Manchester-based Co-op Bank said its underlying profit before tax rose about 28% to £35.1. million in the three months ended March 31, 2023.

Co-op Bank said its total income rose 19% in the quarter to £131.1 million, while net interest income increased 20% to £120.1 million “supported by improving deposit margins following the increases in the base rate to 4.25%.”

Net interest margin rose to 1.81% from 1.46%.

Operating expenditure increased by 20% to £101.5 million “mainly driven by an increase in staff costs following cost of living payments and salary increases during 2022 as well as higher recruitment during 2022.”

Co-op Bank  CEO Nick Slape said: “In the first three months of 2023 we have again delivered a strong business performance with a statutory profit before tax of £30.6m and a statutory return on tangible equity of 15.1%.

“In particular, I am pleased with the 28% improvement in underlying profit in the period to £35.1m.

“I remain confident that the bank is well-positioned in the current uncertain macroeconomic environment, with surplus capital and liquidity and a low-risk simple balance sheet.

“In the first quarter, we completed the insourcing of Capita colleagues and are now focussed on migrating customers to our new savings platform.

“Our unique position as the leading ethical bank in the UK, combined with targeted investment to transform and simplify our operations, will enable us to continue to make it easier for our customers to interact with us, whilst delivering sustainable returns for our shareholders.”

Earlier this month, Reuters reported that Co-op Bank was in the early stages of exploring strategic options — including mergers and acquisitions, a sale of the bank and an initial public offering (IPO).

The Reuters report said Co-op Bank has been working with advisers at PJT Partners and Fenchurch Advisory to devise ways to create value for its owners, the report said.

Hedge funds including GoldenTree Asset Management and BlueMountain Capital took control of Co-op Bank from previous owner the Co-operative Group via a restructuring in 2017.

BlueMountain later sold a minority stake in Co-op Bank to private equity firms JC Flowers & Co and Bain Capital in 2021.

Later that year Co-op Bank made an offer for TSB Group which was rejected by Spanish parent Banco Sabadell.

Reuters said potential suitors for Co-op Bank could include OneSavings Bank, FirstRand’s Aldermore, Paragon and private-equity-backed Shawbrook.