British mortgage bank Northern Rock announced a 30 per cent jump in its dividend and plans to buy back shares today, but repeated that interest rate rises would restrain 2007 profit growth.
Northern Rock's underlying pretax profit for the six months to the end of June, stripping out £17.8 million sterling from asset disposals, was up about 20 per cent from a year ago.
Including gains from disposals, profits were £346.6 million sterling, up 27 per cent on the year.
The Newcastle-based bank said it expects profit growth to slow to about 15 per cent for 2007 as it repeated a warning from last month that a rise in funding costs following five UK interest rate rises in less than a year would have an impact.
But Adam Applegarth, chief executive, said it continued to lend aggressively due to its market-leading ability to retain customers.
"We knew that would dampen 2007 and 2008 but the reason we did it was because we retain 80 to 85 percent of these customers when their product periods are up, therefore for medium term earnings it was good news," Mr Applegarth told Reuters.
"We took a squeeze this year and next year in order to drive up earnings in 2009 and 2010."
It gains over 70 per cent of its funding from wholesale markets, making it more sensitive to debt market moves than rivals such as HBOS, which gets about half its funding from the wholesale market and half from customer deposits.
The bank said its share of net mortgage lending was 18.9 per cent in the first half, above its traditional share of 8 per cent, which might lift it above HBOS as Britain's biggest new lender during the period.
By 8.15am Northern Rock shares were up 0.3 per cent at 804 pence, recovering from a fall to 791p, their lowest level since November 2005. The shares have slumped by almost a third this year to cut the bank's market value to £3.4 billion.