q3 2019 - lloyds banking group...lloyds banking group plc q3 2019 interim management statement page...

20
Q3 2019 Interim Management Statement

Upload: others

Post on 29-Mar-2020

1 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

Q3 2019Interim Management Statement

Page 2: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT

Page 1 of 9

GROUP CHIEF EXECUTIVE’S STATEMENT

“In the first nine months of 2019 we have made strong strategic progress and delivered solid financial performance in a

challenging external environment. I am disappointed that our statutory result was significantly impacted by the additional

PPI charge in the third quarter, driven by an unprecedented level of PPI information requests received in August. However,

our performance continues to demonstrate the resilience of our customer franchise and business model, the strength of

our balance sheet and that our strategy is the right one in this environment.

We will maintain our prudent approach to growth and risk whilst continuing to focus on reducing costs and investing in the

business to transform the Group for success in a digital world. Although continued economic uncertainty could further

impact the outlook, we remain well placed to support our customers and to continue to Help Britain Prosper.”

António Horta-Osório, Group Chief Executive

HIGHLIGHTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2019

Strong strategic progress and the right strategy in the current environment

Strategic investment of £1.7 billion since launch of GSR3 in February 2018

Schroders Personal Wealth launched with ambition of becoming top 3 financial planning business by end of 2023

Acquisition of Tesco Bank’s £3.7 billion UK prime residential mortgage portfolio

Solid financial performance with statutory result impacted by additional PPI charge

Statutory profit before tax of £2.9 billion including an additional £1.8 billion PPI charge in the third quarter

Underlying profit of £6.0 billion in a challenging external environment, with lower net income partly offset by lower

total costs and higher impairment charges

− Net income of £13.0 billion, down 3 per cent, with slightly lower average interest-earning banking assets of

£434 billion, net interest margin of 2.89 per cent and other income of £4.4 billion, down 4 per cent

− Total costs of £6.0 billion down 5 per cent driven by reductions in both operating costs and remediation charges.

Market-leading cost:income ratio further reduced to 46.5 per cent with positive jaws of 2 per cent

− Credit quality remains strong. Net asset quality ratio of 29 basis points, including a single large corporate charge

in the third quarter

Tangible net assets per share of 52.0 pence. Statutory return on tangible equity reduced to 6.8 per cent significantly

driven by the PPI charge with underlying return on tangible equity remaining strong at 15.7 per cent

Balance sheet strength maintained with lower Pillar 2A requirement

Loans and advances up £6 billion in the quarter, with continued growth in targeted segments including the open

mortgage book, benefiting from both the Tesco mortgage acquisition and organic growth, SME and Motor Finance

CET1 capital build of 149 basis points in the first nine months before PPI charge and 28 basis points after the charge;

CET1 ratio of 13.5 per cent

Pillar 2A CET1 requirement reduced from 2.7 per cent to 2.6 per cent. Target CET1 ratio remains c.12.5 per cent,

plus a c.1 per cent management buffer. Given the Pillar 2A reduction, the headroom above the regulatory

requirements has increased

Outlook

The resilience of the Group’s business model is reflected in its 2019 guidance:

− Net interest margin of 2.88 per cent, in line with previous guidance of c.2.90 per cent

− Operating costs now expected to be less than £7.9 billion, ahead of previous guidance, and cost:income ratio

to be lower than in 2018

− Net asset quality ratio of less than 30 basis points

− Free capital build of c.75 basis points, post the PPI charge of 121 basis points

Although continued economic uncertainty could further impact the outlook, the Group remains well positioned with

the right strategy to continue delivering for customers and shareholders

Page 3: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT

Page 2 of 9

INCOME STATEMENT − UNDERLYING BASIS

Nine Nine Three Three months months months months ended ended ended ended 30 Sept 30 Sept 30 Sept 30 Sept 2019 2018 Change 2019 2018 Change

£m £m % £m £m %

Net interest income 9,275 9,544 (3) 3,130 3,200 (2)

Other income 4,415 4,610 (4) 1,315 1,486 (12)

Operating lease depreciation (731) (731) – (258) (234) (10)

Vocalink gain on sale 50 – – –

Net income 13,009 13,423 (3) 4,187 4,452 (6)

Operating costs (5,817) (6,014) 3 (1,911) (1,990) 4

Remediation (226) (366) 38 (83) (109) 24

Total costs (6,043) (6,380) 5 (1,994) (2,099) 5

Impairment (950) (740) (28) (371) (284) (31)

Underlying profit 6,016 6,303 (5) 1,822 2,069 (12)

Restructuring (280) (612) 54 (98) (235) 58

Volatility and other items (339) (207) (64) 126 (17)

Payment protection insurance provision (2,450) (550) (1,800) –

Statutory profit before tax 2,947 4,934 (40) 50 1,817 (97)

Tax expense1 (960) (1,194) 20 (288) (394) 27

Statutory profit (loss) after tax1 1,987 3,740 (47) (238) 1,423

Earnings (loss) per share 2.2p 4.7p (53) (0.5)p 1.8p

Banking net interest margin 2.89% 2.93% (4)bp 2.88% 2.93% (5)bp

Average interest-earning banking assets £434bn £436bn – £435bn £435bn –

Cost:income ratio 46.5% 47.5% (1.0)pp 47.6% 47.1% 0.5pp

Asset quality ratio 0.29% 0.22% 7bp 0.33% 0.25% 8bp

Underlying return on tangible equity 15.7% 16.2% (0.5)pp 14.3% 15.9% (1.6)pp

Return on tangible equity 6.8% 13.0% (6.2)pp (2.8)% 14.8% (17.6)pp

KEY BALANCE SHEET METRICS

At 30 Sept At 30 June Change At 31 Dec Change 2019 2019 % 2018 %

Loans and advances to customers2 £447bn £441bn 1 £444bn 1

Customer deposits3 £419bn £418bn – £416bn 1

Loan to deposit ratio 107% 106% 1pp 107% –

Capital build4 28bp 70bp 210bp

CET1 ratio pre dividend accrual5 14.4% 14.6% (0.2)pp 13.9% 0.5pp

CET1 ratio5 13.5% 14.0% (0.5)pp 13.9% (0.4)pp

Transitional MREL ratio5 32.5% 32.2% 0.3pp 32.6% (0.1)pp

UK leverage ratio5 4.9% 5.1% (0.2)pp 5.6% (0.7)pp

Risk-weighted assets5 £209bn £207bn 1 £206bn 1

Tangible net assets per share 52.0p 53.0p (1.0)p 53.0p (1.0)p

1 Comparatives restated to reflect amendments to IAS 12, see basis of presentation. 2 Excludes reverse repos of £55.6 billion (30 June 2019: £54.1 billion; 31 December 2018: £40.5 billion). 3 Excludes repos of £1.8 billion (30 June 2019: £4.1 billion; 31 December 2018: £1.8 billion). 4 Capital build is reported before accrual for ordinary dividends, cancellation of remaining share buyback and Tesco mortgage portfolio. 5 The CET1, MREL and leverage ratios and risk-weighted assets at 30 June 2019 and 31 December 2018 are reported on a pro forma

basis, reflecting the dividend paid up by the Insurance business in the subsequent reporting period. The CET1 ratios at 31 December 2018 incorporate the effects of the share buyback announced in February 2019 and are reported post dividend accrual.

