Lloyds Banking Group plc deliver robust financial results with solid income performance

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Lloyds Banking Group plc (LON:LLOY) have today provided 2024 Half-Year Results to the market.

“In the first six months of 2024, the Group delivered robust financial results with solid income performance and cost discipline alongside strong capital generation.

2024 is a key year for our strategic delivery. We continue to deliver on our strategic transformation, as illustrated in the fourth of our investor seminars last month. We remain on track to meet our 2024 targeted outcomes. Indeed, our progress to date enables us to reaffirm 2024 guidance and remain confident in achieving our 2026 strategic objectives and guidance.

Guided by our purpose, we continue to support customers in reaching their financial goals and successfully transform our Group. 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

Delivering on our purpose driven strategy; on track to meet 2024 and 2026 strategic outcomes

• Supporting customers to reach financial goals, by meeting a broad range of their financial needs

• Continued strategic transformation, with c.£3 billion planned investment between 2022 and the end of 2024, enabling delivery of business and financial benefits

• Successful execution demonstrated through four strategic seminars, delivered over the last twelve months

Robust financial performance, in line with expectations

• Statutory profit after tax of £2.4 billion (half-year to 30 June 2023: £2.9 billion) with net income down 9 per cent on the prior year and operating costs up 7 per cent (including Bank of England Levy), partly offset by a lower impairment charge

• Return on tangible equity of 13.5 per cent (half-year to 30 June 2023: 16.6 per cent)

• Underlying net interest income of £6.3 billion, down 10 per cent with a lower banking net interest margin, as expected, of 2.94 per cent and average interest-earning banking assets of £449.2 billion

• Underlying other income of £2.7 billion, 8 per cent higher, driven by continued recovery in customer and market activity and the benefit of strategic initiatives

• Operating lease depreciation of £679 million, up on the prior year reflecting growth in the fleet size, depreciation of higher value vehicles and declines in used electric car prices

• Operating costs of £4.7 billion, up 7 per cent, with cost efficiencies helping to offset higher ongoing strategic investment, planned elevated severance charges and continued inflationary pressures, alongside c.£0.1 billion in the first quarter relating to the sector-wide change in the charging approach for the Bank of England Levy (excluding this, operating costs were up 4 per cent)

• Remediation costs of £95 million (half-year to 30 June 2023: £70 million), largely in relation to pre-existing programmes

• Underlying impairment charge of £101 million and asset quality ratio of 5 basis points. Excluding the impact of improvements to the economic outlook, the asset quality ratio was 19 basis points. The portfolio remains well-positioned with resilient credit performance and strong asset quality

Growth in customer franchise

• Loans and advances to customers increased by £2.7 billion during the half-year period to £452.4 billion, with growth across Retail, including mortgages and unsecured loans

• Customer deposits of £474.7 billion increased by £3.3 billion, with growth in Retail deposits of £4.9 billion partly offset by a reduction in Commercial Banking deposits of £1.6 billion

RESULTS FOR THE HALF-YEAR (continued)

Strong capital generation, in line with expectations, enabling an increased interim dividend

• Strong capital generation of 87 basis points, after regulatory headwinds of 7 basis points

• CET1 ratio of 14.1 per cent after 48 basis points for ordinary dividend accrual. Significantly above our ongoing target of c.13.0 per cent by 2026

• Risk-weighted assets of £222.0 billion up £2.9 billion in the period, reflecting lending growth and other movements, partly offset by effective management of risk-weighted assets

• Tangible net assets per share of 49.6 pence, down from 50.8 pence at 31 December 2023 after capital distributions, alongside the impact of increased longer-term rates on the cash flow hedge reserve and pension surplus

• Interim ordinary dividend of 1.06 pence per share (equivalent to £662 million), up 15 per cent on the prior year

Reaffirming guidance for 2024

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.£9.4 billion including the c.£0.1 billion Bank of England Levy

• Asset quality ratio now expected to be less than 20 basis points

• Return on tangible equity of c.13 per cent

• Capital generation of c.175 basis points

• Risk-weighted assets between £220 billion and £225 billion

• To pay down to a CET1 ratio of c.13.5 per cent

Confident in 2026 guidance:

Based on our current macroeconomic assumptions and confidence in our strategy, the Group is maintaining its medium-term guidance for 2026:

• Cost:income ratio of less than 50 per cent

• Return on tangible equity of greater than 15 per cent

• Capital generation of greater than 200 basis points

• To pay down to a CET1 ratio of c.13 per cent

GROUP CHIEF EXECUTIVE’S STATEMENT

We are now half way through the five year strategy we set out in February 2022. We continue to make strong progress in delivering against our strategic targets. We are on track to achieve our 2024 outcomes, including c.£0.7 billion of additional income and c.£1.2 billion of gross cost savings from strategic initiatives and we are reaffirming our 2024 financial guidance. We also remain confident in achieving our 2026 strategic outcomes and financial guidance.

The Group is performing well and has delivered a robust financial performance in the first half of the year, with continued business momentum, cost discipline and strong returns. In addition, the resilience of our business model and customer franchise, alongside our measured approach to risk, is demonstrated by our continued strong asset quality performance. Our performance positions the Group well for the future, and enables the Board to announce an interim ordinary dividend of 1.06 pence per share, up 15 per cent on the first half of 2023.

I am confident that our strategy remains the right one. As we look ahead to the UK’s priorities and opportunities, including the new government emphasis on sustained economic growth, our strong financials and business model position the Group well to continue to support our customers, and to help Britain prosper.

