2024 Q1 Interim Management Statement

Lloyds Banking Group plc

Q1 2024 Interim Management Statement

24 April 2024

RESULTS FOR THE THREE MONTHS ENDED 31 MARCH 2024

"The Group is continuing to deliver in line with expectations in the first quarter of 2024, with solid net income, cost discipline and strong asset quality. Our performance provides us with further confidence around our strategic ambitions and 2024 and 2026 guidance.

Guided by our purpose, we are continuing to support customers and successfully execute against our strategic outcomes, as highlighted in the third of our strategic seminars last month. This underpins our ambition of higher, more sustainable returns that will deliver for all of our stakeholders as we continue to Help Britain Prosper."

Charlie Nunn, Group Chief Executive

Financial performance in line with expectations¹

• Statutory profit after tax of £1.2 billion (three months to 31 March 2023: £1.6 billion) with net income down 9 per cent on the prior year and operating costs up 11 per cent, partly offset by the benefit of a lower impairment charge
• Return on tangible equity of 13.3 per cent (three months to 31 March 2023: 19.1 per cent)
• Underlying net interest income of £3.2 billion down 10 per cent, with a lower banking net interest margin, as expected, of 2.95 per cent and average interest-earning banking assets of £449.1 billion
• Underlying other income of £1.3 billion, 7 per cent higher, driven by continued recovery in customer and market activity and the benefits of strategic initiatives
• Operating lease depreciation of £283 million, up on the prior year reflecting a full quarter of depreciation from Tusker, alongside growth in fleet size and declines in used car prices; the charge is lower than the fourth quarter which included an additional c.£100 million residual value provision to offset developments in used car prices
• Operating costs of £2.4 billion, up 11 per cent, including c.£0.1 billion relating to the sector-wide change in the charging approach for the Bank of England levy (excluding this levy, operating costs were up 6 per cent) and elevated severance charges (£0.1 billion higher year to date). The Bank of England levy will have a broadly neutral impact on profit in 2024 with an offsetting benefit recognised through net interest income over the course of the year
• Remediation costs of £25 million (three months to 31 March 2023: £19 million), in relation to pre-existing programmes
• Underlying impairment charge of £57 million and asset quality ratio of 6 basis points. Excluding the impact of improvements to the economic outlook, the asset quality ratio was 23 basis points. The portfolio remains well-positioned with stable credit trends and strong asset quality
• Loans and advances to customers reduced during the quarter to £448.5 billion, primarily due to expected reductions in UK mortgage balances, given the refinancing of the higher maturities in the fourth quarter of 2023
• Customer deposits of £469.2 billion decreased by £2.2 billion, with growth in Retail deposits of £1.3 billion more than offset by a reduction in Commercial Banking of £3.5 billion
• Strong capital generation of 40 basis points, after regulatory headwinds of 6 basis points. CET1 ratio of 13.9 per cent, ahead of ongoing target of c.13.0 per cent
• Risk-weighted assets of £222.8 billion up £3.7 billion in the quarter, including a c.£1.5 billion temporary increase that is expected to reverse in the second quarter
• Tangible net assets per share of 51.2 pence, up from 50.8 pence on 31 December 2023, driven by profit for the period, partly offset by the effects of increased longer-term rates on the cash flow hedge reserve and pension surplus
• During the quarter, the Group agreed the sale of its in-force bulk annuity portfolio to Rothesay Life plc, enabling the Insurance, Pensions and Investments division to focus on growing strategically important lines of business

2024 guidance reaffirmed

Based on our current macroeconomic assumptions, for 2024 the Group continues to expect:

• Banking net interest margin of greater than 290 basis points
• Operating costs of c.£9.3 billion plus the c.£0.1 billion Bank of England levy
• Asset quality ratio of less than 30 basis points
• Return on tangible equity of c.13 per cent
• Capital generation of c.175 basis points²
• Risk-weighted assets at between £220 billion and £225 billion
• To pay down to a CET1 ratio of c.13.5 per cent

¹  See the basis of presentation on page 15.

²  Excluding capital distributions. Inclusive of ordinary dividends received from the Insurance business in February of the following year.

INCOME STATEMENT (UNDERLYING BASIS)^A AND KEY BALANCE SHEET METRICS

^A  See page 14.

¹    31 December 2023 reflects both the full impact of the share buyback announced in respect of 2023 and the ordinary dividend received from the Insurance business in February 2024, but excludes the impact of the phased unwind of IFRS 9 relief on 1 January 2024.

²  The liquidity coverage ratio is calculated as a monthly rolling simple average over the previous 12 months.

³  Net stable funding ratio is based on an average of the four previous quarters.

QUARTERLY INFORMATION^A