10 telling metrics from Lloyds Banking Group plc’s results

Investors seemed pleased with Lloyds‘ (LSE: LLOY) full-year results yesterday, with shares in the bank up 5% in less than two days. As investors reflect on Lloyds’ performance over the past year, these 10 metrics stand out.

1. Lloyds’ full-year statutory profits increased 163% to £2.5bn in 2016, due primarily to lower PPI provisions. It’s important not to read too much into this, as volatile and one-off items can distort the underlying story.

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2. Underlying profits, the figure most closely watched by analysts, declined 3% for the full-year. That’s despite a slight beat in underlying profits in the fourth quarter, which rose 2% on the previous year. Probably the biggest disappointment from Lloyds’ update, though, was the decline in net interest income, the difference between interest earned and the interest paid out on deposits, which fell by just over 3%.

3. Net interest margins (NIM) gained 8 basis points to 2.71% in 2016, despite the Bank of England’s decision last August to reduce the base rate to 0.25%. For 2017, Lloyds expects NIM to remain above 2.70%, before the impact of its acquisition of credit card company MBNA. Contrast this with HSBC, which should have benefited from recent US interest rate hikes, NIM fell 15 basis points to 1.73%.

4. 2016 total revenues declined by 1%, due to a small reduction in Lloyds’ loan portfolio and lower card interchange fees, following the cap introduced in late 2015.

5. Despite this, Lloyds’ cost to income ratio fell 6 basis points to 48.7%. Contrast this with HSBC and Barclays, which both recently reported a cost efficiency ratio in excess of 60%, this demonstrates the advantage of Lloyds’ simple, low cost, retail and commercial bank business model.

6. The asset quality ratio, a measure of the amount of impaired loans relative to its total loan book, rose slightly from 0.14% last year, to 0.15%.

7. PPI provisions this year fell to £1bn, down from £4bn in 2015. The cost of legacy misconduct issues appears to be tapering off — and as you might expect, this contributed for much of the improvement in statutory profits.

8. Lloyds appears to be the best capitalised bank of the UK’s Big Four banking groups, as it has the highest common equity Tier 1 ratio (CET1) of 13.8%. Looking forward, it expects to generate 170-200bps of CET1 per annum pre-dividends.

   With the bank maintaining a CET1 ratio well above minimum regulatory requirements, I expect much of Lloyds’ capital generation in the coming years will be returned to shareholders through increased dividend payouts. That’s because, as Lloyds already has a leading market share in most UK markets, there will be few M&A opportunities, as regulators will keep a watchful eye on further consolidation in the industry.

9. Lloyds’ tangible net assets per share is 54.8p. With shares currently trading at 70.3p a share, the bank is one of the most expensive on its multiple on tangible book value — currently 1.38x.

10. Lloyds intends to pay a special dividend of 0.55p on top of its regular dividend of 2.5p, which brings total dividend per share in 2016 to 3.05p. This was a positive surprise, as City analysts had only been expecting dividends this year to total between 2.9-3.0p. Not only does this highlight the bank’s strong capital position and its growing profitability, it demonstrates that Lloyds’ long-term dividend potential may be undervalued by City analysts.