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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Lloyds Banking Group Plc | LSE:LLOY | London | Ordinary Share | GB0008706128 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.12 | 0.23% | 52.18 | 52.24 | 52.28 | 52.90 | 52.20 | 52.38 | 86,283,449 | 16:35:06 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Commercial Banks, Nec | 23.74B | 5.46B | 0.0859 | 6.08 | 33.22B |
From May 2019 to May 2024
TIDMLLOY
RNS Number : 6377D
Lloyds Banking Group PLC
28 October 2015
Lloyds Banking Group plc
Q3 2015 Interim Management Statement
28 October 2015
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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 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 would distort the comparison
of performance between periods. Based on this principle
the following items are excluded from underlying
profit:
* asset sales and other items, which includes the
effects of certain asset sales, the impact of
liability management actions, the volatility relating
to the Group's own debt and hedging arrangements as
well as that arising in the insurance businesses,
insurance gross up, the amortisation of purchased
intangible assets and the unwind of
acquisition-related fair value adjustments and
certain past service pensions credits or charges in
respect of the Group's defined benefit pension
arrangements;
* Simplification costs, which for 2015 are limited to
restructuring costs relating to the programme
announced in October 2014. Costs in 2014 include
severance, IT and business costs relating to the
programme started in 2011;
* TSB build and dual running costs and the loss
relating to the TSB sale; and
* payment protection insurance and other conduct
provisions.
Unless otherwise stated, income statement commentaries
throughout this document compare the nine months
ended 30 September 2015 to the nine months ended
30 September 2014, and the balance sheet analysis
compares the Group balance sheet as at 30 September
2015 to the Group balance sheet as at 31 December
2014.
Required equity used in return measures: Required
equity is made up of shareholders' equity and non-controlling
interests and is the amount required to achieve
a common equity tier 1 ratio of 12.0 per cent after
allowing for regulatory adjustments and deductions.
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. Accordingly,
the Group's results in 2015 include TSB for the
first quarter only. To facilitate meaningful period-on-period
comparison, the operating results of TSB have been
reported separately within underlying profit in
all periods. The sale of the remaining interest
was completed in the first half of the year.
---------------------------------------------------------------
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 or European Union (EU) (including the UK as a result of a referendum on its EU membership) 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 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 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, 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 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 NINE MONTHS ENDED 30 SEPTEMBER 2015
'In the first nine months of this year we have continued to make strong progress towards becoming the best bank for customers and shareholders while delivering resilient financial performance and further strengthening our market leading capital ratios. These results, coupled with our simple, low risk, UK focused business model, underpin our confidence in the Group's future prospects and our strategic direction.'
António Horta-Osório
Group Chief Executive
Improvement in profitability and returns
-- Underlying profit of GBP6,355 million, an increase of 6 per cent on the first nine months of 2014
-- Total income flat at GBP13,205 million(1)
- Net interest income of GBP8,578 million, up 4 per cent, driven by margin improvement to 2.63 per cent
- Other income 7 per cent lower at GBP4,627 million
-- Operating costs down 1 per cent despite additional investment and Simplification costs; cost:income ratio improved to 48.0 per cent
-- Impairment charge down 64 per cent to GBP336 million; asset quality ratio improved 15 basis points to 0.11 per cent
-- Underlying return on required equity of 15.7 per cent, up 1.7 percentage points on the first nine months of 2014
-- Other income weaker in the third quarter partly offset by lower costs and impairments
