Half-year profits at Alliance & Leicester edged ahead yesterday after the banking group kept costs below levels seen last year.
The improvement was largely due to the success the country's eighth biggest bank has had in convincing its customers to do business over the internet and by telephone.
As a result it is expecting total costs for the full year to be lower than 2004, when the figure reached £714 million.
The core operating profits figure of £263 million for the six months to 30 June under the new reporting standards was £1 million higher than a year ago, and stronger than analysts' expectations of about £257 million.
Pretax profits came in at £256 million compared with a pro forma figure of £306 million in the same period last year when earnings were boosted by a one-off gain of £150 million from the sale of a non-core business.
The interim dividend is raised by seven per cent to
16.8p a share. A&L, which had some reassuring news on bad debts, said its business had continued to grow despite tougher markets.
Credit quality was strong with 0.68 per cent of mortgages in arrears at the end of June - the same as at the end of 2004 and below the industry average. The bank increased its loss impairment charge by £12 million to £30 million. That was 38 up on the previous figure of £21.6 million but below the expected £ 32-34 million level.
Chief executive Richard Pym said: "Alliance & Leicester has had a good first half year.
"We have delivered satisfactory financial results and grown our core businesses in slowing markets, maintaining a return on capital of over 21 per cent for our shareholders and improving cost efficiency.
"Over the past few years our strategy has established a strong, growing balance sheet, excellent asset quality and good cost control.
"Over the next few years the pace of change will increase as we continue to develop Alliance & Leicester into the UK's leading direct bank."
Yesterday's figures showed that 35 per cent of all sales of the bank's core four products were via the internet in the first six months of 2005, compared to 20 per cent in 2004.
Customers also chose to route 70 per cent of 22 million phone calls to A&L through an interactive voice response system, rather than speaking directly to an operator. The company added that 750,000 customers were registered for internet banking, an increase of 50 per cent on a year earlier.
The mortgages business performed well, with gross lending of £4.1 billion, compared with £5.5 billion, a 3.2 per cent market share.