Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — H1 2014 Earnings Presentation
29 slides from Lloyds Banking's earnings presentation, Jul 31, 2014
Slide 1: 2014 Half-Year Results
2014 HALF-YEAR RESULTS Presentation to Analysts and Investors 31 JJuly l 2014
Slide 2: Agenda
AGENDA PROGRESS IN THE FIRST HALF OF 2014 António Horta-Osório, Horta Osório Group Chief Executive FINANCIAL RESULTS George Culmer, Chief Financial Officer SUMMARY António Horta-Osório, Horta Osório Group Chief Executive 1
Slide 3: Highlights for the First Half of 2014
HIGHLIGHTS FOR THE FIRST HALF OF 2014 Continued successful execution of our strategy Investment in customer-focused initiatives driving growth – Lending growth in key customer segments and deposit growth in relationship brands – Launched Helping Britain Prosper plan Simplification programme cont
Slide 4: Financial Performance
FINANCIAL PERFORMANCE Profit and returns substantially improved and balance sheet f h strengthened further h d INCOME £9.3bn £9 3bn Income growth driven by 12% increase in net interest (excl SJP) +4% income – Net interest margin of 2.40%, up 39bps – Loan gro growth th in targeted segments UNDERLYI
Slide 5: UK Economic Performance
UK ECONOMIC PERFORMANCE Supporting and benefiting from strengthening UK economy GDP GROWTH/UNEMPLOYMENT (%)(1) Stronger UK economic growth and falling 8.0% 2.9% 3.0% unemployment 3.0 8.0 Unemployment rrate (%) 7.6% – Q2 GDP growth of 3.1% year-on-year h (%) 20 2.0 70 7.0 – Unemployment of 6.5% 6 5
Slide 6: Supporting Our Customers and the UK Economy
SUPPORTING OUR CUSTOMERS AND THE UK ECONOMY Continued loan growth in key customer segments and d deposit i growth h in i relationship l i hi brands b d NET LENDING GROWTH (%) DEPOSIT GROWTH (%) Last 12 months Last 6 months Last 12 months annualised Retail 5% Mortgages(1) 2% 2% relationship brands Co
Slide 7: Investing to Be Best Bank for Customers
INVESTING TO BE BEST BANK FOR CUSTOMERS Strong financial performance; underlying profit up 32% RETAIL Supported over 43,000 first time buyers and 52,000 new business start-ups Innovative product launches including Club Lloyds RoRWAs increased to 1.96%; underlying profit up 35% COMMERCIAL S
Slide 8: Agenda
AGENDA PROGRESS IN THE FIRST HALF OF 2014 Horta-Osório Group Chief Executive António Horta-Osório, FINANCIAL RESULTS George Culmer, Chief Financial Officer SUMMARY António Horta-Osório, Horta Osório Group Chief Executive 7
Slide 9: Financial Performance
FINANCIAL PERFORMANCE Substantial increase in underlying profit H1 H1 Total T t l income i excluding l di SJP up 4% (£m) 2014 2013 Change Net interest income 5,804 5,205 12% Strong NII performance, up 12%, driven by higher margins Other income 3,448 3,729 (8)% Other income up 1% in second quar
Slide 10: Net Interest Income
NET INTEREST INCOME Strong net interest income performance driven by margin and d loan l growthh in i key k segments NET INTEREST INCOME (£m)(1) NET INTEREST MARGIN (%) 12% 116 117 5,804 951 5,205 29 2.48% 2.29% 2.32% (307) 2.17% (307) 2 06% 2.06% 1.96% H1 Disposals Continuing Asset Liability ECN Wh
Slide 11: Other Income
OTHER INCOME Second quarter stable in a challenging environment OTHER INCOME TREND (£m)(1) OTHER INCOME (£m) (8)% 1,857 1,872 4,258 3,729 1,776 1,754 155 3,448 1,718 1,730 (529) (107) (120) (127) (82) Q1 Q2 Q3 Q4 Q1 Q2 H1 SJP H1 Run-off u o Comm Pension Ins asset Other H1 2013 2013 and Banking cap &
Slide 12: Costs
COSTS Further cost improvement from disposals, run-off and Si lifi i Simplification TOTAL COSTS (£m) (2)% (6)% 4,749 189 4,675 Continued reduction in underlying costs; 98 4,486 down 6% excluding FSCS timing (254) 67 61 (235) Simplification run-rate savings of £1.8bn – Expect to achieve exit run-
Slide 13: Asset Quality
ASSET QUALITY Further improvement reflecting a lower risk business; AQR guidance id reduced d d to around d 35b 35bps for f full f ll year 2014 IMPAIRMENT (£m) GROSS IMPAIRED LOANS (£bn) % of 8.6% 7.7% 6.3% 5.0% book(1) 3,157 (58)% 2,540 46 1 813 1,813 40 32 1,191 25 758 22 20 16 13 H1 H2 H1 H2 H1 D
Slide 14: Divisional Financial Performance
DIVISIONAL FINANCIAL PERFORMANCE Substantial improvement in profitability and returns Underlying profit RoRWA H1 H1 H1 H1 Change (£m) 2014 2013 Change 2014 2013 (bps) Retail 1,710 1,300 32% Retail 4.82% 3.21% 161 Commercial 1,156 854 35% Commercial Banking 1.96% 1.38% 58 Banking Insurance 461 559 ((
Slide 15: Financial Performance: Statutory Profit
