given to the Group’s and businesses trained kinds and sizes independent charitable in digital skills. helped to start up. Foundations. This includes around 300 local people in This includes Karen in Lowestoft who The Foundations have helped more Wolverhampton who have been helped has opened her own hairdressing salon than 2,800 charities across the country, by our Digital Champions to learn new with support from Lloyds Bank. including Newry Muay Thai in Northern skills and stay safe online. Ireland, which received a grant from the Halifax Foundation. Find out more about our Helping Britain Prosper Plan on page 20 02 Lloyds Banking Group Annual Review 2017 Chairman’s statement Transforming the Group for success in a digital world The transformation now being undertaken will ensure we maintain the core values of the past while equipping us to succeed in the future. Lord Blackwell Chairman Overview and strategy the core values of the past while equipping us to succeed in the future. It will also ensure I am pleased to report that 2017 has been we use all our capabilities across the Group another successful year with significant to serve our customer needs seamlessly as progress both financially and strategically. an integrated financial service provider. The We have continued to transform the Group pace and scale of this transformation will be to become a safer, more agile and customer challenging to every bank, but we have a focused organisation whilst increasing very strong foundation from which to move profitability. As a result of this progress, the forward. I am confident that our new strategy UK government was able to conclude its will provide the capabilities to continue share sale in May, more than recovering its to deliver for customers, colleagues and initial investment and allowing the Group shareholders and support the communities to return to full private ownership. This in which we operate. landmark event is a tribute to the hard work of all our colleagues in recent years. Capital return The UK financial services sector continues to As a result of the financial progress in the face a number of near term challenges. The year, I am pleased to announce that the Board economic environment remains uncertain, has recommended a final ordinary dividend the level of regulatory change remains high, of 2.05 pence per share, bringing the total competition continues to be fierce and ordinary dividend for 2017 to 3.05 pence per the pace of technological change requires share, an increase of 20 per cent on last year. continuing innovation while posing new threats In addition the Board intends to implement a from data and cyber security. This reinforces share buyback of up to £1 billion. This is in line our conviction that our differentiated, with the Group’s policy to deliver a progressive customer focused, simple and low risk and sustainable ordinary dividend whilst business model is the right approach. It has distributing surplus capital when appropriate helped us deliver over the last few years and to do so. will, I believe continue to do so going forward. However, the rapid pace of technological Our purpose change also brings new opportunities to improve our service to customers with The strong motivation for all of us in Lloyds is faster, more convenient and more extensive the central role we play in Britain’s economy propositions tailored to meet their needs. as the UK’s leading financial services provider. To meet our customer needs effectively in We are clear our purpose as a Group is to Help this new world we will need to transform our Britain Prosper. This means not only providing business operations while building on our outstanding service to our customers, but also traditional strengths. As a Board we have responding to the UK’s social and economic spent considerable time over the past two issues which we believe we are best placed years discussing the path we need to follow to address. to succeed as a ‘Bank of the Future’. This We are enormously proud of this role. provided a solid base for us to develop the Through our products and services, we have next phase of our strategy with the senior been helping the people, businesses and management team. The transformation we communities of Britain for more than 250 years. have now embarked on will ensure we maintain But we want to do even more; we want to Lloyds Banking Group Annual Review 2017 03 Helping Britain Prosper and our contribution to the UK As the UK’s leading financial services provider we are making a significant impact on the UK economy Colleagues Communities Payments Tax Lending Dividends One of the largest £58m given to £14 trillion £2.5bn taxes paid £65bn SME and £2.2bn paid employers in help communities of payments in 2017 Mid Markets in dividends the UK in 2017 processed in 2017 lending portfolio to 2.4 million The UK’s largest = 7 x UK GDP shareholders 260,000 hours corporate tax Biggest mortgage volunteered payer lender in UK with c.£290bn portfolio be a bank for Britain. Our Helping Britain I have also had the opportunity to travel Despite the uncertain environment, the Prosper Plan takes us beyond our business as around the country to see some of this work, Group has reported increased statutory and usual activities by using our scale and reach, speaking with teams who work directly with underlying profits, strong capital generation, and unites our Group to meet some bold vulnerable customers and visiting charities has announced an increased ordinary dividend commitments. When Britain prospers we who receive support from our independent and intends to implement a share buyback. prosper, so the Plan is an important investment Foundations. As a result, the Group’s total Group in our long-term success. I am delighted that we have raised more than Performance Share (GPS) outcome has £4 million for our 2017-2018 charity partner increased to £414.7 million (an increase of Corporate culture Mental Health UK in the past 12 months. approximately 5.5 per cent on 2016). This is The Board and senior management have a There is a growing recognition that mental after a 21 per cent collective performance vital role to play in shaping and embedding a health and financial health are closely linked adjustment, and reflects both strong healthy corporate culture, and this continued and together we are creating the perfect performance against stretching Group to be a focus in 2017.