Lloyds Banking Group plc

Q1 2022 Interim Management Statement

27 April 2022

RESULTS FOR THE THREE MONTHS ENDED 31 MARCH 2022

"In the first three months of 2022, we delivered solid financial performance, with strong income growth and capital build. These results demonstrate the consistent strength of our business model.

In February, we announced our ambitious new strategy, aiming to transform our business, generating a stronger growth trajectory and enabling the Group to deliver higher, more sustainable returns and capital generation. In March we announced a new business structure, aligned to the new strategy and have started work on the strategic initiatives which will drive revenue growth and diversification, strengthen our cost and capital efficiency, as well as maximise the potential of our people, technology and data.

Whilst we are seeing continued recovery from the coronavirus pandemic, the outlook for the UK economy remains uncertain, particularly with regards to the persistency and impact of higher inflation. We are proactively contacting customers where we feel they may need assistance and will continue to help with financial health checks and other means of support. We encourage customers, where affected, to get advice early and talk to us."
Charlie Nunn
Group Chief Executive

Solid financial performance

• Statutory profit after tax of £1.2 billion (first quarter of 2021: £1.4 billion), reflecting higher net income and a limited underlying impairment charge versus a net credit in the prior year. Tangible net assets per share of 56.5 pence
• Strong revenue growth supported by continued recovery in customer activity and interest rate changes. Net income of £4.1 billion, up 12 per cent, with higher net interest and other income, alongside low operating lease depreciation
• Underlying net interest income benefitted from increased average interest-earning banking assets and deposit growth in recent quarters including the first quarter of 2022 and a stronger banking net interest margin of 2.68 per cent
• Operating costs on the new reporting basis¹ of £2.1 billion, up 3 per cent compared to the first quarter of 2021, reflecting stable business-as-usual costs and planned incremental strategic investment
• Underlying profit before impairment up 26 per cent to £2.0 billion in the quarter, driven by strong net income growth
• Asset quality remains strong. Underlying impairment of £0.2 billion, reflecting a low incurred charge and limited impact from revised economic outlook, including higher inflation offset by stronger house prices and unemployment

Continued franchise growth and capital strength further enhanced

• Loans and advances to customers at £451.8 billion, up £3.2 billion in the quarter, including continued growth in the open mortgage book (up £1.7 billion in the quarter to £295.0 billion)
• Customer deposits up £4.8 billion to £481.1 billion, with continued inflows to the Group's trusted brands. Loan to deposit ratio of 94 per cent, continues to provide robust funding and liquidity
• Strong capital build² of 50 basis points has allowed for significant accelerated pension contributions, comprising the full 2022 fixed contributions, as well as around half of the variable element. The Group's CET1 ratio was 14.2 per cent

Outlook

Given the solid financial performance in the first quarter of 2022 and based on current business performance expectations and macroeconomic assumptions, the Group is enhancing its guidance for 2022 for banking net interest margin and return on tangible equity:

• Banking net interest margin now expected to be above 270 basis points
• Operating costs of c.£8.8 billion on the new reporting basis¹
• Asset quality ratio to be c.20 basis points
• Return on tangible equity now expected to be greater than 11 per cent
• Risk-weighted assets at the end of 2022 to be c.£210 billion

¹ See page 22.

² Excluding regulatory changes on 1 January 2022, variable pension contributions and dividend accrual.

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http://www.rns-pdf.londonstockexchange.com/rns/4495J_1-2022-4-26.pdf

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