EBS Building Society has reported steady profits last year, despite returning £8.9 million to its customers through lower borrowing and higher savings rates.

The building society, which is committed to retaining its mutual status, described 1997 as a "tremendous year". It believes it increased its share of net new lending in the residential mortgage market to at least 17.5 per cent from 11.5 per cent in 1996, making it one of the top mortgage lenders in the state.

Strong growth in both loans and savings allowed EBS to turn in a pre-tax profit of £18.4 million compared to £18.3 million in 1996, although the benefit to customers was £3.2 million higher last year.

This reflected the full year impact of lower lending and higher deposit rates and also an increased volume of business.

"Loan advances and savings inflows reached record levels as customers responded enthusiastically to our policy of customer ownership," the building society said.

It provided 8,106 home loans to customers in 1997, an increase of 36 per cent while total advances, which also include loans for investment purposes and top-up loans, were 61 per cent higher at £626 million.

Net advances after repayments by borrowers increased by 88 per cent to £437 million while the total amount of loans outstanding at year-end was up 29 per cent at £1.9 billion.

The society said the volume of arrears was very low and below the industry average and it repossessed only four properties last year, all of which were handed over voluntarily. This was down from seven in 1996. EBS also reported record inflows of funds, leaving it with funding balances of £2.4 billion at the end of the year. Customer savings grew by 102 per cent to £319 million while the society took in a total of £567 million in new funds, up from £273 million in 1996. EBS said it would continue focusing on in 1998.

Net interest margins - the profit from core lending and funding activities - slipped to 2.05 per cent from 2.43 per cent.

The society's capital adequacy ratio fell to 13.5 per cent from 15.8 per cent because of the strong growth in assets, but it remains well above the Central Bank's minimum requirement of 9 per cent.

EBS said it wouldn't like to see it fall below 10.5 per cent.

Operating expenses rose by 7.3 per cent to £32.3 million, but the building society said its expense to assets ratio was down to 1.37 per cent from 1.57 per cent in 1996. Its cost to income ratio rose slightly, to 62 per cent from 61 per cent but if the £8.9 million returned to customers is factored in, it fell to 53.4 per cent from 55 per cent. Chief executive Mr Pat O'Reilly said the society was in no way complacent and wanted to get costs down further.

"If we can control our costs to less than 1 per cent of assets in three years' time, we will sustain our competitiveness," he said.

EBS said its focus has been very much on getting it right in the Irish market and on the introduction last year of an advanced sales and teller system in its branch offices.

The new branch system, which involved an investment of £5 million, should speed up service and give staff more time to concentrate on meeting customer needs. EBS said work was also underway to ensure all its systems are Year 2000 compliant. Its main computer systems already meet the requirements and it expects all subsidiary systems to do so before the end of 1998.

Mr O'Reilly said an area where EBS saw room to expand was its asset management service. EBS Asset Managers reported an 82 per cent rise in the assets under management to £51.6 million last year and provided an after-tax return to investors of 30.1 per cent in its growth fund and 22.6 per cent in the balanced fund.

Mr O'Reilly said the building society could offer more and different products in that area. He noted that new pensions legislation might allow it to become involved in that business.