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Lloyds Banking Group alert service

RNS Number : 5823W
Lloyds Banking Group PLC
28 April 2016
 

Lloyds Banking Group plc

 

Q1 2016 Interim Management Statement

 

28 April 2016

 

 

 

 

 


HIGHLIGHTS FOR THE THREE MONTHS ENDED 31 MARCH 2016

 

Robust financial performance with stable underlying profit and strong underlying returns

·     Underlying profit of £2.1 billion with an underlying return on required equity of 13.8 per cent

·     Positive operating jaws of 1 per cent achieved with lower operating costs offset by marginally lower income

·     Credit quality remains strong with a 6 per cent reduction in impairment and an asset quality ratio of 14 basis points

·     Statutory profit before tax of £0.7 billion after the expected £0.8 billion charge relating to Enhanced Capital Notes (ECNs) which were redeemed in the period

·     Strong balance sheet maintained with a CET1 ratio of 13.0 per cent (pre dividend accrual), after 0.4 per cent impact of ECNs

·     Tangible net assets per share increased to 55.2 pence (31 December 2015: 52.3 pence), driven by underlying profit and reserve movements

 

Our differentiated UK focused business model continues to deliver in a challenging operating environment

·     Cost discipline and low risk business model providing competitive advantage

·     Strong underlying capital generation of c.60 basis points

 

2016 guidance reaffirmed

·     Net interest margin for the year expected to be around 2.70 per cent

·     Year-on-year reduction in cost:income ratio targeted

·     Asset quality ratio for the year expected to be around 20 basis points

·     Expect to generate around 2 per cent of CET1 capital per annum

 

 

 

GROUP CHIEF EXECUTIVE'S STATEMENT

 

In the first three months of this year we have continued to make good progress, delivering a robust financial performance and maintaining our strong balance sheet. These results demonstrate the strength of our differentiated, simple, low risk business model and reflect our ability to actively respond to the challenging operating environment.

 

We continue to support and benefit from a resilient UK economy and remain focused on delivering on our targets to people, businesses and communities as set out in our updated Helping Britain Prosper Plan. We have also recently launched our SME charter to help small businesses grow and to provide access to funding. In addition, we continue to make good progress in our strategic initiatives: creating the best customer experience; becoming simpler and more efficient; and delivering sustainable growth.

 

This performance, coupled with our differentiated, capital generative, business model, underpins our confidence in generating superior and sustainable returns as we aim to become the best bank for customers and shareholders.

 

António Horta-Osório

Group Chief Executive



 

CONSOLIDATED INCOME STATEMENT AND KEY RATIOS − UNDERLYING BASIS

 



Three 
months 
ended 
31 Mar 

2016 


Three 

months 

ended 
31 Mar 

2015 


 

 

Change 


Three 
months 
ended 
31 Dec 

2015 


Change 



£ million 


£ million 



£ million 













Net interest income


2,906 


2,829 



2,904 


− 

Other income


1,477 


1,592 


(7)


1,528 


(3)

Total income


4,383 


4,421 


(1)


4,432 


(1)

Operating costs


(1,987)


(2,020)



(2,242)


11 

Operating lease depreciation


(193)


(183)


(5)


(201)


Total costs


(2,180)


(2,203)



(2,443)


11 

Impairment


(149)


(158)



(232)


36 

Underlying profit excluding TSB


2,054 


2,060 


− 


1,757 


17 

TSB


− 


118 




 



Underlying profit


2,054 


2,178 


(6)


1,757 


17 












Enhanced Capital Notes


(790)


(65)




268 



Market volatility and other items


(334)


(128)




(29)



Restructuring costs


(161)


(26)




(101)



Payment protection insurance provisions


− 


 




(2,100)



Conduct provisions


(115)


 




(302)



TSB costs


− 


(745)




 



Profit (loss) before tax - statutory


654 


1,214 


(46)


(507)



Taxation


(123)


(270)


54 


(152)


19 

Profit (loss) for the period




(44)















Underlying earnings per share


1.9p 


2.3p 


(0.4)p 


1.8p 


0.1p 

Earnings (loss) per share


0.6p 


1.2p 


(0.6)p 


(1.1)p 


1.7p 

Banking net interest margin


2.74% 


2.60% 


14bp 


2.64% 


10bp 

Cost:income ratio


47.4% 


47.7% 


(0.3)pp 


53.0% 


(5.6)pp 

Asset quality ratio


0.14% 


0.14% 


− 


0.22% 


(8)bp 

Return on risk-weighted assets


3.70% 


3.73% 


(3)bp 


3.12% 


58bp 

Return on assets


1.01% 


1.05% 


(4)bp 


0.86% 


15bp 

Underlying return on required equity


13.8% 


16.0% 


(2.2)pp 


13.1% 


0.7pp 

Statutory return on required equity


4.4% 


8.3% 


(3.9)pp 


(7.4)% 


11.8pp 

 

