The Lloyds (LSE: LLOY) share price has been bombing along lately. It’s up 30% over the last year, and 166% over five years. With an average yield of around 4% or 5% over that period, long-term investors are finally reaping the rewards.

Lloyds and the rest of the FTSE 100 banks have finally shaken off the ghosts of the financial crisis, even if it did take more than 15 years. Profits are rising, revenues are healthy, and shareholders are being rewarded with regular dividends and share buybacks.

That pattern continued last Thursday (24 July), when Lloyds Banking Group posted strong half-year results. Pre-tax profits to June rose 5% to £3.5bn, driven by a 6% rise in net income, helped by growth in lending and deposits.

FTSE 100 sector revival

Lending to customers climbed £11.9bn to £471bn, with most of that coming from retail mortgages. Deposits were up £11.2bn to £493.9bn, helped by inflows into savings accounts. Shareholders joined in the fun, as the board lifted the interim dividend by 15% to 1.22p per share.

I’ve now almost doubled my money since buying these shares in 2023, from a combination of dividend income and share price growth.

It was a confident performance, and CEO Charlie Nunn didn’t hold back. He said the bank was making “great progress” towards its 2026 growth goals, delivering “more sustainable returns” for shareholders.

There could be more good news to come as Chancellor Rachel Reeves looks set to ease financial services regulations to get the economy moving. Nunn has publicly supported moves to reform ring-fencing rules that force banks to separate their retail arms from riskier divisions, and ease restrictions on banks offering investment advice to customers.

Despite those positives, the economy remains fragile with inflation sticky at 3.6%, squeezing consumer demand and mortgage affordability. As the UK’s biggest lender, Lloyds is especially exposed here. A plus is that higher inflation support its net interest margins.

Scandal clouds the outlook

Lloyds faces a bigger threat. The motor finance mis-selling scandal could become very costly indeed. Analysts estimate the compensation bill across the industry could hit £44bn if the Supreme Court rules against the banks, with Lloyds heavily exposed via its Black Horse division. It’s due to report at 4.35pm on Friday 1 August.

So far, Lloyds has only put aside £1.2bn. That’s a long way short of what might be required if the worst happens. Reeves is reportedly considering retrospective legislation to limit the damage, but this would be a highly controversial move.

The market doesn’t seem to be pricing in the full scale of the risk just yet. That makes me uncomfortable. If the ruling favours Lloyds, its shares could bounce nicely. If it doesn’t, they could plunge. Yet investors seem relatively unfazed. That seems odd to me.

Dividends and potential growth

Longer term, I still think the investment case for Lloyds is strong. It’s delivering heaps of income and growth, and may well benefit from looser regulation. I’m not selling, whatever the Supreme Court decides. But I wouldn’t consider adding to my stake until after the Supreme Court issues its verdict.