lloy201505016k.htm
 
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
 
 
FORM 6-K
 
 
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
 
 
01 May 2015


LLOYDS BANKING GROUP plc

(Translation of registrant's name into English)
 
5th Floor
25 Gresham Street
London
EC2V 7HN
United Kingdom
 
 
(Address of principal executive offices)
 
 
 
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
 
Form 20-F..X..     Form 40-F.....
 
 
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes .....      No ..X..
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule
12g3-2(b): 82- ________
 
 
Index to Exhibits
 
 
 
Lloyds Banking Group plc
 
 
Q1 2015 Interim Management Statement
 
 
1 May 2015
 
 
 
 
BASIS OF PRESENTATION
This report covers the results of Lloyds Banking Group plc together with its subsidiaries (the Group) for the three months ended 31 March 2015.
Statutory basis
Statutory information is set out on page 9. However, a number of factors have had a significant effect on the comparability of the Group's financial position and results. As a result, comparison on a statutory basis of the 2015 results with 2014 is of limited benefit.
Underlying basis
In order to present a more meaningful view of business performance, the results are presented on an underlying basis excluding items that in Management's view could distort the comparison of performance between periods. Based on this principle, the following items are excluded from underlying profit:
-   the amortisation of purchased intangible assets and the unwind of acquisition-related fair value adjustments;
-   the effects of certain asset sales and other items;
-   volatility relating to the insurance business and insurance gross up;
-   Simplification costs, TSB build and dual running costs and the loss relating to the TSB sale;
-   payment protection insurance and other regulatory provisions; and
-   certain past service pensions items in respect of the Group's defined benefit pension schemes.
Unless otherwise stated, income statement commentaries throughout this document compare the three months ended 31 March 2015 to the three months ended 31 March 2014, and the balance sheet analysis compares the Group balance sheet as at 31 March 2015 to the Group balance sheet as at 31 December 2014.
TSB
On 24 March 2015 the Group sold a 9.99 per cent interest in TSB reducing its holding to 40 per cent. This sale resulted in a loss of control over TSB and its deconsolidation. The Group's 40 per cent interest in TSB has been reported as an asset held for sale at fair value within 'other assets' in the Group balance sheet as at 31 March 2015. The Group's results for the quarter include TSB. Any TSB disclosures in the document are presented on a Lloyds Banking Group basis and may differ to the equivalent figures disclosed in the TSB results release.
 
 
FORWARD LOOKING STATEMENTS
This document contains certain forward looking statements with respect to the business, strategy and plans of Lloyds Banking Group and its current goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about Lloyds Banking 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 to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such 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 exchange rates, stock markets and currencies; 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; changing customer behaviour including consumer spending, saving and borrowing habits; changes to borrower or counterparty credit quality; instability in the global financial markets, including Eurozone instability, the potential for one or more countries to exit the Eurozone and the impact of any sovereign credit rating downgrade or other sovereign financial issues; technological changes and risks to cyber security; pandemic, natural 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; changes in laws, regulations, accounting standards or taxation, including as a result of further Scottish devolution; 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 in the UK, the European Union (EU), the US or elsewhere including the implementation of key legislation and regulation; the ability to attract and retain senior management and other employees; requirements or limitations imposed on the Group as a result of HM Treasury's investment in the Group; 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 ability to complete satisfactorily the disposal of certain assets as part of the Group's EU State Aid obligations; the provision of banking operations services to TSB Banking Group plc; 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 and lending companies; and exposure to regulatory or competition scrutiny, legal proceedings, regulatory or competition 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 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 Lloyds Banking Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements.
 


 
 
RESULTS FOR THE THREE MONTHS ENDED 31 MARCH 2015
 
 
'We have made a strong start to the next phase of our strategy to become the best bank for customers and shareholders, as we continue to support and benefit from UK economic growth. I am pleased with the continued improvement in financial strength and performance in the first quarter and expect our plan to deliver sustainable growth and improved returns.'
 
António Horta-Osório
Group Chief Executive
 
 
Continued improvement in financial strength and performance
 
·     Underlying profit of £2,178 million, an increase of 21 per cent on the first quarter of 2014
 
·     Total income up 3 per cent to £4,644 million
 
-    Net interest income of £3,021 million, up 7 per cent, primarily driven by margin improvement to 2.65 per cent
 
-    Other income of £1,623 million, down 6 per cent on the first quarter of 2014 due to business disposals in 2014 and lower Retail fees and commissions, but up 5 per cent on the fourth quarter of 2014
 
·     Total costs flat year-on-year with increased investment in the business; cost:income ratio of 47.7 per cent (Q1 2014: 49.3 per cent)
 
·     Impairment charge reduced 59 per cent to £177 million; asset quality ratio improved 20 basis points to 0.15 per cent
 
·     Profit before tax and the sale of TSB up 37 per cent to £1,874 million
 
·     Loss relating to TSB sale of £660 million
 
·     Underlying return on required equity of 16.0 per cent, up 3.0 percentage points on the first quarter of 2014
 
·     Strong balance sheet and liquidity position with a CET1 ratio of 13.4 per cent, up 0.6 percentage points in the quarter; a total capital ratio of 22.6 per cent; and a leverage ratio of 5.0 per cent (31 December 2014: 4.9 per cent)
 