Page 4: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT

Page 3 of 9

QUARTERLY INFORMATION

Quarter Quarter Quarter Quarter Quarter Quarter Quarter ended ended ended ended ended ended ended 30 Sept 30 June 31 Mar 31 Dec 30 Sept 30 June 31 Mar 2019 2019 2019 2018 2018 2018 2018 £m £m £m £m £m £m £m

Net interest income 3,130 3,062 3,083 3,170 3,200 3,173 3,171

Other income 1,315 1,594 1,506 1,400 1,486 1,713 1,411

Operating lease depreciation (258) (254) (219) (225) (234) (245) (252)

Vocalink gain on sale – – 50 – – – –

Net income 4,187 4,402 4,420 4,345 4,452 4,641 4,330

Operating costs (1,911) (1,949) (1,957) (2,151) (1,990) (2,016) (2,008)

Remediation (83) (123) (20) (234) (109) (197) (60)

Total costs (1,994) (2,072) (1,977) (2,385) (2,099) (2,213) (2,068)

Impairment (371) (304) (275) (197) (284) (198) (258)

Underlying profit 1,822 2,026 2,168 1,763 2,069 2,230 2,004

Restructuring (98) (56) (126) (267) (235) (239) (138)

Volatility and other items 126 (126) (339) (270) (17) (16) (174)

Payment protection insurance provision

(1,800) (550) (100) (200) – (460) (90)

Statutory profit before tax 50 1,294 1,603 1,026 1,817 1,515 1,602

Tax expense1 (288) (269) (403) (260) (394) (369) (431)

Statutory profit (loss) after tax1 (238) 1,025 1,200 766 1,423 1,146 1,171

Banking net interest margin 2.88% 2.89% 2.91% 2.92% 2.93% 2.93% 2.93%

Average interest-earning banking assets

£435bn £433bn £433bn £436bn £435bn £436bn £437bn

Cost:income ratio 47.6% 47.1% 44.7% 54.9% 47.1% 47.7% 47.8%

Asset quality ratio 0.33% 0.27% 0.25% 0.18% 0.25% 0.18% 0.23%

Gross asset quality ratio 0.40% 0.38% 0.30% 0.30% 0.30% 0.26% 0.27%

Underlying return on tangible equity

14.3% 15.6% 17.0% 13.6% 15.9% 17.3% 15.4%

Return on tangible equity (2.8)% 10.5% 12.5% 7.8% 14.8% 11.9% 12.3%

Loans and advances to customers2

£447bn £441bn £441bn £444bn £445bn £442bn £445bn

Customer deposits3 £419bn £418bn £417bn £416bn £422bn £418bn £413bn

Loan to deposit ratio 107% 106% 106% 107% 105% 106% 108%

Risk-weighted assets4 £209bn £207bn £208bn £206bn £207bn £207bn £211bn

Tangible net assets per share 52.0p 53.0p 53.4p 53.0p 51.3p 52.1p 52.3p

1 Comparatives for 2018 restated to reflect amendments to IAS 12, see basis of presentation. 2 Excludes reverse repos. 3 Excludes repos. 4 Risk-weighted assets at 30 June 2018 are reported on a pro forma basis reflecting the sale of the Irish mortgage portfolio.

Page 5: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT

Page 4 of 9

BALANCE SHEET ANALYSIS

At 30 Sept At 30 June At 30 Sept At 31 Dec

2019 2019 Change 2018 Change 2018 Change £bn £bn % £bn % £bn % Loans and advances to customers

Open mortgage book 271.0 264.9 2 267.1 1 266.6 2

Closed mortgage book 19.1 19.8 (4) 21.5 (11) 21.2 (10)

Credit cards 17.7 17.7 – 18.5 (4) 18.1 (2)

UK Retail unsecured loans 8.4 8.2 2 7.9 6 7.9 6

UK Motor Finance 15.6 15.5 1 14.4 8 14.6 7

Overdrafts 1.3 1.2 8 1.2 8 1.3 –

Retail other1 9.2 9.0 2 8.3 11 8.6 7

SME2 32.4 32.3 – 31.8 2 31.8 2

Mid Markets 30.7 30.6 – 30.5 1 31.7 (3)

Global Corporates and Financial Institutions

33.7 34.7 (3) 34.1 (1) 34.4 (2)

Commercial Banking other 5.2 4.3 21 5.0 4 4.3 21

Wealth 0.9 0.9 – 0.8 13 0.9 –

Central items 2.0 1.9 5 3.5 (43) 3.0 (33)

Loans and advances to customers3 447.2 441.0 1 444.6 1 444.4 1

Customer deposits

Retail current accounts 76.1 76.0 – 74.3 2 73.7 3

Commercial current accounts2,4 34.6 34.0 2 33.5 3 34.9 (1)

Retail relationship savings accounts 144.3 144.4 – 146.0 (1) 145.9 (1)

Retail tactical savings accounts 14.1 15.3 (8) 18.7 (25) 16.8 (16)

Commercial deposits2,5 135.8 133.2 2 134.6 1 130.1 4

Wealth 13.6 13.8 (1) 13.7 (1) 14.1 (4)

Central items 0.7 0.9 (22) 0.8 (13) 0.8 (13)

Total customer deposits6 419.2 417.6 – 421.6 (1) 416.3 1

Total assets7 858.5 822.2 4 829.2 4 797.6 8

Total liabilities7 810.4 773.2 5 781.5 4 747.4 8

Shareholders’ equity 42.5 43.4 (2) 42.0 1 43.4 (2)

Other equity instruments 5.4 5.4 – 5.4 – 6.5 (17)

Non-controlling interests 0.2 0.2 – 0.3 (33) 0.3 (33)

Total equity 48.1 49.0 (2) 47.7 1 50.2 (4)

Ordinary shares in issue, excluding own shares 70,007m 70,740m 71,122m 71,149m

1 Primarily Europe. 2 Includes Retail Business Banking. 3 Excludes reverse repos. 4 Primarily non interest-bearing Commercial Banking current accounts. 5 Primarily Commercial Banking interest-bearing accounts. 6 Excludes repos. 7 The adoption of IFRS 16 on 1 January 2019 resulted in the recognition of a right-of-use asset of £1.7 billion and lease liabilities of

£1.8 billion.

Page 6: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT

Page 5 of 9

REVIEW OF PERFORMANCE

Solid financial performance with statutory result impacted by additional PPI charge

The Group’s statutory profit before tax for the nine months was £2,947 million with good underlying profit offset by an

additional £1,800 million payment protection insurance (PPI) charge in the third quarter.

Given the challenging external environment, underlying profit was £6,016 million compared to £6,303 million in the first

nine months of 2018, reflecting lower net income partially offset by lower total costs and higher impairment charges. The

Group’s underlying return on tangible equity remained strong at 15.7 per cent.

