TIDMLLOY
RNS Number : 9471L
Lloyds Banking Group PLC
01 May 2015
Lloyds Banking Group plc
Q1 2015 Interim Management Statement
1 May 2015
BASIS OF PRESENTATION
This report covers the results of Lloyds Banking Group plc together
with its subsidiaries (the Group) for the three months ended 31
March 2015.
Statutory basis
Statutory information is set out on page 9. However, a number of
factors have had a significant effect on the comparability of the
Group's financial position and results. As a result, comparison
on a statutory basis of the 2015 results with 2014 is of limited
benefit.
Underlying basis
In order to present a more meaningful view of business performance,
the results are presented on an underlying basis excluding items
that in Management's view could distort the comparison of performance
between periods. Based on this principle, the following items are
excluded from underlying profit:
* the amortisation of purchased intangible assets and
the unwind of acquisition-related fair value
adjustments;
* the effects of certain asset sales and other items;
* volatility relating to the insurance business and
insurance gross up;
* Simplification costs, TSB build and dual running
costs and the loss relating to the TSB sale;
* payment protection insurance and other regulatory
provisions; and
* certain past service pensions items in respect of the
Group's defined benefit pension schemes.
Unless otherwise stated, income statement commentaries throughout
this document compare the three months ended 31 March 2015 to the
three months ended 31 March 2014, and the balance sheet analysis
compares the Group balance sheet as at 31 March 2015 to the Group
balance sheet as at 31 December 2014.
TSB
On 24 March 2015 the Group sold a 9.99 per cent interest in TSB
reducing its holding to 40 per cent. This sale resulted in a loss
of control over TSB and its deconsolidation. The Group's 40 per
cent interest in TSB has been reported as an asset held for sale
at fair value within 'other assets' in the Group balance sheet
as at 31 March 2015. The Group's results for the quarter include
TSB. Any TSB disclosures in the document are presented on a Lloyds
Banking Group basis and may differ to the equivalent figures disclosed
in the TSB results release.
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FORWARD LOOKING STATEMENTS
This document contains certain forward looking statements with
respect to the business, strategy and plans of Lloyds Banking Group
and its current goals and expectations relating to its future
financial condition and performance. Statements that are not
historical facts, including statements about Lloyds Banking Group's
or its directors' and/or management's beliefs and expectations, are
forward looking statements. By their nature, forward looking
statements involve risk and uncertainty because they relate to
events and depend upon circumstances that will or may occur in the
future. 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 to: general economic and business conditions in the
UK and internationally; market related trends and developments;
fluctuations in exchange rates, stock markets and currencies; the
ability to access sufficient sources of capital, liquidity and
funding when required; changes to the Group's credit ratings; the
ability to derive cost savings; changing customer behaviour
including consumer spending, saving and borrowing habits; changes
to borrower or counterparty credit quality; instability in the
global financial markets, including Eurozone instability, the
potential for one or more countries to exit the Eurozone and the
impact of any sovereign credit rating downgrade or other sovereign
financial issues; technological changes and risks to cyber
security; pandemic, natural and other disasters, adverse weather
and similar contingencies outside the Group's control; inadequate
or failed internal or external processes or systems; acts of war,
other acts of hostility, terrorist acts and responses to those
acts, geopolitical, pandemic or other such events; changes in laws,
regulations, accounting standards or taxation, including as a
result of further Scottish devolution; changes to regulatory
capital or liquidity requirements and similar contingencies outside
the Group's control; the policies, decisions and actions of
governmental or regulatory authorities in the UK, the European
Union (EU), the US or elsewhere including the implementation of key
legislation and regulation; 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; actions or omissions by the Group's directors, management or
employees including industrial action; changes to the Group's
post-retirement defined benefit scheme obligations; the ability to
complete satisfactorily the disposal of certain assets as part of
the Group's EU State Aid obligations; the provision of banking
operations services to TSB Banking Group plc; the extent of any
future impairment charges or write-downs caused by, but not limited
to, depressed asset valuations, market disruptions and illiquid
markets; the value and effectiveness of any credit protection
purchased by the Group; the inability to hedge certain risks
economically; the adequacy of loss reserves; the actions of
competitors, including non-bank financial services and lending
companies; and exposure to regulatory or competition scrutiny,
legal proceedings, regulatory or competition investigations or
complaints. Please refer to the latest Annual Report on Form 20-F
filed with the US Securities and Exchange Commission for a
discussion of certain factors together with examples of forward
looking statements. Except as required by any applicable law or
regulation, the forward looking statements contained in this
document are made as of today's date, and Lloyds Banking Group
expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward looking
statements.