·     Reported statutory profit before tax of £1,214 million
 
·     Tangible net assets per share increased to 55.8p (31 December 2014: 54.9p)
 
 
 
Strong start to next phase of strategic journey; continued focus on supporting customers and the UK economy
 
·     TSB sale will enable the Group to meet its commitment to the EC ahead of the mandated deadline
 
·     Creating best customer experience through multi-channel, multi-brand strategy; increased investment in digital
 
·     Continue to become simpler and more efficient through process redesign and automation
 
·     Delivering sustainable growth in key customer segments
 
-    Net lending of £1.1 billion to SMEs over the last 12 months, up 4 per cent in a declining market
 
-    UK Consumer Finance lending growth of 17 per cent over the last 12 months
 
-    Continue to target mortgage growth in line with the market; £2.2 billion lent to first-time buyers in the first quarter, providing one in four mortgages
 
·     UK government stake reduced to 20.95 per cent (as at 23 April 2015)
 
·     Continue to support our communities with contributions through our Lloyds Bank and Bank of Scotland Foundations, which gave over £19 million in grants to charities in 2014
 
·     As part of our Helping Britain Prosper Plan we have committed to give at least £100 million to the Foundations by 2020 to support their work across the UK
 
 
Guidance for 2015 improved or reconfirmed. Well positioned for further progress in 2015
 
·     Expect net interest margin for the year to exceed original guidance of around 2.55 per cent
 
·     Expect other income to be broadly stable in 2015
 
·     Full year asset quality ratio for 2015 now expected to be around 25 basis points (previously around 30 basis points)
 
·     Full year cost:income ratio targeted to be lower than 2014 ratio of 49.8 per cent
 
 
CONSOLIDATED INCOME STATEMENT − UNDERLYING BASIS
 
 
   
Three 
months 
ended 
31 Mar 
2015 
  
Three 
months 
ended 
31 Mar 
2014 
  
 
 
Change 
  
Three 
months 
ended 
31 Dec 
2014 
  
Change 
   
£ million 
  
£ million 
  
% 
  
£ million 
  
% 
                     
Net interest income
  
3,021 
  
2,811 
  
7 
  
2,923 
  
3 
Other income
  
1,623 
  
1,718 
  
(6)
  
1,547 
  
5 
Total income
  
4,644 
  
4,529 
  
3 
  
4,470 
  
4 
Total costs
  
(2,289)
  
(2,298)
  
− 
  
(2,505)
  
9 
Impairment
  
(177)
  
(431)
  
59 
  
(183)
  
3 
Underlying profit
  
2,178 
  
1,800 
  
21 
  
1,782 
  
22 
                     
Asset sales and other items
  
(111)
  
120 
      
34 
    
Simplification costs
  
(26)
  
(294)
      
(316)
    
TSB
  
(745)
  
(172)
      
(144)
    
Legacy provisions
  
− 
  
− 
      
(1,125)
    
Other items
  
(82)
  
(85)
      
(83)
    
Profit before tax - statutory
  
1,214 
  
1,369 
  
(11)
  
148 
    
Taxation
  
(270)
  
(207)
  
(30)
  
(41)
    
Profit for the period
  
944 
  
1,162 
  
(19)
  
107 
    
                     
Underlying earnings per share
  
2.3p 
  
2.0p 
  
0.3p 
  
1.8p 
  
0.5p 
Earnings per share
  
1.2p 
  
1.6p 
  
(0.4)p 
  
0.0p 
  
1.2p 
                     
Banking net interest margin
  
2.65% 
  
2.32% 
  
33bp 
  
2.47% 
  
18bp 
Cost:income ratio1
  
47.7% 
  
49.3% 
  
(1.6)pp 
  
54.9% 
  
(7.2)pp 
Asset quality ratio
  
0.15% 
  
0.35% 
  
(20)bp 
  
0.15% 
  
− 
Return on risk-weighted assets
  
3.73% 
  
2.71% 
  
102bp 
  
2.89% 
  
84bp 
Return on assets
  
1.05% 
  
0.87% 
  
18bp 
  
0.83% 
  
22bp 
Underlying return on required equity
  
16.0% 
  
13.0% 
  
3.0pp 
  
12.6% 
  
3.4pp 
Statutory return on required equity
  
8.3% 
  
10.8% 
  
(2.5)pp 
  
0.3% 
  
8.0pp 
 
 
 
BALANCE SHEET AND KEY RATIOS
 
 
   
At 31 Mar 
2015 
  
At 31 Dec 
2014 
  
Change 
% 
             
Loans and advances to customers2
  
£455bn 
  
£478bn 
  
(5)
Loans and advances to customers excl. TSB, Run-off and other2,3
  
£408bn 
  
£406bn 
  
− 
Customer deposits
  
£419bn 
  
£447bn 
  
(6)
Loan to deposit ratio
  
109% 
  
107% 
  
2pp 
Total assets
  
£849bn 
  
£855bn 
  
(1)
Run-off assets
  
£15bn 
  
£17bn 
  
(9)
Wholesale funding
  
£117bn 
  
£116bn 
  
− 
Common equity tier 1 ratio
  
13.4% 
  
12.8% 
  
0.6pp 
Transitional total capital ratio
  
22.6% 
  
22.0% 
  
0.6pp 
Risk-weighted assets
  
£234bn 
  
£240bn 
  
(2)
Leverage ratio
  
5.0% 
  
4.9% 
  
0.1pp 
Tangible net assets per share
  
55.8p 
  
54.9p 
  
0.9p 
 
 
1
Operating lease depreciation deducted from income and costs and excluding TSB income and running costs.
2
Excludes reverse repos of £4.5 billion (31 December 2014: £5.1 billion).
3
Other includes the specialist mortgage book, Intelligent Finance and Dutch mortgages.




