First National Building Society has reported a strong half-year performance, with pre-tax profits up by 79 per cent to £19.6 million in the six months to June. Boosted by good growth in lending during the six month period, the surge in profits also reflects exceptional investment gains of £4.6 million realised by the society's investments in newly floated building societies in the UK.

Even adjusting for this exceptional gain, the society achieved a 37 per cent increase in pre-tax profits compared with the same period last year. After tax profits increased from £8.2 million to £14.7 million. The half year results, which are expected to be the last to be issued as a mutually- owned society, show a 14 per cent increase in new mortgage lending to £324 million compared with the same period last year. Its deposit base also expanded, with funds held in customer accounts up 8 per cent to £204 million at the end of June last. The society's total funds under management grew to more than £5 billion this year.

Commenting on the half yearly results yesterday, group managing director, Mr John Smyth said it will continue to focus on profitable lending growth in the future and will also be seeking to develop its deposit base and increase its sources of fee income.

"We intend to deliver shareholder value in the years ahead" he added.

Total loans to customers, including residential and commercial loans, climbed to £3.9 billion. Timely investment in a number of newly converted building societies in Britain also helped to boost the society's fortunes this year. When buying the shares, First National initially planned to hold them for a three to five year period. But given the strength of the London market this year, it managed to sell most of these interests ahead of schedule realising profits of £4.6 million. It still has a small equity stake in three UK building societies.

Its Irish operations generated £15 million of group profits compared with £8.2 million in the same period last year, including the exceptional investment gains. While the UK group profit increased to £4.6 million (£3.9 million sterling) against £2.7 million (2.6 million sterling) in 1997. Despite the low interest rate environment, the society managed to show an improvement in its net interest margin - its profits from lending less the cost of funds - which rose from 1.81 per cent in the first half of 1997 to 2.02 per cent. Mr Smyth stated that the trend for the rest of the year will depend on how the Central Bank handles interest rate decreases. Its cost/income ratio also improved, falling from 69 per cent last year to 61 per cent. The return on average reserves rose to 20 per cent from 15.3 per cent.

First National has also increased it provisions against bad debts. The society has placed an additional £1 million in its Irish accounts to guard against potential losses. Group deputy managing director, Mr Tony Shanahan, said this did not reflect any deterioration in the quality of its loan book but was being made to reflect diversified lending.