-- Statutory profit before tax up 33 per cent to GBP2,151 million (2014: GBP1,614 million). PPI provision of GBP500 million in the third quarter primarily reflects sensitivity run-rate previously disclosed at the half year
-- Statutory return on required equity of 4.4 per cent, up 0.5 percentage points on the first nine months of 2014
Balance sheet further strengthened
-- Strong balance sheet and liquidity position
- Common equity tier 1 (CET1) ratio of 13.7 per cent (31 Dec 2014: 12.8 per cent, 30 June 2015: 13.3 per cent)
- Total capital ratio of 22.2 per cent (31 Dec 2014: 22.0 per cent, 30 June 2015: 21.7 per cent) - Leverage ratio of 5.0 per cent (31 Dec 2014: 4.9 per cent, 30 June 2015: 4.9 per cent)
-- Tangible net assets per share of 55.0 pence (31 Dec 2014: 54.9 pence, 30 June 2015: 53.5 pence)
Our differentiated UK focused business model continues to deliver
-- Delivering growth in targeted areas, gaining market share in SME and Consumer Finance and meeting our Helping Britain Prosper Plan commitments by supporting first-time buyers and business start-ups
-- Cost discipline and low risk business model providing competitive advantage -- UK government stake reduced to less than 11 per cent (as at 9 October 2015)
Guidance for 2015 updated
-- Net interest margin for the full year now expected to be in line with year-to-date performance (2.63 per cent)
-- Asset quality ratio now expected to be lower than 15 basis points for the full year
(MORE TO FOLLOW) Dow Jones Newswires
October 28, 2015 03:00 ET (07:00 GMT)
-- Other income expected to recover in the fourth quarter but full year now expected to be slightly below 2014
-- Remaining guidance unchanged
Outlook
-- The robust UK economy and our differentiated business model underpin our continued confidence in generating strong and sustainable returns.
(1) Total income, operating costs and impairment exclude TSB.
CONSOLIDATED INCOME STATEMENT - UNDERLYING BASIS
Nine Nine Three Three
months months months months
ended ended ended ended
30 30 30 30
Sept Sept Change Sept Sept Change
2015 2014 2015 2014
GBP GBP % GBP GBP %
million million million million
Net interest income 8,578 8,245 4 2,863 2,841 1
Other income 4,627 4,954 (7) 1,374 1,578 (13)
-------- -------- -------- --------
Total income 13,205 13,199 - 4,237 4,419 (4)
-------- -------- -------- --------
Operating costs (6,069) (6,101) 1 (1,919) (1,967) 2
Operating lease
depreciation (563) (525) (7) (189) (179) (6)
-------- -------- -------- --------
Costs (6,632) (6,626) - (2,108) (2,146) 2
Impairment (336) (943) 64 (157) (236) 33
-------- -------- -------- --------
Underlying profit
excluding TSB 6,237 5,630 11 1,972 2,037 (3)
TSB 118 344 - 118
-------- -------- -------- --------
Underlying profit 6,355 5,974 6 1,972 2,155 (8)
Asset sales and
other items (955) (1,296) (377) (268)
Simplification costs (69) (650) (37) (131)
TSB costs (745) (414) - (105)
Payment protection
insurance provision (1,900) (1,500) (500) (900)
Other conduct provisions (535) (500) (100) -
-------- -------- -------- --------
Profit before tax
- statutory 2,151 1,614 33 958 751 28
Taxation (536) (222) (268) (58)
-------- -------- -------- --------
Profit for the period 1,615 1,392 16 690 693 -
-------- -------- -------- --------
Underlying earnings
per share 6.7p 6.3p 0.4p 2.1p 2.2p (0.1)p
Earnings per share 1.8p 1.7p 0.1p 0.8p 0.9p (0.1)p
Banking net interest
margin(1) 2.63% 2.39% 24bp 2.64% 2.47% 17bp
Average interest-earning
banking assets(1) GBP443bn GBP464bn (4) GBP439bn GBP459bn (5)
Cost:income ratio(2) 48.0% 48.1% (0.1)pp 47.4% 46.4% 1.0pp
Asset quality ratio(1) 0.11% 0.26% (15)bp 0.15% 0.19% (4)bp
Return on risk-weighted
assets 3.67% 3.05% 62bp 3.47% 3.37% 10bp
Return on assets 1.02% 0.95% 7bp 0.95% 1.01% (6)bp
Underlying return
on required equity 15.7% 14.0% 1.7pp 14.8% 15.4% (0.6)pp
Statutory return
on required equity 4.4% 3.9% 0.5pp 6.0% 5.9% 0.1pp
BALANCE SHEET AND KEY RATIOS
At At At
30 Sept 30 June Change 31 Dec Change
2015 2015 % 2014 %
Loans and advances to
customers(3) GBP455bn GBP452bn 1 GBP478bn (5)
Customer deposits GBP418bn GBP417bn - GBP447bn (6)
Loan to deposit ratio 109% 109% - 107% 2pp
Common equity tier 1
ratio 13.7% 13.3% 0.4pp 12.8% 0.9pp
Transitional total capital
ratio 22.2% 21.7% 0.5pp 22.0% 0.2pp
Risk-weighted assets GBP225bn GBP227bn (1) GBP240bn (6)
Leverage ratio 5.0% 4.9% 0.1pp 4.9% 0.1pp
Tangible net assets per
share 55.0p 53.5p 1.5p 54.9p 0.1p
(1) Excluding TSB.
