TSB reports 153% increase in quarterly profit

TSB has reported a 153 per cent quarterly increase in profits after a major drive to boost lending as the challenger bank seeks to win market share from its larger rivals.

The lender, which was carved out of Lloyds Banking Group and floated in June last year, posted pre-tax profits of £34.2m for the first three months of the year, up from £13.5m in the fourth quarter.

However, TSB saw profits fall year-on-year from £47m in the first quarter of 2014, as the bank invested in an attempt to expand the business.

The bank last month agreed a 340p per share takeover by Spanish lender Banco Sabadall, which values TSB at £1.7bn. Paul Pester, TSB's chief executive, said the deal will help the lender expand into the small business banking sector more quickly.

"Sabadell's heritage is as an SME bank with great SME capabilities," he said, adding that he will be "hanging around" until after the merger is completed.

TSB saw gross mortgage applications of over £700m through its new broker service which launched at the start of the year.

The bank has so far been heavily reliant on a mortgage "enhancement" portfolio bequeathed by Lloyds to help buoy profits.

TSB has come under pressure to boost its asset base after it was created with a £20bn balance sheet, representing only half the amount that was originally intended. Total assets increased by 0.9 per cent over the quarter to £27bn.

The lender also has a relatively high cost base, with a 6 per cent share of the UK's branch network but launching with only 4 per cent of the personal current account market.

TSB has focused on boosting its presence in the current account sector, attracting a 7.9 per cent share of all new and switching customers in the first quarter.

Rather than reducing its oversized cost base, the bank is aiming to increase the loan book by 40-50 per cent by 2018.

New lending grew by 18.4 per cent over the quarter, and Mr Pester said he expects net lending to grow by over £1.5bn this year.

Costs fell over the quarter by 12.8 per cent to £170m and the group expects to spend no more than £720m this year.

Net interest margins - the difference between the interest gained and paid out - improved by 0.04 percentage points to 3.61 per cent over the quarter.

The results could mark the last set of figures for TSB as a standalone bank, following the takeover agreement with Sabadell.

Sabadell expects to enhance TSB's growth and efficiency, including current accounts, digitisation and lending to small and medium-sized businesses.

TSB said its capital buffer increased to 19.8 per cent, up from 19.7 per cent at the end of the last year.

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