Lloyds Banking Group plc

2023 Results

News Release

22 February 2024

CONTENTS

Results for the full year         1

Income statement (underlying basis) and key balance sheet metrics    3

Quarterly information         4

Balance sheet analysis         5

Group results - statutory basis        6

Group Chief Executive's statement        7

Summary of Group results         10

Divisional results

Retail           19

Commercial Banking         22

Insurance, Pensions and Investments       24

Equity Investments and Central Items       27

Segmental analysis - underlying basis       28

Alternative performance measures       29

Risk management

Capital risk          35

Credit risk          40

Funding and liquidity risk         51

Interest rate sensitivity         52

Statutory information 

Consolidated income statement        53

Consolidated statement of comprehensive income      54

Consolidated balance sheet        55

Consolidated statement of changes in equity       56

Consolidated cash flow statement        58

Notes to the condensed consolidated financial statements     59

Key dates          81

Basis of presentation         81

Forward-looking statements        82

Contacts           83

Alternative performance measures

The Group uses a number of alternative performance measures, including underlying profit, in the description of its business performance and financial position. These measures are labelled with a superscript 'A' throughout this document, with the exception of content on pages 1 to 2 and pages 7 to 9 which is, unless otherwise stated, presented on an underlying basis. Further information on these measures is set out on page 29.

Forward-looking statements

This news release contains forward-looking statements. For further details, reference should be made to page 82.

RESULTS FOR THE FULL YEAR

"In 2023 the Group remained focused on proactively supporting people and businesses through persistent cost-of-living pressures, whilst financing their ambitions and growth. This has come alongside strong progress on our strategy and delivering increased shareholder returns, guided as always by our core purpose of Helping Britain Prosper.

The Group delivered a robust financial performance, meeting our 2023 guidance, driven by income growth, cost discipline and strong asset quality. This performance enabled strong capital generation and increased shareholder distributions.

2023 was a critical year in building towards the ambitious strategy we announced two years ago, as we look to grow our business and deepen relationships with our customers. As demonstrated in our recent strategic seminars, we have made significant progress and are on track to meet our 2024 and 2026 strategic outcomes, helping us build towards higher and more sustainable returns.

Our strategy is purpose-driven. Building a more sustainable and inclusive future is central to this, including our commitment to supporting the environmental transition, social housing and broader purpose-aligned objectives. We are excited about the opportunities that lie ahead as we continue to deliver for all of our stakeholders."

Charlie Nunn, Group Chief Executive

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

•  Pro-actively contacted 7.5 million customers¹ to offer support and enhance financial resilience

•  Continued strategic progress, underpinned by £1.3 billion of additional investment in 2023

•  On track to achieve 2024 strategic outcomes; c.£0.7 billion incremental income and c.£1.2 billion of gross cost savings

•  On track to achieve 2026 strategic outcome of c.£1.5 billion incremental income given progress on medium-term transformation

•  Launched innovative new propositions, including mobile-first mortgage on-boarding, 'Lloyds Bank 360' in mass affluent and a digital invoice finance platform as part of digitising the Small and Medium Businesses portfolio

•  Highlighted our progress on strategic transformation with two seminars in 2023. Two further seminars planned for the first half of 2024

•  Building on our ambition to create a more sustainable and inclusive future, with £29 billion² of sustainable financing and significant commitments for social housing

Continued robust financial performance, in line with guidance, supported by building business momentum

•  Statutory profit after tax of £5.5 billion (£1.2 billion in the fourth quarter) with net income of £17.9 billion up 3 per cent and a low impairment charge. Strong return on tangible equity of 15.8 per cent (13.9 per cent in the fourth quarter). Significant growth in profit materially driven by restatement of earnings for the IFRS 17 accounting change in 2022

•  Underlying net interest income of £13.8 billion up 5 per cent, with a net interest margin of 3.11 per cent, in line with guidance. Banking net interest margin of 2.98 per cent in the fourth quarter, down 10 basis points in the quarter given mortgage pricing and deposit mix headwinds, partly mitigated by the structural hedge. Average interest-earning banking assets of £453.3 billion, down slightly on the fourth quarter of 2022 as expected

•  Underlying other income of £5.1 billion, 10 per cent higher, reflecting the broad-based recovery of customer activity and ongoing investment in the business

