Lloyds Banking Group (LYG) - Get Lloyds Banking Group plc Sponsored ADR Report  shares rose to the highest level of the year Thursday after the former state-rescued lender reported a better-than-expected doubling in first quarter pre-tax profit.

Lloyds saw profit increase 99% from the from £654 million posted a year earlier to £1.3 billion ($1.7 billion) against a broader expectation of around £1.21 billion. The bank posted an underlying profit of £2.1 billion, up 1% from last year. Its cost-income ratio improved to 47.1 per cent from 47.4 per cent a year ago. The lenders net interest margin increased to 2.8% from 2.74% in the first three months of 2016.

"In the first three months of this year we have delivered strong financial performance with increased underlying profit, a significant improvement in statutory profit and returns, and strong capital generation," CEO Antonio Horta-Osorio said in a statement. "These results continue to demonstrate the strength of our customer focused, simple and low risk business model and our ability to respond to a challenging operating environment."

Lloyds shares gained more than 3% in the opening half hour of trading in London to change hands at 69.54 pence each, a year-to-date high that takes the three month advance to 5.5% compared to a 1.16% gain for the Stoxx Europe 600 Banks index.

TheStreet Recommends

Capital generation for the full year is expected to be at the top end of the 170 -200 basis points guidance, the bank said in an interim management statement released on Thursday. The bank also set aside another £350 million to compensate customers who were mis-sold payment protection insurance. 

The bank's core equity tier one ratio stands at 14.5%, up 0.7 percentage points in the quarter, and it set aside a £100 million provision in its first-quarter statement for the HBOS fraud scandal that cost it £350 million and led to the jailing of six people. The bank said earlier this month that it would have to pay out £100 million to victims.

The scandal saw struggling small businesses referred to a consultancy firm and then asset-stripped, between 2003 and 2007.

Lloyds had said Wednesday that it had appointed a retired high court judge to assess whether HBoS scandal was investigated and reported properly at the time by the bank. The bank is expected to begin making compensation pay-outs in May.

The Financial Conduct Authority reopened a probe into whether the bank knew about fraud in its Reading, England branch.