Bendigo and Adelaide Bank has produced a solid 16% rise in cash earnings for the six month to December 31 and lifted interim dividend 2c a share to 30c as a result.
Cash earnings came in at $162.1 million for the half year compared with the reported nets profit of $173.9 million.
Income from operations jumped 16.2% to $620.8 million in the six months to December 31, 2010.
The company’s shares rose to a day’s high of $10.25, and then retreated to end down 3c at $10.12.
Group managing director Mike Hirst said in the statement that volatile trading conditions lay ahead for the local banking sector producing "significant headwinds", although the outlook for the Australian economy remained sound.
"We expect there will be some volatility in trading conditions for the coming six months, particularly as wholesale funding markets remain challenging and the longer term effects of the recent natural disasters begin to be felt," Mr Hirst said.
The company said net interest margin remained relatively stable over the period – increasing one basis point from 2.14% to 2.15%.
"This was despite continued strong competition in the retail term deposit market in particular," Bendigo directors said.
Directors said the lift in the interim payout to 30 cents per share (fully franked), was "consistent with the Board’s policy of paying out 60-70 per cent of cash earnings as dividends."
Bendigo’s business model was simple, low-risk and sustainable, however, leaving the bank poised for further growth," Mr Hirst said in yesterday’s statement.
"We are well positioned for growth, our forecast for margins is solid, and credit quality remains generally sound," he said.
"During the reporting period we were able to complete the purchase of the remaining 40 per cent of Rural Bank. This provides greater earnings diversity for our group, and valuable exposure to an industry which expects strong growth and high agricultural commodity prices to continue in the medium term.
"Credit quality remains sound across the bank’s various businesses. 90-day arrears in the key portfolio – residential mortgages – remained relatively steady over the period, increasing to 1.02 per cent from 0.90 per cent. This figure remains below the July 2009 arrears rate, despite seven increases in the official RBA cash rate since that time," directors said.
"Business lending arrears (90-days plus) fell during the reporting period – from 2.19 per cent in June 2010, to 2.15 per cent in December 2010. The consumer portfolio performed well, with credit card 90-day arrears falling from 1.51 per cent to 1.23 per cent, while personal loan arrears also fell from 1.25 per cent to 1.07 per cent.
"It remains too early to determine the exact effects of recent natural disasters. However, based on the information currently available, we do not expect a material deterioration in credit quality.
"In particular it will take some time to determine the impact on customers of Rural Bank, where we expect those effected to experience some short-term cash flow difficulties, albeit in an industry with sound fundamentals and strong commodity prices.
"While the human costs of the recent natural disasters across Australia have been extraordinary, the effect on credit quality in both our rural and residential mortgage portfolios is expected to be relatively minor and short-lived as markets reopen and the significant rebuilding and investment program begins," directors said.
Mr Hirst said the outlook for the Australian economy remained sound, but there were still significant headwinds and uncertainty for Australian banks.
"We expect there will be some volatility in trading conditions for the coming six months, particularly as wholesale funding markets remain challenging and the longer term effects of the recent natural disasters begin to be felt," Mr Hirst said.
"Notwithstanding this, shareholders in Bendigo and Adelaide Bank have reason to be positive for the future. Theirs is a sustainable bank with a simple and low-risk business model that will continue to focus on meeting the needs of the customers, partners and communities that it serves.
"We are well positioned for growth, our forecast for margins is solid, and credit quality remains generally sound," he said.
