* Q1 profit 2.1 bln pounds
* Unsecured consumer credit not showing weakness -CFO
* Shares climb 3.5 pct (Adds share reaction, executive quote)
By Lawrence White
LONDON, April 27 (Reuters) - Lloyds Banking Group on Thursday reported its first quarter profit remained steady, defying analysts' expectations of a dip in performance at Britain's biggest mortgage lender following the vote last June to leave the European Union.
Lloyds said underlying profit before tax was a better-than-expected 2.1 billion pounds ($2.70 billion), in what will likely be the lender's last earnings update before a return to full private ownership following its state bailout during the 2008 financial crisis.
"These results continue to demonstrate the strength of our customer focused, simple and low risk business model," Chief Executive Antonio Horta-Osorio said in a statement.
The bank's shares were up 3.5 percent by 0721 GMT on Thursday, the best performer in the STOXX European Bank Index . Rival Royal Bank of Scotland was up 1.8 percent ahead of its own results announcement on Friday.
Lloyds reported its net interest margin rose to 2.8 percent from 2.74 percent a year ago and said it expected the measure to hold at the new level this year, again defying expectations the key measure of profitability would dip on economic uncertainty.
The bank said it had not seen signs of rising defaults among consumers using credit cards and other unsecured borrowing methods, an area the Bank of England said in January it was watching closely.
"Within unsecured we are not seeing signs of credit deterioration, consumer behaviour is holding up," Chief Financial Officer George Culmer told reporters on a conference call.
The bank's common equity tier 1 ratio, a closely watched measure of balance sheet strength, now stands at 14.3 percent, making it one of the best capitalised lenders among its major European peers.
Taxpayers have recouped all of the 20.3 billion pounds ($26 billion) invested in the bailout of Lloyds during the 2008 financial crisis, British finance minister Philip Hammond said last week.
Britain's government, which has been selling off chunks of its shares every three or four weeks this year, plans to sell its small remaining stake in Lloyds "in the coming months".
The return to private ownership nine years on from the crisis would mark a sharp contrast in fortunes with rival Royal Bank of Scotland Group, which is still more than 70 percent taxpayer owned and has not made an annual profit since its own bailout.
While Lloyds's booming profits in recent years signal its diverging fortunes from RBS since the 2008 crisis, it is still plagued by some of the costs from its behaviour in that era.
Lloyds booked a 100 million pound charge on Thursday to pay for a compensation scheme for victims of a fraud by its HBOS unit for which six people were jailed this year.
Britain's financial watchdog earlier this month said it has reopened its probe into the scam at the Reading branch of HBOS, in which two bankers siphoned off cash from struggling business clients.
Chief Executive Horta-Osorio has apologised for the 'criminal behaviour' of its former employees. The bank also took a further 100 million pound charge to cover other misconduct issues.
Lloyds set aside a previously-announced 350 million pounds to compensate customers mis-sold loan insurance, following an order by Britain's financial watchdog in March that lenders should contact some customers whose claims had previously been rejected.
The bank has so far set aside more than 17 billion pounds to pay customers back the cost of payment protection insurance, more than any other bank, in Britain's costliest consumer scandal. ($1 = 0.7772 pounds) (Reporting by Lawrence White; editing by Rachel Armstrong and Jason Neely)