Mortgage banking group Halifax says new figures prove it is 'right on track' - despite a drop in profits.

The company, whose merger with Bank of Scotland (BOS) will be finalised in September, brought in £839 million before tax for the half year to June 30 - compared to £885 million last year.

But the business is attributing £21 million of that fall to merger costs, and says profitability is actually ahead of target.

The introduction of more attractive rates for current account customers also saw Halifax's retail operation profits drop from £669 million to £569 million.

The company's long-term savings and protection division, however, saw profits rise from £136 million to £241 million.

Executive director John Lee said that showed the success of the firm's business diversification strategy.

He said: "We knew our profits would be slightly down this year because of the position of our offerings, but we are absolutely on track with our projected position.

"And the reason for that is that our long term savings and other non-mortgage dependent divisions have come through so strongly.

"The strength of these results should give people confidence in the forthcoming merger."

Chief executive James Crosby, meanwhile, said Halifax had now laid the "foundations for future earnings growth".

He added: "We are in the midst of an extraordinary transformation.

"This year we promised outstanding sales, very tight cost control and exciting progress in our new ventures, and we've delivered them."

Halifax, which aims to reduce its dependence on the mortgage market, got approval from shareholders last week for its union with BOS.

The new group, HBOS, is expected to challenge the dominance of the UK's 'Big Four' banks - HSBC, Barclays, Lloyds TSB and Royal Bank of Scotland.