Alliance and Leicester today reported a 12 per cent rise in profits and said it was on track to hit its revenue and cost-cutting targets.

The Leicester-based building society-turned bank, which employs 9,000 staff, announced plans for a share buy-back programme later this year to reduce surplus capital.

Chief executive Richard Pym, who took over last month, said: "We are delivering sustainable long-term value to our shareholders and to our customers. We have produced a very satisfactory set of results."

Pre-tax profits for the half-year to June 30 rose to £233 million, up from £208 million the same time last year and at the top end of analysts' expectations.

The group is aiming to cut costs by £20 million this year and to reduce its cost base in 2000 by £100 million by the end of next year.

As part of its cost-cutting programme, it reduced staff numbers by 500, of whom more than 300 left through voluntary redundancy, with the remainder going by natural wastage at the end of last year and the beginning of this year.

Mr Pym said the cost reductions would mean the group would have to operate on a lower number of people.

He said the cost savings would require some headcount reductions but would not speculate on numbers.

The share buy-back programme could return around £200 million to shareholders.

Mr Pym said: "We are a low-risk bank, we do have very high-quality assets, we only trade in areas of low risk and we have a strong balance sheet."

Gross mortgage lending rose by 16 per cent on the same period last year to £2.6 billion. Net lending was £600 million, giving A&L a market share of 1.7 per cent.