TSB, the UK banking business of Spain’s Sabadell, has reported a statutory profit before tax of £111.6 million for the first half of 2024, a decrease of £36.3 million or 24.5% compared to £147.9 million in the first half of 2023.

However, compared to H2 of 2023, statutory profit before tax increased £22.3 million or 25%.

Sabadell is trying to fend off a hostile takeover by Spanish rival BBVA.

TSB said the main driver of its lower profit before tax compared to H1 2023 was lower income “which decreased by £35.8 million (6.1%) to £548.7 million (H1 2023: £584.5 million).”

TSB said this “reflected lower mortgage margins in challenging market conditions as well as an increase of £126 million in interest paid to our deposit customers in the period, with net interest margin 22 basis points lower than H1 2023 at 2.62% (H1 2023: 2.84%).”

TSB added: “However, compared to H2 2023 net interest margin was only 5bps lower (H2 2023: 2.67%). This highlights a more positive trend through H1 2024, where both net interest income and net interest margin were higher in Q2 2024 versus Q1 2024.

“Despite ongoing inflationary pressure, operating expenses increased by just 2.2% to £418.0 million (H1 2023: £408.9 million). This increase included the recognition of the new Bank of England bank levy and, excluding this, underlying costs were broadly unchanged.

“Credit impairment charges fell by £8.6 million (31.0%) to £19.1 million (H1 2023: £27.7 million), reflecting an updated and more favourable economic outlook in H1 2024.

“Loans and advances to customers of £36.6 billion decreased by £0.1 billion (0.3%) year on year (June 2023: £36.7 billion) but increased by £0.4 billion (1.1%) compared to the year-end (December 2023: £36.2 billion).

“This was driven by higher mortgage lending, with stronger application volumes, up £0.9bn (+28.7%), and improved margins in the first half of 2024 compared with the prior year.

“Year-on-year, customer deposits were down by £0.4 billion to £35.0 billion (June 2023: £35.4 billion). However, we have seen a £0.2 billion (0.6%) increase in deposits since the start of the year (December 2023: £34.8 billion) with savings balances the key component of growth, increasing by £0.6 billion.

“This was partially offset as increased base rates have previously driven more customers to move deposits from current accounts into savings and we have seen this slow in H1 2024, with balance outflows c.£0.5 billion lower than in H2 2023.

“The balance sheet remains resilient with a Common Equity Tier 1 ratio of 16.3% (December 2023: 16.7%) and Liquidity Coverage ratio of 180.0% (December 2023: 203.0%).

“The fall in the Common Equity Tier 1 ratio since the start of the year reflects the payment of a £120.0 million dividend to TSB’s parent company, Sabadell, in February.”

TSB CEO Robin Bulloch said: “Our focus in 2024 is making TSB simpler and easier to bank with and I’m delighted to see more customers choosing TSB.

“We continue to make good progress against our strategy, and I’d like to thank everyone at TSB for their continued efforts to support our customers and communities, helping them feel more money confident.”