Lloyds Banking Group(LYG) - 2025 Q1 - Quarterly Report

Q1 2025 Performance Overview Financial Highlights and 2025 Guidance Lloyds Banking Group reported strong Q1 2025 financial performance with £1.1 billion profit after tax and reaffirmed 2025 guidance Q1 2025 Key Performance Indicators | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Statutory Profit After Tax | £1.1bn | £1.2bn | -8.3% | | Net Income | £4.4bn | £4.2bn | +4% | | Underlying Net Interest Income | £3.3bn | £3.2bn | +3% | | Banking Net Interest Margin | 3.03% | 2.95% | +8 bps | | Return on Tangible Equity | 12.6% | 13.3% | -0.7 pp | | Underlying Impairment Charge | £309m | £57m | +442% | | CET1 Ratio | 13.5% | 13.9% | -0.4 pp | Reaffirmed 2025 Full-Year Guidance | Metric | 2025 Guidance | | :--- | :--- | | Underlying Net Interest Income | c.£13.5 billion | | Operating Costs | c.£9.7 billion | | Asset Quality Ratio | c.25 basis points | | Return on Tangible Equity | c.13.5% | | Capital Generation | c.175 basis points | - The Group achieved strong growth in lending and deposits, with underlying loans and advances increasing by £7.1 billion and customer deposits by £5.0 billion during the quarter[8] Underlying Financial Statements Summary Underlying profit decreased 13% year-on-year to £1,532 million, impacted by higher impairment and costs, despite net income growth Q1 2025 Underlying Income Statement vs. Prior Periods (£m) | Metric | Q1 2025 | Q1 2024 | YoY Change | Q4 2024 | QoQ Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Underlying Net Interest Income | 3,294 | 3,184 | +3% | 3,276 | +1% | | Net Income | 4,391 | 4,241 | +4% | 4,378 | 0% | | Operating Costs | (2,550) | (2,402) | +6% | (2,450) | +4% | | Underlying Impairment Charge | (309) | (57) | +442% | (160) | +93% | | Underlying Profit | 1,532 | 1,757 | -13% | 993 | +54% | | Statutory Profit After Tax | 1,134 | 1,215 | -7% | 700 | +62% | Key Ratios and Balance Sheet Metrics | Metric | Q1 2025 | Q1 2024 | Q4 2024 | | :--- | :--- | :--- | :--- | | Banking Net Interest Margin | 3.03% | 2.95% | 2.97% | | Cost:Income Ratio | 58.1% | 57.2% | 73.7% | | Return on Tangible Equity | 12.6% | 13.3% | 7.1% | | Underlying Loans and Advances | £466.2bn | £448.5bn | £459.1bn | | Customer Deposits | £487.7bn | £469.2bn | £482.7bn | | CET1 Ratio | 13.5% | 13.9% | 14.2% | Quarterly Financial Trends Quarterly trends show stable net income, rising costs, increased impairment, and an improving banking net interest margin Key Metrics Trend (Last 5 Quarters) | Metric | Q1 2025 | Q4 2024 | Q3 2024 | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Income (£m) | 4,391 | 4,378 | 4,346 | 4,152 | 4,241 | | Underlying Profit (£m) | 1,532 | 993 | 1,853 | 1,740 | 1,757 | | Banking NIM | 3.03% | 2.97% | 2.95% | 2.93% | 2.95% | | Asset Quality Ratio | 0.27% | 0.14% | 0.15% | 0.05% | 0.06% | | CET1 Ratio | 13.5% | 14.2% | 14.3% | 14.1% | 13.9% | Detailed Performance and Balance Sheet Review Balance Sheet Analysis Balance sheet expanded with total assets at £909.9 billion, driven by growth in loans (£466.2 billion) and deposits Loan and Deposit Portfolio Breakdown (£bn) | Category | 31 Mar 2025 | 31 Dec 2024 | Quarterly Change | | :--- | :--- | :--- | :--- | | Loans and Advances | | | | | UK mortgages | 317.1 | 312.3 | +1.5% | | Credit cards | 15.9 | 15.7 | +1.3% | | Corporate & Institutional | 58.5 | 57.9 | +1.0% | | Total Underlying Loans | 466.2 | 459.1 | +1.5% | | Deposits | | | | | Retail current accounts | 102.5 | 101.3 | +1.2% | | Retail savings accounts | 210.1 | 208.2 | +0.9% | | Commercial Banking | 164.9 | 162.6 | +1.4% | | Total Customer Deposits | 487.7 | 482.7 | +1.0% | Income Statement Analysis Net income increased 4% year-on-year to £4,391 million, driven by growth in net interest income and other income - Underlying net interest income (NII) grew 3% YoY to £3,294 million, supported by an improved banking net interest margin of 3.03% (up 8 bps YoY) and higher average interest-earning assets[29] - The sterling structural hedge contributed £1.2 billion to total income in Q1 2025, an increase from £1.0 billion in Q1 2024. The Group expects the hedge to contribute £1.2 billion more in 2025 than in 2024[31] - Underlying other income increased 8% YoY to £1,452 million, driven by a 16% rise in Retail (primarily UK