Lloyds Bank plc: 2024 Half-Year Results

LONDON, July 25, 2024 (GLOBE NEWSWIRE) --

Member of the Lloyds Banking Group

CONTENTS
Financial review	1
Risk management
Principal risks and uncertainties	3
Capital risk	4
Credit risk	8
Liquidity risk	18
Statutory information
Condensed consolidated half-year financial statements (unaudited)	21
Condensed consolidated income statement (unaudited)	22
Condensed consolidated statement of comprehensive income (unaudited)	23
Condensed consolidated balance sheet (unaudited)	24
Condensed consolidated statement of changes in equity (unaudited)	25
Condensed consolidated cash flow statement (unaudited)	28
Notes to the condensed consolidated half-year financial statements (unaudited)	29
Statement of directors' responsibilities	58
Independent review report to Lloyds Bank plc	59
Forward looking statements	60
Contacts	61

FINANCIAL REVIEW

Principal activities

Lloyds Bank plc (the Bank) and its subsidiary undertakings (the Group) provide a wide range of banking and financial services through branches and offices in the UK and in certain overseas locations. The Group's revenue is earned through interest and fees on a broad range of financial services products including current accounts, savings, mortgages, credit cards, motor finance and unsecured loans to personal and business banking customers; and lending, transactional banking, working capital management and risk management services to commercial customers.

Income statement

The Group's profit before tax for the first half of 2024 was £2,818 million, 20 per cent lower than the same period in 2023. This was due to lower net interest income and higher operating expenses, partly offset by a lower impairment charge. Profit after tax was £2,007 million (half-year to 30 June 2023: £2,590 million).

Total income for the period was £8,376 million, a decrease of 7 per cent on the same period in 2023, primarily reflecting lower net interest income. Net interest income of £6,222 million was down 11 per cent compared to the first half of 2023, driven by lower margins. The lower margin reflects anticipated headwinds due to deposit churn and asset margin compression, particularly in the mortgage book as it refinances in a lower margin environment. These factors were partially offset by benefits from higher structural hedge earnings as it refinances in the higher rate environment.

Other income amounted to £2,154 million in the half-year to 30 June 2024 compared to £2,031 million in the same period in 2023, with improved UK Motor Finance performance, including growth following the acquisition of Tusker in the first half of 2023 and continued Commercial Banking growth partially offset by the impact of changes to commission arrangements with Scottish Widows.

Operating expenses of £5,436 million were 13 per cent higher than in the prior year. This reflects higher operating lease depreciation, due to fleet size growth, the depreciation of higher value vehicles and declines in used car prices (particularly in electric vehicles), alongside planned strategic investment, elevated severance charges and continued inflationary pressure. It also includes c.£100 million relating to the sector-wide change in the charging approach for the Bank of England Levy during the first quarter.

In the first half of 2024 the Group recognised remediation costs of £90 million (half-year to 30 June 2023: £62 million), largely in relation to pre-existing programmes. There have been no further charges relating to the potential impact of the FCA review into historical motor finance commission arrangements. An update from the FCA is currently expected in September.

Impairment was a net charge of £122 million compared to a £681 million charge in the half-year to 30 June 2023. This decrease reflects a larger credit from improvements to the Group's economic outlook in the period compared to the prior year (notably in HPI) and changes in methodology. In addition the reduction also includes the release of judgemental adjustments for inflation and interest rate risks and stronger performance in UK mortgages resulting in lower charges. Commercial Banking has benefited from a one-off release from loss rates used in the model, while observing a low charge on new and existing Stage 3 clients.

The Group recognised a tax expense of £811 million in the period, compared to £940 million in the first half of 2023, reflecting decreased profits.

FINANCIAL REVIEW (continued)

Balance sheet

Total assets were £2,957 million higher at £608,362 million at 30 June 2024 compared to £605,405 million at 31 December 2023. Financial assets at amortised cost were £9,987 million higher at £498,058 million compared to £488,071 million at 31 December 2023 with increases in reverse repurchase agreements of £9,522 million and loans and advances to customers of £2,186 million, partly offset by a reduction in loans and advances to banks of £1,743 million. The increase in reverse repurchase agreements and the decrease in cash and balances at central banks by £8,755 million to £49,154 million reflected a change in the mix of liquidity holdings. The increase in loans and advances to customers included growth across most Retail product areas, in particular UK Retail unsecured loans, due to balance growth and lower repayments following a securitisation in the fourth quarter of 2023. Other assets increased by £2,021 million to £13,959 million, driven by higher settlement balances and higher operating lease assets reflecting continued motor finance growth.

