Shares were down around 3% in initial trading following the report.

The company, which leads a new breed of "challenger banks", has laid out plans to eat into the dominance of Britain's big lenders, betting that a re-brand as Virgin Money and growth in business banking will help it shake up the market.

It was the latest to report a dip in mortgage loans as the United Kingdom's impending exit from the European Union saps confidence among house buyers but it said that had been offset by rises in both personal and business loans.

Having clinched a 1.7-billion-pound deal last year for Richard Branson-founded rival, the company, which owns Clydesdale and Yorkshire Banks, is betting on a full re-brand as Virgin Money and an expansion in business banking for growth.

CYBG said net interest margin (NIM) - the difference between what banks earn from loans and pay for deposits - stood at 168 basis points for three month period ended June 30, down 3 basis points from the first half.

The company, now expects NIM for the full year to be at the lower end of its previously promised 165-170 basis points range.

Brexit, along with a heavily competitive mortgage market and higher costs from a changing regulatory landscape, have hurt smaller banks although CYBG had said in its first half report in May said it had seen mortgage pricing beginning to stabilise.

The lender said on Tuesday that the value of its mortgage book had fallen 0.2% to 60.4 billion pounds in the third quarter. Business lending inched 0.5% higher, whereas personal lending rose 5.7% helped by demand for credit cards.

"Even with the twin pressures of Brexit and the highly competitive mortgage market, we remain on track to deliver full year performance in line with our guidance," Chief Executive Officer David Duffy said.

Common equity tier one capital ratio - a key measure of financial strength - increased slightly to 14.6%. .

(Reporting by Pushkala Aripaka and Noor Zainab Hussain in Bengaluru; Editing by Saumyadeb Chakrabarty)