NatWest announced the acquisition of a portion of Metro Bank’s residential mortgage portfolio, coinciding with its stronger-than-expected first-half performance.

The FTSE 100 bank reported a pretax operating profit of £3 billion for the first six months of the year, down from £3.6 billion last year but surpassing analysts’ expectations of £2.6 billion. The decline was attributed to a 6% drop in net interest income, which fell to £5.4 billion from £5.7 billion last year. Net interest income represents the revenue banks earn from lending minus the cost of deposits.

Compared to the previous year, NatWest experienced lower deposit balances and pressure on lending margins. Like many banks, NatWest benefited from record profits last year due to the Bank of England’s interest rate hikes. However, with the Bank Rate holding steady at 5.25% this year and expected to decrease soon, lending margins have been squeezed. Earlier in the week, Lloyds reported a significant profit decline as its interest income dropped by 10%.

Despite a weaker overall performance in the first half compared to last year, NatWest showed positive signs for the second half. Its net interest margin (NIM), a key profitability measure, widened to 2.10%, five basis points higher than the first quarter. Total income increased by over 5% from the first quarter due to “increased deposit income.”

Following these results, NatWest declared an interim dividend of 6p per share, up 9% from last year. The bank also raised its income guidance to £14 billion, up from the previous range of £13-13.5 billion. Shares rose about 7% in early trading.

CEO Paul Thwaite commented, “The positive momentum and progress in the first half reflect the ambition across the bank to deliver its full potential. Our customers are beginning to feel more confident, with activity increasing and asset quality remaining strong, and we are well positioned to help unlock growth across the UK through our unrivalled regional network.”

In addition to the results, NatWest acquired a portion of Metro Bank’s residential mortgage portfolio for £2.5 billion, adding around 10,000 customer accounts that will continue to be serviced by Metro Bank. Thwaite said, “This transaction is a further opportunity to accelerate the growth of our Retail mortgage book within our existing risk appetite, with attractive returns. It is in line with our strategic priorities and builds on our recent acquisition from Sainsbury’s Bank.”

John Moore, senior investment manager at RBC Brewin Dolphin, stated, “NatWest’s acquisition of Metro Bank’s residential mortgage portfolio builds on its purchase of Sainsbury’s Bank’s core banking operation, adding further scale to NatWest’s loan book.”

Metro Bank indicated that the sale would allow it to reposition its portfolio towards higher-yielding commercial, corporate, and SME loans, and that the deal would be beneficial for its earnings and capital ratio.