 
GROUP CHIEF EXECUTIVE'S STATEMENT
 
In 2015 we celebrate the 250th anniversary of Lloyds Bank and the 200th anniversary of Scottish Widows. In the first quarter of this milestone year we made further strategic progress. We have delivered a significant improvement to underlying profitability and balance sheet strength while at the same time continuing to support and benefit from UK economic growth.
 
Strong financial progress
Underlying profit increased by 21 per cent to £2,178 million, driven by increased income and lower impairments, and our underlying return on required equity improved to 16.0 per cent from 13.0 per cent. Statutory profit before tax was £1,214 million compared with £1,369 million in 2014. Our balance sheet position has strengthened further, with a common equity tier 1 ratio of 13.4 per cent and a leverage ratio of 5.0 per cent, up from 12.8 per cent and 4.9 per cent respectively at the end of 2014.
 
Continuing to support our customers and the UK economy
We are making excellent progress on our lending commitments as outlined in our Helping Britain Prosper Plan. In UK housing we continue to be the largest lender to first-time buyers, providing one in four mortgages, and lending £2.2 billion in the first three months of the year. Through our commitment to the commercial sector, we have supported over 23,000 business start-ups and remain the largest participant in the Funding for Lending Scheme.
 
Strong start to the next phase of our strategic journey
In October 2014 we outlined three strategic priorities to take us through to the end of 2017: creating the best customer experience; becoming simpler and more efficient; and delivering sustainable growth.
 
On creating the best customer experience, we continue to invest in our customer propositions including new digital initiatives such as Halifax Car Plan Extra, which allows customers to access a range of car financing options online. In addition, customers can now apply for a new credit card using a mobile device and youth customers are able to manage their accounts online.
 
We continue to make good progress on becoming simpler and more efficient. Our cost:income ratio was 47.7 per cent and we remain on track to deliver a full year reduction against the 2014 position of 49.8 per cent. Delivering sustainable growth is a key element in supporting customers and the UK economy. Over the last 12 months we have lent an additional net £6.3 billion to our key customer segments, including £1.1 billion to SMEs.
 
TSB disposal and UK government trading plan
We agreed the sale of our remaining stake in TSB to Banco de Sabadell in the first quarter and as part of this agreement we sold 9.99 per cent of our stake in March. The full disposal of TSB will enable us to meet our commitment to the European Commission ahead of the mandated deadline.
 
Our strong performance in the first quarter has also enabled the UK government to continue to reduce its holding in the business, further enabling our return to full private ownership. Following the announcement in December 2014 of a plan to carry out a measured and orderly sell down of shares over the first half of 2015, the UK government's stake is now 20.95 per cent, less than half its original stake.
 
Well positioned to make further progress in 2015
I am confident that the successful delivery of our strategy through our simple, low risk, customer focused, UK retail and commercial banking business model will enable us to become the best bank for customers and deliver strong and sustainable returns for shareholders. It also remains our intention to pay an interim and a final dividend for 2015.
 
António Horta-Osório
Group Chief Executive



 
CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE
 
Overview: strong underlying profitability and balance sheet
The Group's underlying profit increased by 21 per cent in the first three months of 2015 to £2,178 million, driven by an improvement in income and lower impairments. Statutory profit before tax was £1,214 million compared with £1,369 million, after a charge of £660 million relating to the disposal of TSB and the statutory profit after tax was £944 million.
 
Total loans and advances to customers were £455 billion at 31 March 2015, 5 per cent lower than at 31 December 2014, principally reflecting the sale of TSB. Customer deposits were £419 billion, 6 per cent down since 31 December 2014, also largely as a result of the sale of TSB.
 
The combination of strong underlying profitability and a 2 per cent reduction in risk-weighted assets (again mostly due to the sale of TSB) resulted in a 0.6 percentage point improvement in the Group's common equity tier 1 ratio to 13.4 per cent at 31 March 2015 (31 December 2014: 12.8 per cent). This was after a net 0.2 percentage point decrease as a result of the agreed TSB disposal. Our leverage ratio improved to 5.0 per cent (31 December 2014: 4.9 per cent).
 
Excluding TSB and other portfolios, loans and advances have increased by 2 per cent since the end of March 2014. We continue to see growth in mortgages, SME lending, Mid Markets and UK Consumer Finance, partly offset by a reduction in lending to Global Corporate clients.
 
