Metro Bank PLC (LSE:MTRO) reported a return to profits in September, which was faster than it had projected.
The challenger bank said it was profitable on both an underlying and statutory basis for that month, driven by margin improvement and cost discipline.
It made a £10mln charge for expected credit losses, saying there "has been no deterioration in early warning indicators and no signs of stress or increased delinquency across the customer base".
Total deposits in the quarter equalled £16.4bn, flat year on year but down 1% compared to the second quarter, whilst net loans increased by 4% in the quarter and year-on-year to £12.8bn amid growth in residential mortgages and consumer unsecured lending.
It said it continued to attract “low-cost high-quality deposits,” whilst residential mortgages and consumer lending drove the increase in loans.
Net interest margin in the quarter was 1.98%, with an exit NIM of 2.04% in September and guidance to NIM improving in 2023 with the pace impacted by more muted lending growth.
Chief executive Daniel Frumkin said: “The underlying potential of our business is encouraging and, though the tight capital position currently constrains RWA growth, the business still seeks to grow margins with ongoing optimisation and discipline.
“We remain focused on generating a sustainable business supported by the commitment and engagement of our tremendous colleagues who continue to be there for our customers and communities.”
Shares jumped 15% to 83.65p, still well down on the £30-plus in 2018.
Analysts at Jefferies noted that the profitability was driven by rising NIM but that no further detail was given on the "cost discipline".
"Whilst capital levels were not disclosed we assume CET1/MREL ratio bleed was arrested in Sept and management comment 'minimum regulatory capital requirements are expected to be met without needing to take any market-dependent balance sheet action'.
"On balance, we read the Q3 update positively given earlier-than-expected profitability and further proof of an advantaged low-cost deposit base."