Bendigo and Adelaide Bank interim profit announcement
Bendigo and Adelaide Bank has announced an after tax statutory profit of $57.9 million for the 6-months ending 31 December 2011. Cash earnings were $162.6m, an increase of $0.5m over the prior corresponding period1. Cash earnings per share were 43.9 cents, a decrease of 1.8 per cent.
Directors announced an interim dividend of 30 cents per share (fully franked), which is flat on the prior corresponding period, and is consistent with the Board’s policy of paying out 60-70 per cent of cash earnings per share as dividends2.
Bendigo and Adelaide Bank managing director Mike Hirst said the bank continued to consolidate and improve its funding, capital and liquidity profiles in a particularly challenging operating environment.
"The cost of all funding channels have increased markedly over the past six months, including retail term deposits, senior unsecured and secured debt markets," Mr Hirst said.
Higher funding costs meant that net interest margin (NIM) declined two basis points compared to the prior corresponding period, and fell six basis points when compared to the half year ending 30 June 2011. Recent asset repricing will go some way to addressing this but the higher funding costs have yet to be fully recouped.
"The contraction in margin, coupled with slowing credit growth and market sentiment moving investors away from higher margin wealth and equities products, has resulted in flat earnings," Mr Hirst said.
"Despite this impact, we have materially improved our balance sheet strength, and in particular our capital ratios over the past six months.
"We completed an institutional share placement in December for $150m in preparation for our purchase of the Bank of Cyprus Australia3. In addition we expect to raise between $50m and $70m through our Share Purchase Plan, which will be open to eligible shareholders from tomorrow (February 21). Together the placement and SPP is expected to take our Tier 1 capital ratio to 8.49 per cent, and Core Tier 1 to 7.59 per cent4.
"Focussing on the bank’s long-term performance and sustainability is central to our strategy and requires us to continually balance the interests of all our stakeholders. This strategy has been vindicated by recent credit rating upgrades from Fitch and Standard & Poor’s, and is in stark contrast to the rating momentum of many banks across the globe.
"The success of this model, built on customer engagement, is demonstrable. We have achieved above system mortgage growth, fund 77 per cent of our lending through retail deposits and, with our community partners, have now provided more than $88m in community grants and dividends.
"I would like to thank our customers, staff and partners for their contribution to Bendigo and Adelaide Bank’s results," Mr Hirst said.
While the bank expects funding costs to remain at historically high levels, BEN remains confident in its ability to raise and retain deposits through its various networks. Term deposit retention rates were consistently higher than 80 per cent over the reporting period. Despite the bank continuing to adopt a less aggressive pricing structure than many of its competitors, BEN grew its retail deposit base by a healthy $1.9b (5 per cent) over the six months to December 2011.
As announced in December, BEN’s margin lending portfolio has now fallen 67 per cent since its pro-forma peak of more than $8b in 2007. Although this decline is being replaced by residential mortgages (sourced through both retail and third-party channels), it has had a significant impact on the weighted average margin achieved on assets. The decline in the margin lending portfolio, and an assessment of the value of the wealth division, resulted in December 2011’s write off of $95.1m of goodwill associated with this business.
Non interest income was down on the prior corresponding period, primarily due to a reduction in the value of the Homesafe shared equity mortgage portfolio. This reflects strong residential property valuations in the lead up to the HY2011 reporting period.
Credit quality is sound across the bank’s businesses. 90-day arrears in our largest portfolio – residential mortgages – improved over the period, sitting at 0.74 per cent in December 2011. Business lending arrears (90-day) increased marginally over the reporting period – being 2.2 per cent in December 2012. The consumer portfolio performed well, with both credit card and personal loan arrears falling. Rural Bank arrears and provisions are returning to historical norms after the trade disruptions and natural disasters of the past 18-months.
Costs remained relatively flat over