RESULTS FOR THE THREE MONTHS ENDED 31 MARCH 2015
'We have made a strong start to the next phase of our strategy
to become the best bank for customers and shareholders, as we
continue to support and benefit from UK economic growth. I am
pleased with the continued improvement in financial strength and
performance in the first quarter and expect our plan to deliver
sustainable growth and improved returns.'
António Horta-Osório
Group Chief Executive
Continued improvement in financial strength and performance
-- Underlying profit of GBP2,178 million, an increase of 21 per
cent on the first quarter of 2014
-- Total income up 3 per cent to GBP4,644 million
- Net interest income of GBP3,021 million, up 7 per cent,
primarily driven by margin improvement to 2.65 per cent
- Other income of GBP1,623 million, down 6 per cent on the first
quarter of 2014 due to business disposals in 2014 and lower Retail
fees and commissions, but up 5 per cent on the fourth quarter of
2014
-- Total costs flat year-on-year with increased investment in
the business; cost:income ratio of 47.7 per cent (Q1 2014: 49.3 per
cent)
-- Impairment charge reduced 59 per cent to GBP177 million;
asset quality ratio improved 20 basis points to 0.15 per cent
-- Profit before tax and the sale of TSB up 37 per cent to GBP1,874 million
-- Loss relating to TSB sale of GBP660 million
-- Underlying return on required equity of 16.0 per cent, up 3.0
percentage points on the first quarter of 2014
-- Strong balance sheet and liquidity position with a CET1 ratio
of 13.4 per cent, up 0.6 percentage points in the quarter;
a total capital ratio of 22.6 per cent; and a leverage ratio of
5.0 per cent (31 December 2014: 4.9 per cent)
-- Reported statutory profit before tax of GBP1,214 million
-- Tangible net assets per share increased to 55.8p (31 December 2014: 54.9p)
Strong start to next phase of strategic journey; continued focus
on supporting customers and the UK economy
-- TSB sale will enable the Group to meet its commitment to the
EC ahead of the mandated deadline
-- Creating best customer experience through multi-channel,
multi-brand strategy; increased investment in digital
-- Continue to become simpler and more efficient through process redesign and automation
-- Delivering sustainable growth in key customer segments
- Net lending of GBP1.1 billion to SMEs over the last 12 months,
up 4 per cent in a declining market
- UK Consumer Finance lending growth of 17 per cent over the last 12 months
- Continue to target mortgage growth in line with the market;
GBP2.2 billion lent to first-time buyers in the first quarter,
providing one in four mortgages
-- UK government stake reduced to 20.95 per cent (as at 23 April 2015)
-- Continue to support our communities with contributions
through our Lloyds Bank and Bank of Scotland Foundations, which
gave over GBP19 million in grants to charities in 2014
-- As part of our Helping Britain Prosper Plan we have committed
to give at least GBP100 million to the Foundations by 2020 to
support their work across the UK
Guidance for 2015 improved or reconfirmed. Well positioned for
further progress in 2015
-- Expect net interest margin for the year to exceed original guidance of around 2.55 per cent
-- Expect other income to be broadly stable in 2015
-- Full year asset quality ratio for 2015 now expected to be
around 25 basis points (previously around 30 basis points)
-- Full year cost:income ratio targeted to be lower than 2014 ratio of 49.8 per cent
CONSOLIDATED INCOME STATEMENT - UNDERLYING BASIS
Three Three Three
months months months
ended ended ended
31 Mar 31 Mar 31 Dec
2015 2014 Change 2014 Change
GBP million GBP million % GBP million %
Net interest income 3,021 2,811 7 2,923 3
Other income 1,623 1,718 (6) 1,547 5
----------- ----------- -----------
Total income 4,644 4,529 3 4,470 4
Total costs (2,289) (2,298) - (2,505) 9
Impairment (177) (431) 59 (183) 3
----------- ----------- -----------
Underlying profit 2,178 1,800 21 1,782 22
Asset sales and other
items (111) 120 34
Simplification costs (26) (294) (316)
TSB (745) (172) (144)
Legacy provisions - - (1,125)
Other items (82) (85) (83)
----------- ----------- -----------
Profit before tax - statutory 1,214 1,369 (11) 148
Taxation (270) (207) (30) (41)
----------- ----------- -----------
Profit for the period 944 1,162 (19) 107
----------- ----------- -----------
Underlying earnings per
share 2.3p 2.0p 0.3p 1.8p 0.5p
Earnings per share 1.2p 1.6p (0.4)p 0.0p 1.2p
Banking net interest margin 2.65% 2.32% 33bp 2.47% 18bp
Cost:income ratio(1) 47.7% 49.3% (1.6)pp 54.9% (7.2)pp
Asset quality ratio 0.15% 0.35% (20)bp 0.15% -
Return on risk-weighted
assets 3.73% 2.71% 102bp 2.89% 84bp
Return on assets 1.05% 0.87% 18bp 0.83% 22bp
Underlying return on required
equity 16.0% 13.0% 3.0pp 12.6% 3.4pp
Statutory return on required
equity 8.3% 10.8% (2.5)pp 0.3% 8.0pp
BALANCE SHEET AND KEY RATIOS
At 31 Mar At 31 Dec Change
2015 2014 %
Loans and advances to customers(2) GBP455bn GBP478bn (5)
Loans and advances to customers excl.
