Bendigo and Adelaide Bank announces interim profit
- Cash earnings per share up 3.0 per cent to 44.3c
- Net profit after tax before significant items up 56.1 per cent to $118.8m
- Credit quality remains sound
Bendigo and Adelaide Bank today announced an after-tax profit before significant items of $118.8 million for the six months ending 31 December, 2008. Cash earnings were up 72.8 per cent to $122.2m, representing growth in cash earnings per share of 3 per cent – to 44.3 cents per share2.
Directors announced an interim dividend of 28 cents per share (fully franked), the same as the prior corresponding period.
Group managing director Rob Hunt said the bank’s strategy – which was based on traditional banking disciplines – had enabled the business to strengthen its balance sheet and post the positive result in a very challenging market.
“This result was achieved and delivered in a changing and challenging time for banks,” Mr Hunt said.
“Our determined and disciplined approach to writing sustainable and profitable business has placed the group in the best possible position to manage these market challenges.
“We have strengthened our balance sheet, and improved our liability mix. This was achieved by lifting the proportion of retail funding and reducing our reliance on wholesale funding. Clearly wholesale funding markets remain problematic in this environment.
“The reshaping of our balance sheet provides us with greater flexibility – and places us in an ideal position to deal with the current difficult trading environment.
“In tough times, the close connection we maintain with our customers, communities and partners is more important than ever. Credit quality remains sound, and we are committed to working with our customers who may find themselves in financial troubles.
“The continued support of our customers and shareholders is providing us with the funding and capital to start taking advantage of the opportunities that are emerging in the current business environment. Our recent acquisition of the Macquarie margin lending business is an obvious example of this.
“At the same time we continue to establish our brand credentials and relevance across Australia. We continue to expand our distribution network and to grow and expand our customer base,” he said.
Group performance
Net profit after tax and before significant items for the reporting period was $118.8 million – reflecting growth in cash earnings per share of 3.0 per cent, to 44.3 cents per share when compared with last year’s reported 43.0 cents. Revenue grew by 32.3 per cent to $446.0 million.
The cost to income ratio continued to improve – from 60.5 per cent in December 2007, to 58.3 per cent this period. This improvement was due to continued efficiencies from the merger with Adelaide Bank, and a concerted effort to manage costs appropriately in the current business environment.
The merger with Adelaide Bank continues to proceed in line with forecasts, with $33.1m in run-rate cost synergies achieved to December 31, 2008.
Operating expenses before significant items grew by 47 per cent – mainly due to higher staff costs from the addition of 1140 full time equivalent staff through the merger with Adelaide Bank.
There is a substantial difference between our reported statutory profit and cash profit released today. This is primarily the result of the accounting for cash flow hedges acquired in the merger with Adelaide Bank. More detail of this is contained in our reports.
The bank has also announced today a proposal to acquire all of the Units in the Asset Backed Yield Trust for approximately $174 million. Full details of this proposal have been released to the ASX this morning.
Asset quality
Bendigo and Adelaide Bank manages a highly granular portfolio of assets, with just six loans of more than $30m, and the top 20 exposures representing less than 1.40 per cent of group loans.
Asset quality remains sound, with gross impaired loans representing 0.21 per cent of total assets. This compares favourably with two previous economic downturns – 2001 and 1998 – where impaired loan levels were 0.50 and 0.87 per cent respectively. Total provisions and reserves for doubtful debts grew to $156.9 million – an increase of $21.8 million since June 2008. General and collective provisions remain a conservative 51 basis points of Group Risk Weighted Assets.
A large proportion of the increase in total provisions is due to specific provisions of $24.4m in our Business Lending portfolio – and specifically for four individual property development loans. While we continue to see difficult trading conditions in this industry we remain comfortable with our risk profile in this sector. Property development loans represent just 5.8 per cent of the business lending portfolio (which is itself only 14.3 per cent of group loans) and 0.9 per cent of total group loans by balance. We are comfortable that our portfolio remains well secured, with appropriate valuations, and with minimal exposure to the troubled areas of coastal New South Wales, and parts of southern Queensland and south west Western Australia.
Specific provisions in our residential mortgages portfolio total $7.9m. Loan to Valuation Ratio’s remain sound, use of lenders Mortgage insurance is high, and our conservative lending practices from the past few years continue to produce appropriate results. While levels of 90+ day arrears are trending upwards, overall arrears remain relatively stable, and are rising from a low base.
The margin lending business withstood the recent market volatility to remain in excellent shape. Despite record margin call activity there were no provisions or losses in this business for the reporting period.
Our relatively small consumer portfolio, which is predominantly unsecured personal loans and credit cards, accounts for 8.9 per cent of group loans, and contains specific provisions of $3.7m.
Funding and capital
The reporting period saw a continued re-structure of the group balance sheet to reduce the reliance on any single wholesale funding source. Total securitisation fell to $9.7 billion – from $14.8 billion in December 2007, and Euro Commercial Paper outstandings have reduced 78.8 per cent to $267.7m over the same period. The ability of our branch network to produce sustainable liability growth has been clearly evident, with deposit growth of 31.5 per cent since December 2007 – to a total of $19.8 billion.
The Group remains strongly capitalised with a total capital position of 10.78 per cent and a tier 1 ratio of 7.99 per cent as at December 31 2008. Liquidity is also strong and remains well in excess of our statutory requirements.
Developments since the reporting period ended have further strengthened the Bank’s capital position. This includes the issuance of $52 million of short dated Convertible Preference Shares as consideration for the purchase of the Macquarie Margin lending portfolio.
The Bank believes this level of capital is appropriate for the lower-risk loan portfolio of the bank.
Retail Bank
The Retail Bank – including the Community Bank® model – continues to enjoy strong growth and profitability. Branch openings included five new company owned sites, and 19 new Community Bank® branches. Demand for new company owned and Community Bank® branches continues to remain strong. The group expects to continue to open about 25 new branches each year.
Partner Advised Banking
Our Partner Advised Banking business continues to provide strong results, and has responded well to the current trading environment. Our margin lending business, Leveraged Equities, has managed the extreme market volatility exceptionally well, and the recent acquisition of the Macquarie margin lending business provides further scalability and increases customer numbers to more than 31,000. The Third Party Mortgages business has been restructured to meet the challenges of the current funding environment. New and existing portfolios have been repriced, and the bank has rolled-out a new commission structure with its distribution partners.
1 Comparisons are with previously reported results for Bendigo and Adelaide Bank. Comparisons in the statutory accounts for the period ending 31 December 2008 include a re-statement of some figures, relating primarily to fair value adjustments required as a result of the merger with Adelaide Bank in November 2007.
2 Cash EPS was based on a weighted average number of shares