(2) Operating lease depreciation deducted from income
and costs and excluding TSB.
(3) Excludes reverse repos of GBPnil (31 December 2014:
GBP5.1 billion).
GROUP CHIEF EXECUTIVE'S STATEMENT
In the first nine months the Group has made strong progress on its strategy to become the best bank for our customers and shareholders. We have supported our customers by delivering on our main commitments within the Helping Britain Prosper Plan, while also achieving growth in our key customer segments. At the same time, our financial performance has been resilient, with improvements in our key measures of profitability and balance sheet strength. I am confident that these firm foundations, in particular our cost discipline and low risk business model, position us well to continue to support and benefit from UK economic growth.
Financial performance and balance sheet strength
Our financial performance continues to demonstrate the strength of our business model, with underlying profit up by 6 per cent to GBP6,355 million in the nine months to the end of September. This was largely driven by a significant reduction in impairment charges and lower costs, and led to an improvement in our underlying return on required equity to 15.7 per cent. Underlying profit was, however, lower in the third quarter than last year, reflecting lower than expected other income, partly offset by improvements in impairments and costs. While other income is expected to recover in the fourth quarter, we now expect it to be slightly below 2014 for the full year. The year-to-date statutory profit before tax of GBP2,151 million was up significantly, despite the impact of TSB taken in the first quarter and conduct charges, including an additional charge in the third quarter for PPI. Notwithstanding these additional charges, our capital position also continues to improve, with our common equity tier 1 ratio now standing at 13.7 per cent compared with 12.8 per cent at the end of 2014.
Continuing to support and benefit from the UK economy
As a UK retail and commercial bank, we continue to support and benefit from a robust UK economy, with current low unemployment levels, increased house prices, an increase in consumer spending and a reduction in household debt, providing a positive backdrop to the Group's future prospects.
While the regulatory environment in the UK continues to evolve, we are now getting greater clarity on a number of issues that are significant for the Group and the wider banking sector. We note the recent announcements from the Prudential Regulatory Authority (PRA) on ring-fencing and the findings of the Competition and Markets Authority (CMA) and are well placed to continue to support the aims of these regulatory bodies in ensuring the stability of the UK financial system and that there is effective competition for the benefit of both small business and retail customers. In addition, we note the recent announcement from the Financial Conduct Authority (FCA) on potential time-barring for PPI and Plevin as well as the UK government's proposed review and consultation into how claims management companies (CMCs) are regulated and remunerated. We are awaiting further clarity on what each of these developments might mean for the sector once the outcomes of the associated consultation processes are known.
The Group continues to support the UK economy by delivering on its key commitments to households and businesses within the Helping Britain Prosper Plan, providing approximately one in four first-time buyer mortgages and supporting one in five new business start-ups in the nine months to the end of September. Growth in our key customer segments has also been strong with net lending to SMEs and mid-market corporate clients increasing by more than GBP1.5 billion in the last 12 months, while the strong momentum in UK Consumer Finance has also continued, with net balances up 17 per cent year-on-year. Mortgages are up 1 per cent and although this is slightly below market growth, this has been a conscious decision to protect margin in a low growth market environment and a competitive market.