Total income
 
   
Three 
months 
ended 
31 Mar 
2015 
  
Three 
months 
ended 
31 Mar 
2014 
  
Change 
  
Three 
months 
ended 
31 Dec 
2014 
  
Change 
   
£ million 
  
£ million 
  
% 
  
£ million 
  
% 
                     
Net interest income
  
2,829 
  
2,610 
  
8 
  
2,730 
  
4 
TSB
  
192 
  
201 
  
(4)
  
193 
  
(1)
Total net interest income
  
3,021 
  
2,811 
  
7 
  
2,923 
  
3 
Other income
  
1,592 
  
1,680 
  
(5)
  
1,513 
  
5 
TSB
  
31 
  
38 
  
(18)
  
34 
  
(9)
Total other income
  
1,623 
  
1,718 
  
(6)
  
1,547 
  
5 
                     
Total income
  
4,644 
  
4,529 
  
3 
  
4,470 
  
4 
                     
Banking net interest margin
  
2.65% 
  
2.32% 
  
33bp 
  
2.47% 
  
18bp 
Banking net interest margin excl. TSB
  
2.60% 
  
2.27% 
  
33bp 
  
2.42% 
  
18bp 
Average interest-earning banking assets
  
£468.0bn 
  
£491.5bn 
  
(5)
  
£475.8bn 
  
(2)
Average interest-earning banking assets excl. TSB
  
£446.5bn 
  
£468.2bn 
  
(5)
  
£453.9bn 
  
(2)
 
Total net interest income of £3,021 million increased by 7 per cent over the last 12 months and 3 per cent in the last quarter, reflecting continued improvement in net interest margin, partly offset by the reduced Run-off portfolio.
 
The net interest margin increased to 2.65 per cent, up 33 basis points compared with the first quarter of 2014 and 18 basis points compared with the fourth quarter of 2014. These improvements reflect the disposal of lower margin  run-off assets as well as the continued benefits of reduced funding and liability costs, partly offset by lower asset pricing. In addition, the strengthening of the margin relative to the first quarter of 2014 reflects the benefit of the Enhanced Capital Note (ECN) exchanges last year, while the uplift relative to the fourth quarter has also been partly driven by the absence of the one-off effects from the decision to simplify the savings product range.
 
In light of the strong trend in the first quarter and our future expectations, we now expect our full year net interest margin to exceed our original guidance of 2.55 per cent.


 
CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE (continued)
 
Total other income at £1,623 million was 6 per cent lower than the same period of 2014 with the reduction primarily reflecting the disposal of Scottish Widows Investment Partnership in the first quarter of 2014 and lower Retail fees and commissions.
 
Compared to the fourth quarter of 2014, total other income increased by 5 per cent, led by Retail, following a weak last three months of 2014, and Commercial Banking. We continue to expect other income to be broadly stable for the full year 2015.
 
Total costs
 
   
Three 
months 
ended 
31 Mar 
2015 
  
Three 
months 
ended 
31 Mar 
2014 
  
Change 
  
Three 
months 
ended 
31 Dec 
2014 
  
Change 
   
£ million 
  
£ million 
  
% 
  
£ million 
  
% 
                     
Operating costs
  
2,020 
  
2,031 
  
1 
  
2,221 
  
9 
Operating lease depreciation
  
183 
  
173 
  
(6)
  
195 
  
6 
   
2,203 
  
2,204 
  
− 
  
2,416 
  
9 
TSB running costs
  
86 
  
94 
  
9 
  
89 
  
3 
Total costs
  
2,289 
  
2,298 
  
− 
  
2,505 
  
9 
Cost:income ratio1
  
47.7% 
  
49.3% 
  
(1.6)pp 
  
54.9% 
  
(7.2)pp 
 
 
1
Operating lease depreciation deducted from income and costs and excluding TSB income and running costs.
 
Total costs were flat compared to the first quarter of 2014 with increased investment in the business offset by the benefits of Simplification.
 
The cost:income ratio of 47.7 per cent in the first quarter has improved compared with both the first and fourth quarters of 2014 (49.3 per cent and 54.9 per cent respectively). This reflects the combined effects of higher income and a stable cost base. The improvement in the ratio relative to the fourth quarter also reflects the timing of the bank levy which was £254 million in the fourth quarter of 2014. We continue to target year-on-year reductions in our cost:income ratio which was 49.8 per cent for the full year 2014 and 48.2 per cent excluding the bank levy.
 
Impairment
 
   
Three 
months 
ended 
31 Mar 
2015 
  
Three 
months 
ended 
31 Mar 
2014 
  
Change 
  
Three 
months 
ended 
31 Dec 
2014 
  
Change 
   
£ million 
  
£ million 
  
% 
  
£ million 
  
% 
                     
Impairment charge
  
158 
  
407 
  
61 
  
159 
  
1 
TSB
  
19 
  
24 
  
21 
  
24 
  
21 
Total impairment charge
  
177 
  
431 
  
59 
  
183 
  
3 
Asset quality ratio
  
0.15% 
  
0.35% 
  
(20)bp
  
0.15% 
  
− 
Impaired loans as a % of advances
  
2.8% 
  
5.7% 
  
(2.9)pp 
  
2.9% 
  
(0.1)pp 
 
The impairment charge continues to improve and was down 59 per cent from the first quarter of 2014 to £177 million. The improvement reflects lower levels of new impairment as a result of effective risk management, the reduction in the size of the Run-off portfolio, improving economic conditions and the continued low interest rate environment.
 