TSB, Run-off and other(2,3) GBP408bn GBP406bn -
Customer deposits GBP419bn GBP447bn (6)
Loan to deposit ratio 109% 107% 2pp
Total assets GBP849bn GBP855bn (1)
Run-off assets GBP15bn GBP17bn (9)
Wholesale funding GBP117bn GBP116bn -
Common equity tier 1 ratio 13.4% 12.8% 0.6pp
Transitional total capital ratio 22.6% 22.0% 0.6pp
Risk-weighted assets GBP234bn GBP240bn (2)
Leverage ratio 5.0% 4.9% 0.1pp
Tangible net assets per share 55.8p 54.9p 0.9p
(1) Operating lease depreciation deducted from income and costs and
excluding TSB income and running costs.
(2) Excludes reverse repos of GBP4.5 billion (31 December 2014: GBP5.1
billion).
(3) Other includes the specialist mortgage book, Intelligent Finance
and Dutch mortgages.
GROUP CHIEF EXECUTIVE'S STATEMENT
In 2015 we celebrate the 250th anniversary of Lloyds Bank and
the 200th anniversary of Scottish Widows. In the first quarter of
this milestone year we made further strategic progress. We have
delivered a significant improvement to underlying profitability and
balance sheet strength while at the same time continuing to support
and benefit from UK economic growth.
Strong financial progress
Underlying profit increased by 21 per cent to GBP2,178 million,
driven by increased income and lower impairments, and our
underlying return on required equity improved to 16.0 per cent from
13.0 per cent. Statutory profit before tax was GBP1,214 million
compared with GBP1,369 million in 2014. Our balance sheet position
has strengthened further, with a common equity tier 1 ratio of 13.4
per cent and a leverage ratio of 5.0 per cent, up from 12.8 per
cent and 4.9 per cent respectively at the end of 2014.
Continuing to support our customers and the UK economy
We are making excellent progress on our lending commitments as
outlined in our Helping Britain Prosper Plan. In UK housing we
continue to be the largest lender to first-time buyers, providing
one in four mortgages, and lending GBP2.2 billion in the first
three months of the year. Through our commitment to the commercial
sector, we have supported over 23,000 business start-ups and remain
the largest participant in the Funding for Lending Scheme.
Strong start to the next phase of our strategic journey
In October 2014 we outlined three strategic priorities to take
us through to the end of 2017: creating the best customer
experience; becoming simpler and more efficient; and delivering
sustainable growth.
On creating the best customer experience, we continue to invest
in our customer propositions including new digital initiatives such
as Halifax Car Plan Extra, which allows customers to access a range
of car financing options online. In addition, customers can now
apply for a new credit card using a mobile device and youth
customers are able to manage their accounts online.
We continue to make good progress on becoming simpler and more
efficient. Our cost:income ratio was 47.7 per cent and we remain on
track to deliver a full year reduction against the 2014 position of
49.8 per cent. Delivering sustainable growth is a key element in
supporting customers and the UK economy. Over the last 12 months we
have lent an additional net GBP6.3 billion to our key customer
segments, including GBP1.1 billion to SMEs.
TSB disposal and UK government trading plan
We agreed the sale of our remaining stake in TSB to Banco de
Sabadell in the first quarter and as part of this agreement we sold
9.99 per cent of our stake in March. The full disposal of TSB will
enable us to meet our commitment to the European Commission ahead
of the mandated deadline.
Our strong performance in the first quarter has also enabled the
UK government to continue to reduce its holding in the business,
further enabling our return to full private ownership. Following
the announcement in December 2014 of a plan to carry out a measured
and orderly sell down of shares over the first half of 2015, the UK
government's stake is now 20.95 per cent, less than half its
original stake.
Well positioned to make further progress in 2015
I am confident that the successful delivery of our strategy
through our simple, low risk, customer focused, UK retail and
commercial banking business model will enable us to become the best
bank for customers and deliver strong and sustainable returns for
shareholders. It also remains our intention to pay an interim and a
final dividend for 2015.
