Lloyds Bank plc 2022 Half-Year Results

Member of the Lloyds Banking Group

LONDON, July 27, 2022 (GLOBE NEWSWIRE) —

CONTENTS

�	Page
Review of performance	1
Risk management
Principal risks and uncertainties	4
Credit risk	7
Funding and liquidity risk	20
Capital risk	23
Statutory information
Condensed consolidated half-year financial statements (unaudited)	29
Consolidated income statement	30
Consolidated statement of comprehensive income	31
Consolidated balance sheet	32
Consolidated statement of changes in equity	34
Consolidated cash flow statement	37
Notes to the condensed consolidated half-year financial statements	38
Statement of Directors’ responsibilities	77
Independent review report to Lloyds Bank plc	78
Forward looking statements	80

REVIEW OF PERFORMANCE

Principal activities

Lloyds Bank plc (the Bank) (NYSE EURONEXT: LY8) and its subsidiary undertakings (the Group) provide a wide range of banking and financial services through branches and offices in the UK and in certain locations overseas. The Group’s revenue is earned through interest and fees on a broad range of financial services products including current accounts, savings, mortgages, credit cards, motor finance and unsecured loans to personal and business banking customers; and lending, transactional banking, working capital management and risk management services to commercial customers.

Income statement

In the half-year to 30 June 2022, the Group recorded a profit before tax of £3,283 million compared to £3,420 million in the same period in 2021, representing a reduction of £137 million as higher total income was more than offset by the impact of a net impairment charge for the period compared to a net credit in the first six months of 2021. Profit after tax was £2,441 million.

Total income increased by £745 million, or 10 per cent, to £8,052 million in the half-year to 30 June 2022 compared to £7,307 million in the first six months of 2021; there was an increase of £713 million in net interest income and an increase of £32 million in other income.

Net interest income was £6,089 million, an increase of £713 million compared to £5,376 million in the six months to 30 June 2021. The increased net interest income was driven by growth in average interest-earning assets and deposits as well as an improved margin; the net interest margin benefited from bank base rate increases and deposit growth, offsetting mortgage book margin impacts and competitive pressures on pricing.

Other income was £32 million higher at £1,963 million in the six months to 30 June 2022 compared to £1,931 million in the same period last year. Net fee and commission income increased by £58 million to £648 million, compared to £590 million in the first six months of 2021, due to higher credit and debit card fees, reflecting increased levels of customer activity, more than offsetting the impact of reduced levels of commercial banking fees as a result of fewer significant capital markets transactions and lower levels of corporate financing. Net trading income was £95 million lower at £208 million in the six months to 30 June 2022, in part due to the impact of movements in credit spreads on valuation adjustments. Other operating income increased by £69 million to £1,107 million compared to £1,038 million in the six months to 30 June 2021, in part due to improved gains on disposal of financial assets at fair value through other comprehensive income.

Total operating expenses decreased by £159 million to £4,405 million compared to £4,564 million in the first six months of 2021. There was an increase of £93 million in operating costs; the impact of staff salary increases and higher variable pay was only partly offset by staff number reductions and there was an increase in IT-related costs, as a result of the Group’s investment programmes. Depreciation charges were £33 million lower reflecting the ongoing impact of a reduced, but stabilising, Lex fleet size as a result of industry-wide supply constraints in the new car market. The charge in respect of regulatory provisions was £252 million lower at £58 million and largely related to pre-existing programmes. There have been no further charges relating to HBOS Reading since the end of 2021 and the provision held continues to reflect the Group’s best estimate of its full liability, albeit significant uncertainties remain.

There was a net impairment charge in the six months to 30 June 2022 of £364 million, compared to a net credit of £677 million in the first six months of 2021, largely reflecting a low charge arising from observed credit performance and a charge in the first six months of 2022 as a result of revisions to the Group’s economic outlook, compared to a significant credit in the first half of 2021. The updated outlook includes additional risks from a higher inflation and interest rate environment of c.£0.4 billion, partially offset by reductions in COVID-19 related risks of c.£0.3 billion. The latter included a £200 million release from the Group’s central adjustment which addresses downside risks outside of the base case conditioning assumptions in relation to coronavirus.

Overall the Group’s loan portfolio continues to be well-positioned, reflecting a prudent through-the-cycle approach to credit risk with high levels of security. Observed credit performance remains robust and the flow of assets into arrears, defaults and write-offs remains at low levels. The Group’s expected credit loss (ECL) allowance increased slightly in the first six months of the year to £4,064 million (31 December 2021: £4,000 million). This reflects the balance of risks shifting from COVID-19 and potential related restrictions to those from increased inflationary pressures on households and businesses.

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