Given the lower impairment charge and future expectations, we now expect the full year asset quality ratio will be around 25 basis points (previously around 30 basis points). Impaired loans as a percentage of advances fell from 2.9 per cent (3.0 per cent excluding TSB) at 31 December 2014 to 2.8 per cent, driven by reductions within both the continuing and the Run-off portfolios. Provisions as a percentage of impaired loans increased from 56.4 per cent at 31 December 2014 to 57.1 per cent.


CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE (continued)
 
Statutory profit
Statutory profit before tax was £1,214 million in the first three months of 2015. Further detail on the reconciliation of underlying to statutory results is included on page 10.
 
 
   
Three 
months 
ended 
31 Mar 
2015 
  
Three 
months 
ended 
31 Mar 
2014 
  
Change 
  
Three 
months 
ended 
31 Dec 
2014 
  
Change 
   
£ million 
  
£ million 
  
% 
  
£ million 
  
% 
                     
Underlying profit
  
2,178 
  
1,800 
  
21 
  
1,782 
  
22 
Asset sales and other items:
                    
Asset sales and volatility
  
18 
  
260 
      
92 
    
Fair value unwind
  
(129)
  
(140)
      
(58)
    
   
(111)
  
120 
      
34 
    
Simplification costs
  
(26)
  
(294)
      
(316)
    
TSB build and dual running costs
  
(85)
  
(172)
      
(144)
    
Charge relating to TSB disposal
  
(660)
  
− 
      
− 
    
   
(745)
  
(172)
      
(144)
    
Legacy provisions
  
− 
  
− 
      
(1,125)
    
Other items: amortisation of purchased intangibles
  
(82)
  
(85)
      
(83)
    
Profit before tax - statutory
  
1,214 
  
1,369 
  
(11)
  
148 
    
Taxation
  
(270)
  
(207)
  
(30)
  
(41)
    
Profit for the period
  
944 
  
1,162 
  
(19)
  
107 
    
 
Asset sales and volatility
Asset sales and volatility was £18 million compared with £260 million in 2014. This principally reflects the change in the value of the ECN embedded derivative (a charge of £65 million compared to a gain of £204 million in the three months to 31 March 2014) and a £105 million gain on the disposal of Scottish Widows Investment Partnership that was recognised in the first quarter of 2014. This was partly offset by positive insurance and banking volatility of £72 million (31 March 2014: negative volatility of £108 million).
 
Fair value unwind
The fair value unwind of £129 million was lower than the equivalent figure of £140 million in 2014, principally reflecting the maturity profile of the subordinated debt acquired as part of the HBOS acquisition.
 
TSB
TSB dual running costs in the quarter were £85 million and there was a net charge of £660 million relating to the sale of TSB. The charge reflects the net costs of the Transitional Service Agreement between Lloyds and TSB, the contribution to be provided by Lloyds to TSB in migrating to an alternative IT platform and the gain on sale. This charge differs from the original estimate of £640 million given in the announcement on 20 March 2015, with the increase primarily reflecting TSB performance in the first quarter. The capital impact of the disposal at 31 March 2015 is a net 0.2 percentage point decrease in the Group's common equity tier 1 capital ratio and a further decrease of 0.1 percentage points is expected on completion of the transaction.
 
TSB has now been deconsolidated and going forward will no longer be reflected in our income statement.


CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE (continued)
 
PPI
There has been no further provision for PPI in the first quarter. Reactive complaint volumes are 11 per cent lower than the first quarter of 2014 but slightly above our expectations and marginally higher than the fourth quarter of 2014 due to seasonality.
 
Remediation and past business reviews are progressing in line with our expectations. As a result, cash payments for the first quarter total £836 million and are higher than the fourth quarter of 2014, although we continue to expect these costs to reduce significantly in the second half of the year. Our remaining £1.7 billion provision continues to represent the Group's best estimate of total future costs but a number of risks and uncertainties remain, in particular the total expected future complaint volumes.
 
Taxation
The tax charge for the quarter was £270 million representing an effective tax rate of 22 per cent. This compared with 15 per cent in the first quarter of 2014, which reflected tax exempt gains on the sales of businesses, including Scottish Widows Investment Partnership.
 
Funding, liquidity and capital ratios
 
   
At 
31 Mar 
2015 
  
At 
31 Dec 
2014 
  
Change 
% 
             
Wholesale funding
  
£117bn 
  
£116bn 
  
− 
Wholesale funding <1 year maturity
  
£41bn 
  
£41bn 
  
− 
Of which money-market funding <1 year maturity1
  
£20bn 
  
£19bn 
  
5 
Loan to deposit ratio
  
109% 
  
107% 
  
2pp 
Primary liquid assets2
  
£101bn 
  
£109bn 
  
(7)
             
Common equity tier 1 capital ratio3
  
13.4% 
  
12.8% 
  
0.6pp 
Transitional tier 1 capital ratio
  
16.9% 
  
16.5% 
  
0.4pp 
Transitional total capital ratio
  
22.6% 
  
22.0% 
  
0.6pp 
Leverage ratio
  
5.0% 
  
4.9% 
  
0.1pp 
Risk-weighted assets
  
£234bn 
  
£240bn 
  
(2)
             
Shareholders' equity
  
£44bn 
  
£43bn 
  
2 
 
 
1
Excludes balances relating to margins of £3.2 billion (31 December 2014: £2.8 billion) and settlement accounts of £1.7 billion (31 December 2013: £1.4 billion).
2
Includes off-balance sheet liquid assets; the balance at 31 December 2014 included £4.5 billion held by TSB.
3
Common equity tier 1 ratio is the same on both fully loaded and transitional bases.
 
