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Alliance and Leicester (A&L) has posted annual profits of £585 million, up seven per cent on 2005's results.

Pre-tax profits totalled £569 million, up four per cent year-on-year, as the bank outperformed expectations.

Growth in the retail sector was underlined by strong franchise growth, as net mortgage lending stood at £4.9 billion and customers opened a cumulative total of 300,000 new personal current accounts.

In addition more than 24,000 new business banking accounts were opened, with chief executive Richard Pym expressing his pleasure at the expansion of branches and strategic progress.

"Our business model is working," he said. "No other major player in the banking sector is growing their direct channels as swiftly and effectively as we are, and our new branch design is proving a winner.

"We are delivering good profits and strong franchise growth. We are also improving our cost efficiency, maintaining our strong asset quality and a high return on capital."

The bank also revealed it was the first in the UK to obtain unconditional approval from the Financial Services Authority (FSA) to operate under the new Basel II regime, a more sophisticated means of measuring capital and risk for major financial institutions.

In the coming year A&L says it is looking to launch more tailored mortgage products and is also planning to overhaul up to 50 branches as part of its redevelopment initiative.

The bank also says it will open four new business centres and look to bolster its commercial-facing service for corporate customers.