Net income of £13,009 million was 3 per cent lower than in the first nine months of 2018, reflecting lower net interest

income and other income, while operating lease depreciation was stable.

Net interest income of £9,275 million was down 3 per cent with both net interest margin and average interest-earning

banking assets slightly lower. Net interest margin reduced to 2.89 per cent for the period, and to 2.88 per cent in the third

quarter, with the benefit of lower deposit costs, higher current account balances and a small benefit from aligning MBNA

credit card terms to other brands across the Group more than offset by continued pressure on asset margins. Average

interest-earning banking assets reduced by £1.9 billion year on year with growth in targeted segments more than offset by

lower balances in the closed mortgage book and the sale of the Irish mortgage portfolio in the first half of 2018.

Other income decreased by 4 per cent to £4,415 million due to lower Commercial Banking income driven by more subdued

levels of client activity in the markets business given challenging external conditions, lower Retail income predominately

driven by lower Lex Autolease volumes, and lower gilt sales. Insurance and Wealth continued to perform well reflecting

growth in workplace pensions new business in the first half and higher general insurance income whilst also benefiting

from assumption changes and the one-off benefit from the planned change in investment management provider taken in

the first half of 2019.

Total costs of £6,043 million were 5 per cent lower than in the first nine months of 2018 driven by continued reductions in

both operating costs and remediation charges. Operating costs of £5,817 million were 3 per cent lower with a 6 per cent

reduction in business as usual costs1, largely driven by increased efficiency from digitalisation and process improvements,

in parallel with strategic investment of £0.8 billion in the business, up 24 per cent compared to the first nine months of

2018. Remediation charges of £226 million were significantly lower than the £366 million in the first nine months of 2018

and included additional charges of £83 million in the third quarter of 2019 relating to a number of items across existing

programmes. The Group’s market-leading cost:income ratio continues to provide a competitive advantage and further

strengthened to 46.5 per cent with positive jaws of 2 per cent. As a result of the Group’s continued focus on efficiency,

operating costs (which exclude remediation) are now expected to be less than £7.9 billion for the full year 2019, ahead of

previous guidance and the cost:income ratio (which includes remediation) is expected to be lower than in 2018.

Credit quality remains strong with a net asset quality ratio of 29 basis points and a gross asset quality ratio of 36 basis

points, compared with 22 basis points and 28 basis points respectively in the first nine months of 2018. The impairment

charge increased to £950 million, with the increase primarily driven by a single large corporate charge in the third quarter

and lower used car prices. The underlying asset quality ratio has remained low in recent quarters and the Group continues

to expect a net asset quality ratio of less than 30 basis points in 2019.

The Group’s outlook and IFRS 9 base case economic scenario used to calculate expected credit loss have remained

broadly stable in the quarter and throughout 2019 and reflect an orderly exit of the UK from the European Union.

1 2018 business as usual costs have been adjusted to a comparable basis after the implementation of IFRS 16 in 2019. On an unadjusted

basis business as usual costs reduced 10 per cent on prior year.

Page 7: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT

Page 6 of 9

REVIEW OF PERFORMANCE (continued)

Restructuring costs of £280 million were down 54 per cent, primarily reflecting lower severance costs relating to the Group’s

strategic investment plans and the completion of both the integration of MBNA and the ring-fencing programme, which

were partially offset by costs associated with establishing the Schroders Personal Wealth joint venture.

Volatility and other items of £339 million included adverse movements in banking volatility as well as the one-off charge

for exiting the Standard Life Aberdeen investment management agreement taken in the first half of 2019.

The PPI provision charge of £2,450 million included an additional charge of £1,800 million in the quarter, reflecting the

significant increase in PPI information requests (PIRs) leading up to the deadline for submission of claims on 29 August

2019, a PPI provision linked to the Official Receiver and associated administration costs. The assessment of PIR volumes

is now complete and the third quarter charge reflects this and the most recent data in terms of quality, which remains low,

averaging around 10 per cent. Taking this additional charge into account, the unutilised provision relating to PIRs,

complaints and associated administration costs stood at £2,324 million at the end of the third quarter.

Balance sheet strength maintained with lower Pillar 2A requirement

Loans and advances to customers increased by £6.2 billion to £447.2 billion in the third quarter with growth in targeted

segments, including the open mortgage book, SME and Motor Finance, offset by reductions in the closed mortgage book

and Global Corporates and Financial Institutions. The open mortgage book grew by £6.1 billion driven by the £3.7 billion

Tesco mortgage acquisition and £2.4 billion of organic book growth as the Group took advantage of market pricing in the

third quarter and benefitted from a strong application pipeline. The Group now expects its open mortgage book at the end

of 2019, including the Tesco mortgage acquisition, to be ahead of the 2018 year-end balance.

The Group continues to optimise funding and target current account balance growth, with Retail current accounts up 3 per

cent over the last nine months at £76.1 billion (31 December 2018: £73.7 billion). The loan to deposit ratio was flat at

107 per cent.

Tangible net assets per share reduced by 1.0 pence in the first nine months of 2019 to 52.0 pence mainly due to the impact

of the additional PPI charge on the Group’s statutory profit for the period.

The Group’s CET1 capital build amounted to 149 basis points before PPI and to 28 basis points after the in-year PPI

charge equivalent to 121 basis points. Underlying capital build of 148 basis points, along with other movements of 12 basis

points (reflecting market movements and the continued optimisation of Commercial Banking risk-weighted assets, net of

additional pension contributions), was partly offset by the 11 basis points impact of IFRS 16. The Group’s capital position

also benefitted by 34 basis points as a result of the cancellation of the remaining c.£650 million of the 2019 buyback

programme, as announced in September 2019. The Group used 9 basis points of capital for the acquisition of the Tesco

mortgage portfolio.

As a result, in the first nine months of the year, the CET1 capital ratio increased to 14.4 per cent pre dividend accrual. After

accruing 91 basis points for the ordinary dividend, the CET1 ratio at 13.5 per cent remains in line with the Board’s target.

Given the PPI charge in the third quarter, equivalent to 88 basis points, the Group now expects, assuming no unforeseen

events, free capital build of around 75 basis points in 2019. The Group continues to target a progressive and sustainable

ordinary dividend and in line with normal practice, the Board will give due consideration to the return of any surplus capital

at the year end.

Page 8: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT

Page 7 of 9

REVIEW OF PERFORMANCE (continued)

The Group recently received notification from the Prudential Regulation Authority (PRA) that its Pillar 2A CET1 requirement

has reduced from 2.7 per cent to 2.6 per cent. The Board’s view of the current level of capital required by the Group to

grow the business, meet regulatory requirements and cover uncertainties remains unchanged at c.12.5 per cent, plus a

c.1 per cent management buffer. The headroom to regulatory requirements has therefore increased. As previously

reported, the Group’s CET1 capital target reduced during 2019 and is now 50 basis points lower than prior year.