•  Operating lease depreciation of £956 million, up on 2022 given declines in used car prices (notably in the fourth quarter), impacting portfolio valuations and gains on disposals, the depreciation cost of higher value vehicles and the Tusker acquisition and its subsequent growth

•  Operating costs of £9.1 billion, in line with guidance, up 5 per cent. The Group continues to maintain cost discipline in the context of higher planned strategic investment, severance charges, new business costs and inflationary pressures

•  Remediation costs of £675 million in the year (2022: £255 million), in relation to pre-existing programmes and a £450 million provision for the potential impact of the recently announced FCA review into historical motor finance commission arrangements

•  Underlying impairment charge of £308 million and asset quality ratio of 7 basis points. Excluding both a significant write-back in the fourth quarter and economic outlook improvements across the year, the asset quality ratio was 29 basis points. The portfolio remains well-positioned in the context of the economic environment with broadly stable credit trends and strong asset quality

¹  Since April 2022.

²  From 1 January 2022.

RESULTS FOR THE FULL YEAR (continued)

Resilient customer franchise

•  Loans and advances to customers reduced £5.2 billion to £449.7 billion. This included the securitisation of £2.5 billion of legacy Retail mortgages in the first quarter and £2.7 billion of Retail unsecured loans in the fourth quarter; excluding these, loans and advances to customers were flat

•  Customer deposits of £471.4 billion reduced by £3.9 billion (1 per cent), including an £11.3 billion reduction in Retail current accounts, partly offset by a combined increase across Retail savings and Wealth of £8.9 billion. The trend of customer deposit mix change in a higher rate environment was slower in the fourth quarter versus the third quarter

Strong capital generation driving increased capital return

•  Strong pro forma capital generation¹ of 173 basis points in line with guidance, after regulatory headwinds of 50 basis points, including 35 basis points from Retail secured CRD IV model changes (14 basis points in the fourth quarter) and 15 basis points from the phased unwind of IFRS 9 relief. Pro forma capital generation before regulatory headwinds was 223 basis points. The 173 basis points of capital generation includes both the significant impairment write-back and the higher remediation charge in the fourth quarter

•  Risk-weighted assets of £219.1 billion up by £8.2 billion, reflecting the impact of Retail secured CRD IV model updates (£5 billion, with £2 billion in the fourth quarter), operational risk and lending increases, model calibrations and other movements, offset by balance sheet management through securitisations

•  Pensions triennial valuation completed with an additional contribution of £250 million paid in December 2023 to clear the remaining deficit. There will be no further deficit contributions in this triennial period

•  Pro forma CET1 ratio² of 13.7 per cent, ahead of revised ongoing target of c.13.0 per cent and previous target of c.13.5 per cent. In order to manage risks and distributions in an orderly way, the Group expects to pay down to the revised target by the end of 2026

•  Tangible net assets per share of 50.8 pence, up 4.3 pence on 31 December 2022 and 3.6 pence in the fourth quarter, given continued profitability and movements in the cash flow hedge reserve, partly offset by pensions surplus changes

•  The Board has recommended a final ordinary dividend of 1.84 pence per share, resulting in a total ordinary dividend for 2023 of 2.76 pence per share, up 15 per cent on prior year and in line with the Group's progressive and sustainable ordinary dividend policy

•  Given the Group's strong capital position, the Board has also announced its intention to implement an ordinary share buyback programme of up to £2.0 billion

•  Total capital returns in respect of 2023 of up to £3.8 billion, are equivalent to c.14 per cent³ of the Group's market capitalisation value

2024 guidance

Based on our current macroeconomic assumptions, for 2024 the Group expects:

•  Banking net interest margin of greater than 290 basis points

•  Operating costs of c.£9.3 billion

•  Asset quality ratio of less than 30 basis points

•  Return on tangible equity of c.13 per cent

•  Capital generation of c.175 basis points⁴

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

2026 guidance

Based on the expected macroeconomic environment 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 points⁴

The Group also now expects to pay down to a CET1 ratio of c.13.0 per cent by the end of 2026.

¹  Excluding capital distributions, variable pension contributions and the impact of the Tusker acquisition. Inclusive of the ordinary dividend received from the Insurance business in February 2024.

²  Includes 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.

³  Market capitalisation as at 16 February 2024.

⁴  Excluding capital distributions. Inclusive of ordinary dividends received from the Insurance business in February of the following year.

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