FINANCIAL PERFORMANCE Statutory profit of £863m after restructuring and legacy charges h H1 H1 Asset sales & volatile items includes loss on (£m) 2014 2013 ECN exchange and pension credit; 2013 includes gain on sale of government bonds Underlying profit 3,819 2,902 Simplification costs of £2.2bn
Slide 16: Legacy Issues
LEGACY ISSUES PPI provision increased by £600m AVERAGE COMPLAINT VOLUMES PER MONTH(1) 140,000 (15)% Additional provision of £600m reflects (24)% (28)% (27)% higher than expected complaint volumes 105,000 (12)% and related costs (8)% (24)% 70,000 13% (7)% £2.3bn of provision remains unutilised 35
Slide 17: Further Strengthening the Balance Sheet
FURTHER STRENGTHENING THE BALANCE SHEET Strong balance sheet. Run-off reduction ahead of expectations: i now expect run-off ff to b be <£20bn £20b bby end d off 2014 Jun Dec H1 (£b ) (£bn) 2014 2013 Ch Change (£b ) (£bn) 2014 ASSETS SOURCE OF FUNDS – Deposit growth (1) 7 Loans and advances(1) 466 46
Slide 18: Further Strengthening the Balance Sheet: RWAs
FURTHER STRENGTHENING THE BALANCE SHEET Implementation of low risk strategy reflected in substantial reduction d i in i risk-weighted i k i h d assets RISK-WEIGHTED ASSETS (£bn) (33)% RWA reduction reflects balance sheet 383 de-risking, non-core asset reductions and 352 333 321 300 disposals p 272
Slide 19: Further Strengthening the Balance Sheet: CET1 and Leverage
FURTHER STRENGTHENING THE BALANCE SHEET Common equity tier 1 and leverage positions further strengthened h d FULLY LOADED COMMON EQUITY TIER 1 RATIO 0.2% 0.6% 0.2% Stronger capital position 1.5% (0.5)% (0.5)% 11.1% principally driven by underlying 10.3% (0.7)% profit – Insurance dividends paid to
Slide 20: Agenda
AGENDA PROGRESS IN THE FIRST HALF OF 2014 António Horta-Osório, Horta-Osório Group Chief Executive FINANCIAL RESULTS George Culmer, Chief Financial Officer SUMMARY António Horta-Osório, Horta-Osório Group Chief Executive 19
Slide 21: Summary
SUMMARY Supporting and benefiting from the UK economic recovery 2011-2014 strategic plan now substantially delivered Continued successful execution of strategy – Continued C ti d lloan growth th iin kkey customer t segments t – 32% increase in underlying profit to £3.8bn; 58% increase excluding
Slide 22: Appendix
APPENDIX
Slide 23: Run-off Portfolio
RUN-OFF PORTFOLIO Reduction of £8bn in the first half of 2014 RUN-OFF PORTFOLIO (£bn) (24)% Total assets 33 Run-off assets reduced 24% to £25bn International retail 8 25 Treasury assets 3 7 <20 UK CRE 7 Underlying loss decreased to 3 Int’l retail c.6 £300m 4 Other corporate 11 8 Non retail Non-r
Slide 24: Further Strengthening the Balance Sheet: Capital Position
FURTHER STRENGTHENING THE BALANCE SHEET Strong capital position with medium term AT1 requirement met through recent ECN exchange CAPITAL COMPOSITION (%)(1) £bn 19.7 50.6 Strong total capital ratio of 19.7% 18.8 Tier 2 3.9 10.0 Tier 2 4.4 Substantially improved quality of capital ECN tier 2 1.2 3
Slide 25: Low Risk Business Model
LOW RISK BUSINESS MODEL Further recognition of balance sheet strength and de-risking UK BANK CDS(1) Bank Current level Change since 380 (bps)(2) Jan 2012 (bps) LBG 60 (282) 330 HSBC 51 (92) Barclays 71 (125) Standard Chartered 76 (104) 280 RBS 80 (263) 230 180 130 RBS 80 Standard Chartered Barclays
Slide 26: Mortgage Portfolio LTVs
MORTGAGE PORTFOLIO LTVs Mainstream Buy y to let Specialist p Total Total Total Jun 2014 Jun 2014 Jun 2014 Jun 2014 Dec 2013 Dec 2012(1) Average LTVs 47.3% 63.4% 61.8% 50.4% 53.3% 56.4% New business 64.5% 63.6% n/a 64.3% 64.0% 62.6% LTVs ≤80% LTV 80.7% 76.7% 65.8% 79.0% 70.4% 59.6% >80–90% LTV 11.9%
Slide 27: Irish Portfolio
IRISH PORTFOLIO Robust coverage which minimises downside risks PORTFOLIO BREAKDOWN (£bn) Jun 2014 Dec 2013 Gross assets: £13.4bn(1) (Net: £7.3bn) Gross assets: £15.4bn(2) (Net: £8.7bn) Non-retail gross assets: £7.8bn (Net: £2.3bn) Non-retail gross assets: £9.4bn (Net: £3.4bn) 13.4 8.0 6.0 15.4 9.3 6
Slide 28: Net Tangible Assets
NET TANGIBLE ASSETS Reduction in last quarter primarily driven by legacy items and d ECN exchange h NET TANGIBLE ASSETS PER SHARE (p) – MAR TO JUN 2.2 50.7 (1.3) 49.4 (1.5) (0.7) Mar Underlying y g Legacy g y ECN Reserve Jun 2014 earnings exchange movements 2014 and other NET TANGIBLE ASSETS PER SHA
Slide 29: Forward Looking Statements and Basis of Presentation
FORWARD LOOKING STATEMENTS AND BASIS OF PRESENTATION FORWARD LOOKING STATEMENTS This announcement contains forward looking statements with respect to the business business, strategy and plans of the Lloyds Banking Group and its current goals and expectations relating to its future financial conditio