SHARES in CYBG dropped by more than three per cent after the Clydesdale Bank owner reported a tumble in first-half profits.

The Glasgow-based lender, which said it will continue to keep branch numbers under review as usage steadily drops, reported a statutory pre-tax profit of £46 million in the six months to March 31, down £12m on the corresponding period last year.

The bank, which was floated on the stock market by National Australia Bank in February last year, put the profit fall down to restructuring expenses, separation costs and charges for legacy conduct matters, including a £150m provision for PPI (payment protection insurance) mis-selling.

However underlying pre-tax profits climbed by 15 per cent to £123m, with the bank stating it was now seeing strong momentum.

Analyst RBC Europe, which had guided on statutory interim profits of £70m, branded the first-half results as a “slight miss versus expectations”, noting that income growth was below forecast and that the reduction on loan losses had not been as sharp as expected. It also highlighted its concern over a fall in deposit balances over the period. The bank reported total operating income of £497m, up from £491m.

RBC said it expects CYBG to make underlying profits before tax of £260m for the full year, and statutory profits of £102m.

Debbie Crosbie, group chief operating officer at CYGB, was upbeat about the bank’s first-half performance, declaring that the lender was building up “really good momentum and asset growth”.

“Underlying profits before tax is up 15 per cent (to £123m), so that for us is a really good sign that we are tracking really well,” Ms Crosbie said. “We’ve reinforced our guidance for FY 2017 to the end of the year, and we are confirming our guidance for 2019 as well.”

Robert Noble, analyst at RBC, branded the drop in deposit balances in the first half a “concern”, noting that it reflected customers leaving because of re-pricing after the bank consolidated its Isa offer.

But while he said losing market share in this area was “not ideal”, he does not envisage the issue being a long-term difficulty – “as long as it doesn’t happen again”.

Asked about analysts’ concerns over the fall in deposit balances, Ms Crosbie said: “Overall, our deposit performance in customers remains quite strong. In our new B offering we are getting closer to having half a billion [pounds of] retail deposits. We had some changes in the underlying mix. We have collapsed our previous Isa products into one; we have also been changing the mix of our deposits. But overall it is not a concern.”

She added: “Underlying customer deposits remains very strong in retail. In fact, our growth in SME lending is very positive. You have got to look at what is happening under the covers in our overall deposit performance.”

CYBG announced the closure of 40 Clydesdale Bank and 39 Yorkshire Bank branches in February, effectively slashing its branch network by one third.

Chief executive David Duffy underlined the “ongoing decline in branch usage” yesterday, noting that the number of customers using branches for day to day transactions across the industry had dropped by one third since 2011. The bank is targeting cost savings in the region of £600m to £700m for the full year.

Asked if further branch closures are on the agenda, Ms Crosbie said no new announcements were imminent but said branch usage is kept under constant review.

“Every time we consider the network we listen to customers, we look at where customers are transacting,” she said. “What we are also doing is investing in new outlets where the footfall is evident,” Ms Crosbie added, adding the bank had recently launched a new flagship customer banking centre in Edinburgh.

“Where we see customer demand, we will absolutely open new outlets, but equally where we see very low demand, and where customers aren’t really transacting, we will always be circumspect and always review every premise we have on an ongoing basis.”

Meanwhile, Ms Crosbie declared the bank had “turned a corner” with respect to lending to SMEs, which was up an annualised three per cent in the first half. She said: “Economic conditions are uncertain. With all that goes on in the external world we are very mindful of that. But we are pretty optimistic. The pipeline is pretty strong and the growth is pretty positive.”

Official figures showed consumer price inflation leapt to 2.7 per cent in April up from 2.3 per cent, leading one analyst to say that a rise in interest rates should not be expected until late 2019.

On the prospect of still lower for longer interest rates, Ms Crosbie said: “We like to worry about the things we can control. It’s always great to see upside, but at the end of the day we planned in a very prudent basis.”

Shares in CYBG closed down 9.5p at 280.6p.