Returning the Group to full private ownership
Our strategic progress, coupled with our financial performance has enabled the UK government to make further substantial progress in returning the Group to full private ownership at a profit to the UK taxpayer. The government has now reduced its stake to less than 11 per cent, returning approximately GBP15.5 billion to the UK taxpayer, on top of the dividends we have paid so far in 2015. We welcome the further progress that the government has made this year and will fully support the proposed retail offer.
Differentiated business model positions the Group well for further progress
(MORE TO FOLLOW) Dow Jones Newswires
October 28, 2015 03:00 ET (07:00 GMT)
As a simple, low risk, customer focused, UK retail and commercial bank, we are well placed to respond to the evolving regulatory environment as well as the short-term challenges of low interest rates. Looking further ahead, the combination of our differentiated business model with the robust outlook for the UK economy, underpins our confidence in generating sustainable and strong returns, as we aim to become the best bank for our customers and shareholders.
António Horta-Osório
Group Chief Executive
CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE
Overview: improvement in profitability and returns, balance sheet further strengthened
The Group's underlying profit increased by 6 per cent in the first nine months to GBP6,355 million, largely driven by a 64 per cent improvement in impairments. Total income was broadly flat but operating costs were down 1 per cent with the cost:income ratio improved to 48.0 per cent. Statutory profit before tax was GBP2,151 million, up 33 per cent from GBP1,614 million in 2014. This was after a charge of GBP660 million relating to the disposal of TSB in the first half as well as provisions for PPI totalling GBP1,900 million (2014: GBP1,500 million) of which GBP500 million was charged in the third quarter. Underlying and statutory returns on required equity improved to 15.7 per cent (2014: 14.0 per cent) and 4.4 per cent (2014: 3.9 per cent), respectively.
Total loans and advances to customers were GBP455 billion at 30 September 2015, 5 per cent lower than at 31 December 2014 largely as a result of the sale of TSB (31 December 2014: GBP456 billion excluding TSB) and 1 per cent higher than at 30 June 2015. Growth of GBP5.3 billion in the key customer segments year-on-year was offset by further reductions in run-off lending of GBP3.6 billion. Customer deposits were GBP418 billion at 30 September 2015, 6 per cent lower than at 31 December 2014, with growth in Commercial Banking more than offset by planned reductions in retail tactical deposits, online deposits within Consumer Finance and the disposal of TSB.
The underlying profits and a 6 per cent reduction in risk-weighted assets resulted in a further improvement in the Group's common equity tier 1 ratio to 13.7 per cent (31 December 2014: 12.8 per cent) with the leverage ratio increasing to 5.0 per cent (31 December 2014: 4.9 per cent). The tangible net asset value per share increased to 55.0 pence (31 December 2014: 54.9 pence; 30 June 2015: 53.5 pence) with the underlying profit partly offset by the impact of the sale of TSB, conduct provisions and the payment of the 2014 full year and 2015 interim dividends.
Total income
Nine Nine
months months
ended ended
30 Sept 30 Sept
2015 2014 Change
GBP million GBP million %
Net interest income 8,578 8,245 4
Other income 4,627 4,954 (7)
----------- -----------
Total income 13,205 13,199 -
----------- -----------
Banking net interest margin 2.63% 2.39% 24bp
Average interest-earning banking
assets GBP442.8bn GBP463.5bn (4)
Total income was flat at GBP13,205 million with an increase in net interest income offset by reductions in other income. Net interest income increased 4 per cent to GBP8,578 million driven by the improvement in net interest margin to 2.63 per cent (2014: 2.39 per cent). This has more than offset the 4 per cent reduction in average interest-earning banking assets, which primarily reflects run-off but also lower lending balances in Global Corporates. The improvement in net interest margin compared with 2014 was due to improved deposit pricing and mix, lower wholesale funding costs, and the disposal of lower margin run-off assets partly offset by pressure on asset prices.
Given the further improvement in net interest margin, we now expect that the net interest margin for the 2015 full year will be in line with year-to-date performance of 2.63 per cent.
