Bluestone Group has weathered weak business conditions in the December half to report an increase in interim cash earnings. The size of the group's loan portfolio, at just over $3 billion, was virtually unchanged over the six months to December, reflecting Bluestone's cautious approach to lending in the face of tight funding conditions.But cash earnings before interest, tax, depreciation and amortization over the last six months increased 40 per cent over the previous corresponding period to $15.8 million.EBITDA for the 12 months to June 2007 was $21 million (the statutory accounts show a net profit after tax of $342,066) up from $4 million in 2006 (the statutory accounts show a loss of $1.3 million in 2006).Bluestone executive chairman Alistair Jeffery said the group was getting the benefit of having established a substantial loan book. "We have got to a size where the volume growth year on year is less of a driver of earnings. We can go through a slowdown in origination without adverse effect."Jeffery said funding of the loan book was well structured, with 85 per cent of the portfolio funded to term. "We have always had a policy of matching assets and liabilities. The funding is more expensive but it is also more robust. It is an important discipline for us."The group's bad debt expense has increased over the past year. Write-offs went up from $7.4 million in 2006 to $11.8 million for the year to June. Bluestone chief executive Peter McGuiness said loan losses had levelled off, with $6.1 million of losses for the December half. McGuiness said: "The loan losses are a reflection of the downturn in the New South Wales economy and property market. They are also a reflection of the growth of the book and its age."The group made savings by bringing its loan servicing in-house. Bluestone had outsourced its servicing to AFIG, a subsidiary of GE Money, but started a transition program 18 months ago to bring the business in-house.The link with AFIG was shut off in July. Since then $5 million of gross revenue that would have been paid to AFIG by Bluestone's 10 funding trusts has been paid to Bluestone Servicing. Jeffery said Bluestone Servicing would operate as a standalone business and was in discussion with third parties for servicing contracts.The company has made management changes. On January 1 Jeffery moved into the executive chairman role (previously occupied by David Clarke, who is now the chief executive of Allco Finance Group). Peter McGuiness moved into the chief executive position; he had been the chief financial officer for the past two years.Mike Dilworth, who has had senior roles at AFIG and Westpac, took on the role of chief executive of Bluestone Servicing.Jeffery said: "My role will be more outwardly focused, working on external relationships - shareholders, funders and investors."Jeffery believes the establishment of Bluestone Servicing will give the group a broader base and more diversified sources of revenue, alongside Bluestone Mortgages, Bluestone Commercial and Bluestone Equity Release.McGuiness said the equity release business