Britain's challenger banks outperformed the Big Five lenders by notching up an 18% hike in profits in 2015, but new research warned the "tide is turning" in a tougher year for smaller players.
Total pre-tax profits for so-called challenger banks - such as TSB, Virgin Money, Metro Bank and Clydesdale and Yorkshire Banking Group - rose by £194 million to £1.28 billion in 2015, while the Big Five were left nursing a combined profits drop of £5.6 billion.
The latest UK Challenger Bank report by KPMG showed challenger banks also increased lending by 32% against a 5% fall for the major group - Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Santander.
But the research cautioned over difficulties ahead for the sector's newer entrants, with conditions set to get more difficult amid a slowdown in buy-to-let lending after the recent stamp duty hike, as well as the Chancellor's new banking profit surcharge.
The report showed that buy-to-let lending was a major boost for challengers last year, accounting for around 15% of their balance sheets.
Recent trading updates from the sector showed there has been a major drop off in demand for buy-to-let borrowing since the April 1 increase in stamp duty, which is set to make 2016 a more difficult year for the challengers.
Shares for the listed challengers briefly fell by as much as 10% after the buy-to-let changes on worries over its impact.
"Recent buy-to-let changes are unlikely to be the Achilles heel of challenger banks, but it indicates the tide is turning and goodwill towards challengers is waning," the report said.
The new 8% surcharge on profits over £25 million will also cost challengers dear, according to the research, which reveals it would have added an extra £70 million to their tax bill if it had applied in 2015.
Warren Mead, head of challenger banking at KPMG, said while challenger banks are poised to gain further market share in 2016, they will have to start "widening their nets and working harder" to compete.
He said: "The challengers have grown up, and shouldn't expect significant assistance from regulators or policymakers. Several will also begin to really realise both the benefits and difficulties that being a large listed company brings."
Metro Bank and TSB - spun out from Lloyds Banking Group and then taken over by Spanish rival Banco de Sabadell last March - recently posted solid figures for the first three months of the year.
TSB posted a 53.4% year-on-year hike in bottom-line profits to £52.6 million in the first three months of 2016. On an underlying basis, management pre-tax profits rose 75% to £59.9 million.
Metro Bank, which floated on the stock market in March, said it was moving closer to making its first profit as it trimmed underlying losses by 7% to £7.9 million, although £3.2 million in costs for its stock market listing saw it post bottom-line losses of £11.1 million.
Virgin Money - another recent stock market entrant after its flotation in November 2014 - will report back on recent trading on Wednesday.