Bendigo and Adelaide Bank announces $342.1m full-year profit
Highlights - 2010/2011 annual results
- Net profit after tax $342.1m
- Cash earnings of $336.2 million
- Cash earnings per share of 92.3 cents
- Final dividend of 30 cents per share (full-year dividend of 60 cents per share)
Bendigo and Adelaide Bank has announced an after tax profit of $342.1 million for the 12-months ending 30 June 2011. Cash earnings were $336.2m, representing cash earnings per share of 92.3 cents, an increase of 10.8 per cent on the prior corresponding period1.
Net interest margin increased five basis points over the reporting period from 2.12 per cent2 to 2.17 per cent. This was despite continued strong competition in funding markets, and in the retail term deposit market in particular.
Directors announced a final dividend of 30 cents per share (fully franked), taking the full-year dividend to 60-cents per share - up 3.4 per cent on the 2010 financial year. This is consistent with the Board's policy of paying out 60-70 per cent of cash earnings as dividends.3
Bendigo and Adelaide Bank Group Managing Director, Mike Hirst, said the result was a strong reflection of the robust business model adopted by the bank, which leverages the group's key strengths of industry leading brand advocacy and customer satisfaction.
"We have built a sound and profitable banking business, based on the principle of engaging with our customers, partners and communities. This result is only possible thanks to the efforts of our staff, partners and the communities we operate in," Mr Hirst said.
"Our improved profitability is providing these partners and our shareholders with a sustainable business, which is committed to profitable growth. The business takes a long-term view, and manages its risk and risk appetite accordingly.
"We continue to receive tremendous support from our customers. These customers - who deal with us through a number of channels, including 276 Community Bank® branches - now provide in excess of 90 per cent of our total on balance sheet funding. Complimenting this, we have also completed three separate RMBS transactions since July 2010, with a total value of $3.5 billion.
"The past 12-months have included a number of notable achievements for the business, including a ratings upgrade to A- from Fitch Ratings; and a rating outlook upgrade to BBB+ positive from Standard & Poor's.
"We have also been recognised as Australia's ‘most trusted bank'; for having one of Asia's best ‘corporate social responsibility programs'; and as winner of the people's choice awards for our credit cards, personal loans and term deposits4.
"In addition our Community Bank® partners have now provided more than $58m in community grants and donations; more than $18m in community dividends; and our philanthropic arm (the Community Enterprise Foundation) has administered more than $50m in contributions to charities and worthwhile causes across the country.
"I would like to thank our customers, staff, and partners for their contribution to Bendigo and Adelaide Bank's results," he said.
Net interest margin
Net interest margin (NIM) improved over the reporting period - from 2.12 per cent in the 2009/2010 financial year, to 2.17 per cent. This improvement also benefited our community partners and continues to underpin the sustainable nature of this business model.
While the bank expects funding conditions to remain tight, we are confident in our ability to raise and retain deposits through our various networks. Term deposit retention rates were consistently greater than 80 per cent over the reporting period - despite the bank continuing to adopt a less aggressive pricing structure than many of our competitors.
Credit quality is sound across the bank's businesses. 90-day arrears in our largest portfolio - residential mortgages - were relatively steady over the period, sitting at 1.18 per cent in June 2011. This figure remains below the July 2009 arrears rate, despite seven increases in the official RBA cash rate since that time.
Business lending arrears (90-day arrears) also remained steady over the reporting period - being 2.49 per cent in June 2011. The consumer portfolio performed well, with both credit card and personal loan arrears falling.
The recent natural disasters in both Victoria and Queensland have provided only limited impacts on credit quality - with the majority of arrears confined to the Rural Bank portfolio. Factors influencing this relate primarily to short-term cash flow issues arising from the floods, a resultant deterioration in rural property prices in Queensland, and more recently the temporary banning of live cattle exports.
Credit quality in the margin lending business remains exceptional, reflecting the operational capability and risk management framework of that business.
