Why the Virgin Money UK (ASX:VUK) share price will be on watch today

The company's shares are poised for a big day after posting a positive trading update…

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The Virgin Money UK CDI (ASX: VUK) share price will be one to watch on Wednesday morning. This comes after the United Kingdom-based bank released its third-quarter trading update for the 2021 financial year yesterday afternoon.

During Tuesday's market close, Virgin Money shares ended the day up 4.30% trading at $3.64.

Let's take a closer look at how the company performed over the last 3 months.

Young male investor smiling looking at laptop as the share price of ASX ETF CRYP goes higher today

Image source: Getty Images

How did Virgin Money perform for the third quarter?

Virgin Money shares may be on the move today as investors had the night to digest the company's latest results.

For the period ending 30 June 2021, Virgin Money reported overall customer deposits fell to £68 billion (A$128.3 billion). This represents a decline of 0.8% compared to the prior quarter as the group continued to drive down costs. The more expensive term deposits balances dropped in line with expectations as management focused on repricing the portfolio lower.

Virgin Money highlighted a strong relationship deposit balance growth with stable lending balances. Relationship deposit balance grew to £29.8 billion (A$56.23 billion), a 3.7% increase on Q2 FY21.

Mortgage balances came to £58.7 billion (A$110.71 billion), a 0.7% lift compared to the last 3 months. This reflected higher volumes of new lending and upbeat market conditions ahead of stamp duty land tax (SDLT) changes.

Business lending sunk to £8.7 billion (A$16.41 billion), down 2.4%, while personal lending jumped to £5.2 billion (A$9.81 billion). The latter came from a surge in credit cards as spending levels picked up.

Group net interest margin (NIM) accelerated to 168 basis points (bps) for the third quarter, up from 160bps in Q2. The company stated that it benefitted from a lower cost of funds as well as higher hedge contributions.

FY21 NIM is expected to be slightly ahead of 160bps, stabilising in the fourth quarter. This is a result of wholesale funding costs and increased competition offsetting the ongoing improvement in deposit repricing.

What did the CEO say?

Virgin Money CEO David Duffy welcomed the strong result, saying:

Virgin Money performed well as our strategy continued to translate into improved financial delivery in a strengthening environment.

We carried our momentum of relationship deposit growth into the second half, reducing our cost of funds. Our asset quality remained robust, while capital ratios improved further.

Mr Duffy went on to discuss the company's outlook, adding:

We have increased full-year NIM guidance and, while COVID continues to impact the near-term, we have a strong capital position and robust provisions. We see great opportunities from further developing our digital capabilities to deliver an improved customer experience and greater efficiencies.

Virgin Money share price snapshot

Virgin Money has a market capitalisation of roughly $3.2 billion, cementing its place within the S&P/ASX 200 Index (ASX: XJO). The company's share price has more than doubled in the past 12 months and is up 50% year-to-date.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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