The Group remains well positioned to meet its minimum requirement for own funds and eligible liabilities (MREL) from

2020 and as at 30 September 2019, had a transitional MREL ratio of 32.5 per cent. The UK leverage ratio remains strong

at 4.9 per cent.

Risk-weighted assets have increased by £3 billion over the period driven primarily by the implementation of IFRS 16,

mortgage model updates and the acquisition of the Tesco mortgage portfolio, offset in part through further optimisation of

the Commercial Banking portfolio.

Outlook

In the first nine months of 2019 the Group made strong strategic progress and delivered a solid financial performance in a

challenging external environment. The Group’s performance continues to demonstrate the resilience of its customer

franchise and business model, the strength of its balance sheet and that its strategy remains the right one in the current

environment.

The Group will maintain its prudent approach to growth and risk whilst continuing to focus on reducing costs and investing

to transform the business for success in a digital world. Although continued economic uncertainty could further impact the

outlook, the Group remains well placed to support its customers and to continue to Help Britain Prosper.

Page 9: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT

Page 8 of 9

ADDITIONAL FINANCIAL INFORMATION

1. Banking net interest margin and average interest-earning banking assets

Nine Nine months months ended ended 30 Sept 30 Sept 2019 2018

Group net interest income – statutory basis (£m) 7,425 9,138

Insurance gross up (£m) 1,559 267

Volatility and other items (£m) 291 139

Group net interest income – underlying basis (£m) 9,275 9,544

Non-banking net interest expense (£m)1 103 19

Banking net interest income – underlying basis (£m) 9,378 9,563

Net loans and advances to customers (£bn)2 447.2 444.6

Impairment provision and fair value adjustments (£bn) 4.1 4.0

Non-banking items:

Fee-based loans and advances (£bn) (7.0) (6.3)

Other non-banking (£bn) (3.5) (5.9)

Gross banking loans and advances (£bn) 440.8 436.4

Averaging (£bn)3 (6.8) (0.5)

Average interest-earning banking assets (£bn) 434.0 435.9

Banking net interest margin (%) 2.89 2.93

1 Nine months ended 30 September 2019 includes impact from the implementation of IFRS 16. 2 Excludes reverse repos. 3 2019 includes a £3.6 billion impact from the Tesco mortgage portfolio acquisition.

2. Return on tangible equity

Nine Nine months months ended ended 30 Sept 30 Sept 2019 2018

Average shareholders' equity (£bn) 43.3 42.9

Average intangible assets (£bn) (5.9) (5.4)

Average tangible equity (£bn) 37.4 37.5

Underlying profit after tax (£m)1 4,543 4,725

Add back amortisation of intangible assets (post tax) (£m) 269 219

Less profit attributable to non-controlling interests and other equity holders (£m)1 (415) (392)

Adjusted underlying profit after tax (£m) 4,397 4,552

Underlying return on tangible equity (%) 15.7 16.2

Group statutory profit after tax (£m)1 1,987 3,740

Add back amortisation of intangible assets (post tax) (£m) 269 219

Add back amortisation of purchased intangible assets (post tax) (£m) 56 83

Less profit attributable to non-controlling interests and other equity holders (£m)1 (415) (392)

Adjusted statutory profit after tax (£m) 1,897 3,650

Statutory return on tangible equity (%) 6.8 13.0

1 Comparatives restated to reflect amendments to IAS 12, see basis of presentation.

Page 10: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT

Page 9 of 9

BASIS OF PRESENTATION

This release covers the results of Lloyds Banking Group plc together with its subsidiaries (the Group) for the nine months ended 30 September 2019. IFRS 16 and IAS 12: The Group adopted IFRS 16 Leases from 1 January 2019 and as permitted elected to apply the standard retrospectively with the cumulative effect of initial application being recognised at that date; comparative information has not been restated. The Group has implemented the amendments to IAS 12 Income Taxes with effect from 1 January 2019 and as a result tax relief on distributions on other equity instruments, previously recognised in equity, is now reported within tax expense. Comparatives have been restated. Statutory basis: Statutory profit before tax and statutory profit after tax are included on pages 2 and 3. However, a number of factors have had a significant effect on the comparability of the Group’s financial position and results. Accordingly, the results are also presented on an underlying basis. Underlying basis: The statutory results are adjusted for certain items which are listed below, to allow a comparison of the Group’s underlying performance. − restructuring, including severance-related costs, the rationalisation of the non-branch property portfolio, the

establishment of the Schroders strategic partnership, the integration of MBNA and Zurich’s UK workplace pensions and savings business;

− volatility and other items, which includes the effects of certain asset sales, the volatility relating to the Group’s hedging arrangements and that arising in the insurance businesses, insurance gross up, the unwind of acquisition-related fair value adjustments and the amortisation of purchased intangible assets;

− payment protection insurance provisions.

Unless otherwise stated, income statement commentaries throughout this document compare the nine months ended 30 September 2019 to the nine months ended 30 September 2018, and the balance sheet analysis compares the Group balance sheet as at 30 September 2019 to the Group balance sheet as at 31 December 2018.

Alternative performance measures: The Group uses a number of alternative performance measures, including underlying profit, in the discussion of its business performance and financial position. There have been no changes to the definitions used by the Group; further information on these measures is set out on page 112 of the Group’s 2019 Half-Year Results News Release.

Capital: The Q3 2019 Interim Pillar 3 Report can be found at: http://www.lloydsbankinggroup.com/investors/financial-performance/

FORWARD LOOKING STATEMENTS

This document contains certain forward looking statements with respect to the business, strategy, plans and/or results of the Group and its current

goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about

the 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 (including but not limited to the payment of dividends) to differ materially from

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 interest rates, inflation, exchange rates, stock markets and currencies;

any impact of the transition from IBORs to alternative reference rates; 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 and other benefits including, but without limitation as a result of

any acquisitions, disposals and other strategic transactions; the ability to achieve strategic objectives; changing customer behaviour including

consumer spending, saving and borrowing habits; changes to borrower or counterparty credit quality; concentration of financial exposure;

management and monitoring of conduct risk; instability in the global financial markets, including Eurozone instability, instability as a result of

uncertainty surrounding the exit by the UK from the European Union (EU) and as a result of such exit and the potential for other countries to exit

the EU or the Eurozone and the impact of any sovereign credit rating downgrade or other sovereign financial issues; political instability including

as a result of any UK general election; technological changes and risks to the security of IT and operational infrastructure, systems, data and

information resulting from increased threat of cyber and other attacks; natural, pandemic 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; risks relating to climate change; changes in laws, regulations,

practices and accounting standards or taxation, including as a result of the exit by the UK from the EU, or a further possible referendum on Scottish

independence; 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 or courts in the UK, the EU, the US or elsewhere including the implementation and

interpretation of key legislation and regulation together with any resulting impact on the future structure of the Group; the ability to attract and retain

senior management and other employees and meet its diversity objectives; 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 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, lending companies and digital innovators and disruptive technologies; and

exposure to regulatory or competition scrutiny, legal, regulatory or competition proceedings, 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 and risks 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 the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions

to any forward looking statements contained in this document to reflect any change in the Group’s expectations with regard thereto or any change

in events, conditions or circumstances on which any such statement is based. The information, statements and opinions contained in this document

do not constitute a public offer under any applicable law or an offer to sell any securities or financial instruments or any advice or recommendation

with respect to such securities or financial instruments.