Funding and capital
The bank successfully grew its retail deposit base, despite the continued competitive dynamics of the term deposit market. Bendigo and Adelaide Bank has done this without having to use market-leading pricing, and this has helped to support our improving NIM. We grew the retail deposit base by a healthy $3b - or 8.9 per cent - over the reporting period.
BEN has been able to complete three separate RMBS transactions with a total value of $3.5b since July 2010, with the most recent transaction ($1b issued under TORRENS 2011-1) settling in July 2011. The bank successfully sold the entire capital structure of this most recent deal, making it fully APS120 compliant and resulting in a 14bps improvement in the bank's capital ratio.
The bank continued its tradition of innovation in its TORRENS securitisation program - including the introduction of fixed interest and bullet-structure term tranches, and more recently the first ever Japanese YEN tranche of Australian RMBS.
While Tier One capital levels reduced from 8.55 per cent to 7.85 per cent over the 12-month period, this was primarily influenced by the one-off impacts of APS1205 and the purchase of the remaining 40 per cent of Rural Bank, which together contributed a 168bps fall in capital levels. The group adopted non-dilutive capital initiatives in the second half to negate some of this impact, and is targeting further non-dilutive capital initiatives in the next 6-months to take Tier One capital above eight per cent, and Core Tier One above seven per cent. During the first half of the financial year the group raised $250 million in subordinated debt, qualifying as Tier Two capital.
The Board has announced a 2.5 per cent discount to apply to the final dividend of 30-cents per share.
Costs increased over the 12-month reporting period, primarily due to the full 12-month contribution of Rural Bank6, an increase in staff salaries, bonus accruals, and a normalisation of staff additional leave arrangements. Costs did, however, fall in the final six-months of the reporting pe
The cost-to-income ratio fell to 57.4 per cent over the reporting period, versus 58.1 per cent in FY2010. This ratio is still trending towards the Group's long-term 55 per cent target.
The Group's industry-leading customer satisfaction and brand advocacy metrics enabled us to record strong asset and liability growth across most of our business streams. Total lending growth for the 12-months to June 2011 increased eight per cent, versus system growth of five per cent7. Total deposits growth was 12 per cent versus system growth of nine per cent.
Mr Hirst said the FY2011 result was achieved in a challenging market and showed the strength of BEN's business model, in particular the shared-value approach taken in its partnering businesses.
"We have seen extremely strong deposit inflows and lending demand from our customers - more than 90 per cent of the bank's on balance sheet funding comes from retail deposits and our lending growth is comfortably exceeding system.
"This customer support enabled the bank - and its Community Bank® and other partners - to generate strong earnings that flowed through into a solid profit outcome for the group. Equally as pleasing is the solid return to our partners, with more than $20m applied to building community assets during the year.
"BEN's philosophy is to feed into prosperity, not off it. You can't run a successful company in a poor community, so it makes sense to invest in helping to create a wealthier, more cohesive and inclusive community. Today's result shows that support is being returned to the bank, and augurs well for our earnings outlook and availability of funding in a market that we expect to remain volatile," he said.
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1 Unless otherwise stated, all comparisons are with the prior corresponding period (12-month reporting period to 30 June 2010)
2 Normalised NIM taking into account 12-months contribution from Rural Bank. FY2010 reported NIM was 2.09 per cent
3 Ex-dividend date is 29 August 2011, record date is 2 September 2011, and payment date is 30 September 2011
4 Readers Digest Australia - Australia's Most Trusted Brands 2011; Asian Banking & Finance Retail Banking Awards 2011; Mozo People's Choice Awards
5 Australian Prudential Standard 120 (APS120) is the relevant regulation covering securitisation practices. APRA clarified its interpretation of the standard during the reporting period - particularly in relation to issuers retaining subordinated notes in RMBS issues
6 Compared to 9-months for the prior corresponding period
7 Source: APRA June 2011, 12-month annualised growth