Lloyds Banking Group plc

Q1 2023 Interim Management Statement

3 May 2023

RESULTS FOR THE THREE MONTHS ENDED 31 MARCH 2023

"The Group has delivered a solid financial performance in the first quarter of 2023, with strong net income and capital generation, alongside resilient observed asset quality.

The macroeconomic outlook remains uncertain. We know that this is challenging for many people. Our purpose driven strategy, alongside our financial strength, means we can continue to support our customers across the country, helping Britain prosper. We are also making good progress on our ambitious plans to transform the Group. Our experience over the last year reinforces our belief that continued strategic delivery will create a more sustainable business and deliver increased returns for our shareholders in the medium to longer-term."

 Charlie Nunn, Group Chief Executive

Robust business performance, supporting continued strong capital generation

•  Statutory profit after tax of £1.6 billion (three months to 31 March 2022: £1.1 billion), with higher net income, partly offset by expected higher operating costs. Strong return on tangible equity of 19.1 per cent

•  Net income of £4.7 billion, up 15 per cent, reflecting ongoing recovery and the higher rate environment

•  Underlying net interest income up 20 per cent, primarily driven by a stronger banking net interest margin of 3.22 per cent in the three months to 31 March 2023, stable on the fourth quarter of 2022, and increased average interest-earning assets

•  Other income of £1.3 billion, 6 per cent higher, reflecting continued recovery

•  Operating costs of £2.2 billion, up 5 per cent compared to the prior year, based on higher planned strategic investment, cost of new businesses and inflationary effects. Low remediation charge of £19 million

•  Underlying profit before impairment up 28 per cent to £2.5 billion, largely driven by strong net income growth

•  Asset quality remains resilient and the portfolio is well-positioned in the context of cost of living pressures. Underlying impairment charge of £0.2 billion and asset quality ratio of 22 basis points continue to reflect robust observed credit trends

•  Loans and advances to customers at £452.3 billion, down £2.6 billion in the first three months of 2023, including the £2.5 billion legacy mortgage portfolio exit, an additional reduction of £0.6 billion in the open mortgage book and repayments of government-backed lending in Commercial Banking, partly offset by growth in other Retail lending

•  Customer deposits of £473.1 billion down £2.2 billion in the first three months of 2023, including a reduction in Retail current account balances of £3.5 billion, partly driven by seasonal customer outflows, including tax payments, higher spend and a more competitive market. This was partly offset by Commercial Banking deposit increases of £2.7 billion, including both targeted growth in Corporate and Institutional Banking and some short term placements

•  Loan to deposit ratio of 96 per cent continues to provide robust funding and liquidity, alongside potential for growth

•  Strong and stable liquid asset portfolio with all assets hedged for interest rate risk

•  Strong capital generation of 52 basis points, based on positive banking performance. Includes the accelerated full year £800 million payment of fixed pension contributions for 2023

•  CET1 ratio of 14.1 per cent, after 21 basis points for ordinary dividend accrual and 18 basis points for the Tusker acquisition, remaining ahead of the ongoing target of c.12.5 per cent, plus a management buffer of c.1 per cent

Financial guidance maintained, delivering higher, more sustainable returns

Based on our purpose driven strategy and business model, as well as our current macroeconomic assumptions, for 2023 the Group continues to expect:

•  Banking net interest margin to be greater than 305 basis points

•  Operating costs to be c.£9.1 billion

•  Asset quality ratio to be c.30 basis points

•  Return on tangible equity to be c.13 per cent

•  Capital generation to be c.175 basis points¹

¹  Excluding capital distributions. Inclusive of dividends received from the Insurance business.

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