António Horta-Osório
Group Chief Executive
CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE
Overview: strong underlying profitability and balance sheet
The Group's underlying profit increased by 21 per cent in the
first three months of 2015 to GBP2,178 million, driven by an
improvement in income and lower impairments. Statutory profit
before tax was GBP1,214 million compared with GBP1,369 million,
after a charge of GBP660 million relating to the disposal of TSB
and the statutory profit after tax was GBP944 million.
Total loans and advances to customers were GBP455 billion at 31
March 2015, 5 per cent lower than at 31 December 2014, principally
reflecting the sale of TSB. Customer deposits were GBP419 billion,
6 per cent down since 31 December 2014, also largely as a result of
the sale of TSB.
The combination of strong underlying profitability and a 2 per
cent reduction in risk-weighted assets (again mostly due to the
sale of TSB) resulted in a 0.6 percentage point improvement in the
Group's common equity tier 1 ratio to 13.4 per cent at 31 March
2015 (31 December 2014: 12.8 per cent). This was after a net 0.2
percentage point decrease as a result of the agreed TSB disposal.
Our leverage ratio improved to 5.0 per cent (31 December 2014: 4.9
per cent).
Excluding TSB and other portfolios, loans and advances have
increased by 2 per cent since the end of March 2014. We continue to
see growth in mortgages, SME lending, Mid Markets and UK Consumer
Finance, partly offset by a reduction in lending to Global
Corporate clients.
Total income
Three Three Three
months months months
ended ended ended
31 Mar 31 Mar 31 Dec
2015 2014 Change 2014 Change
GBP million GBP million % GBP million %
Net interest income 2,829 2,610 8 2,730 4
TSB 192 201 (4) 193 (1)
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Total net interest income 3,021 2,811 7 2,923 3
----------- ----------- -----------
Other income 1,592 1,680 (5) 1,513 5
TSB 31 38 (18) 34 (9)
Total other income 1,623 1,718 (6) 1,547 5
----------- ----------- -----------
Total income 4,644 4,529 3 4,470 4
----------- ----------- -----------
Banking net interest margin 2.65% 2.32% 33bp 2.47% 18bp
Banking net interest margin
excl. TSB 2.60% 2.27% 33bp 2.42% 18bp
Average interest-earning banking
assets GBP468.0bn GBP491.5bn (5) GBP475.8bn (2)
Average interest-earning banking
assets excl. TSB GBP446.5bn GBP468.2bn (5) GBP453.9bn (2)
Total net interest income of GBP3,021 million increased by 7 per
cent over the last 12 months and 3 per cent in the last quarter,
reflecting continued improvement in net interest margin, partly
offset by the reduced Run-off portfolio.
The net interest margin increased to 2.65 per cent, up 33 basis
points compared with the first quarter of 2014 and 18 basis points
compared with the fourth quarter of 2014. These improvements
reflect the disposal of lower margin run-off assets as well as the
continued benefits of reduced funding and liability costs, partly
offset by lower asset pricing. In addition, the strengthening of
the margin relative to the first quarter of 2014 reflects the
benefit of the Enhanced Capital Note (ECN) exchanges last year,
while the uplift relative to the fourth quarter has also been
partly driven by the absence of the one-off effects from the
decision to simplify the savings product range.
In light of the strong trend in the first quarter and our future
expectations, we now expect our full year net interest margin to
exceed our original guidance of 2.55 per cent.
CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE
(continued)
Total other income at GBP1,623 million was 6 per cent lower than
the same period of 2014 with the reduction primarily reflecting the
disposal of Scottish Widows Investment Partnership in the first
quarter of 2014 and lower Retail fees and commissions.
Compared to the fourth quarter of 2014, total other income
increased by 5 per cent, led by Retail, following a weak last three
months of 2014, and Commercial Banking. We continue to expect other
income to be broadly stable for the full year 2015.
Total costs
Three Three Three
months months months
ended ended ended
31 Mar 31 Mar 31 Dec
2015 2014 Change 2014 Change
GBP million GBP million % GBP million %
Operating costs 2,020 2,031 1 2,221 9
Operating lease depreciation 183 173 (6) 195 6
----------- ----------- -----------
2,203 2,204 - 2,416 9
TSB running costs 86 94 9 89 3
----------- ----------- -----------
Total costs 2,289 2,298 - 2,505 9
----------- ----------- -----------
Cost:income ratio(1) 47.7% 49.3% (1.6)pp 54.9% (7.2)pp
(1) Operating lease depreciation deducted from income and costs and
excluding TSB income and running costs.
Total costs were flat compared to the first quarter of 2014 with
increased investment in the business offset by the benefits of
Simplification.