The Group's wholesale funding remained broadly stable at £117 billion, of which £41 billion has a maturity of less than one year. The Group's liquidity position remains strong with primary liquid assets of £101 billion and a further £102 billion of secondary liquid assets. Primary liquid assets represent over five times our money-market funding with a maturity of less than one year, and more than two times our total short-term wholesale funding.
 
The Group continued to strengthen its capital position, with its common equity tier 1 capital ratio increasing from 12.8 per cent to 13.4 per cent in the quarter, despite a net 0.2 percentage point decrease as a result of the agreed TSB disposal. The overall improvement was driven by a combination of underlying profit and a reduction in risk-weighted assets that largely reflected the partial deconsolidation of TSB in accordance with the prescribed regulatory treatment.
 
The leverage ratio increased from 4.9 per cent to 5.0 per cent, largely as a result of both the increase in common equity tier 1 capital and the partial deconsolidation of TSB.


CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE (continued)
 
Enhanced Capital Notes (ECNs)
On 31 March, the Group announced that it had received permission from the Prudential Regulation Authority for the redemption of certain series of ECNs. It also confirmed that the Group had been notified by the Trustee that it would seek a declaratory judgement in respect of the interpretation of certain terms of the ECNs. An expedited process has been agreed with the Trustee and the court hearing is expected to take place during the week commencing 18 May 2015. On this basis, the Group has decided to defer exercising the redemption of these ECNs for the time-being. A further update on the redemption of the ECNs will be provided in due course.
 
Conclusion
The Group has delivered a strong underlying performance in the first three months of 2015 and has continued to strengthen its balance sheet. We have improved or reconfirmed all our guidance, and are well positioned for further progress in 2015.
 
George Culmer
Chief Financial Officer




 
STATUTORY CONSOLIDATED INCOME STATEMENT AND BALANCE SHEET (UNAUDITED)
 
 
Income statement
  
Three 
months 
ended 
31 Mar 
2015 
  
Three 
months 
ended 
31 Mar 
2014 
   
£ million 
  
£ million 
         
Net interest income
  
2,263 
  
2,718 
Other income, net of insurance claims
  
2,280 
  
1,911 
Total income, net of insurance claims
  
4,543 
  
4,629 
Total operating expenses
  
(3,185)
  
(2,910)
Impairment
  
(144)
  
(350)
Profit before tax
  
1,214 
  
1,369 
Taxation
  
(270)
  
(207)
Profit for the period
  
944 
  
1,162 
         
Profit attributable to ordinary shareholders
  
814 
  
1,148 
Profit attributable to other equity holders
  
99 
  
− 
Profit attributable to equity holders
  
913 
  
1,148 
Profit attributable to non-controlling interests
  
31 
  
14 
Profit for the period
  
944 
  
1,162 
 
 
 
Balance sheet
  
At 
31 Mar 
2015 
  
At 
31 Dec  
2014 
   
£ million 
  
£ million 
         
Assets
        
Cash and balances at central banks
  
56,749 
  
50,492 
Trading and other financial assets at fair value through profit or loss
  
150,740 
  
151,931 
Derivative financial instruments
  
39,493 
  
36,128 
Loans and receivables
  
487,980 
  
510,072 
Available-for-sale financial assets
  
56,796 
  
56,493 
Other assets
  
57,518 
  
49,780 
Total assets
  
849,276 
  
854,896 
 
 
Liabilities
        
Deposits from banks
  
12,684 
  
10,887 
Customer deposits
  
418,962 
  
447,067 
Trading and other financial liabilities at fair value through profit or loss
  
70,468 
  
62,102 
Derivative financial instruments
  
37,963 
  
33,187 
Debt securities in issue
  
77,652 
  
76,233 
Liabilities arising from insurance and investment contracts
  
117,181 
  
114,486 
Subordinated liabilities
  
25,332 
  
26,042 
Other liabilities
  
39,284 
  
34,989 
Total liabilities
  
799,526 
  
804,993 
         
Total equity
  
49,750 
  
49,903 
Total equity and liabilities
  
849,276 
  
854,896 




 
APPENDIX 1
 
RECONCILIATION BETWEEN STATUTORY AND UNDERLYING BASIS RESULTS
 
The tables below set out a reconciliation from the statutory results to the underlying basis results, the principles of which are set out on the inside front cover.
 