Motor Finance) and an 8% increase in Insurance, Pensions and Investments[32] - Operating lease depreciation increased to £355 million from £283 million in Q1 2024, attributed to fleet growth, higher value vehicles, and declines in used electric car prices[33] Costs, Asset Quality, and Capital Operating costs rose 6% to £2,550 million, impairment increased, and the CET1 ratio remained strong at 13.5% - Operating costs increased 6% YoY, driven by inflation and planned higher severance costs front-loaded into Q1. The cost:income ratio was 58.1%[34][36] - No new remediation charges were recognized in Q1 2025. The Group awaits a Supreme Court judgment in July regarding motor finance commission arrangements, which will inform the FCA's next steps[35] - The underlying impairment charge was £309 million (Asset Quality Ratio of 27 bps), which included a £100 million central adjustment to address downside risks related to potential US tariff policies[37] - The CET1 ratio was 13.5%, with 27 basis points of capital generated during the quarter. Risk-weighted assets (RWAs) increased by £5.5 billion to £230.1 billion, partly due to a temporary £2.5 billion increase from hedging activity[45][46] Risk, Capital, and Economic Outlook Credit Risk and Impairment Details Q1 2025 impairment charge was £309 million, including a £100 million central adjustment for tariff risks Underlying Impairment Charge Breakdown (£m) | Component | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Charges pre-updated MES | 274 | 249 | | Updated economic outlook (MES) | 35 | (192) | | Underlying impairment charge | 309 | 57 | Loans and ECL Allowance by Stage (31 Mar 2025) | Category | Stage 1 | Stage 2 | Stage 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Gross Lending (£m) | 413,103 | 47,307 | 9,251 | 469,661 | | % of Total | 87.9% | 10.1% | 2.0% | 100% | | ECL Allowance (£m) | 902 | 1,344 | 1,477 | 3,723 | - The ECL allowance includes a £100 million central adjustment to address downside risks from potential US tariff policies, which were not fully captured in the standard models[37][56][62] Economic Assumptions and Scenarios UK base case anticipates slow GDP growth, rising unemployment, and gradual rate cuts, with a £100 million ECL adjustment for tariff risks UK Economic Assumptions - Base Case Scenario (2025) | Metric | Q1 2025 | Q2 2025 | Q3 2025 | Q4 2025 | | :--- | :--- | :--- | :--- | :--- | | GDP Growth (QoQ) | 0.2% | 0.2% | 0.3% | 0.3% | | Unemployment Rate (end of Q) | 4.6% | 4.7% | 4.8% | 4.8% | | House Price Growth (YoY) | 3.8% | 3.8% | 2.4% | 1.7% | | UK Bank Rate (end of Q) | 4.50% | 4.25% | 4.00% | 4.00% | | CPI Inflation (YoY) | 2.8% | 3.6% | 3.6% | 3.5% | - The Group's base case assumes a slow economic expansion, with risks largely captured through alternative scenarios (upside, downside, severe downside)[60] - A £100 million central adjustment was made to reflect potential ECL impact from US tariff announcements in early April, as these were deemed not fully captured in the quarter-end models[62] Supplementary and Statutory Information Statutory Results Statutory profit before tax decreased 7% to £1,517 million due to higher expenses and impairment, despite income growth Statutory Income Statement Summary (£m) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | 3,204 | 3,045 | +5% | | Total Income | 4,695 | 4,387 | +7% | | Operating Expenses | (2,868) | (2,703) | +6% | | Impairment Charge | (310) | (56) | +454% | | Profit Before Tax | 1,517 | 1,628 | -7% | | Profit After Tax | 1,134 | 1,215 | -7% | | Basic Earnings Per Share | 1.7p | 1.7p | 0% | Alternative Performance Measures (APMs) This section reconciles key non-statutory metrics, including banking net interest margin and return on tangible equity Banking Net Interest Margin (NIM) Reconciliation | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Banking Underlying Net Interest Income (£m) | 3,406 | 3,289 | | Average Interest-Earning Banking Assets (£bn) | 455.5 | 449.1 | | Banking Net Interest Margin | 3.03% | 2.95% | Return on Tangible Equity (RoTE) Reconciliation | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Profit Attributable to Ordinary Shareholders (£m) | 1,006 | 1,069 | | Average Tangible Equity (£bn) | 32.3 | 32.4 | | Return on Tangible Equity | 12.6% | 13.3% |