Bank of Scotland plc: 2022 Half-Year Results

Bank of Scotland plc

2022 Half-Year Results

27 July 2022

Member of the Lloyds Banking Group

CONTENTS

REVIEW OF PERFORMANCE

Principal activities

Bank of Scotland plc (the Bank) and its subsidiaries (together, the Group) provide a wide range of banking and financial services. The Group's revenue is earned through interest and fees on a broad range of financial services products including current and savings accounts, personal loans, credit cards and mortgages within the retail market and loans and other products to commercial and corporate customers.

Income statement

The Group's profit before tax for the half-year to 30 June 2022 was £1,157 million, whilst total profit for the period was £843 million, down against the prior period reflecting the non-repeat of the impairment and deferred tax credits in the first half of 2021.

Total income of £2,632 million was down 3 per cent on the first half of 2021, with reduced net interest income partly offset by higher other income.

Net interest income of £2,472 million was down 4 per cent compared to the first half of 2021, impacted by higher funding costs on intra-group borrowing which more than offset the effects of average interest-earning asset growth and benefits from the UK Bank Rate increases.

Other income of £160 million was 15 per cent higher than the first half of 2021, driven by increases in both net fee and commission income and other operating income. Net fee and commission income for the period was £143 million compared to £125 million in the first half of 2021, reflecting improved credit and debit card performance. Other operating income in the period of £29 million was up £11 million.

Operating expenses of £1,457 million were 6 per cent lower than in the first half of 2021, reflecting lower remediation costs and continued cost discipline. There have been no further charges relating to HBOS Reading since the year-end and the provision held continues to reflect the Group's best estimate of its full liability, albeit significant uncertainties remain.

Asset quality remains strong with sustained low levels of new to arrears, remaining below pre-pandemic levels. Impairment in the first half of the year was a net charge of £18 million, compared to a net credit of £252 million in the first half of 2021, reflecting a low observed performance charge alongside updates to the economic outlook. The updated outlook includes additional risks from a higher inflation and interest rate environment, partially offset by reductions in COVID-19 related risks. 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, also reflected in the strong recovery performance.

The Group's IFRS 9 base case economic scenario used to calculate the expected credit loss (ECL) allowance assumes higher inflation and a more severe cost of living squeeze, set against continued low levels of unemployment and robust asset prices. The ECL allowance continues to reflect a probability-weighted view of future economic scenarios built out from the base case and its associated conditioning assumptions, with a 30 per cent weighting applied to base case, upside and downside scenarios and a 10 per cent weighting to the severe downside. The Group's severe scenario has been adjusted to include a higher UK Bank Rate, and higher inflation path, to better reflect the present risks.

The Group's operations are predominantly UK-based with no direct credit exposure to Russia or Ukraine. The Group does have credit exposure to businesses that are impacted, either directly or indirectly, by higher energy costs or commodity prices, or potential disruption within their supply chains. Such activity continues to be monitored through prudent risk management.

The Group recognised a tax expense of £314 million in the period, compared to a net credit of £55 million in the first six months of 2021 reflecting the non-repeat of a £433 million credit in the prior period as the result of a deferred tax uplift.

REVIEW OF PERFORMANCE (continued)

Balance sheet

The Group's balance sheet has grown during the year to date. Total assets of £315,353 million were up 2 per cent compared to £310,560 million at 31 December 2021 driven by an increase in loans and advances to customers. Loans and advances to customers were 1 per cent higher at £283,520 million compared to £279,409 million at 31 December 2021 driven by growth in the Group's mortgage book.

Total liabilities of £300,495 million were up 1 per cent compared to £296,517 million at 31 December 2021 driven by amounts due to fellow Lloyds Banking Group undertakings increasing by £6,231 million in the period. Customer deposits of £169,855 million were broadly stable compared to the end of 2021.

Total equity increased by £815 million from £14,043 million at 31 December 2021 to £14,858 million at 30 June 2022 with total comprehensive income for the period of £849 million and capital contributions received of £23 million, partially offset by distributions on other equity instruments of £57 million.

To view the full announcement, please click on the following link:

http://www.rns-pdf.londonstockexchange.com/rns/9557T_1-2022-7-27.pdf

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.