OneSavings Bank PLC (LON:OSB) posted flat first-half profit as it took a £5.9mln charge for the recently agreed merger with Charter Court Financial Services Group plc (LON:CCFS).

The bank said statutory profit before tax came to £91.0mln in the six months to the end of June, broadly unchanged from a year ago.

Excluding the costs of the deal with Charter Court, underlying pre-tax profit rose 6% to £96.9mln.

In March, OSB and Charter Court announced a plan to merge, which will create one of Britain’s largest specialist lenders with a combined market value of about £1.6bn. Shareholders approved the deal in June and the Competition and Markets Authority gave it clearance a month later.

The transaction will help bolster the challenger banks’ defence against Brexit uncertainty, a slowing housing market and tough price competition in mortgage lending.

Competitive mortgage market drags on OSB’s margins 

Fierce competition in mortgages weighed on OSB’s margins in the first half. The net interest margin (NIM– the difference between what it pays on deposits and what it earns from loans – fell 23 basis points (bps) to 278bps in the first half.

The net loan book grew 10% to £9.9bn, driven by a 13% rise in gross organic new business to £1.6mln.

“Our core market segments remain attractive and we have confidence in continuing to deliver growth in our net loan book,” said chief executive Andy Golding.

“Despite ongoing uncertainty surrounding Brexit, given the growth already achieved this year and considering the current strong pipeline and application levels in the third quarter to date, we now expect to deliver high-teens net loan book growth in 2019 at attractive margins.”

However, OSB the merger with Charter Court meant it was unable to provide “detailed guidance for the financial year ahead”.

OSB raised its interim divided by 14% to 4.9p per share.

Charter Cour profits drop 

Separately, Charter Court reported pre-tax profit of £82.6mln for the first half, down from £93.1mln a year ago. A 18.6% rise in net interest income to £84.4mln was offset by lower gains on structured asset sales, net fair value movements on derivatives and increased administrative expenses, including £3.8mln in merger costs.

The loan book gained 23.8% to £7mln on new business of £1.5bn, boosted by strong demand across buy to let and specialist residential lending. However, the NIM edged down to 3.04% from 3.08%. Charter Court hiked its dividend by 53% to 4.3%.

“We strongly believe that a combination with OSB would further enhance our positioning in the market and allow us to leverage our complementary strengths to reinforce all aspects of our operations,” said Charter Court chief executive Ian Lonergan.

“Following receipt of shareholder approval in June and CMA clearance in July, we await approval from the relevant UK regulatory authorities to complete the transaction.”