Interim profit F2001; on-market share buyback
Bendigo Bank today announced an interim operating profit after tax of $15.6 million, a 42 per cent increase on the corresponding period last year.
Announcing the interim result, Chairman Richard Guy also signalled an on-market share buyback as part of the Bank's capital management strategy. Mr Guy said the Bank sought to purchase up to three million shares to reduce its currently "high" Tier 1 capital ratio. The buyback follows the payment this month of a one-off special cash dividend of 15.0 cents per share fully franked at 34 cents.
"These measures position us to improve key performance ratios, return on equity and earnings per share, which have lagged profit growth in recent years due to the Bank's heavy investment program," Mr Guy said. "With that program having established our foundations for growth, we are looking to actively manage our capital base and balance sheet to more efficiently use capital and to further improve returns to shareholders.
"The Group is now well positioned to enjoy sustainable profitability and growth. Our core banking business continues to perform well and we expect Group profit to continue to grow strongly in the medium term as recent initiatives establish the capacity to perform consistently. Shareholders who have remained loyal to the Company while we undertook our investment program and reshaped our balance sheet and business are now beginning to reap the benefits of the consistency of our regional and community banking strategy."
Mr Guy said the interim dividend of 11.5 cents per share (payable on 30 April and fully franked at 34 cents) was an increase of 1.0 cent on last year's 10.5 cent interim dividend. Shareholders would also receive, at the end of February, the one-off special cash dividend of 15.0 cents per share fully franked at 34 cents.
Managing Director Rob Hunt said Group operating profit before tax was $25.9 million, a 36 per cent increase on the corresponding period last year.
He said the increase resulted from a number of factors, including:
• A three-month pre-tax contribution of $4.8 million from First Australian Building Society (FABS) division, merged into the Group last October.
• The continued growth of Community Bank, which by 31 December boasted 33 branches compared with 19 a year earlier.
• An excellent performance from the Bank's retail arm, with lending increasing by 16 per cent to $1.068 billion in "a climate made more difficult by interest rate increases and competitive pressures".
Mr Hunt said net interest income had increased by 36.8 per cent, with the Bank's net interest margin stable. Non-interest income grew by 24 per cent. Elders Rural Bank traded strongly in its first year as a bank, but made a reduced after-tax profit contribution of $2.1 million (down $0.8 million).
"We expect costs associated with the FABS merger process to have a short-term negative impact on our objective to continue the improvement in our cost ratios, however there was little change in the cost-to-income ratio for the first half, which was 71.2 per cent (72.4% in 1999).
"We factored in significant costs involved in integrating FABS into Bendigo and upgrading its branch network, but there is tremendous potential for us in Queensland as we equip the network to deliver the full range of Bendigo Bank products and services," Mr Hunt said.
"FABS made an excellent contribution to profit in its first three months in the Group and we expect that to grow significantly over time."
Mr Hunt said the proportion of retail deposits to total deposits remained unchanged at 83.5 per cent. "We are benefitting from a high inflow of deposits from all our distribution channels and retail funding remains one of the core strengths of our business."
Total assets were $6.9 billion, an increase of $2 billion (including $1.6 billion acquired with FABS). "This continues the extremely strong growth the company has experienced in recent years. Organic growth in assets for the half was 8 per cent - or $380 million.
"Asset quality remains sound. We have provisioned for continued growth of our general provision account in recognition of the credit cycle, and following a detailed review of our loan portfolio we have made some specific provisions for a number of individual commercial loans. Nevertheless, 67 per cent of new loans were secured by residential mortgage and our book remains sound. Provisions for doubtful debts at December totalled 0.52 per cent of gross loan balances, which was a slight reduction on 12 months earlier.
"Our general provision was increased by $1.4 million and now represents 0.55 per cent of risk weighted assets, which exceeds APRA's preferred level of 0.50 per cent."
Mr Hunt expected the share buyback could decrease the shares on issue (113 million) by up to three per cent, thereby contributing to the Bank's capital management objectives to improve earnings per share. The purchase would be managed by appointed brokers and would begin on 12 March.
For further details of the interim results, click here.