Page 11: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

Q3

INTE

RIM

MA

NA

GEM

ENT

STA

TEM

ENT

Pres

enta

tion

to a

naly

sts

and

inve

stor

s |

31

Oct

ober

201

9

Page 12: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

1

Solid

fina

ncia

l per

form

ance

in a

cha

lleng

ing

envi

ronm

ent

Net i

ncom

e£1

3.0b

n(3)%

Retu

rn o

n ta

ngib

le e

quity

6.8%

(6.2)pp

Earn

ings

per

sha

re2.

2p(53)%

Stat

utor

y pr

ofit

befo

re ta

x£2

.9bn

(40)%

Unde

rlyin

g pr

ofit

£6.0

bn(5)%

Cost

:inco

me

ratio

(incl

. rem

edia

tion)

46.5

%(1.0)pp

•St

atut

ory

prof

it be

fore

tax

of £

2.9b

n fo

r the

nin

e m

onth

s, d

own

40%

, si

gnifi

cant

ly im

pact

ed b

y ad

ditio

nal P

PI c

harg

e of

£1.

8bn

in Q

3•

Unde

rlyin

g pr

ofit

of £

6.0b

n, d

own

5%, w

ith u

nder

lyin

g Ro

TE o

f 15.

7%

-N

et in

com

e of

£13

.0bn

, 3%

low

er, w

ith N

IM o

f 289

bps

-C

ontin

ued

redu

ctio

n in

tota

l cos

ts, d

own

5%, w

ith B

AU c

osts

dow

n 6%

an

d co

st:in

com

e ra

tio fu

rther

impr

oved

to 4

6.5%

-C

redi

t qua

lity

rem

ains

stro

ng; n

et A

QR

incr

ease

d to

29b

ps in

clud

ing

a

sing

le la

rge

corp

orat

e ch

arge

in Q

3

•St

atut

ory

RoTE

of 6

.8%

and

TNA

V do

wn

1.0p

on

year

end

to 5

2.0p

•Fr

ee c

apita

l bui

ld o

f 149

bps,

bef

ore

121b

ps P

PI im

pact

of w

hich

88

bps

in Q

3•

Furth

er 1

0bps

redu

ctio

n in

Pill

ar 2

A w

ith C

ET1

targ

et m

aint

aine

d at

c.12

.5%

plu

s a

man

agem

ent b

uffe

r of c

.1%

•Co

ntin

ue to

targ

et a

pro

gres

sive

and

sus

tain

able

ord

inar

y di

vide

ndFr

ee c

apita

l bui

ld

(p

re-P

PI)

149b

ps

Q3

2019

Yea

r to

date

Page 13: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

2

Solid

fina

ncia

l per

form

ance

: ong

oing

cos

t red

uctio

n co

ntin

ues

to p

artly

offs

et

inco

me

pres

sure

in a

cha

lleng

ing

rate

env

ironm

ent

Oth

er in

com

e(£bn)

Net

inte

rest

inco

me

(£m)

Ope

ratin

g co

sts

(£m)

•N

et in

com

e of

£13

.0bn

yea

r to

date

, dow

n 3%

-N

II do

wn

with

slig

htly

low

er A

IEAs

and

NIM

of 2

.89%

(2

.88%

in Q

3); e

xpec

t 201

9 m

argi

n of

2.8

8%

-O

ther

inco

me

of £

4.4b

n do

wn

4% im

pact

ed b

y lo

wer

cl

ient

act

ivity

in C

omm

erci

al m

arke

ts a

nd lo

wer

gilt

sal

es

•C

ontin

ued

redu

ctio

n in

ope

ratin

g co

sts,

dow

n 3%

, with

co

st:in

com

e ra

tio fu

rthe

r im

prov

ed to

46.

5%

•N

ow e

xpec

t ope

ratin

g co

sts

less

than

£7.

9bn

in 2

019

2.93

%5b

ps2b

ps(1

1)bp

s2.

89%

(403

)

148

(14)

9,27

5

9,54

4

Liab

ility

sp

read

& m

ixA

sset

spr

ead

& m

ixQ

3 20

18Y

TDW

hole

sale

fu

ndin

g &

oth

er1

Q3

2019

YTD

(3)%

1.3

1.5

Q3

2018

Q3

2019

5,81

7

6,01

4

82

(277

)

78

(80)

(3)%

Pay

&in

flatio

nQ

3 20

18Y

TD2

Oth

erQ

3 20

19Y

TDC

ost

savi

ngs

Inve

stm

ent &

depr

ecia

tion

4.4

4.6

Q3

2018

YTD

Q3

2019

YTD

1 –

Oth

er in

clud

es n

on-b

anki

ng n

et in

tere

st in

com

e.

2 –

Q3

2018

adj

uste

d to

refle

ct th

e im

pact

of I

FRS

16.

Page 14: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

3

Lo

w r

isk b

usin

ess m

od

el w

ith

pru

de

nt

pa

rtic

ipa

tio

n c

ho

ice

s:

un

de

rlyin

g c

red

it

qu

alit

y r

em

ain

s s

tro

ng

Asset qualit

y r

atio

(bps)

•G

ross

AQ

R in

Q3

of 4

0bps

with

net

AQ

R of

33b

ps, b

oth

impa

cted

by

a si

ngle

larg

e co

rpor

ate

char

ge a

nd lo

wer

us

ed c

ar p

rices

-A

QR

s r

em

ain

low

in r

ecent quart

ers

exclu

din

g the larg

e

sin

gle

nam

e c

harg

es

•Un

derly

ing

cred

it qu

ality

rem

ains

stro

ng th

ough

ec

onom

ic u

ncer

tain

ty p

ersi

sts

-Low

avera

ge R

eta

il m

ort

gage L

TV

of 44%

with s

table

new

to a

rrears

; avera

ge L

TV

of new

busin

ess 6

4%

and

c.9

0%

of port

folio

has L

TV

£80%

-P

rim

e c

redit c

ard

book; new

to a

rrears

rem

ain

ing low

-M

oto

r finance p

redom

inantly s

ecure

d a

nd s

ubje

ct to

pru

dent assum

ptions a

nd p

rovis

ionin

g

-D

ivers

ifie

d, hig

h q

ualit

y C

om

merc

ial book

•Co

ntin

ue to

exp

ect 2

019

net A

QR

of le

ss th

an 3

0bps

Mort

gages a

nd c

redit c

ard

s –

new

to a

rrears

as p

roport

ion

of to

tal book

Mo

rtg

ag

es

Cre

dit c

ard

s

0.0

%

0.5

%

1.0

%

1.5

%

2.0

%

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Q3

20

19

Ne

t A

QR

Gro

ss A

QR

Q1

20

19

Q4

20

18

Q3

20

18

Q2

20

19

La

rge

sin

gle

na

me

ch

arg

es

Q3

20

19

Q1

20

19

Q4

20

18

Q3

20

18

Q2

20

19

33

40

27

38

30

30

30

28

22

10

18

25

18

25

17

15

10

18

Page 15: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

4

So

lid

pro

fits

an

d r

etu

rns w

ith

sta

tuto

ry p

erf

orm

an

ce

im

pa

cte

d b

y a

dd

itio

na

l P

PI

ch

arg

e in

Q3

•Un

derly

ing

prof

it of

£6.

