Lloyds Banking Group Q1 Earnings Call Highlights

Lloyds Banking Group NYSE: LYG reported what Chief Financial Officer William Chalmers described as “sustained strength in financial performance” in the first quarter of 2026, citing income growth, lower costs, and stable credit trends. Management reiterated full-year guidance and modestly increased its net interest income outlook, while flagging a more cautious macroeconomic forecast tied to the conflict in the Middle East.

Q1 profit, income growth, and capital position

For the quarter, Lloyds posted statutory profit after tax of GBP 1.6 billion, delivering a 17% return on tangible equity, Chalmers said. Net income totaled GBP 4.8 billion, up 9% year-on-year and up 1% from the fourth quarter.

Income gains were supported by stronger net interest income and higher “other operating income.” Net interest margin rose to 3.17%, up 7 basis points in the quarter. Chalmers said other income increased 11% year-on-year, reflecting “positive and broad-based momentum.”

On capital, Lloyds generated 41 basis points of capital in the quarter and ended Q1 with a CET1 ratio of 13.4%. Tangible net asset value per share increased to GBP 0.579, up GBP 0.009 from the prior quarter, despite what Chalmers described as the impact of higher rates on the cash flow hedge reserve.

Balance sheet trends: loan growth, deposit mix, and wealth inflows

Lloyds reported continued growth across lending portfolios, with total lending balances ending the quarter at GBP 486 billion, up GBP 5.1 billion from Q4 2025. Mortgages increased by a net GBP 1.6 billion, with completion margins “again around 70 basis points,” Chalmers said, in a market he characterized as competitive.

Commercial balances rose by GBP 2.8 billion, including growth across both corporate and institutional banking (CIB) and business and commercial banking (BCB). Chalmers noted that BCB growth came “after GBP 0.3 billion of government-backed lending repayments.”

On deposits, total deposits fell slightly by GBP 0.6 billion. Retail deposits declined by GBP 3.1 billion, which management attributed largely to outflows from maturing fixed-term savings deposits as Lloyds chose not to compete aggressively on price in what Chalmers called an “increasingly competitive and, at times, negative margin market at tax year-end.” Current accounts (PCAs) rose by GBP 0.6 billion, while commercial deposits increased by GBP 2.3 billion driven by corporate and institutional banking growth.

In insurance, pensions, and investments, Lloyds reported GBP 2.2 billion of open-book net new money flows, supported by workplace inflows and what Chalmers called “a good start from Lloyds Wealth.”

Net interest income outlook raised; hedge continues to drive margin tailwinds

Net interest income (NII) for Q1 was GBP 3.6 billion, up 1% from Q4 and up 8% year-on-year. Chalmers said customer lending growth and hedge income more than offset mortgage repricing headwinds, while average interest-earning assets rose 1% quarter-on-quarter to GBP 473.5 billion.

For 2026, Lloyds now expects net interest income of greater than GBP 14.9 billion, which Chalmers called a “modest increase” driven mainly by higher rate expectations. Structural hedge income is expected to rise by more than GBP 1.5 billion in 2026 to greater than GBP 7 billion, before growing to more than GBP 8 billion in 2027. The structural hedge notional balance increased to GBP 246 billion, up GBP 2 billion from Q4, which Chalmers said was supported by “strong and persistent performance in hedge-eligible deposits.”

In Q&A, Chalmers said the group is “pretty much locked in to about 90%-95% for 2026” on the hedge and “around 80% or thereabouts locked in for 2027,” describing the structure as “very similar to a caterpillar.” He added that the Q1 hedge reinvestment rate was “just shy of 4%.”

Costs, remediation, and credit: stable trends amid downgraded macro forecast

Operating costs were GBP 2.5 billion, down 3% year-on-year, reflecting efficiency savings and lower severance costs. The cost-income ratio was 51.9%, and Chalmers reiterated the target for a 2026 cost-income ratio of less than 50% as income builds through the year. He said the bank will provide an update on investment plans and growth objectives for the next stage of its strategy in July.

The remediation charge was GBP 11 million in Q1. Following the Financial Conduct Authority’s final rules for the Motor Finance Consumer Redress Scheme, Chalmers said Lloyds’ assessment is that no change is needed to its GBP 1.95 billion provision. He emphasized that the provision remains scenario-based and includes “challenge scenarios” and litigation outcomes, meaning “uncertainties remain.”

Credit performance remained “strong,” with a Q1 impairment charge of GBP 295 million, equating to an asset quality ratio (AQR) of 25 basis points. The pre-management economic scenario (pre-MES) AQR was 16 basis points, aided by “some model calibrations,” Chalmers said. The group booked a GBP 101 million net MES charge reflecting a weaker macroeconomic outlook.

Lloyds revised its 2026 economic forecast in response to the Middle East conflict, including:

• CPI average of 3.4% in 2026 (prior assumption 2.6%)
• No bank rate cuts expected in 2026; terminal rate still seen at 3.5%
• GDP growth reduced to around 0.5% (from 1.2%)
• House price growth around 1%
• Unemployment peak at 5.6% in Q4

Chalmers said Lloyds has “as yet seen no impact on the portfolio from the conflict in the Middle East,” and reiterated full-year AQR guidance of around 25 basis points.

Commercial banking and other income: CIB volatility, diversification efforts, and product momentum

Other operating income was GBP 1.6 billion, up 11% year-on-year and up 1% quarter-on-quarter. Chalmers cited strength in transport, equity investments, and a strong quarter for Lloyds Wealth, partly offset by a weaker CIB result amid macro uncertainty and volatility. He told analysts he expects CIB performance to be “stronger in Q2,” pointing to improved issuance activity and saying the Q1 rates impact should not repeat.

Responding to questions about the commercial franchise, Chalmers described commercial banking as a key area of investment across the strategy period, spanning both CIB and the SME-focused BCB business. He said BCB lending growth in Q1 marked an inflection where “new lending to the private sector outweighed” repayments of government-backed Bounce Back Loans.

On capital distributions, Chalmers said Lloyds remains committed to paying down toward a 13% CET1 ratio by year-end 2026 and continues to assess capital twice per year. He noted the group had completed “just over GBP 700 million” of a GBP 1.75 billion buyback, which he said is on track to conclude in the third quarter, depending partly on share price levels and the buyback algorithm’s pace.

Looking ahead, Chalmers said Lloyds expects to update investors with a strategic review alongside half-year results, with a broader strategic update planned for July that is likely to extend targets “towards the end of the decade,” while emphasizing continuity and “finishing the job” of the current strategic plan.

About Lloyds Banking Group NYSE: LYG

Lloyds Banking Group plc is a UK-based banking and financial services company that provides a broad range of retail, commercial and insurance products. Its principal consumer-facing brands include Lloyds Bank, Halifax and Bank of Scotland, through which it offers current accounts, savings, mortgages, credit cards and personal loans. The group also delivers services to small and medium-sized enterprises (SMEs) and larger corporate clients, supplying business accounts, lending, payments and cash-management solutions.

In addition to core banking, Lloyds operates a significant wealth and insurance arm under the Scottish Widows brand, offering life insurance, pensions, investment and retirement planning products.

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