LONDON (Reuters) -Lloyds Banking Group upgraded its outlook after posting better than expected quarterly profit on Thursday in CEO Charlie Nunn’s first set of earnings at the bellwether bank. Britain’s biggest mortgage lender posted pretax profit of 2 billion pounds ($2.2 billion) for the July-September period, double the figure in the same period last year and better than analyst expectations for 1.3 billion pounds. Like rivals Barclays and HSBC, Lloyds’ results were boosted by the release of cash - 84 million pounds - it had set aside for bad loans last year when the economic outlook looked gloomier. The bank now expects loan impairments to be a net credit for the year and its return on tangible equity - a key measure of profitability - to be more than 10%, up from 5-7% at the end of 2020. The bank’s shares rose 2.5% in early trading, the second-best performer on the benchmark FTSE 100 index. Former HSBC veteran Nunn took the helm at Lloyds in August, replacing long-standing boss Antonio Horta-Osorio after he left to chair crisis-hit Credit Suisse. Nunn inherits a bank placed on an even keel by his predecessor but faces a challenge to improve returns amid near-zero benchmark interest rates and intensifying competition from digital rivals. “There are clearly significant opportunities for Lloyds Banking Group to further develop its platforms and capabilities and grow,” Nunn said. The bank’s core capital ratio – a measure of a bank’s financial strength – increased to 17.2%, well above its target of 12.5%. “The capital position is much stronger than expected, which bodes well for future shareholder distributions, and we continue to think a sizeable share buyback will be announced alongside the full-year results in February,” analysts at Shore Capital said in a note. Costs for past misdeeds continued to dent profit, however, with the bank setting aside a further 100 million pounds for remediation charges, including compensation for victims of historic fraud at its HBOS Reading branch. Lloyds has tried to trim costs under Nunn and this month axed a further 48 branches across England and Wales as banks across the sector cut back their high street presence in response to growing use of digital banking. ($1 = 0.7277 pounds) Reporting by Iain Withers and Lawrence WhiteEditing by Rachel Armstrong and David Goodman