Growth in lending in a strong economic environment meant a 38 per cent rise in pre-tax profits to £10.35 million at ACC Bank for the six months to end June.
With its future ownership options to be discussed by a management-union committee, ACC is to pay its State shareholder an interim dividend of £2 million or 5p per share, an increase of 11 per cent.
The board and management favour a strategic alliance with a foreign bank, while the unions want ACC to be merged with TSB Bank and floated on the stock market. The Minister for Finance, Mr McCreevy, is expected to allow the committee some time to consider all the options before he makes a decision. Sources suggested Mr McCreevy is aiming for an autumn decision.
Chief executive Mr John McCloskey said he saw merits in the ACC/TSB merger option. "The businesses would make a good fit and there would be the opportunity to reduce costs. It is worth exploring what it could do for the shareholder."
Mr McCloskey said he would not rule out the acquisition of a merged operation by a strong foreign bank.
ACC, which is to move to new corporate headquarters next week, reported an 8.7 per cent increase in loans with net new loans (loans less repayments) of £121.4 million. At the end of June loans to customers totalled £1.5 billion. Deposits from customers were 4.3 per cent stronger at £1.25 billion.
Mr McCloskey described the outcome as "very satisfactory" against a background of declining margins and increased competition. He said he expected to meet his targets for the year.
But with a cost/income ratio of 64 per cent, down from 68 per cent, Mr McCloskey said the bank was very "conscious of its running costs". The move from Hatch Street to the new headquarters acquired in Charlemont Place last year for £20 million will help to reduce costs through consolidating the bank's operations in one centre, he forecast.
ACC wants to get closer to a ratio of about 60 per cent, he said. But he added "for a small bank this is a very big challenge".
The results show that the bank made a £3.5 million profit on the sale of its Hatch Street headquarters which was sold for £12.5 million. This has been credited to the bank's revaluation reserves.
Operating income rose by 19.7 per cent to £31.3 million. This included a 14.7 per cent rise in net interest income to £25.9 million, a 44 per cent jump in net income from fees and commissions to £2.5 million and dealing profits of £0.99 million, up from £0.058 million.
Profit growth was held back by further tightening in the net interest margin the profit on core lending business less the cost of funds. It fell to 2.55 per cent from 2.86 per cent in a competitive market environment.
Administrative expenses were 11.4 per cent ahead at £18.2 million. The expenses figure was reduced by a VAT credit of £0.55 million without this credit expenses would have risen by 14.7 per cent. Expenses included staff costs of £9.9 million and a 12.9 per cent pay rise. At £0.9 million, the bad debt provision was unchanged, while total provisions for bad debt were 182 per cent of non-performing loans, down from 210 per cent in June 1997.
Strong growth in personal lending including mortgages and in loans to small- and medium-sized businesses were the features of the first-half rise in lending, Mr McCloskey said. This is in line with the drive to broaden ACC's customer base to achieve a balanced portfolio across the agribusiness, personal and commercial sectors.
