Ignore the reports that the Bendigo and Adelaide Bank has reported a 189.5% increase in full-year net profit.
While on one measure it did, the more accepted cash basis for reporting bank profits (which eliminates losses and gains on derivatives and other securities) revealed a still very tasty 60% rise in earnings to $291 million.
The near 190% rise was to $242.6 million, compared with $83.8 million in the prior year, which included write-downs and other adjustments.
The cash result is much higher and a far better indicator of the bank’s recovery from the damage caused by the GFC, as shown in particular by the strong rebound in the bank’s net interest margin.
"Net interest margin rebounded strongly to average 2.09 per cent for the year – up from 1.66 per cent in the prior corresponding period," the bank said yesterday in its filing with the ASX.
That’s a recovery of more than 26% in the net interest margin.
It helped boost revenue by 30% to $1.135 billion for the latest 12 months.
Investors liked the news, pushing the shares up 4.4%, or 37c, to $8.64 yesterday, a solid move given the overall market was only up 0.6%.
It will be a development that we will see underlined by the NAB in its quarterly update today, and the Commonwealth Bank’s full year result tomorrow.
But judging from the commentary from the bank, the profit didn’t rise because of higher lending volumes, it was up because of an improved contribution from its margin lending businesses and from nine month’s of owning 60% of The Rural Bank (Elders 40%, previously 50%, but sold 10% to the bank during the year).
"An outstanding credit performance and improved margins have resulted in a substantial profit contribution to the group", the bank said in yesterday’s statement.
"This business is growing market share, and reinforces our claim as the independent Australian margin lending provider of choice," the bank said in the statement yesterday.
"Rural Bank – our joint venture business with Elders Limited – also announced its annual results to the Australian Securities Exchange this morning. Its net profit after tax increased to $55.4 million, which is a 23 per cent increase on the prior corresponding period. This result – achieved in challenging business conditions for many agricultural commodities – reflects the credit performance and margin improvements for the period."
Directors announced a final dividend of 30c a share (fully franked), which with the 28c share final, takes the full year payout to 58c a share, or consistent with the Board’s policy of paying out 60-70% of cash earnings as dividends.
But it is still short of the 64.2c a share paid out in 2008 and just a bit more than the 57c a share paid out in 2007.
Bendigo and Adelaide Bank Group Managing Director Mike Hirst said in the statement to the ASX that the bank had delivered on its promise of improved earnings and profit, while managing the effects of the global financial crisis (GFC).
"We have delivered a strong result, and we have done it while fundamentally re-structuring the business to ensure it is sustainable and self sufficient through the business cycle," Mr Hirst said.
"Our shareholders are starting to reap the benefits of our prudent and responsible approach to funding and growth.
"Our business lending, residential mortgage and consumer lending portfolios all have strong growth momentum and are currently exceeding system growth.
"The fundamentals in our retail, margin lending and third-party mortgages businesses also remain robust.
"We still fund the majority of our business through retail deposits.
"We have not relied on the government guarantee on wholesale funding, and have been able to launch three highly successful residential mortgage backed securities (RMBS) transactions in the past seven months – raising more than $3.5 billion."
But Mr Hirst said volatility and concern were still a concern for the global economy.
The bank had "sound reasons for restrained optimism", however.
"The effects of the GFC continue to dominate market sentiment, and will likely cloud the outlook for the 2010-11 financial year," Mr Hirst said in yesterday’s statement.
"However, this uncertainty and volatility also presents opportunities for a business like ours."
While credit quality remained sound, Mr Hirst said the bank had provided for future potential losses on a conservative basis.
Business lending arrears (90-days plus) fell to 2.19% in June 2010, compared with 2.21% a year ago, while credit card 90-day arrears fell 14 percentage points to 1.51%.
But personal loan arrears rose to 1.25%, from 1.14%.
Bendigo and Adelaide Bank’s Tier One capital increased from 7.43% to 8.57% over the reporting period.
Total capital rose from 10.91% to 11.17%.
