MORGAN STANLEY FINANCIALS CONFERENCE António Horta-Osório | 20 March 2018 Business model delivering increased profits and returns Profit progression • Statutory profit increasing: growth in (£bn) underlying profit and reduction in below the 8.5 7.8 8.1 7.9 line charges despite higher PPI cost 6.2 • Consistent strong underlying profit 2.6 5.3 4.2 ‐ Net income growth of 5%, NIM up to 2.86% 0.4 1.8 1.6 (0.6) ‐ Market-leading cost:income ratio of 46.8% and 2012 2013 2014 2015 2016 2017 strong asset quality with AQR of 18bps Underlying profit Statutory profit before tax ‐ Moody’s upgraded Lloyds Bank’s rating to Aa3 Returns progression and S&P improved outlook to positive (%) 16.2 16.0 14.1 15.6 13.0 ‐ Loan growth of £6bn in targeted segments 8.9 5.1 6.6 Strong underlying RoTE of 15.6%, with the 4.4 • 2.6 statutory RoTE increasing to 8.9% • Strong capital generation of 245bps with 20% (2.5) (1.1) 2012 2013 2014 2015 2016 2017 increase in ordinary dividend to 3.05p per share Underlying RoTE Statutory RoTE and a share buyback of up to £1bn 1 Solid foundations underpinning our customer centric business model Distinctive competitive strengths Best-in-class customer Highly efficient experience Cost:income Ratio1, FY2017 Differentiated multi-brand, multi- Customer NPS 62 c.60% channel customer propositions 43 47% Market leading efficiency 2011 2017 Peer Avg. Largest digital bank, branch reach and customer franchise Strong profitability Capital generative Statutory RoTE, FY2017 Cumulative capital generation2 2015 – 2017 Prudent, low risk participation 8.9% c.545 bps choices with strong capital position c.400 bps 3.9% Rigorous execution and management discipline Peer Peer Avg. Avg. 1 – As stated by major UK banking peers. 2 – Pre-dividend capital generation, excluding acquisitions (peers annualised). 2 Largest digital bank in the UK, delivering market leading experience Customer needs met via digital, % 68% £1bn investment in 61% digital announced digitally active customers 54% >13m Largest digital bank in the UK 40% 32% 209m digital visits per month 1 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 #1 rated UK mobile app since 2015 Forrester mobile banking app score (2017)2 • “Excels at usability”: easy enrolment/ login, 76 seamless navigation, context-sensitive help function 65 62 • “Outstanding marketing and sales functionality”: Leading tailored product offers, comparison tools, third-party functionality offers • “Wide range of touchpoints”: mobile-optimised website, SMS interactions, Facebook Messenger LBG UK Global • “Excellent cross-channel guidance”: branch average average appointment scheduling function 1 – Forrester UK Mobile Banking, 2015, 2016, 2017. 2 – Forrester: UK Mobile Banking Benchmark, 2017; Global Mobile Banking Benchmark, 2017 3 Low risk business model underpinned by prudent participation choices driving sustainable earnings Low risk business model reflecting portfolio de-risking and our prudent participation choices • Over 95% of assets in UK (AA rated) and secured Asset quality ratio assets represent over 2/3 of portfolio (bps) 2017 18 2 28 • Consumer finance c.6% of loans, (c.4% in 2014) 2016 15 28 • Stringent underwriting with targeted growth 2015 14 28 • Run off down 95% from peak, just c.2% of loans Net AQR Gross AQR MBNA • Low risk model generates sustainable earnings Average mortgage LTVs Mortgages >80% LTV (%) (£bn) - A 10% fall in house prices would increase Group RWAs by less than £1bn 146.6 55.6 43.6 - Through the cycle AQR c.35bps and <30bps for 30.7 2018-20 2010 2017 2010 2017 4 Greater investment capacity allowed by market leading efficiency Strong position to compete Virtuous cycle of efficiency Cost:income ratio1, % c.70% c.60% Market leading c.55% Freeing up 46.8% Future proofing our efficiency Low 40s capital for >£3.0bn business model investment Net cost Greater Lloyds Lloyds EU banks UK banks Global reduction to RoTE investment 2 2020 2017 banks <£8bn in 2020 14-15% capacity from 2019 Increased investment capacity Total strategic investment, £bn Greater End-to-end +40% productivity transformation +25% >£3.0bn Improvement to Enhancements customer to internal experience processes GSR1 GSR2 GSR3 Higher NPS and 2011-14 2015-17 2018-20 market shares 1 – Per latest disclosure – average underlying CIR (excl. notable items as highlighted by each institution). UK: RBS, Santander UK, Barclays, HSBC; EU: BBVA, Santander Group, UniCredit, Intesa, Nordea, Swedbank, ING, 5 KBC, Caixabank, Sabadell, Societe Generale, Credit Agricole; Global: Citigroup, JPM, Bank of America, Morgan Stanley, Goldman Sachs, Credit Suisse, UBS, Deutsche Bank, BNP Paribas. 