Other income was 7 per cent lower at GBP4,627 million following a lower than expected third quarter. The expected quarter-on-quarter reduction in Insurance, primarily relating to the bulk annuity transaction in the second quarter, has been accompanied by tougher trading conditions in Commercial Banking and lower income from run-off assets. Looking forward, while we expect other income to recover in the fourth quarter, we now expect other income for the full year to be slightly below 2014.
CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE (continued)
Costs
Nine Nine
months months
ended ended
30 Sept 30 Sept
2015 2014 Change
GBP million GBP million %
Operating costs 6,069 6,101 1
Operating lease depreciation 563 525 (7)
----------- -----------
Costs 6,632 6,626 -
----------- -----------
Cost:income ratio(1) 48.0% 48.1% (0.1)pp
(1) Operating lease depreciation deducted from income
and costs.
Operating costs at GBP6,069 million were down 1 per cent despite increased investment of GBP319 million in the business including costs relating to Simplification initiatives. The next phase of the Simplification programme has delivered GBP291 million of run-rate savings as at 30 September 2015 towards the target of GBP1 billion by the end of 2017, announced in October 2014.
Our market leading cost:income ratio improved to 48.0 per cent. While costs in the fourth quarter are likely to be higher due to the timing of the Bank levy, we continue to target annual improvements in the full year cost:income ratio which for 2014 was 49.8 per cent.
Impairment
Nine Nine
months months
ended ended
30 Sept 30 Sept
2015 2014 Change
GBP million GBP million %
Ongoing business impairment
charge 352 593 41
Run-off impairment (release)/charge (16) 350
----------- -----------
Total impairment charge 336 943 64
----------- -----------
Asset quality ratio 0.11% 0.26% (15)bp
At 30 At 31
Sept Dec
2015 2014
% %
Impaired loans as a % of advances 2.1 2.9 (0.8)pp
Coverage ratio 49.1 56.4 (7.3)pp
The impairment charge was GBP336 million, 64 per cent lower than 2014, driven by the significant reduction in run-off business and improvements in all banking divisions. The Group's focus on effective risk management, the improved economic conditions and continued low interest rates has continued to drive lower impairment levels. The total impairment charge includes significant provision releases, but at lower levels than realised in 2014.
The asset quality ratio for the first nine months was 11 basis points and we now expect the ratio for the 2015 full year to be lower than 15 basis points.
Impaired loans as a percentage of closing advances fell from 2.9 per cent at 31 December 2014 to 2.1 per cent, largely driven by the sale of a portfolio of Irish commercial loans in the third quarter. Coverage fell from 56.4 per cent to 49.1 per cent over the same period, largely reflecting the reduction in highly impaired Irish commercial loan assets.
CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE (continued)
Statutory profit
Statutory profit before tax was GBP2,151 million compared with GBP1,614 million in 2014. Further detail on the reconciliation of underlying to statutory results is included on page 11.
Nine Nine
months months
ended ended
30 Sept 30 Sept
2015 2014
GBP million GBP million
Underlying profit 6,355 5,974
Asset sales and other items:
----------- -----------
Asset sales and volatility (573) (1,282)
Fair value unwind (136) (471)
Other items (246) 457
----------- -----------
(955) (1,296)
Simplification costs (69) (650)
TSB:
----------- -----------
Build and dual running costs (85) (414)
(MORE TO FOLLOW) Dow Jones Newswires
October 28, 2015 03:00 ET (07:00 GMT)
Charge relating to disposal (660) -
----------- -----------
(745) (414)
Payment protection insurance provision (1,900) (1,500)
Other conduct provisions (535) (500)
----------- -----------
Profit before tax - statutory 2,151 1,614
Taxation (536) (222)
----------- -----------
Profit for the period 1,615 1,392
----------- -----------
Statutory return on required equity 4.4% 3.9%
Asset sales and other items
The loss of GBP573 million for asset sales and volatility included a charge of GBP369 million for the reduction in the value of the equity conversion feature embedded in the Group's Enhanced Capital Notes (ECNs) and negative insurance volatility of GBP316 million (2014: GBP197 million). Asset sales and volatility in 2014 included the net loss of GBP1,136 million relating to the exchange of ECNs for Additional Tier 1 securities.