 
     
Removal of:
    
Three months to 31 March 2015
  
Lloyds 
Banking 
Group 
statutory 
Asset 
sales 
and other 
items1
Simplification and TSB 
costs2
Insurance 
gross up 
Legal and 
regulatory 
provisions 
Amortisation of purchased 
intangibles 
  
Underlying
 basis 
   
£m  
  
£m  
  
£m  
  
£m  
  
£m 
  
£m 
  
£m  
                             
Net interest income
  
2,263 
  
100 
  
− 
  
658 
  
− 
  
− 
  
3,021 
Other income, net of insurance claims
  
2,280 
  
34 
  
(5)
  
(686)
  
− 
  
− 
  
1,623 
Total income
  
4,543 
  
134 
  
(5)
  
(28)
  
− 
  
− 
  
4,644 
Operating expenses3
  
(3,185)
  
10 
  
776 
  
28 
  
− 
  
82 
  
(2,289)
Impairment
  
(144)
  
(33)
  
− 
  
− 
  
− 
  
− 
  
(177)
Profit before tax
  
1,214 
  
111 
  
771 
  
− 
  
− 
  
82 
  
2,178 
 
 
 
     
Removal of:
    
Three months to 31 March 2014
  
Lloyds 
Banking 
Group 
statutory 
Asset 
sales 
and other 
 items4
Simplification  and TSB 
 costs5
Insurance 
gross up 
Legal and 
regulatory 
provisions 
Amortisation  of purchased 
intangibles 
  
Underlying 
basis 
   
£m  
  
£m  
  
£m  
  
£m  
  
£m 
  
£m 
  
£m  
                             
Net interest income
  
2,718 
  
155 
  
− 
  
(62)
  
− 
  
− 
  
2,811 
Other income, net of insurance claims
  
1,911 
  
(225)
  
− 
  
32 
  
− 
  
− 
  
1,718 
Total income
  
4,629 
  
(70)
  
− 
  
(30)
  
− 
  
− 
  
4,529 
Operating expenses3
  
(2,910)
  
31 
  
466 
  
30 
  
− 
  
85 
  
(2,298)
Impairment
  
(350)
  
(81)
  
− 
  
− 
  
− 
  
− 
  
(431)
Profit before tax
  
1,369 
  
(120)
  
466 
  
− 
  
− 
  
85 
  
1,800 
 
 
1
Comprises the effects of asset sales (loss of £5 million), volatile items (loss of £215 million), liability management (loss of £4 million), volatility arising in insurance businesses (gain of £242 million) and fair value unwind (loss of £129 million).
2
Comprises Simplification costs related to severance (£26 million) for the next phase of the programme, TSB dual running costs (£85 million) and the charge relating to the TSB disposal (£660 million).
3
On an underlying basis, this is described as total costs.
4
Comprises the effects of asset sales (gain of £126 million), volatile items (gain of £198 million), volatility arising in insurance businesses (loss of £64 million) and fair value unwind (loss of £140 million).
5
Comprises Simplification costs related to severance, IT and business costs of implementation (£294 million) and TSB build and dual running costs (£172 million).
 


APPENDIX 2
 
QUARTERLY UNDERLYING BASIS INFORMATION
 
 
Group
  
Quarter 
ended 
31 Mar 
2015 
  
Quarter 
ended 
31 Dec 
2014 
  
Quarter 
ended 
30 Sept 
2014 
  
Quarter 
ended 
30 June 
2014 
  
Quarter 
ended 
31 Mar 
2014 
   
£m 
  
£m 
  
£m 
  
£m 
  
£m 
                     
Net interest income
  
3,021 
  
2,923 
  
3,034 
  
2,993 
  
2,811 
Other income
  
1,623 
  
1,547 
  
1,612 
  
1,730 
  
1,718 
Total income
  
4,644 
  
4,470 
  
4,646 
  
4,723 
  
4,529 
Total costs
  
(2,289)
  
(2,505)
  
(2,232)
  
(2,377)
  
(2,298)
Impairment
  
(177)
  
(183)
  
(259)
  
(327)
  
(431)
Underlying profit
  
2,178 
  
1,782 
  
2,155 
  
2,019 
  
1,800 
Asset sales and other items
  
(111)
  
34 
  
(186)
  
(1,687)
  
120 
Simplification costs
  
(26)
  
(316)
  
(131)
  
(225)
  
(294)
TSB
  
(745)
  
(144)
  
(105)
  
(137)
  
(172)
Legacy provisions
  
− 
  
(1,125)
  
(900)
  
(1,100)
  
− 
Other items
  
(82)
  
(83)
  
(82)
  
624 
  
(85)
Statutory profit (loss) before tax
  
1,214 
  
148 
  
751 
  
(506)
  
1,369 
                     
Banking net interest margin
  
2.65% 
  
2.47% 
  
2.51% 
  
2.48% 
  
2.32% 
Asset quality ratio
  
0.15% 
  
0.15% 
  
0.20% 
  
0.26% 
  
0.35% 
Return on risk-weighted assets
  
3.73% 
  
2.89% 
  
3.37% 
  
3.09% 
  
2.71% 
Return on assets
  
1.05% 
  
0.83% 
  
1.01% 
  
0.97% 
  
0.87% 
Cost:income ratio1
  
47.2% 
  
54.0% 
  
46.0% 
  
48.4% 
  
48.8% 
 
 
Group excluding TSB
  
Quarter 
ended 
31 Mar 
2015 
  
Quarter 
ended 
31 Dec 
2014 
  
Quarter 
ended 
30 Sept 
2014 
  
Quarter 
ended 
30 June 
2014 
  
Quarter 
ended 
31 Mar 
2014 
   
£m 
  
£m 
  
£m 
  
£m 
  
£m 
                     
Net interest income
  
2,829 
  
2,730 
  
2,841 
  
2,794 
  
2,610 
Other income
  
1,592 
  
1,513 
  
1,578 
  
1,696 
  
1,680 
Total income
  
4,421 
  
4,243 
  
4,419 
  
4,490 
  
4,290 
Total costs
  
(2,203)
  