Total liabilities were £3,749 million higher at £568,723 million compared to £564,974 million at 31 December 2023. Customer deposits at £446,165 million increased by £4,212 million since the end of 2023, driven by inflows to limited withdrawal and fixed savings products, partly offset by decreases in current account balances. Debt securities in issue at amortised cost decreased by £3,724 million to £48,725 million at 30 June 2024. Amounts due to fellow Lloyds Banking Group undertakings increased by £2,236 million to £5,168 million at 30 June 2024. Other liabilities increased by £2,208 million to £8,468 million, driven by higher settlement balances.

Total equity was £39,639 million at 30 June 2024 compared to £40,431 million at 31 December 2023. The reduction in total equity was driven by an interim dividend of £2.1 billion, pension revaluations and cash flow hedging reserve movements, partly offset by the profit for the period.

Capital

The Group's common equity tier 1 (CET1) capital ratio reduced to 13.6 per cent at 30 June 2024 (31 December 2023: 14.4 per cent). This largely reflected profit for the period, offset by the payment of ordinary dividends during the first half of the year, the accrual for foreseeable ordinary dividends and an increase in risk-weighted assets.

Risk-weighted assets have increased by £1,389 million to £183,949 million at 30 June 2024 (31 December 2023: £182,560 million). This incorporates the impact of Retail lending growth, offset by optimisation including capital efficient securitisation activity, in addition to other movements.

RISK MANAGEMENT

PRINCIPAL RISKS AND UNCERTAINTIES

The most important risks faced by the Group are detailed below. The external risks faced by the Group may impact the success of delivering against the Group's long-term strategic objectives. They include, but are not limited to, macroeconomic uncertainty and elevated interest rates which are contributing to the cost of living and associated implications for UK consumers and businesses.

Asset quality remains strong with resilient credit performance throughout the period. The Group continues to monitor the impacts of the economic environment carefully through a suite of early warning indicators and governance arrangements that ensure risk mitigating action plans are in place to support customers and protect the Group's positions.

With respect to conduct risk there have been no further charges relating to the potential impact of the FCA review into historical motor finance commission arrangements. An update from the FCA is currently expected in September.

The Group is transforming its approach to risk management to support its strategic ambition and purpose of Helping Britain Prosper. The Group has reviewed its three lines of defence model and is evolving its accountabilities with enhanced focus on controls and expertise. This will increase the pace of decision making, with the intent of improving risk management. The Group has initially focused on non-financial risks.

The Group has also undertaken a detailed review of its risk categories and implemented an events-based risk management framework. This has resulted in a reduction in the number of principal risk types and the simplification of secondary risk categories. This change better aligns to the Basel Committee on Banking Supervision's event categories which will benefit the Group for scenario activities and regulatory reporting.

The Group has 10 principal risks; capital risk, climate risk, compliance risk (previously regulatory and legal risk), conduct risk, credit risk, economic crime risk, liquidity risk (previously liquidity and funding risk), market risk, model risk and operational risk (operational resilience risk has been removed as a separate risk category as it relates to many of the principal risk types).

The below principal risk definitions have changed since the Group's 2023 annual report and accounts:

Conduct risk - The risk of our Group activities, behaviours, strategy or business planning, having an adverse impact on outcomes for customers, undermining the integrity of the market or distorting competition, which could lead to regulatory censure, reputational damage or financial loss.

Economic crime risk - The risk that the Group implements ineffective policies, systems, processes and controls to prevent, detect and respond to the risk of fraud and/or financial crime resulting in increased losses, regulatory censure/fines and/or adverse publicity in the UK or other jurisdictions in which the Group operates.

Liquidity risk - The risk that the Group does not have sufficient financial resources to meet its commitments when they fall due or can only secure them at excessive cost.

Model risk - The potential for adverse consequences from model errors or the inappropriate use of modelled outputs to inform business decisions. Adverse consequences could lead to a deterioration in the prudential position, non-compliance with applicable laws and/or regulations, or damage to the Group's reputation. Model risk can also lead to financial loss, as well as qualitative limitations such as the imposition of restrictions on business activities.

Operational risk - The risk of actual or potential impact to the Group (financial and/or non-financial) resulting from inadequate or failed internal processes, people, and systems or from external events. Resilience is core to the management of operational risk within Lloyds Banking Group to ensure that business processes (including those that are outsourced) can withstand operational risks and can respond to and meet customer and stakeholder needs when continuity of operations is compromised.

All other principal risk definitions remain unchanged.

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