The fair value unwind charge of GBP136 million included the accelerated amortisation of a fair value adjustment recognised in the first half of the year.
The charge for other items of GBP246 million related to the amortisation of purchased intangibles. The credit of GBP457 million in 2014 included a gain of GBP710 million relating to changes made to the Group's defined benefit pension schemes.
TSB
The Group's results in 2015 include TSB for the first quarter only, following the agreement in March to sell our remaining stake in the business to Banco Sabadell. The charge of GBP660 million relating to the sale reflects the net costs of the Transitional Service Agreement between the Group and TSB, the contribution to be provided by the Group to TSB in migrating to an alternative IT platform and the gain on sale.
CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE (continued)
PPI
The Group increased the provision for expected PPI costs by a further GBP500 million in the third quarter bringing the total amount provided to GBP13.9 billion with GBP2.1 billion remaining unutilised. Reactive complaint volumes in the third quarter were broadly flat compared with the first half and higher than estimated but the associated provision of GBP375 million was slightly lower than the sensitivity run-rate provided at the half year due to lower average redress. In addition, we took a further GBP125 million provision relating to higher than expected overturn and redress rates in the remediation programme.
The cash spend in the third quarter reduced to GBP0.6 billion and included remediation and Past Business Review (PBR) repayments. Total cash spend year-to-date has been GBP2.3 billion.
A number of risks and uncertainties remain, in particular in respect of complaint volumes, which are primarily driven by CMC activity. The current provision continues to assume a significant decrease in reactive complaint volumes over the next 15 months, compared with trends in recent quarters. If reactive complaint volumes do not decline or the decline is delayed, this could lead to additional provisions with sensitivities consistent with those provided in the half year news release. We note the recent announcement from the FCA on potential time barring for PPI and Plevin and await further clarity on what the associated consultation process might mean for the sector. We have not reflected any possible impacts resulting from this FCA announcement in our third quarter provision.
Other conduct provisions
The Group incurred a further charge of GBP100 million in the third quarter relating to potential claims and remediation in respect of products sold through the branch network and further investigation of matters highlighted through industry wide regulatory reviews. This brings the total charge for other conduct provisions in the first nine months of 2015 to GBP535 million.
Taxation
The tax charge for the first nine months of 2015 was GBP536 million, representing an effective tax rate of 25 per cent. This is higher than the UK corporation tax rate, largely due to the impact of non-deductible expenses and policyholder tax.
Following the enactment of tax changes in October 2015, the impact of the non-deductibility of PPI and conduct charges incurred after 8 July 2015 will be reflected in the final quarter of 2015.
Funding, liquidity and capital ratios
At At At
30 Sept 30 June Change 31 Dec Change
2015 2015 % 2014 %
Wholesale funding GBP125bn GBP116bn 8 GBP116bn 7
Wholesale funding <1
year maturity GBP42bn GBP39bn 9 GBP41bn 3
Of which money-market
funding <1 year maturity(1) GBP26bn GBP20bn 28 GBP19bn 35
Loan to deposit ratio 109% 109% - 107% 2pp
Primary liquid assets(2) GBP118bn GBP109bn 9 GBP109bn 8
Common equity tier 1
capital ratio(3) 13.7% 13.3% 0.4pp 12.8% 0.9pp
Transitional tier 1 capital
ratio 17.2% 16.8% 0.4pp 16.5% 0.7pp
Transitional total capital
ratio 22.2% 21.7% 0.5pp 22.0% 0.2pp
Leverage ratio 5.0% 4.9% 0.1pp 4.9% 0.1pp
Risk-weighted assets GBP225bn GBP227bn (1) GBP240bn (6)
Shareholders' equity GBP43bn GBP42bn 2 GBP43bn -
(1) Excludes balances relating to margins of GBP2.7
billion (31 December 2014: GBP2.8 billion) and
settlement accounts of GBP1.2 billion (31 December
2014: GBP1.4 billion).
(2) Primary liquid assets at 31 December 2014 included
balances relating to TSB of GBP4.5 billion (30
September 2015: GBPnil).