0bn,

dow

n 5%

•Re

stru

ctur

ing

cost

s lo

wer

due

to c

ompl

etio

n of

M

BNA

mig

ratio

n an

d rin

g-fe

ncin

g; in

clud

es

seve

ranc

e an

d in

itial

cos

ts fo

r Sch

rode

rs J

V

•Vo

latil

ity a

nd o

ther

item

s in

clud

es a

dver

se

mov

emen

ts in

ban

king

vol

atili

ty a

nd th

e H1

ch

arge

rela

ting

to c

hang

e in

ass

et m

anag

er

•PP

I cha

rge

of £

1.8b

n in

Q3:

ass

essm

ent o

f PIR

vo

lum

es n

ow c

ompl

ete;

PIR

con

vers

ion

rem

ains

lo

w, a

vera

ging

aro

und

10%

•St

atut

ory

prof

it be

fore

tax

of £

2.9b

n, d

own

40%

•Hi

gher

effe

ctiv

e ta

x ra

te o

f 33%

due

to P

PI

•St

rong

und

erly

ing

RoTE

of 1

5.7%

; sta

tuto

ry R

oTE

of 6

.8%

impa

cted

by

PPI

(£m

)Q

3 20

19

YTD

Q3

2018

YT

DCh

ange

Unde

rlyin

g pr

ofit

6,01

66,3

03

(5)%

Restr

uctu

ring

(280

)(6

12)

54%

Vola

tility

and o

ther

item

s(3

39)

(207)

(64)%

PP

I(2

,450

)(5

50)

Stat

utor

y pr

ofit

befo

re ta

x2,

947

4,9

34

(40)%

Tax e

xpense

1(9

60)

(1,1

94)

20%

Stat

utor

y pr

ofit

afte

r tax

11,

987

3,7

40

(47)%

Effective tax r

ate

33%

24%

9pp

Underlyin

g R

oT

E15

.7%

16.2

%(0.5)pp

Sta

tuto

ry R

oT

E6.

8%13.0

%(6.2)pp

1 –

Com

para

tive r

esta

ted t

o r

eflect

IAS

12.

Page 16: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

5

Bal

ance

she

et: o

ngoi

ng g

row

th in

targ

eted

seg

men

ts w

hile

con

tinui

ng to

opt

imis

e th

e po

rtfol

io

•Pr

uden

t len

ding

gro

wth

in ta

rget

ed s

egm

ents

-O

pen

mor

tgag

e bo

ok u

p £6

.1bn

on

Q2

due

to £

3.7b

n Te

sco

portf

olio

acq

uisi

tion

and

stro

ng o

rgan

ic g

row

th o

f £2

.4bn

, tak

ing

adva

ntag

e of

impr

oved

mar

ket p

ricin

g

-Te

sco

acqu

isiti

on p

rovi

des

parti

cipa

tion

flexi

bilit

y; to

tal

open

boo

k ex

pect

ed to

end

201

9 ah

ead

of 2

018

-C

ontin

ued

year

on

year

gro

wth

in S

ME

1(u

p 2%

) and

M

otor

Fin

ance

(up

8%)

•Co

ntin

ue to

targ

et c

urre

nt a

ccou

nt b

alan

ces,

redu

ce

tact

ical

bal

ance

s an

d op

timis

e m

ix

-C

urre

nt a

ccou

nt b

alan

ces

up £

3bn

on Q

3 20

18 w

ith

cont

inue

d gr

owth

in P

CA

ahea

d of

the

mar

ket

-H

edge

able

bal

ance

£18

5bn,

with

c.£

13bn

unu

sed

•RW

As u

p £3

bn o

n ye

ar e

nd w

ith o

ptim

isat

ion

of

Com

mer

cial

par

tly o

ffset

ting

impa

ct o

f IFR

S 16

and

in

crea

se in

Ret

ail,

incl

udin

g th

e Te

sco

acqu

isiti

on

1 –

Incl

udes

Ret

ail B

usin

ess

Ban

king

.

Loan

s an

d ad

vanc

es(£bn)

Liab

ility

mix

(£bn)

SM

E &

Mid

Mar

kets

1

Ope

n m

ortg

age

book

Oth

erC

omm

erci

al o

ther

Ret

ail o

ther

Clo

sed

mor

tgag

e bo

ok

Wea

lth

Ret

ail &

CB

cur

rent

acc

ount

s

Ret

ail t

actic

al a

nd o

ther

Com

mer

cial

dep

osits

Ret

ail r

elat

ions

hip

Q2

2019

Q3

2019

Q3

2018

445

44144

7

Q2

2019

Q3

2019

Q3

2018

422

418

419

271

265

267

19 20 22

52 52 50

63 63 62

39 39 39

111

110

108

144

144

146

136

133

135

14 14 14

14 17 19

Page 17: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

6

Con

tinue

d ro

bust

cap

ital b

uild

exc

ludi

ng P

PI; l

ower

Pilla

r 2A

with

cap

ital t

arge

t m

aint

aine

d

Com

mon

equ

ity ti

er 1

ratio

(%)

Und

erly

ing

build

FY 2018

Div

iden

dac

crua

lQ

320

19

1.48

(0.9

1)13

.5

+149

bps

(0.1

1)

0.12

IFR

S16

Mar

ket

mov

emen

tsan

d ot

her1

(1.2

1)

PP

I

+28b

ps

0.34

Can

cel

buyb

ack

15.4

Gro

up c

apita

l stru

ctur

e(%)13

.9

Tesc

obo

ok

(0.0

9)

•Fr

ee c

apita

l bui

ld Y

TD o

f 149

bps

pre-

PP

I; 28

bps

afte

r P

PI c

harg

es

•C

ET1

13.

5% a

fter

div

iden

d ac

crua

l and

PP

I; in

clud

es 3

4bps

from

buy

back

can

cella

tion

and

9bps

use

d fo

r Te

sco

acqu

isiti

on

•c.

