INNOVATION and the exploitation of technology has paid off for the Newcastle Building Society.

The society, which has 53 branches and 670 staff, recorded post tax profits of £12.1m, in the year to December 31, up ten per cent on the previous year.

Total lending increased by 36 per cent to £496m, from £361m in 2000, with lending to housing associations in particular quadrupling to £76.5m.

However, the society increased its provisions for bad debt by £750,000 as a precaution against the economic uncertainty of the moment.

The society also benefited from the decline in the stock market in the wake of the September 11 terrorist attacks on the US. Savings deposits at the society increased by 57 per cent to £230m. Chief executive Robert Holinshead said: "Investors looked to traditional savings products in the wake of the terrorist attacks on the US as a safe place to put their money at a time of economic uncertainty."

During the year the society invested more than £500,000 in its call centre, Newcastle Direct, and also created a "virtual call centre".

Mr Holinshead said: "The virtual call centre idea allows us to divert incoming calls to our branches at times of peak demand, usually first thing on a Monday morning or last thing on a Friday. The success of this idea has allowed us to invest more than £500,000 in a new telephone system to help us develop the concept still further."

It has also led to the society being awarded contracts to provide administration and call centre facilities for major banks, including the Alliance and Leicester.

During the year the society also won two awards. Its online savings account, NewcastleNet, won the Financial Sector technology award for the best use of new media in a customer-facing environment, while it was named Innovator of the Year at the mortgage Finance Gazette awards.

Mr Hollinshead said: "These outstanding results reflect a year of outstanding achievement for the Newcastle.

"Our new business performance, both in terms of mortgages and investments, achieved record highs, thanks to some competitive new products and a continued investment in innovation and technology.

"This exploitation of technology will improve our service standards and widen the choice we offer to our customers, and will remain central to our strategy."

He added: "Attractively priced products will always prove popular, but increasingly we are finding that our customers expect added value in terms of how they do business with us.

"Technology is allowing us to meet those demands and in this area we believe the Newcastle can really differentiate itself, by building on a track record of innovative thinking.