(3) Excluding the impact of the dividend announced
with the 2015 half year results, the ratio was
13.9 per cent; common equity tier 1 ratio is the
same on both fully loaded and transitional bases.
CHIEF FINANCIAL OFFICER'S REVIEW OF FINANCIAL PERFORMANCE (continued)
Wholesale funding increased to GBP125 billion, of which GBP42 billion, or 34 per cent, had a maturity of less than one year at 30 September (31 December 2014: GBP41 billion, representing 35 per cent). The increase in wholesale funding is partially a timing impact as we have taken advantage of favourable market conditions. The increased funding has largely been used to strengthen the Group's overall liquidity position.
The Group continued to strengthen its capital position, with a common equity tier 1 ratio of 13.7 per cent, an increase of 0.9 per cent in the first nine months, or 1.1 per cent excluding the dividend announced with the half year results. The overall improvement in the ratio was driven by a combination of underlying profit and a reduction in risk-weighted assets, partly offset by the charges relating to the sale of TSB, PPI and other conduct provisions.
Risk-weighted assets reduced by 6 per cent to GBP225 billion (31 December 2014: GBP240 billion), due to the reduction in the run-off portfolio, completion of the sale of TSB, active portfolio management and improvements in credit quality.
The Group's leverage ratio has increased to 5.0 per cent, primarily reflecting the reduction in balance sheet assets arising, in part, from the disposal of TSB.
Enhanced Capital Notes (ECNs)
On 3 June 2015, the Chancery Division of the High Court handed down its judgment in respect of the interpretation of certain terms of the ECNs, in which it found that a Capital Disqualification Event had not occurred. The Group filed an appeal with the Court of Appeal and the hearing took place on 26 and 27 August 2015. The Group intends to update the market once the outcome of the Court decision is known.
Conclusion
In the first nine months of 2015, the Group has delivered another resilient financial performance, with a significant increase in statutory profitability and an improved capital position. The combination of the Group's differentiated UK focused, simple and low risk business model, and the robust outlook for the UK economy, positions us well for the evolving competitive and regulatory environment, and we are confident in our ability to deliver strong and sustainable returns.
George Culmer
Chief Financial Officer
STATUTORY CONSOLIDATED INCOME STATEMENT AND BALANCE SHEET (UNAUDITED)
Nine Nine
months months
ended ended
30 Sept 30 Sept
Income statement 2015 2014
GBP million GBP million
Net interest income 9,016 8,090
Other income, net of insurance claims 3,646 4,067
----------- -----------
Total income, net of insurance claims 12,662 12,157
Total operating expenses (10,312) (9,677)
Impairment (199) (866)
----------- -----------
Profit before tax 2,151 1,614
Taxation (536) (222)
----------- -----------
Profit for the period 1,615 1,392
(MORE TO FOLLOW) Dow Jones Newswires
October 28, 2015 03:00 ET (07:00 GMT)
----------- -----------
Profit attributable to ordinary shareholders 1,246 1,144
Profit attributable to other equity
holders 295 189
----------- -----------
Profit attributable to equity holders 1,541 1,333
Profit attributable to non-controlling
interests 74 59
----------- -----------
Profit for the period 1,615 1,392
----------- -----------
At 30 At 31
Sept Dec
Balance sheet 2015 2014
GBP million GBP million
Assets
Cash and balances at central banks 61,278 50,492
Trading and other financial assets
at fair value through profit or loss 145,164 151,931
Derivative financial instruments 30,760 36,128
Loans and receivables 479,391 510,072
Available-for-sale financial assets 33,594 56,493
Held-to-maturity investments 19,761 -
Other assets 47,765 49,780
----------- -----------
Total assets 817,713 854,896
----------- -----------
Liabilities
Deposits from banks 17,176 10,887
Customer deposits 418,576 447,067
Trading and other financial liabilities
at fair value through profit or loss 54,894 62,102