Robust financial performance and consistent delivery supporting higher interim dividend

Statutory profit after tax was £2.4 billion in the first half of 2024, down 15 per cent on the prior year with net income down 9 per cent and operating costs up 7 per cent, partly offset by strong asset quality contributing to a lower impairment charge. Robust net income of £8.4 billion included a resilient banking net interest margin of 2.94 per cent and 8 per cent growth in underlying other income, offset by higher operating lease depreciation. Operating costs of £4.7 billion reflected higher planned strategic investment, elevated severance charges and inflationary pressures. We continue to see strong asset quality, with credit performance improving. The impairment charge of £101 million includes a benefit from improved economic assumptions. Excluding this, the asset quality ratio was 19 basis points, remaining in line with our enhanced guidance.

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The Group’s balance sheet grew in the first six months of the year, with loans and advances to customers increasing by £2.7 billion to £452.4 billion. This reflected growth across Retail, including mortgages and unsecured loans. Customer deposits of £474.7 billion also increased in the period, by £3.3 billion. This included growth in Retail deposits (including Wealth) of £4.9 billion offsetting a reduction in Commercial Banking deposits of £1.6 billion.

The Group delivered strong capital generation of 87 basis points and a CET1 ratio of 14.1 per cent after 48 basis points for ordinary dividend accrual. Given the strength of the capital generation and CET1 position, the Board has announced an interim ordinary dividend of 1.06 pence per share, up 15 per cent on the prior year and equivalent to £662 million. As usual, the Board will give due consideration at year end to the return of any surplus capital. In February this year, the Board decided to return surplus capital through a share buyback programme of up to £2.0 billion. As at 30 June 2024, the programme had completed £0.9 billion of the buyback, with c.1.8 billion ordinary shares purchased.

Delivering on purpose driven strategy, benefitting all stakeholders

We have a purpose-driven strategy. Delivering in line with our purpose of Helping Britain Prosper ensures that we drive outcomes that benefit all stakeholders. We continue to provide support to our customers to help them meet their financial needs, including supporting their savings goals through our strong ISA propositions, attracting an additional £6 billion of new Cash ISA savings during the first half of 2024. We also helped over 50,000 small businesses and charities open a new business current account with us.

Core to our purpose is our focus on creating new opportunities for future growth while contributing to an inclusive society and supporting the transition to a low carbon economy. Our initiatives in building a more inclusive society include lending over £7 billion to first time buyers and supporting c.£1.2 billion of funding to the social housing sector in the first half of the year, whilst continuing to support over 340 housing associations across the UK. We continue our partnership with the homelessness charity Crisis and together we believe we can help to end homelessness. Importantly, we also continue to progress towards the Group’s diversity targets for gender, ethnicity and disability.

To help build a sustainable future and support the transition to a low carbon economy we have delivered c.£38 billion¹ of cumulative sustainable financing since 2022. We remain on track to meet our 2024 targets in this area. In the first half we also published our new sustainable bond framework and have since issued €1 billion of green bonds. We have also launched Buildings Transition Loans, offering Small and Medium businesses discounted lending for investing in energy efficient property portfolios.

¹ From January 2022 to June 2024: £21.7 billion sustainable finance in Commercial Banking, £9.1 billion EPC A/B mortgage lending (up to March 2024), £7.6 billion financing for electric vehicles and plug-in hybrid electric vehicles.

GROUP CHIEF EXECUTIVE’S STATEMENT (continued)

In the third year of our five-year strategic transformation, continued momentum across our strategic initiatives is enabling us to realise business and financial benefits. As a result, we are on track to meet our strategic objectives, alongside our financial targets. Our transformation is supported by c.£3 billion planned investment between 2022 and the end of 2024.

We have seen progress across all of our strategic priority areas, alongside the strategic enablers of people, technology and data. This gives us confidence that we are on track to deliver c.£0.7 billion of additional revenues from strategic initiatives and c.£1.2 billion of gross cost savings by the end of 2024. We have started to demonstrate this successful execution to investors, with two strategic seminars in 2023 and two in the first half of 2024 focused on our core business areas. Looking further out, we remain confident in achieving our 2026 strategic and financial outcomes, including generating an additional c.£1.5 billion revenues per annum from strategic initiatives.

Driving revenue growth and diversification

Lloyds Banking Group continues to strengthen customer relationships, with a view to delivering diversified revenue growth across the business. In the first six months of 2024, we further enhanced our mobile apps, which now have over 19 million active users, bringing together products across the Group within dynamic ecosystems. For our mass affluent customers, we continued the roll out of ‘Lloyds Bank 360’, now reaching c.500,000 customers and we launched both Ready-Made Pensions and Invest Wise, a bespoke investment product for those aged between 18 and 25. Through investment in digital capability and product development, we have seen c.30 per cent growth in mobile active customers within Small and Medium Businesses. We were awarded Best Bank for Digitalisation Globally at the Global Trade Review Awards 2024.

Investing in efficiency and enablers to improve delivery

Strengthening cost and capital efficiency is critical. The Group is making strong progress in utilising technology to improve operating leverage. Over the first six months of 2024, we accelerated our shift to Cloud-based technology, surpassing our initial target for applications on Cloud. We also increased the number of legacy technology applications decommissioned by 20 per cent, taking our total decommissioned applications to c.500. In addition, the Cash Access UK Banking Hub network has doubled this year, providing continued support to customers in the heart of their communities in an efficient manner. This is in addition to the expansion of digital journeys within Small and Medium Businesses, with c.45 per cent of servicing journeys digitised to date.

Future outlook

Lloyds Banking Group plc are progressing well towards its ambition of generating higher, more sustainable returns for shareholders and are on track to achieve our 2024 strategic and financial outcomes.