Lloyds Banking Group Plc Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Progress: Making good progress on strategic transformation, building momentum across business, delivering for customers, and driving sustainable returns.
• Financial Performance: Robust financial performance in Q3, with statutory profit after tax for the first nine months at 3.8 billion, return on tangible equity 14%.
• Balance Sheet Growth: Customer franchise grew with lending balances up 4.6 billion in Q3, deposits up 1 billion, mortgage book up 3.2 billion, retail business saw growth in cards and unsecured loans, while motor finance and commercial lending had declines.
• Income Growth: Net interest income and other operating income grew in Q3, supported by structural hedge contributions.
• Cost Discipline: Operating costs up 5% year on year, with cost to income ratio managed.
• Asset Quality: Strong asset quality with low impairment charges, ECLs on balance sheet higher than pre-pandemic levels but stable.
• TNAV and Capital: TNAV per share up, capital generation on track with full-year guidance.

Segment Performance

• Net Interest Income: Q3 net interest income was 3.2 billion, up 2% quarter on quarter. Net interest margin was 2.95%, up 2 basis points from Q2. Year-to-date net income was 12.7 billion.
• Other Operating Income: Q3 other operating income was 4.2 billion, up 9% year on year and 3% quarter on quarter.
• Costs: Operating costs in the first nine months of the year were 7 billion, up 5% year on year. Cost to income ratio was 53.4% (excluding remediation) in Q3.
• Asset Quality: Year-to-date impairment charge was 273 million (9 basis points asset quality ratio), Q3 impairment charge was 172 million (15 basis points AQR). ECLs on the balance sheet were 3.8 billion.
• TNAV: TNAV per share increased to 52.5p, up 2.9p in Q3, driven by profits and unwind of cash flow hedge reserve.
• Capital Generation: Year-to-date capital generation was 132 basis points, on track for full-year guidance of 175 basis points.
• Balance Sheet: Customer lending balances were 457 billion, up 4.6 billion in Q3 (driven by mortgage book growth). Deposits were 476 billion, up 1 billion in Q3. Insurance, pensions, and investments had 3.5 billion net new money year to date.

Guidance

• Reaffirmed 2024 guidance, confident in 2026 commitments.
• Net interest margin expected to be greater than 290 basis points in 2024.
• Average interest earning assets (AIEAs) expected to be greater than 450 billion in 2024.
• Asset quality ratio expected to be less than 20 basis points in 2024.
• Return on tangible equity expected circa 13% in 2024.
• Capital generation on track for full-year 175 basis points.

Risks

• Headwinds: Deposit churn and mortgage refinancing acting as headwinds.
• Motor Finance: Impacted by securitization and dealer stock levels.
• Regulatory and Legal: Court cases related to motor finance and FCA investigations, with remediation charges to monitor.

Question and Answer

Q: Aman Rakkar asked about net interest income, NIM drivers, and structural hedge contribution.

A: William Chalmers responded on NIM drivers (structural hedge, deposit churn, mortgage refinancing), expecting net interest margin to continue ticking up in Q4, and structural hedge contribution to be part of that.

Q: Jonathan Pierce asked about hedge tailwind and TNAV for 2026.

A: William Chalmers explained structural hedge income expectations and TNAV growth drivers, reaffirming confidence in 2026 ROT and TNAV targets.

Q: Benjamin Toms asked about NIM outlook for 2025 and motor finance court cases.

A: William Chalmers discussed NIM trends and motor finance court case timings, noting remediation guidance and court case outcomes.

Q: Jason Napier asked about mortgage growth and UK retail credit quality.

A: William Chalmers talked about mortgage market share and pricing, and UK retail credit quality being benign due to macroeconomic factors and strategic investments.

Q: Chris Cant asked about non-banking NII and Basel 3.1.

A: William Chalmers commented on non-banking NII lagged growth and Basel 3.1 being modestly positive, with RWA impact expected.

Q: Edward Firth asked about NII and buybacks.

A: William Chalmers addressed NII components and buyback rationale, emphasizing capital return commitment.

Q: Guy Stebbings asked about OOI and impairments.

A: William Chalmers discussed OOI drivers and stable impairment trends, with OOI growth from strategic initiatives and impairments remaining benign.

Q: Amit Goel asked about customer behavior and government proposals.

A: William Chalmers spoke on customer behavior post rate cuts and government budget expectations, hoping for growth-supportive measures.

Q: Ben Caven Roberts asked about mortgage completion margins and cost income ratio.

A: William Chalmers talked about mortgage completion margins and cost income ratio targets for 2026, driven by income growth and cost management.