Lloyds Banking Group PLC Q3 2019 Interim Management Statement

Data : 31/10/2019 @ 08:00
Fonte : UK Regulatory (RNS & others)
Titolo : Lloyds Banking Group Plc (LLOY)
Quotazione : 64.33  3.21 (5.25%) @ 17:35
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Lloyds Banking Group PLC Q3 2019 Interim Management Statement

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Lloyds Banking Group PLC

31 October 2019

Lloyds Banking Group plc

Q3 2019 Interim Management Statement

31 October 2019

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 MONTHSED 30 SEPTEMBER 2019 
 
             Strong strategic progress and the right strategy in the current environment 
                       *    Strategic investment of GBP1.7 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 GBP3.7 billion UK prime 
                                       residential mortgage portfolio 
 
 
 
         Solid financial performance with statutory result impacted by additional PPI charge 
                          *    Statutory profit before tax of GBP2.9 billion 
                            including an additional GBP1.8 billion PPI charge in 
                                             the third quarter 
 
 
                       *    Underlying profit of GBP6.0 billion in a challenging 
                             external environment, with lower net income partly 
                             offset by lower total costs and higher impairment 
                                                  charges 
 
 
                       *    Net income of GBP13.0 billion, down 3 per cent, with 
                              slightly lower average interest-earning banking 
                           assets of GBP434 billion, net interest margin of 2.89 
                            per cent and other income of GBP4.4 billion, down 4 
                                                  per cent 
 
 
                       *    Total costs of GBP6.0 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 GBP6 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 GBP7.9 
                            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 
 
 
 
 

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 
                                               GBPm      GBPm        %      GBPm      GBPm         % 
 
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 expense(1)                                (960)   (1,194)       20     (288)     (394)        27 
                                           --------  --------           --------  -------- 
Statutory profit (loss) after tax(1)          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    GBP434bn  GBP436bn        -  GBP435bn  GBP435bn         - 
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 customers(2)      GBP447bn    GBP441bn        1   GBP444bn        1 
Customer deposits(3)                    GBP419bn    GBP418bn        -   GBP416bn        1 
Loan to deposit ratio                       107%        106%      1pp       107%        - 
Capital build(4)                            28bp        70bp               210bp 
CET1 ratio pre dividend accrual(5)         14.4%       14.6%  (0.2)pp      13.9%    0.5pp 
CET1 ratio(5)                              13.5%       14.0%  (0.5)pp      13.9%  (0.4)pp 
Transitional MREL ratio(5)                 32.5%       32.2%    0.3pp      32.6%  (0.1)pp 
UK leverage ratio(5)                        4.9%        5.1%  (0.2)pp       5.6%  (0.7)pp 
Risk-weighted assets(5)                 GBP209bn    GBP207bn        1   GBP206bn        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 GBP55.6 billion (30 June 2019: GBP54.1 
      billion; 31 December 2018: GBP40.5 billion). 
(3)  Excludes repos of GBP1.8 billion (30 June 2019: GBP4.1 billion; 
      31 December 2018: GBP1.8 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. 
 

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 
                                        GBPm      GBPm      GBPm      GBPm      GBPm      GBPm      GBPm 
 
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 expense(1)                         (288)     (269)     (403)     (260)     (394)     (369)     (431) 
                                    --------  --------  --------  --------  --------  --------  -------- 
Statutory profit (loss) after 
 tax(1)                                (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    GBP435bn  GBP433bn  GBP433bn  GBP436bn  GBP435bn  GBP436bn  GBP437bn 
assets 
 
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               GBP447bn  GBP441bn  GBP441bn  GBP444bn  GBP445bn  GBP442bn  GBP445bn 
customers(2) 
Customer deposits(3)                GBP419bn  GBP418bn  GBP417bn  GBP416bn  GBP422bn  GBP418bn  GBP413bn 
Loan to deposit ratio                   107%      106%      106%      107%      105%      106%      108% 
Risk-weighted assets(4)             GBP209bn  GBP207bn  GBP208bn  GBP206bn  GBP207bn  GBP207bn  GBP211bn 
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. 
 

BALANCE SHEET ANALYSIS

 
 
                                   At 30 Sept  At 30 June          At 30 Sept          At 31 Dec 
                                         2019        2019  Change        2018  Change       2018  Change 
                                        GBPbn       GBPbn       %       GBPbn       %      GBPbn       % 
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 other(1)                           9.2         9.0       2         8.3      11        8.6       7 
SME(2)                                   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 
 customers(3)                           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 accounts(2,4)         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 deposits(2,5)                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 deposits(6)              419.2       417.6       -       421.6     (1)      416.3       1 
                                   ----------  ----------          ----------          --------- 
 
Total assets(7)                         858.5       822.2       4       829.2       4      797.6       8 
Total liabilities(7)                    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 GBP1.7 billion and lease liabilities 
      of GBP1.8 billion. 
 