The cost:income ratio of 47.7 per cent in the first quarter has
improved compared with both the first and fourth quarters of 2014
(49.3 per cent and 54.9 per cent respectively). This reflects the
combined effects of higher income and a stable cost base. The
improvement in the ratio relative to the fourth quarter also
reflects the timing of the bank levy which was GBP254 million in
the fourth quarter of 2014. We continue to target year-on-year
reductions in our cost:income ratio which was 49.8 per cent for the
full year 2014 and 48.2 per cent excluding the bank levy.
Impairment
Three Three Three
months months months
ended ended ended
31 Mar 31 Mar 31 Dec
2015 2014 Change 2014 Change
GBP million GBP million % GBP million %
Impairment charge 158 407 61 159 1
TSB 19 24 21 24 21
----------- ----------- -----------
Total impairment charge 177 431 59 183 3
----------- ----------- -----------
Asset quality ratio 0.15% 0.35% (20)bp 0.15% -
Impaired loans as a % of advances 2.8% 5.7% (2.9)pp 2.9% (0.1)pp
The impairment charge continues to improve and was down 59 per
cent from the first quarter of 2014 to GBP177 million. The
improvement reflects lower levels of new impairment as a result of
effective risk management, the reduction in the size of the Run-off
portfolio, improving economic conditions and the continued low
interest rate environment.
Given the lower impairment charge and future expectations, we
now expect the full year asset quality ratio will be around 25
basis points (previously around 30 basis points). Impaired loans as
a percentage of advances fell from 2.9 per cent (3.0 per cent
excluding TSB) at 31 December 2014 to 2.8 per cent, driven by
reductions within both the continuing and the Run-off portfolios.
Provisions as a percentage of impaired loans increased from 56.4
per cent at 31 December 2014 to 57.1 per cent.
CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE
(continued)
Statutory profit
Statutory profit before tax was GBP1,214 million in the first
three months of 2015. Further detail on the reconciliation of
underlying to statutory results is included on page 10.
Three Three Three
months months months
ended ended ended
31 Mar 31 Mar 31 Dec
2015 2014 Change 2014 Change
GBP million GBP million % GBP million %
Underlying profit 2,178 1,800 21 1,782 22
Asset sales and other items:
----------- ----------- -----------
Asset sales and volatility 18 260 92
Fair value unwind (129) (140) (58)
----------- ----------- -----------
(111) 120 34
Simplification costs (26) (294) (316)
----------- ----------- -----------
TSB build and dual running
costs (85) (172) (144)
Charge relating to TSB disposal (660) - -
----------- ----------- -----------
(745) (172) (144)
Legacy provisions - - (1,125)
Other items: amortisation of
purchased intangibles (82) (85) (83)
Profit before tax - statutory 1,214 1,369 (11) 148
Taxation (270) (207) (30) (41)
----------- ----------- -----------
Profit for the period 944 1,162 (19) 107
----------- ----------- -----------
Asset sales and volatility
Asset sales and volatility was GBP18 million compared with
GBP260 million in 2014. This principally reflects the change in the
value of the ECN embedded derivative (a charge of GBP65 million
compared to a gain of GBP204 million in the three months to 31
March 2014) and a GBP105 million gain on the disposal of Scottish
Widows Investment Partnership that was recognised in the first
quarter of 2014. This was partly offset by positive insurance and
banking volatility of GBP72 million (31 March 2014: negative
volatility of GBP108 million).
Fair value unwind
The fair value unwind of GBP129 million was lower than the
equivalent figure of GBP140 million in 2014, principally reflecting
the maturity profile of the subordinated debt acquired as part of
the HBOS acquisition.
TSB
TSB dual running costs in the quarter were GBP85 million and
there was a net charge of GBP660 million relating to the sale of
TSB. The charge reflects the net costs of the Transitional Service
Agreement between Lloyds and TSB, the contribution to be provided
by Lloyds to TSB in migrating to an alternative IT platform and the
gain on sale. This charge differs from the original estimate of
GBP640 million given in the announcement on 20 March 2015, with the
increase primarily reflecting TSB performance in the first quarter.
The capital impact of the disposal at 31 March 2015 is a net 0.2
percentage point decrease in the Group's common equity tier 1
capital ratio and a further decrease of 0.1 percentage points is
expected on completion of the transaction.
TSB has now been deconsolidated and going forward will no longer
be reflected in our income statement.
CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE
(continued)
PPI
There has been no further provision for PPI in the first
quarter. Reactive complaint volumes are 11 per cent lower than the
first quarter of 2014 but slightly above our expectations and
marginally higher than the fourth quarter of 2014 due to
seasonality.