Derivative financial instruments 27,697 33,187
Debt securities in issue 86,329 76,233
Liabilities arising from insurance
and investment contracts 100,522 114,166
Subordinated liabilities 23,301 26,042
Other liabilities 40,216 35,309
------- -------
Total liabilities 768,711 804,993
------- -------
Shareholders' equity 43,226 43,335
Other equity instruments 5,355 5,355
Non-controlling interests 421 1,213
------- -------
Total equity 49,002 49,903
------- -------
Total equity and liabilities 817,713 854,896
------- -------
NOTES
1. Summary of movements in total equity
Other Non-
Shareholders' equity controlling Total
equity instruments interests equity
GBPm GBPm GBPm GBPm
Balance at 1 January
2015 43,335 5,355 1,213 49,903
Movements in the period:
Profit for the period 1,541 - 74 1,615
Defined benefit pension
scheme remeasurements 420 - - 420
AFS revaluation reserve (429) - - (429)
Cash flow hedging reserve (14) - - (14)
Dividends (1,070) - (24) (1,094)
Distributions on other
equity instruments, net
of tax (235) - - (235)
Treasury shares and employee
award schemes (326) - - (326)
Adjustment on sale of
interest in TSB - - (825) (825)
Other movements 4 - (17) (13)
Balance at 30 September
2015 43,226 5,355 421 49,002
------------- ------------ ------------ -------
Other Non-
Shareholders' equity controlling Total
equity instruments interests equity
GBPm GBPm GBPm GBPm
Balance at 1 July 2015 42,256 5,355 430 48,041
Movements in the period:
Profit for the period 667 - 23 690
Defined benefit pension
scheme remeasurements 662 - - 662
AFS revaluation reserve (362) - - (362)
Cash flow hedging reserve 696 - - 696
Dividends (535) - (14) (549)
Distributions on other
equity instruments, net
of tax (78) - - (78)
Treasury shares and employee
award schemes (57) - - (57)
Other movements (23) - (18) (41)
Balance at 30 September
2015 43,226 5,355 421 49,002
------------- ------------ ------------ -------
NOTES (continued)
2. 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:
-------------------------------------------------------------
Lloyds Asset PPI and
Nine months Banking sales Insurance other
to 30 September Group and other gross conduct Underlying
2015 statutory items(1) Simplification(2) TSB(3) up provisions basis
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net interest
income 9,016 257 - (192) (503) - 8,578
Other income,
net of insurance
claims 3,646 582 - (36) 435 - 4,627
---------- -----------
Total income 12,662 839 - (228) (68) - 13,205
Operating
expenses(4) (10,312) 272 69 836 68 2,435 (6,632)
Impairment (199) (156) - 19 - - (336)
TSB - - - 118 - - 118
---------- ---------- ----------------- ------ --------- ----------- ----------
Profit before
tax 2,151 955 69 745 - 2,435 6,355
---------- ---------- ----------------- ------ --------- ----------- ----------
Removal of:
----------------------------------------------------------
Lloyds Asset PPI and
Nine months Banking sales Insurance other
to 30 September Group and other gross conduct Underlying
2014 statutory items(5) Simplification TSB(6) up provisions basis
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net interest
income 8,090 470 - (593) 278 - 8,245
Other income,
net of insurance
claims 4,067 1,365 - (106) (372) - 4,954
---------- -----------
Total income 12,157 1,835 - (699) (94) - 13,199
Operating
expenses(4) (9,677) (388) 650 695 94 2,000 (6,626)
Impairment (866) (151) - 74 - - (943)
TSB - - - 344 - - 344
---------- ---------- -------------- ------ --------- ----------- ----------
Profit before
tax 1,614 1,296 650 414 - 2,000 5,974
---------- ---------- -------------- ------ --------- ----------- ----------
(1) Comprises the effects of asset sales (loss of GBP2
million), volatile items (loss of GBP249 million),
liability management (loss of GBP6 million), volatility
arising in insurance businesses (loss of GBP316
million), the amortisation of purchased intangibles
(loss of GBP246 million) and fair value unwind
(loss of GBP136 million).
(MORE TO FOLLOW) Dow Jones Newswires
October 28, 2015 03:00 ET (07:00 GMT)
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