AIRDRIE Savings Bank (ASB) would have fallen to a pre-tax loss of £662,000 in the year to October 31 but for a £1.4 million gain on disposals of gilts.

That realisation of UK Government bonds helped pre-tax profits in the 12 months to October 31, 2012, come in at £753,000, up from £272,000.

The profit figure had been affected by provisions for bad debts, which soared from £576,000 to more than £1.2m, resulting in a charge against profit of £673,000, which was up from £87,000.

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The bank changed its bad debt classification during the year from loans three months in arrears to loans just one month behind, which led to the higher provision.

Jim Armstrong, president of the board of trustees at the bank, said ASB had performed "near enough" on budget during the year.

He said: "We decided because of the economic conditions and the change in the property market values we would change [the bad debt period] from three months to one month, so we could highlight something that was causing concern in a shorter period of time."

ASB's latest annual report shows lending rose 7.6% to a record £52.2m, with customer deposits up by 3.6% to £142.5m.

Reserves grew from £15.3m to in excess of £16m.

More than £3m was spent acquiring debt securities, while sales of the same instruments raised almost £10.3m, compared to £808,000 in 2011.

Overall staff costs increased from £2.4m to £2.6m as average full-time employee numbers increased by five to 75 and part-time workers rose from five to 34.

Compliance measures and money paid towards the Financial Services Compensation Scheme, which can cover customer losses in result of a firm failing, contributed to a rise in administrative expenses from £4.6m to £5.1m.

ASB was backed by loans and deposits worth around £10m by business leaders such as Sir Brian Souter, Ewan Brown, Alastair Salvesen, Sir Tom Farmer and Ann Gloag in August 2010 as it announced a strategic growth plan.

It has since expanded outside its Lanarkshire heartlands, with the opening of a branch in Falkirk during 2011.

Rod Ashley, who joined ASB as chief executive this month to replace the retiring Jim Lindsay, said ASB is keen to extend its lending and grow its branch network.

Mr Ashley, who previously ran credit union Scotwest, said: "We are looking for opportunities to expand our activities and one of the things we are considering is where, when and how we might open another branch. We are seeing growth across many sectors and are open for business.

"We have both the capacity and appetite to increase lending to customers but the economic conditions and reducing security values have that a wee bit more of a challenge."

Mr Ashley confirmed ASB has not accessed the UK Government's funding for lending scheme but the cheaper capital available to lenders is affecting how it does business.

He said major banks are reducing interest rates on savings products as a result of funding for lending and doing similar for other banks which deposit money with them.

He added: "I have to say the funding for lending scheme is causing disruption to the market in a lot of ways.

"It is certainly squeezing the margins.

"Regulatory wise, we could access it but we have sufficient retail deposit funding from our own customers to not require it."