2 – Exit rate, incl. remediation. More than £3bn strategic investment to deliver a significant transformation and future proof our business Strategic priorities Developing new sources of competitive advantage Differentiated multi-brand, multi-channel customer propositions with data-driven customer experience Market leading efficiency through tech- enabled productivity improvements Largest digital bank, branch reach and customer franchise with leading integrated propositions Prudent, low risk participation choices with strong capital position Rigorous execution and management discipline focusing on key skills of the future 6 Delivering a leading customer experience, with seamless multi-channel propositions LEADING CUSTOMER EXPERIENCE Remaining the best digital banking app • #1 UK digital bank with 22% share of new Everything in one place business, with Open Banking functionality New propositions • #1 Branch network, serving complex needs Innovative tools • Data-driven and personalised customer propositions LEADING Security a shared priority CUSTOMER EXPERIENCE Focusing branches on complex needs Maintaining physical reach Customer-facing time on complex needs1 Branch market share, % c.60% 20% 21% 21% 45% 34% 2014 2017 2020 2014 2017 2020 7 Digitising the Group to deliver an end-to-end transformation DIGITISING THE GROUP Broader and deeper transformation … • End to end transformation covering Journeys transformed1 • End-to-end transformation more than 70% of our cost base of our customer journeys • ~20 additional customer • Simplification and progressive ~50 journeys modernisation of IT and data 16 architecture • ~15 enterprise journeys to digitise central functions LEADING GSR2 GSR3 CUSTOMER EXPERIENCE Selective upgrades to core IT systems … covering more of our cost base • API enabled channel to exploit Cost base transformed2 Channel • More activities covered Open Banking and FinTech technology along the value chain (e.g. Insight and • Insight powered customer control functions and experiences operations) data >70% • Manual processes re- • Automated software ~12% engineered across our development processes Infrastructure central functions • Leveraging hybrid cloud and GSR2 GSR3 software as a service 1 – Includes customer and enterprise journeys. 2 – Operating cost base covered by journey transformation. 8 Maximising our capabilities to bring the best of the Group to our customers and drive growth MAXIMISING GROUP CAPABILITIES Significant market opportunity in Insurance 1 • £6bn loan growth in start-ups, SME and Market AuA, Financial Planning & Retirement products, £tn Mid Market businesses +5% 3.0 • Sole integrated UK banking and insurance 2.1 2.4 provider targeting >1m new pensions customers and £50bn AuA growth LEADING CUSTOMER 2017 2020 2025 EXPERIENCE Invest and grow in SME and Mid Markets Unique position as an integrated bank/insurer Growth in net lending to Start- ups, SMEs and Mid Markets Capture the Corporate Pensions opportunity, leveraging the Zurich acquisition • Digitise client experience £6bn • Improve product range Offer customers a single home for their £4bn banking and insurance needs • Simplify onboarding and servicing Strong distribution model to drive growth across GSR2 GSR3 intermediary and relationship channels 1 – Provider results, ABI, Compeer, Fundscape, HMRC, Investment Association, Money Management and Spence Johnson. Includes drawdown, Individual annuities, individual pensions, 9 investments and corporate pensions. Transforming our ways of working and build greater in-house capabilities TRANSFORMING WAYS OF WORKING Deploying Agile to >50% of our transformation • More than half of transformation Iterative approach with delivered through Agile methodology short development sprints Up to Continuous customer 30% • Biggest ever investment in our feedback people with 50% increase in colleague Cross-functional and co- Change resource located training and development to 4.4m efficiency Outcome focused with improvement hours p.a. LEADING end-to-end accountability CUSTOMER EXPERIENCE Building in-house capabilities Investing in our People Reduction in external resources in 30% Change Upskill and retrain our colleagues Increase in digital experience 2x designers and robotics/AI Attract new top talent and specialist engineers resource 10 Opportunities for growth in targeted key segments Strong franchise across key channels and products Further growth opportunities Channels market share Digital new business volumes1 22% • Targeting further strong statutory profit growth, Branches market share 21% driven by targeted growth, resilient NIM, low risk business model, and lower operating and remediation Product market share costs Consumer credit card balances 25% Current account volumes 25% • Organic growth in targeted key segments Mortgage balances (open book) 20% Retail deposit balances 19% • Inorganic growth: SME and small business balances 19% Mid Market main