Remediation and past business reviews are progressing in line
with our expectations. As a result, cash payments for the first
quarter total GBP836 million and are higher than the fourth quarter
of 2014, although we continue to expect these costs to reduce
significantly in the second half of the year. Our remaining GBP1.7
billion provision continues to represent the Group's best estimate
of total future costs but a number of risks and uncertainties
remain, in particular the total expected future complaint
volumes.
Taxation
The tax charge for the quarter was GBP270 million representing
an effective tax rate of 22 per cent. This compared with 15 per
cent in the first quarter of 2014, which reflected tax exempt gains
on the sales of businesses, including Scottish Widows Investment
Partnership.
Funding, liquidity and capital ratios
At At
31 Mar 31 Dec Change
2015 2014 %
Wholesale funding GBP117bn GBP116bn -
Wholesale funding <1 year maturity GBP41bn GBP41bn -
Of which money-market funding <1 year
maturity(1) GBP20bn GBP19bn 5
Loan to deposit ratio 109% 107% 2pp
Primary liquid assets(2) GBP101bn GBP109bn (7)
Common equity tier 1 capital ratio(3) 13.4% 12.8% 0.6pp
Transitional tier 1 capital ratio 16.9% 16.5% 0.4pp
Transitional total capital ratio 22.6% 22.0% 0.6pp
Leverage ratio 5.0% 4.9% 0.1pp
Risk-weighted assets GBP234bn GBP240bn (2)
Shareholders' equity GBP44bn GBP43bn 2
(1) Excludes balances relating to margins of GBP3.2 billion (31 December
2014: GBP2.8 billion) and settlement accounts of GBP1.7 billion
(31 December 2013: GBP1.4 billion).
(2) Includes off-balance sheet liquid assets; the balance at 31 December
2014 included GBP4.5 billion held by TSB.
(3) Common equity tier 1 ratio is the same on both fully loaded and
transitional bases.
The Group's wholesale funding remained broadly stable at GBP117
billion, of which GBP41 billion has a maturity of less than one
year. The Group's liquidity position remains strong with primary
liquid assets of GBP101 billion and a further GBP102 billion of
secondary liquid assets. Primary liquid assets represent over five
times our money-market funding with a maturity of less than one
year, and more than two times our total short-term wholesale
funding.
The Group continued to strengthen its capital position, with its
common equity tier 1 capital ratio increasing from 12.8 per cent to
13.4 per cent in the quarter, despite a net 0.2 percentage point
decrease as a result of the agreed TSB disposal. The overall
improvement was driven by a combination of underlying profit and a
reduction in risk-weighted assets that largely reflected the
partial deconsolidation of TSB in accordance with the prescribed
regulatory treatment.
The leverage ratio increased from 4.9 per cent to 5.0 per cent,
largely as a result of both the increase in common equity tier 1
capital and the partial deconsolidation of TSB.
CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE
(continued)
Enhanced Capital Notes (ECNs)
On 31 March, the Group announced that it had received permission
from the Prudential Regulation Authority for the redemption of
certain series of ECNs. It also confirmed that the Group had been
notified by the Trustee that it would seek a declaratory judgement
in respect of the interpretation of certain terms of the ECNs. An
expedited process has been agreed with the Trustee and the court
hearing is expected to take place during the week commencing 18 May
2015. On this basis, the Group has decided to defer exercising the
redemption of these ECNs for the time-being. A further update on
the redemption of the ECNs will be provided in due course.
Conclusion
The Group has delivered a strong underlying performance in the
first three months of 2015 and has continued to strengthen its
balance sheet. We have improved or reconfirmed all our guidance,
and are well positioned for further progress in 2015.
George Culmer
Chief Financial Officer
STATUTORY CONSOLIDATED INCOME STATEMENT AND BALANCE SHEET
(UNAUDITED)
Three Three
months months
ended ended
31 Mar 31 Mar
Income statement 2015 2014
GBP million GBP million
Net interest income 2,263 2,718
Other income, net of insurance claims 2,280 1,911
----------- -----------
Total income, net of insurance claims 4,543 4,629
Total operating expenses (3,185) (2,910)
Impairment (144) (350)
----------- -----------
Profit before tax 1,214 1,369
Taxation (270) (207)
----------- -----------
Profit for the period 944 1,162
----------- -----------
Profit attributable to ordinary shareholders 814 1,148
Profit attributable to other equity holders 99 -
----------- -----------
Profit attributable to equity holders 913 1,148
Profit attributable to non-controlling interests 31 14
----------- -----------
Profit for the period 944 1,162
----------- -----------
At At
31 Mar 31 Dec
Balance sheet 2015 2014
GBP million GBP million
Assets
Cash and balances at central banks 56,749 50,492
Trading and other financial assets at fair value
through profit or loss 150,740 151,931
Derivative financial instruments 39,493 36,128
Loans and receivables 487,980 510,072
Available-for-sale financial assets 56,796 56,493
Other assets 57,518 49,780
----------- -----------
Total assets 849,276 854,896
----------- -----------
Liabilities
Deposits from banks 12,684 10,887
Customer deposits 418,962 447,067
Trading and other financial liabilities at fair
value through profit or loss 70,468 62,102
Derivative financial instruments 37,963 33,187
Debt securities in issue 77,652 76,233
Liabilities arising from insurance and investment
contracts 117,181 114,486
Subordinated liabilities 25,332 26,042
Other liabilities 39,284 34,989
------- -------
Total liabilities 799,526 804,993
Total equity 49,750 49,903
------- -------
Total equity and liabilities 849,276 854,896
------- -------
APPENDIX 1
RECONCILIATION BETWEEN STATUTORY AND UNDERLYING BASIS
RESULTS
The tables below set out a reconciliation from the statutory
results to the underlying basis results, the principles of which
are set out on the inside front cover.