75bp

s fr

ee c

apita

l bui

ld n

ow e

xpec

ted

for

2019

, aft

er P

PI

•P

illar

2A

dow

n 10

bps

in Q

3 to

2.6

%

•M

aint

aine

d C

ET1

targ

et o

f aro

und

12.5

%

plus

a m

anag

emen

t buf

fer

of a

roun

d 1%

-C

apita

l tar

get 5

0bps

low

er Y

oY

•C

ontin

ue to

targ

et a

pro

gres

sive

and

su

stai

nabl

e or

dina

ry d

ivid

end

Cou

nter

cycl

ical

Buffe

r

Pilla

r 1

Hea

droo

m in

clud

ing

Man

agem

ent B

uffe

r

Syst

emic

Ris

k Bu

ffer

Cap

ital C

onse

rvat

ion

Buffe

r

Pilla

r 2A

4.5

2.6

2.5

0.9

1.7

>1

Cap

ital t

arge

t c.1

2.5%

+ c

.1%

1 –

Incl

udes

impa

ct o

f pen

sion

con

tribu

tions

and

favo

urab

le R

WA,

mar

ket a

nd o

ther

mov

emen

ts.

Page 18: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

7

OU

R

PU

RP

OS

E

Help

ing

Brita

in

Pros

per

OU

R

AIM

OU

R

BU

SIN

ES

S

MO

DE

L

Digi

tised

, sim

ple

,

low

ris

k, custo

mer

focused, U

K

finan

cial

ser

vice

s pr

ovid

er

Best

ban

k fo

r cu

stom

ers,

co

lleag

ues

and

shar

ehol

ders

Str

on

g s

tra

teg

ic p

rog

ress a

nd

so

lid

fin

an

cia

l p

erf

orm

an

ce

po

sitio

n t

he

Gro

up

we

ll

•St

rong

str

ateg

ic p

rogr

ess

and

the

right

str

ateg

y in

the

curr

ent

chal

leng

ing

mar

ket e

nviro

nmen

t

•B

usin

ess

mod

el re

silie

nce

refle

cted

in 2

019

guid

ance

-N

IM e

xpecte

d to b

e 2

88bps a

nd A

QR

less than 3

0bps

-O

pera

ting c

osts

now

expecte

d to b

e less than £

7.9

bn, ahead o

f pre

vio

us

guid

ance, w

ith c

ost:in

com

e r

atio low

er

than 2

018

-F

ree c

apital build n

ow

expecte

d to b

e c

.75bps a

fter

PP

I charg

es

-C

ontinue to targ

et a p

rogre

ssiv

e a

nd s

usta

inable

ord

inary

div

idend

•C

ontin

ued

econ

omic

unc

erta

inty

cou

ld fu

rthe

r im

pact

the

outlo

ok

•M

aint

ain

focu

s on

pru

dent

gro

wth

and

redu

cing

cos

ts, w

hils

t fu

rthe

r inv

estin

g in

the

busi

ness

•W

ell p

lace

d to

sup

port

cus

tom

ers

and

cont

inue

to H

elp

Brit

ain

Pros

per

Page 19: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

8

Forw

ard

look

ing

stat

emen

ts a

nd b

asis

of p

rese

ntat

ion

Forw

ard

look

ing

stat

emen

tsTh

is d

ocum

ent c

onta

ins

certa

in fo

rwar

d lo

okin

g st

atem

ents

with

resp

ect t

o th

e bu

sine

ss, s

trate

gy, p

lans

and

/or r

esul

ts o

f Llo

yds

Ban

king

Gro

up p

lc to

geth

er w

ith it

s su

bsid

iarie

s (th

e G

roup

) an

d its

cur

rent

goa

ls a

nd e

xpec

tatio

ns re

latin

g to

its

futu

re fi

nanc

ial c

ondi

tion

and

perfo

rman

ce. S

tate

men

ts th

at a

re n

ot h

isto

rical

fact

s, in

clud

ing

stat

emen

ts a

bout

the

Gro

up's

or i

ts d

irect

ors'

an

d/or

man

agem

ent's

bel

iefs

and

exp

ecta

tions

, are

forw

ard

look

ing

stat

emen

ts. B

y th

eir n

atur

e, fo

rwar

d lo

okin

g st

atem

ents

invo

lve

risk

and

unce

rtain

ty b

ecau

se th

ey re

late

to e

vent

s an

d de

pend

upo

n ci

rcum

stan

ces

that

will

or m

ay o

ccur

in th

e fu

ture

. Fac

tors

that

cou

ld c

ause

act

ual b

usin

ess,

stra

tegy

, pla

ns a

nd/o

rres

ults

(inc

ludi

ng b

ut n

ot li

mite

d to

the

paym

ent o

f div

iden

ds)

to d

iffer

mat

eria

lly fr

om fo

rwar

d lo

okin

g st

atem

ents

mad

e by

the

Gro

up o

r on

its b

ehal

f inc

lude

, but

are

not

lim

ited

to: g

ener

alec

onom

ic a

nd b

usin

ess

cond

ition

s in

the

UK

and

inte

rnat

iona

lly;

mar

ket r

elat

ed tr

ends

and

dev

elop

men

ts; f

luct

uatio

ns in

inte

rest

rate

s, in

flatio

n, e

xcha

nge

rate

s, s

tock

mar

kets

and

cur

renc

ies;

any

impa

ct o

f the

tran

sitio

n fro

m IB

OR

s to

alte

rnat

ive

refe

renc

e ra

tes;

the

abilit

y to

acc

ess

suffi

cien

t sou

rces

of c

apita

l, liq

uidi

ty a

nd fu

ndin

g w

hen

requ

ired;

cha

nges

to th

e G

roup

's c

redi

t rat

ings

; the

abi

lity

to d

eriv

e co

st s

avin

gs a

nd o

ther

ben

efits

incl

udin

g,

but w

ithou

t lim

itatio

n as

a re

sult

of a

ny a

cqui

sitio

ns, d

ispo

sals

and

oth

er s

trate

gic

trans

actio

ns; t

he a

bilit

y to

ach

ieve

stra

tegi

c ob

ject

ives

; cha

ngin

g cu

stom

er b

ehav

iour

incl

udin

g co

nsum

er

spen

ding

, sav

ing

and

borro

win

g ha

bits

; cha

nges

to b

orro

wer

or c

ount

erpa

rty c

redi

t qua

lity;

con

cent

ratio

n of

fina

ncia

l exp

osur

e; m

anag

emen

t and

mon

itorin

g of

con

duct

risk

; ins

tabi

lity

in th

e gl

obal

fina

ncia

l mar

kets

, inc

ludi

ng E

uroz

one

inst

abilit

y, in

stab

ility

as a

resu

lt of

unc

erta

inty

sur

roun

ding

the

exit

by th

e U

K fro

m th

e Eu

rope

an U

nion

(EU

) and

as

a re

sult

of s

uch

exit

and

the

pote

ntia

l for

oth

er c

ount

ries

to e

xit t

he E

U o

r the

Eur

ozon

e an

d th

e im

pact

of a

ny s

over

eign

cre

dit r

atin

g do

wng

rade

or o

ther

sove

reig

n fin

anci

al is

sues

; pol

itica

l ins

tabi

lity

incl

udin

g as

a re

sult

of a

ny U

K ge

nera

l ele

ctio

n; te

chno

logi

cal c

hang

es a

nd ri

sks

to th

e se

curit

y of

IT a

nd o

pera

tiona

l inf

rast

ruct

ure,

sys

tem

s, d

ata

and

info

rmat

ion

resu

lting

from

incr

ease

d th

reat

of c

yber

and

oth

er

atta

cks;

