Lloyds Banking Group Q4 Earnings Call Highlights

Key Points

• Lloyds reported 2025 net income of GBP 18.3 billion (statutory profit after tax GBP 4.8 billion) with RoTE of 12.9% (or 14.8% excluding the motor provision), and raised shareholder returns via a 15% increase in the ordinary dividend plus a share buyback of up to GBP 1.75 billion, taking total capital return to up to GBP 3.9 billion (~6% of market cap).
• Balance-sheet and margin momentum: lending grew to GBP 481 billion (+5%) and deposits to GBP 496.5 billion (+3%), NII was GBP 13.6 billion (NIM 3.06%); management guides 2026 NII of ~GBP 14.9 billion and expects structural hedge income to rise from ~GBP 5.5 billion in 2025 to ~GBP 7 billion in 2026 (supporting an upgraded RoTE target of >16% for 2026).
• Costs, remediation and digital initiatives: operating costs were GBP 9.76 billion in 2025 with a remediation charge of GBP 968 million (including an GBP 800 million motor charge); Lloyds targets operating expenses <GBP 9.9 billion and a cost:income ratio below 50% in 2026, and expects GenAI to deliver over GBP 100 million of P&L benefit next year.

Lloyds Banking Group NYSE: LYG outlined accelerating strategic progress and upgraded 2026 targets as it reported 2025 full-year results, highlighting stronger income momentum, continued cost actions, and higher planned shareholder distributions. Management said it expects to meet or exceed the outcomes of its current five-year plan, which began in early 2022, and will provide details on its next strategic phase in July alongside half-year results.

2025 results: income growth, resilient credit, and higher distributions

Chief executive Charlie Nunn said 2025 was “another strong year,” pointing to a return to top-line revenue growth and broad-based franchise momentum, including market share gains in personal current accounts. The group reported net income of GBP 18.3 billion, up 7% versus 2024, driven by growth in both net interest income (NII) and other operating income (OOI).

Finance director William Chalmers said statutory profit after tax was GBP 4.8 billion. Return on tangible equity (RoTE) was 12.9%, or 14.8% excluding the motor finance provision booked in the third quarter. Tangible net asset value per share rose to 57 pence, up 4.6 pence in 2025.

Shareholder distributions were increased. Lloyds announced a 15% increase in its ordinary dividend and a share buyback of up to GBP 1.75 billion. The board intends to recommend a final dividend of 2.43 pence per share, bringing the total dividend to 3.65 pence for 2025. Chalmers said the combined capital return for the year would be up to GBP 3.9 billion, representing about 6% of the group’s current market capitalization.

Balance sheet growth and margin dynamics

Lloyds ended 2025 with lending balances of GBP 481 billion, up GBP 22 billion or 5% for the year. Mortgages rose GBP 10.8 billion to GBP 323 billion, supported by a flow share of around 19%. In consumer lending, cards, loans, and motor grew GBP 4.1 billion or 10% year-on-year, with management stating it was taking market share across all three segments.

Total deposits increased GBP 13.8 billion to GBP 496.5 billion, up 3% for the year. Retail deposits rose GBP 5.5 billion, while commercial deposits were up GBP 8.5 billion, with non-interest-bearing deposits stabilizing and growing slightly in the second half. Fourth-quarter deposits were down slightly, which management attributed to seasonal outflows in certain commercial subsectors, actions on low-margin funding, and ongoing deposit management.

NII for 2025 was GBP 13.6 billion, up 6% and in line with guidance. The net interest margin increased 11 basis points to 3.06% for the year, with a fourth-quarter margin of 3.10%, up 4 basis points from the prior quarter. Management said strong structural hedge income was a key tailwind, partially offset by mortgage repricing and deposit churn headwinds.

The structural hedge notional stood at GBP 244 billion at year-end. Hedge income was about GBP 5.5 billion in 2025, slightly above guidance. Chalmers said the group expects hedge income to step up by roughly GBP 1.5 billion to around GBP 7 billion in 2026, with expectations of around GBP 8 billion in 2027.

Other income growth and strategic initiatives

OOI rose 9% to GBP 6.1 billion in 2025. Growth was described as broad-based:

• Retail OOI up 12%, led by motor leasing and growth in cards and banking fees
• Commercial OOI up 1%, with growth in markets and transaction banking offset by lower loan markets activity
• Insurance, Pensions, and Investments up 11%, driven by general insurance and workplace performance
• Equity Investments up 15%, with Lloyds Living more than doubling its OOI and reaching nearly 8,000 homes since launch in 2021

Nunn said the group has generated GBP 1.4 billion of additional revenues from strategic initiatives to date and upgraded its 2026 target to around GBP 2 billion, with an expected other income contribution around GBP 0.9 billion ahead of original 2026 guidance.

Management also discussed progress integrating the acquisition of Schroders Personal Wealth, completed in the second half of 2024, which will be rebranded to Lloyds Wealth “in the coming months.” Chalmers noted the acquisition contributed to fourth-quarter OOI and said the business is expected to add around GBP 175 million of incremental income in 2026 versus 2025.

Costs, remediation, AI, and 2026 targets

Operating costs for 2025 were GBP 9.76 billion, up 3% year-on-year, reflecting investment, volume growth, and inflationary pressures partly offset by efficiencies. The cost-income ratio was 58.6%, or 53.3% excluding remediation. The remediation charge totaled GBP 968 million, including an GBP 800 million motor finance charge in the third quarter; management said there was no update on motor finance in the fourth quarter and it was awaiting the FCA’s final proposals following consultation.

Lloyds said it has delivered around GBP 1.9 billion of gross cost savings since 2021, supporting a targeted cost-income ratio of below 50% in 2026. For 2026, Chalmers guided to operating expenses of less than GBP 9.9 billion, noting this includes additional costs from Lloyds Wealth (previously indicated at about GBP 120 million in 2026) and the acquisition of Curve.

The group also emphasized its digital and AI program. Nunn said Lloyds scaled 50 generative AI use cases into production in 2025, generating GBP 50 million of in-year P&L benefit. Management said it expects more than GBP 100 million of P&L benefit in 2026 from GenAI, capturing both revenues and costs, with “significant upside” as use cases scale.

Looking ahead, Lloyds upgraded its 2026 RoTE guidance to greater than 16%. Chalmers guided to 2026 NII of around GBP 14.9 billion, citing expected margin expansion and balance sheet growth, including a further structural hedge uplift. On credit, the 2025 impairment charge was GBP 795 million, an asset quality ratio of 17 basis points; the group expects an asset quality ratio around 25 basis points in 2026.

Capital generation in 2025 was 147 basis points, or 178 basis points excluding the motor finance provision, with a year-end CET1 ratio of 13.2%. Lloyds reiterated its target of around 13% CET1 by the end of 2026 and said it expects more than 200 basis points of capital generation in 2026. Management also said it will now consider excess capital distributions every half year, reflecting increased confidence in capital generation.

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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