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 GBP2,947 million with good underlying profit offset by an additional GBP1,800 million payment protection insurance (PPI) charge in the third quarter.

Given the challenging external environment, underlying profit was GBP6,016 million compared to GBP6,303 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 GBP13,009 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 GBP9,275 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 GBP1.9 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 GBP4,415 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 GBP6,043 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 GBP5,817 million were 3 per cent lower with a 6 per cent reduction in business as usual costs(1) , largely driven by increased efficiency from digitalisation and process improvements, in parallel with strategic investment of GBP0.8 billion in the business, up 24 per cent compared to the first nine months of 2018. Remediation charges of GBP226 million were significantly lower than the GBP366 million in the first nine months of 2018 and included additional charges of GBP83 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 GBP7.9 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 GBP950 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. 
 

REVIEW OF PERFORMANCE (continued)

Restructuring costs of GBP280 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 GBP339 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 GBP2,450 million included an additional charge of GBP1,800 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 GBP2,324 million at the end of the third quarter.

Balance sheet strength maintained with lower Pillar 2A requirement

Loans and advances to customers increased by GBP6.2 billion to GBP447.2 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 GBP6.1 billion driven by the GBP3.7 billion Tesco mortgage acquisition and GBP2.4 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 GBP76.1 billion (31 December 2018: GBP73.7 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.GBP650 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.

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 GBP3 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.

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 (GBPm)           7,425    9,138 
Insurance gross up (GBPm)                                    1,559      267 
Volatility and other items (GBPm)                              291      139 
                                                           -------  ------- 
Group net interest income - underlying basis (GBPm)          9,275    9,544 
Non-banking net interest expense (GBPm)(1)                     103       19 
                                                           -------  ------- 
Banking net interest income - underlying basis (GBPm)        9,378    9,563 
                                                           -------  ------- 
 
Net loans and advances to customers (GBPbn)(2)               447.2    444.6 
Impairment provision and fair value adjustments (GBPbn)        4.1      4.0 
Non-banking items: 
  Fee-based loans and advances (GBPbn)                       (7.0)    (6.3) 
  Other non-banking (GBPbn)                                  (3.5)    (5.9) 
                                                           -------  ------- 
Gross banking loans and advances (GBPbn)                     440.8    436.4 
Averaging (GBPbn)(3)                                         (6.8)    (0.5) 
                                                           -------  ------- 
Average interest-earning banking assets (GBPbn)              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 GBP3.6 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 (GBPbn)                                                           43.3     42.9 
Average intangible assets (GBPbn)                                                             (5.9)    (5.4) 
                                                                                            -------  ------- 
Average tangible equity (GBPbn)                                                                37.4     37.5 
                                                                                            -------  ------- 
 
Underlying profit after tax (GBPm)(1)                                                         4,543    4,725 
Add back amortisation of intangible assets (post tax) (GBPm)                                    269      219 
Less profit attributable to non-controlling interests and other equity holders (GBPm)(1)      (415)    (392) 
                                                                                            -------  ------- 
Adjusted underlying profit after tax (GBPm)                                                   4,397    4,552 
                                                                                            -------  ------- 
 
Underlying return on tangible equity (%)                                                       15.7     16.2 
 
Group statutory profit after tax (GBPm)(1)                                                    1,987    3,740 
Add back amortisation of intangible assets (post tax) (GBPm)                                    269      219 
Add back amortisation of purchased intangible assets (post tax) (GBPm)                           56       83 
Less profit attributable to non-controlling interests and other equity holders (GBPm)(1)      (415)    (392) 
                                                                                            -------  ------- 
Adjusted statutory profit after tax (GBPm)                                                    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. 
 
 
 
                                                 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.

CONTACTS

For further information please contact:

INVESTORS AND ANALYSTS

Douglas Radcliffe

Group Investor Relations Director

020 7356 1571

douglas.radcliffe@lloydsbanking.com

Edward Sands

Director of Investor Relations

020 7356 1585

edward.sands@lloydsbanking.com

Nora Thoden

Director of Investor Relations

020 7356 2334

nora.thoden@lloydsbanking.com

CORPORATE AFFAIRS

Grant Ringshaw

External Relations Director

020 7356 2362

grant.ringshaw@lloydsbanking.com

Matt Smith

Head of Media Relations

020 7356 3522

matt.smith@lloydsbanking.com

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

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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