Removal of:
----------------------------------------------------------------
Lloyds Asset Legal
Three months Banking sales Simplification Insurance and Amortisation
to 31 March Group and other and TSB gross regulatory of purchased Underlying
2015 statutory items(1) costs(2) up provisions intangibles basis
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net interest
income 2,263 100 - 658 - - 3,021
Other income,
net of
insurance
claims 2,280 34 (5) (686) - - 1,623
-----------
Total income 4,543 134 (5) (28) - - 4,644
Operating
expenses(3) (3,185) 10 776 28 - 82 (2,289)
Impairment (144) (33) - - - - (177)
---------- ---------- -------------- --------- ----------- ------------ ----------
Profit before
tax 1,214 111 771 - - 82 2,178
---------- ---------- -------------- --------- ----------- ------------ ----------
Removal of:
----------------------------------------------------------------
Lloyds Asset Legal
Three months Banking sales Simplification Insurance and Amortisation
to 31 March Group and other and TSB gross regulatory of purchased Underlying
2014 statutory items(4) costs(5) up provisions intangibles basis
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net interest
income 2,718 155 - (62) - - 2,811
Other income,
net of
insurance
claims 1,911 (225) - 32 - - 1,718
Total income 4,629 (70) - (30) - - 4,529
Operating
expenses(3) (2,910) 31 466 30 - 85 (2,298)
Impairment (350) (81) - - - - (431)
---------- ---------- -------------- --------- ----------- ------------ ----------
Profit before
tax 1,369 (120) 466 - - 85 1,800
---------- ---------- -------------- --------- ----------- ------------ ----------
(1) Comprises the effects of asset sales (loss of GBP5 million), volatile
items (loss of GBP215 million), liability management (loss of GBP4
million), volatility arising in insurance businesses (gain of GBP242
million) and fair value unwind (loss of GBP129 million).
(2) Comprises Simplification costs related to severance (GBP26 million)
for the next phase of the programme, TSB dual running costs (GBP85
million) and the charge relating to the TSB disposal (GBP660 million).
(3) On an underlying basis, this is described as total costs.
(4) Comprises the effects of asset sales (gain of GBP126 million),
volatile items (gain of GBP198 million), volatility arising in
insurance businesses (loss of GBP64 million) and fair value unwind
(loss of GBP140 million).
(5) Comprises Simplification costs related to severance, IT and business
costs of implementation (GBP294 million) and TSB build and dual
running costs (GBP172 million).