BALANCE SHEET AND KEY RATIOS

 



At 31 Mar 

2016 


At 31 Dec 

2015 


Change 

Loans and advances to customers


£457bn 


£455bn 


− 

Average interest-earning banking assets1


£438bn 


£439bn 


− 

Customer deposits


£419bn 


£418bn 


− 

Loan to deposit ratio


109


109% 


 

Common equity tier 1 ratio pre dividend accrual2


13.0% 


 



Common equity tier 1 ratio2,3


12.8% 


13.0% 


(0.2)pp 

Transitional total capital ratio


21.4% 


21.5% 


(0.1)pp 

Risk-weighted assets2


£223bn 


£223bn 


− 

Leverage ratio2,3


4.7


4.8% 


(0.1)pp 

 







Tangible net assets per share


55.2p 


52.3p 


2.9p 

 

1

Reported balances are for the first quarter 2016 and fourth quarter 2015.

2

Reported on a fully loaded basis.

3

The CET1 and leverage ratios at 31 December 2015 were reported on a pro forma basis, including the dividend paid by the Insurance business in February 2016 relating to 2015.

 

REVIEW OF FINANCIAL PERFORMANCE

 

Overview: robust financial performance with stable underlying profit and strong underlying returns

Underlying profit of £2,054 million was down 6 per cent versus the prior year, but in line after excluding TSB. A small reduction in income was offset by lower operating costs and reduced impairment charges. Statutory profit before tax was £654 million (2015: £1,214 million) after the expected charge relating to the redemption of ECNs in the first quarter of £790 million.

 

The underlying return on required equity was 13.8 per cent compared with 16.0 per cent in the first three months of 2015. The reduction largely reflects the disposal of TSB and a higher assumed underlying tax rate. The statutory return on required equity was 4.4 per cent (2015: 8.3 per cent).

 

Total loans and advances to customers were £457 billion at 31 March 2016, an increase of £2 billion since 31 December 2015 with increased lending to SMEs, other commercial clients and UK consumer finance customers. Customer deposits at £419 billion were £1 billion higher than at 31 December 2015.

 

The common equity tier 1 ratio was 13.0 per cent before accruing dividends for 2016, with the leverage ratio at 4.7 per cent. The tangible net asset value per share increased to 55.2 pence (31 December 2015: 52.3 pence).

 

Total income



Three 

months 

ended 

31 Mar 

2016 


Three 

months 

ended 

31 Mar 

2015 


Change 


Three 

months 

ended 

31 Dec 

2015 


Change 



£ million 


£ million 



£ million 













Net interest income


2,906 


2,829 



2,904 


− 

Other income


1,477 


1,592 


(7)


1,528 


(3)

Total income


4,383 


4,421 


(1)


4,432 


(1)












Banking net interest margin


2.74% 


2.60% 


14bp 


2.64% 


10bp 

Average interest-earning banking assets


£438.2bn 


£446.5bn 


(2)


£439.2bn 


− 

Average interest-earning banking assets excluding run-off


£427.2bn 


£429.5bn 


(1)


£427.8bn 


− 

 

Total income was £4,383 million with increased net interest income offset by lower other income. Net interest income increased 3 per cent to £2,906 million reflecting a further improvement in net interest margin to 2.74 per cent (2015: 2.60 per cent). The improved margin more than offset the impact of the 2 per cent reduction in average interest-earning banking assets, which was largely due to lower run-off assets.

 

The improvement in net interest margin was due to improved deposit pricing and mix, lower wholesale funding costs and a benefit, as expected, from the recent ECN redemptions. The net interest margin also included a 5 basis point uplift from a one-off credit to net interest income relating to the credit cards portfolio. The Group continues to expect that the net interest margin for the 2016 full year will be around 2.70 per cent, in line with the guidance given with the 2015 full year results.

 

Other income at £1,477 million was resilient in the current market conditions and broadly in line with our historic run rate and quarterly run rate expectations for 2016. This was 7 per cent lower than in the first three months of 2015, largely due to lower insurance income and continued pressure on fees and commissions.



 

REVIEW OF FINANCIAL PERFORMANCE (continued)

 

Costs



Three 

months 

ended 

31 Mar 

2016 


Three 

months 

ended 

31 Mar 

2015 


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