Second-quarter net income rose 10% to £5.0bn, as expected. Within that, both interest income and other income were higher. Banking net interest margin was up from 3.04% to 3.22%.
Underlying profit rose 9% to £2.2bn (2.3% better than expected). Growth was driven by higher net income and good cost control, partly offset by higher impairments.
The group's CET1 ratio, a key measure of financial strength, stands at 13.1% after planned shareholder returns (target minimum = c.13.0%). An interim dividend of 1.58p was announced, up 30%, alongside a new £1bn share buyback.
2026 underlying net interest income is still expected to be greater than £14.9bn. There are also new 2030 targets, aiming for mid-single-digit annual net income growth, a cost-to-income ratio below 45% and a return on tangible equity of around 20%.
The shares were broadly flat in early trading.
Our view
Lloyds has taken another confident step forward. Headline income was broadly as expected, but the quality underneath was better. Other income was ahead, costs were well controlled and underlying profit beat forecasts. More importantly, the new 2030 targets clarify where longer-term growth should come from.
Traditional lending remains the engine. Profitability improved again, helped by loan growth and disciplined deposit pricing. The structural hedge continues to do much of the heavy lifting, spreading the benefit of higher rates over several years.
We expect these trends to help offset a softer economy and fierce competition, and income should rise again in 2027 as hedge income rolls through. We see this as an area where Lloyds can outperform in the near term, with what appear to be quite conservative assumptions about reinvestment rates built into current targets.
Loan growth is broadening, too. Mortgage lending continues to rise, while cards, personal loans, motor finance and business lending are contributing. That reduces reliance on any single market, although intense mortgage competition limits profitability on some new lending, a trend that’s unlikely to go away anytime soon.
Borrowers remain in good shape, with arrears low and stable. Bad-loan charges were slightly above expectations, partly reflecting updated economic assumptions rather than a sharp deterioration. We continue to view lending quality as a strength, though it will be tested if unemployment rises.
We’re increasingly positive on other income. Insurance, wealth, workplace car schemes and property-related businesses should grow faster than the wider group. Much of this relies on existing momentum and selling more products to current customers, not unproven ventures. That makes the ambition credible and reduces reliance on lending income.
We also think the medium to long-term targets may prove conservative. Lloyds is aiming for a return on tangible equity of around 20% by 2030, while consensus is already at 21.2%. That fits its track record of setting conservative targets before raising expectations as delivery improves. Stronger other income and cautious interest income assumptions offer clear routes to upside, although execution still matters.
Historic motor finance remains a risk, but with no change to the provision and greater clarity on redress, it now warrants monitoring rather than dominating the investment case.
Lloyds remains one of our preferred sector names. Strong capital generation should support investment and shareholder returns, while the broader income mix offers further growth potential. The valuation is no longer as attractive as it once was, so delivery matters more, and no returns are guaranteed.
Environmental, social, and governance (ESG) risk
The financials sector is medium-risk in terms of ESG. Product governance is the largest risk for most companies, especially those in the US and Europe with enhanced regulatory scrutiny. Data privacy and security is also an increasingly important risk for banks and diversified financial firms. Business ethics, ESG integration and labour relations are also worth monitoring.
According to Sustainalytics, Lloyds’ management of material ESG issues is strong.
The FCA’s investigation into historical auto-lending practices between 2007 and 2021 is a risk for Lloyds. Provisions have been taken and following updates from both the Supreme Court and FCA, we now have more clarity on the impact. There’s room for improvement in product governance and responsible marketing, though it demonstrates strong progress in integrating ESG factors into asset management and corporate financing.
Lloyds key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.