APPENDIX 2
QUARTERLY UNDERLYING BASIS INFORMATION
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
31 Mar 31 Dec 30 Sept 30 June 31 Mar
Group 2015 2014 2014 2014 2014
GBPm GBPm GBPm GBPm GBPm
Net interest income 3,021 2,923 3,034 2,993 2,811
Other income 1,623 1,547 1,612 1,730 1,718
------- ------- -------- -------- -------
Total income 4,644 4,470 4,646 4,723 4,529
Total costs (2,289) (2,505) (2,232) (2,377) (2,298)
Impairment (177) (183) (259) (327) (431)
------- ------- -------- -------- -------
Underlying profit 2,178 1,782 2,155 2,019 1,800
Asset sales and other
items (111) 34 (186) (1,687) 120
Simplification costs (26) (316) (131) (225) (294)
TSB (745) (144) (105) (137) (172)
Legacy provisions - (1,125) (900) (1,100) -
Other items (82) (83) (82) 624 (85)
------- ------- -------- -------- -------
Statutory profit (loss)
before tax 1,214 148 751 (506) 1,369
------- ------- -------- -------- -------
Banking net interest
margin 2.65% 2.47% 2.51% 2.48% 2.32%
Asset quality ratio 0.15% 0.15% 0.20% 0.26% 0.35%
Return on risk-weighted
assets 3.73% 2.89% 3.37% 3.09% 2.71%
Return on assets 1.05% 0.83% 1.01% 0.97% 0.87%
Cost:income ratio(1) 47.2% 54.0% 46.0% 48.4% 48.8%
Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended
31 Mar 31 Dec 30 Sept 30 June 31 Mar
Group excluding TSB 2015 2014 2014 2014 2014
GBPm GBPm GBPm GBPm GBPm
Net interest income 2,829 2,730 2,841 2,794 2,610
Other income 1,592 1,513 1,578 1,696 1,680
------- ------- -------- -------- -------
Total income 4,421 4,243 4,419 4,490 4,290
Total costs (2,203) (2,416) (2,146) (2,276) (2,204)
Impairment (158) (159) (236) (300) (407)
------- ------- -------- -------- -------
Underlying profit 2,060 1,668 2,037 1,914 1,679
Banking net interest
margin 2.60% 2.42% 2.47% 2.44% 2.27%
Asset quality ratio 0.14% 0.14% 0.19% 0.25% 0.34%
Return on risk-weighted
assets 3.58% 2.76% 3.25% 2.99% 2.58%
Return on assets 1.03% 0.80% 0.99% 0.94% 0.83%
Cost:income ratio(1) 47.7% 54.9% 46.4% 48.7% 49.3%
(1) Operating lease depreciation deducted from income and costs.
APPENDIX 3
CAPITAL AND LEVERAGE DISCLOSURES
At At
31 Mar 31 Dec
2015 2014
Capital resources (transitional) GBP million GBP million
Common equity tier 1
Shareholders' equity per balance sheet 43,976 43,335
Deconsolidation of insurance entities (1,050) (824)
Other adjustments (1,711) (1,183)
----------- -----------
41,215 41,328
Deductions from common equity tier 1 (9,858) (10,639)
----------- -----------
Common equity tier 1 capital (1) 31,357 30,689
----------- -----------
Additional tier 1 instruments 9,177 9,728
Deductions from tier 1 (1,033) (859)
----------- -----------
Total tier 1 capital 39,501 39,558
----------- -----------
Tier 2 instruments and eligible provisions 14,747 14,530
Deductions from tier 2 (1,370) (1,288)
----------- -----------
Total capital resources 52,878 52,800
----------- -----------
Risk-weighted assets
Credit risk 180,931 186,562
Counterparty credit risk 9,598 9,108
Credit valuation adjustment 2,240 2,215
Operational risk 26,279 26,279
Market risk 4,341 4,746
Threshold risk-weighted assets 10,794 10,824
----------- -----------
Total risk-weighted assets(1) 234,183 239,734
----------- -----------
Leverage
Total tier 1 capital (fully loaded) 36,713 36,044
Statutory balance sheet assets 849,276 854,896
Deconsolidation and other adjustments (163,065) (166,207)
Off-balance sheet items 52,385 50,980
----------- -----------
Total exposure(2) 738,596 739,669
----------- -----------
Ratios
Common equity tier 1 capital ratio(1) 13.4% 12.8%
Transitional tier 1 capital ratio 16.9% 16.5%
Transitional total capital ratio 22.6% 22.0%
Leverage ratio(2) 5.0% 4.9%
(1) Common equity tier 1 capital resources, risk-weighted assets and
the common equity tier 1 capital ratio are the same on both fully
loaded and transitional bases.
(2) Calculated in accordance with CRD IV rules, as amended by delegated
act (January 2015).
CONTACTS
For further information please contact:
INVESTORS AND ANALYSTS
Douglas Radcliffe
Interim Investor Relations Director
020 7356 1571
douglas.radcliffe@finance.lloydsbanking.com
Mike Butters
Director of Investor Relations
020 7356 1187
mike.butters@finance.lloydsbanking.com
Duncan Heath
Director of Investor Relations
020 7356 1585
duncan.heath@finance.lloydsbanking.com
CORPORATE AFFAIRS
Matthew Young
Group Corporate Affairs Director
020 7356 2231
matt.young@lloydsbanking.com
Ed Petter
Group Media Relations Director
020 8936 5655
ed.petter@lloydsbanking.com
Copies of this interim management statement may be obtained
from:
Investor Relations, Lloyds Banking Group plc, 25 Gresham Street,
London EC2V 7HN
The statement can also be found on the Group's website -
www.lloydsbankinggroup.com
Registered office: Lloyds Banking Group plc, The Mound,
Edinburgh EH1 1YZ
Registered in Scotland no. SC95000
This information is provided by RNS
The company news service from the London Stock Exchange
END
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