Virgin Money Holdings PLC (LON:VM), which is being taken over by rival CYBG (LON:CYBG), reported first-half underlying pre-tax profit that beat analysts’ expectations but margins were squeezed by tough competition in mortgage lending.
Underlying pre-tax profit rose 10% to £141.6mln in the six months through June from £128.6mln a year ago, ahead of the market forecast of £137mln.
The banking net interest margin, a measure of lending profitability, fell to 1.64% from 1.72%.
“The ongoing competition in the mortgage market and the differential between front and back book margins has, as expected, impacted our banking net interest margin,” the company said.
The lender warned that it expects its banking net interest margin for the year to decline to 1.62%, though maintained its guidance for the rest of its 2018 results.
Shares dropped 0.6% to 385p in morning trading.
READ: Virgin Money agrees £1.7bn takeover by CYBG
Credit card balances at the end of the first half were £3.1bn, up from £2.76bn last year.
The common equity tier 1 ratio, a measure of capital strength, stood at 16.3%, compared to 13.8% last year. Virgin Money expects a CET1 ratio of 15.5% for the year.
READ: Virgin Money shares rise as it expects capital position to improve
At the end of May, Virgin Money had a 2.2% share of the gross lending market as Britain’s biggest lenders continued to dominate.
The group, founded by Richard Branson, recommended an interim dividend of 2.3p each, up 21% on last year’s payment.
Last month Virgin Money agreed to be taken over CYBG, the owner of Clydesdale Bank and Yorkshire Bank, for £1.7bn.