nat

ural

, pan

dem

ic a

nd o

ther

dis

aste

rs, a

dver

se w

eath

er a

nd s

imila

r con

tinge

ncie

s ou

tsid

e th

e G

roup

's c

ontro

l; in

adeq

uate

or f

aile

d in

tern

al o

r ext

erna

l pro

cess

es o

r sys

tem

s; a

cts

of

war

, oth

er a

cts

of h

ostil

ity, t

erro

rist a

cts

and

resp

onse

s to

thos

e ac

ts, g

eopo

litic

al, p

ande

mic

or o

ther

suc

h ev

ents

; ris

ks re

latin

g to

clim

ate

chan

ge; c

hang

es in

law

s, re

gula

tions

, pra

ctic

es a

nd

acco

untin

g st

anda

rds

or ta

xatio

n, in

clud

ing

as a

resu

lt of

the

exit

by th

e U

K fro

m th

e EU

, or a

furth

er p

ossi

ble

refe

rend

um o

n Sc

ottis

h in

depe

nden

ce; c

hang

es to

regu

lato

ry c

apita

l or l

iqui

dity

re

quire

men

ts a

nd s

imila

r con

tinge

ncie

s ou

tsid

e th

e G

roup

's c

ontro

l; th

e po

licie

s, d

ecis

ions

and

act

ions

of g

over

nmen

tal o

r reg

ulat

ory

auth

oriti

es o

r cou

rts in

the

UK,

the

EU, t

he U

S or

el

sew

here

incl

udin

g th

e im

plem

enta

tion

and

inte

rpre

tatio

n of

key

legi

slat

ion

and

regu

latio

n to

geth

er w

ith a

ny re

sulti

ng im

pact

on

the

futu

re s

truct

ure

of th

e G

roup

; the

abi

lity

to a

ttrac

t and

reta

in

seni

or m

anag

emen

t and

oth

er e

mpl

oyee

s an

d m

eet i

ts d

iver

sity

obj

ectiv

es; a

ctio

ns o

r om

issi

ons

by th

e G

roup

's d

irect

ors,

man

agem

ent o

r em

ploy

ees

incl

udin

g in

dust

rial a

ctio

n; c

hang

es to

the

Gro

up's

pos

t-ret

irem

ent d

efin

ed b

enef

it sc

hem

e ob

ligat

ions

; the

ext

ent o

f any

futu

re im

pairm

ent c

harg

es o

r writ

e-do

wns

cau

sed

by, b

ut n

ot li

mite

d to

, dep

ress

ed a

sset

val

uatio

ns, m

arke

t di

srup

tions

and

illiq

uid

mar

kets

; the

val

ue a

nd e

ffect

iven

ess

of a

ny c

redi

t pro

tect

ion

purc

hase

d by

the

Gro

up; t

he in

abilit

y to

hed

ge c

erta

in ri

sks

econ

omic

ally

; the

ade

quac

y of

loss

rese

rves

; th

e ac

tions

of c

ompe

titor

s, in

clud

ing

non-

bank

fina

ncia

l ser

vice

s, le

ndin

g co

mpa

nies

and

dig

ital i

nnov

ator

s an

d di

srup

tive

tech

nolo

gies

; and

exp

osur

e to

regu

lato

ry o

r com

petit

ion

scru

tiny,

le

gal,

regu

lato

ry o

r com

petit

ion

proc

eedi

ngs,

inve

stig

atio

ns o

r com

plai

nts.

Ple

ase

refe

r to

the

late

st A

nnua

l Rep

ort o

n Fo

rm 2

0-F

filed

with

the

US

Secu

ritie

s an

d Ex

chan

ge C

omm

issi

on fo

r a

disc

ussi

on o

f cer

tain

fact

ors

and

risks

toge

ther

with

exa

mpl

es o

f for

war

d lo

okin

g st

atem

ents

. Exc

ept a

s re

quire

d by

any

app

licab

le la

w o

r reg

ulat

ion,

the

forw

ard

look

ing

stat

emen

ts c

onta

ined

in

this

doc

umen

t are

mad

e as

of t

oday

's d

ate,

and

the

Gro

up e

xpre

ssly

dis

clai

ms

any

oblig

atio

n or

und

erta

king

to re

leas

e pu

blic

ly a

ny u

pdat

es o

r rev

isio

ns to

any

forw

ard

look

ing

stat

emen

ts

cont

aine

d in

this

doc

umen

t to

refle

ct a

ny c

hang

e in

the

Gro

up’s

exp

ecta

tions

with

rega

rd th

eret

o or

any

cha

nge

in e

vent

s, c

ondi

tions

or c

ircum

stan

ces

on w

hich

any

suc

h st

atem

ent i

s ba

sed.

Th

e in

form

atio

n, s

tate

men

ts a

nd o

pini

ons

cont

aine

d in

this

doc

umen

t do

not c

onst

itute

a p

ublic

offe

r und

er a

ny a

pplic

able

law

oran

offe

r to

sell

any

secu

ritie

s or

fina

ncia

l ins

trum

ents

or a

ny

advi

ce o

r rec

omm

enda

tion

with

resp

ect t

o su

ch s

ecur

ities

or f

inan

cial

inst

rum

ents

.

Bas

is o

f pre

sent

atio

nTh

e re

sults

of t

he G

roup

and

its

busi

ness

are

pre

sent

ed in

this

pre

sent

atio

n on

an

unde

rlyin

g ba

sis.

The

prin

cipl

es a

dopt

ed in

the

prep

arat

ion

of th

e un

derly

ing

basi

s of

repo

rting

are

set

out

w

ithin

the

2019

Q3

Inte

rim M

anag

emen

t Sta

tem

ent (

Q3

IMS)

. Thi

s pr

esen

tatio

n is

der

ived

from

the

Q3

IMS

and

read

ers

of th

is p

rese

ntat

ion

shou

ld re

fer t

o th

e Q

3 IM

S fo

r the

und

erly

ing

info

rmat

ion.

Page 20: Q3 2019 - Lloyds Banking Group...LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT Page 1 of 9 ... − Total costs of £6.0 billion down 5 per cent driven by reductions

LLOYDS BANKING GROUP PLC Q3 2019 INTERIM MANAGEMENT STATEMENT

CONTACTS

For further information please contact:

INVESTORS AND ANALYSTS

Douglas Radcliffe

Group Investor Relations Director

020 7356 1571

[email protected]

Edward Sands

Director of Investor Relations

020 7356 1585

[email protected]

Nora Thoden

Director of Investor Relations

020 7356 2334

[email protected]

CORPORATE AFFAIRS

Grant Ringshaw

External Relations Director

020 7356 2362

[email protected]

Matt Smith

Head of Media Relations

020 7356 3522

[email protected]

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. 95000