Newcastle and Edinburgh-based Virgin Money, which is being bought by Clydesdale and Yorkshire Bank owner CYBG for around £1.7 billion, said on Thursday its underlying profit before tax increased by 10% to £141.6 million in the half year to June 30.

However, Virgin Money forecast a drop in full-year banking net interest margin (NIM), a measure of lending profitability.

“The ongoing competition in the mortgage market and differential between front and back book margins has, as expected, impacted our banking net interest margin,” said Virgin Money.

The lender expects a full-year banking NIM of about 1.62%, lower than the 1.72% reported in 2017, as it reported a drop in first-half margins.

In its outlook for the rest of the year, Virgin Money said: “Our central planning scenario for the rest of the year assumes a continuation of resilient economic conditions …

“We continue to deliver on our 2018 guidance and now anticipate a banking net interest margin for the full year 2018 of around 162 basis points, recognising continued pressure on mortgage spreads and our card income adjustment.

“All other guidance for 2018 remains unchanged and we look forward to the second half of the year with confidence, as we continue to drive strong returns for our shareholders.”

Virgin Money CEO Jayne-Anne Gadhia said: “The recommended offer made by CYBG for Virgin Money in June reflects confidence in our strategy, our track record of delivery and the complementary models of the two businesses and will accelerate the delivery of our strategic objectives.”

Shore Capital analyst Gary Greenwood said: “Had it not been for the fact that Virgin Money is currently in the process of being acquired by CYBG, then we would have expected this update to have catalysed a negative share price reaction.

“However, with the shares currently trading around 5% below the implied CYBG offer valuation of 407p, we believe there is a degree of support to the stock.”