Britannia Building Society has grown by a third after acquiring the Bristol & West savings bank for £150 million, annual figures published yesterday showed.

The Staffordshire-based mutual - the biggest in the Midlands and second biggest nationally behind Nationwide - marked a year of "great progress" in 2005 by increasing the member "dividend" for the first time in ten years.

Britannia said the 4.5 per cent increase meant that about 900,000 qualifying members would share a £48 million payout under its Membership Reward scheme.

The scheme has paid out a total of £422 million since it was launched in 1996.

The average payout is £52 and customers who have been part of the scheme since it started could have received a maximum of £5,000 over the ten years.

The mutual said it was able to lift the dividend as a result of record levels of mortgage lending and increased sales across most product lines.

Total mortgage lending rose to £6.9 billion from £6.3 billion in 2004 and like for like profits measured under the new International Accounting Standards rose by nine per cent to £151.2 million.

The interest margin - the difference between the interest Britannia charges borrowers and the percentage it pays borrowers and a key indicator of a building society's efficiency - was hammered down to just under one per cent from 1.1 per cent the previous year.

Britannia's success was down to taking a prudent approach to lending and keeping arrears comparatively small, chief executive Neville Richardson said.

More than 90 per cent of mortgages were 3.5 times salary or less, and arrears over the 12 months were below £1 million.

During the year, Britannia increased its customer base by more than 800,000 with the £150 million takeover of the Bristol & West savings business and branch network.

It enabled Britannia to move into 65 towns and neighbourhoods where it was not previously present, particularly in the South and West.

Integration was ahead of schedule although it was a "huge task", which involved new banking systems, extra training and large volumes of account information being processed, Britannia said.

Looking ahead, Mr Richardson said he expected conditions to remain highly competitive for savings and lending throughout 2006 and that if this triggered further consolidation in the sector it was well placed to take advantage of opportunities.

With assets of £32.4 billion - up from £25.2 billion previously - Britannia would qualify for membership of the FTSE 100 shares league were it to demutualise.