Lloyds Q1 profit beats expectations, FY income target lifted

(Sharecast News) - Lloyds Banking Group reported a 33% jump in first-quarter pre-tax profit on Wednesday to £2.0bn, beating consensus expectations of £1.8bn, as it lifted its full-year target for underlying net interest income. In the three months to the end of March, underlying net interest income rose 8% on the year to £3.6bn. Lloyds said this reflected a higher banking net interest margin of 3.17%, up 14 basis points year-on-year.

Operating costs fell 3% to £2.5bn, reflecting higher cost savings and a lower severance expense, partially offset by business growth costs, inflationary pressures and the impact of Lloyds Wealth (Schroders Personal Wealth).

Return on equity was 17%, up from 12.6% in the same period a year earlier.

The bank said it had taken a £151m impairment charge due to the impact of the deterioration in the economic outlook as a result of the Middle East conflict.

Lloyds reiterated its 2026 guidance for a cost to income ratio of less than 50% and a return on tangible equity greater than 16%. It nudged up its target for underlying net interest income, saying it would be "greater than" £14.9bn, having previously said it would be "circa" £14.9bn.

Chief executive Charlie Nunn said: "In the first quarter of 2026, the group delivered sustained strength in financial performance, growing our income, maintaining our cost discipline and delivering strong profitability. Our differentiated business model remains resilient in the context of the current economic uncertainties. We remain focused on supporting UK households and businesses as they look to strengthen their financial positions and achieve their goals.

"We are building strategic momentum during the final year of our current plan, providing innovative ways for our customers to manage their financial needs and achieve their financial aspirations. We are confident in our delivery for the year ahead and reiterate our guidance for 2026. We look forward to presenting our new strategy alongside the half-year results."

At 1350 BST, the shares were down 1.4% at 97.15p.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: "Lloyds' first-quarter update had a lot for investors to like, with the bank beating profit expectations while keeping its full-year targets firmly intact. Performance was helped by the structural hedge and steady lending momentum, while costs are being kept under control, and credit quality still looks resilient. That combination helped the bank deliver a clean profit beat versus consensus, with stronger margins, better cost performance and lower impairments than analysts had expected.

"The UK backdrop is still far from easy, and Lloyds has taken a more cautious view on the economy, in part because of the impact from the Middle East conflict, but the core engine of the business is performing well.

"The most important message is that guidance has been largely reiterated, with net interest income expectations nudged a touch higher. That suggests management still sees enough support from higher-for-longer rates to offset pressure elsewhere, including competitive mortgage pricing and a softer economic outlook.

"There are still areas to watch, particularly impairments and the wider impact of a weaker UK consumer backdrop, but this was a solid update overall. Lloyds looks to be entering the rest of the year with momentum, a strong capital position, and profit metrics running ahead of its own targets."

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