(2,416)
  
(2,146)
  
(2,276)
  
(2,204)
Impairment
  
(158)
  
(159)
  
(236)
  
(300)
  
(407)
Underlying profit
  
2,060 
  
1,668 
  
2,037 
  
1,914 
  
1,679 
                     
Banking net interest margin
  
2.60% 
  
2.42% 
  
2.47% 
  
2.44% 
  
2.27% 
Asset quality ratio
  
0.14% 
  
0.14% 
  
0.19% 
  
0.25% 
  
0.34% 
Return on risk-weighted assets
  
3.58% 
  
2.76% 
  
3.25% 
  
2.99% 
  
2.58% 
Return on assets
  
1.03% 
  
0.80% 
  
0.99% 
  
0.94% 
  
0.83% 
Cost:income ratio1
  
47.7% 
  
54.9% 
  
46.4% 
  
48.7% 
  
49.3% 
 
 
1
Operating lease depreciation deducted from income and costs.



 
APPENDIX 3
 
CAPITAL AND LEVERAGE DISCLOSURES
 
 
   
At 
31 Mar 
2015 
  
At 
31 Dec 
2014 
Capital resources (transitional)
  
£ million 
  
£ million 
         
Common equity tier 1
        
Shareholders' equity per balance sheet
  
43,976 
  
43,335 
   Deconsolidation of insurance entities
  
(1,050)
  
(824)
   Other adjustments 
  
(1,711)
  
(1,183)
   
41,215 
  
41,328 
Deductions from common equity tier 1
  
(9,858)
  
(10,639)
Common equity tier 1 capital 1
  
31,357 
  
30,689 
         
Additional tier 1 instruments
  
9,177 
  
9,728 
Deductions from tier 1
  
(1,033)
  
(859)
Total tier 1 capital
  
39,501 
  
39,558 
         
Tier 2 instruments and eligible provisions
  
14,747 
  
14,530 
Deductions from tier 2
  
(1,370)
  
(1,288)
Total capital resources
  
52,878 
  
52,800 
         
Risk-weighted assets
        
Credit risk
  
180,931 
  
186,562 
Counterparty credit risk
  
9,598 
  
9,108 
Credit valuation adjustment
  
2,240 
  
2,215 
Operational risk
  
26,279 
  
26,279 
Market risk
  
4,341 
  
4,746 
Threshold risk-weighted assets
  
10,794 
  
10,824 
Total risk-weighted assets1
  
234,183 
  
239,734 
         
Leverage
        
Total tier 1 capital (fully loaded)
  
36,713 
  
36,044 
         
Statutory balance sheet assets
  
849,276 
  
854,896 
Deconsolidation and other adjustments 
  
(163,065)
  
(166,207)
Off-balance sheet items 
  
52,385 
  
50,980 
Total exposure2
  
738,596 
  
739,669 
         
Ratios
        
Common equity tier 1 capital ratio1
  
13.4% 
  
12.8% 
Transitional tier 1 capital ratio
  
16.9% 
  
16.5% 
Transitional total capital ratio
  
22.6% 
  
22.0% 
Leverage ratio2
  
5.0% 
  
4.9% 
 
 
1
Common equity tier 1 capital resources, risk-weighted assets and the common equity tier 1 capital ratio are the same on both fully loaded and transitional bases.
2
Calculated in accordance with CRD IV rules, as amended by delegated act (January 2015).
 
 

 
 
 
 
 
CONTACTS
 
 
For further information please contact:
 
INVESTORS AND ANALYSTS
Douglas Radcliffe
Interim Investor Relations Director
020 7356 1571
douglas.radcliffe@finance.lloydsbanking.com
 
Mike Butters
Director of Investor Relations
020 7356 1187
mike.butters@finance.lloydsbanking.com
 
Duncan Heath
Director of Investor Relations
020 7356 1585
duncan.heath@finance.lloydsbanking.com
 
 
CORPORATE AFFAIRS
Matthew Young
Group Corporate Affairs Director
020 7356 2231
matt.young@lloydsbanking.com
 
Ed Petter
Group Media Relations Director
020 8936 5655
ed.petter@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. SC95000
 
 

 

 
 

 
Signatures
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
                                                                                                                                                LLOYDS BANKING GROUP plc
                                                                                                                                                (Registrant)
 
 
 
                                                                                                                                                 By: Douglas Radcliffe
                                                                                                                                                 Name: Douglas Radcliffe
  
                                     Title: Interim Investor Relations Director
                                                                                      
                                           
                                                                                                                                                                                       
Date: 01 May 2015