While Bendigo and Adelaide Bank Limited (ASX: BEN) cited the low-growth environment for its 4.6% plunge in its net profit for the half ending 31 December 2013, the group's shares have gained 1.2% on the back of a strong rise in cash earnings, which is the bank's preferred measure.
One-off costs and low growth saw net profit fall to $180.7 million for the period, down from the $189.4 million recorded in the first half of 2013, however, cash earnings jumped 9.5% to $185.9 million while revenue also received an 8.7% boost to $707.6 million.
The group's managing director, Mike Hirst, suggested that the mixed results were due to households remaining reluctant to borrow money despite the low interest rate environment, while more customers are taking the opportunity to pay down their debts. He said: "We're seeing low levels of arrears in the book – a natural outcome of people making additional repayments."
Pleasingly, new loan approvals grew strongly for the half, while the company also increased its customer base.
Outlook
Having spent the last few years strengthening the underlying business and increasing its diversification through numerous acquisitions, the company said it has completed its consolidation and strengthening phases and is now moving into an investment phase as it continues to search for new growth opportunities.
Looking forward, Hirst does not expect any significant changes in operating conditions although he anticipates that the focus of competition will shift away from deposits towards assets. Cost control will remain one of the bank's focuses as it aims to continue improving productivity and efficiency as well as customer service.
The company also increased its fully franked interim dividend by 1c to 31c, which it will pay to shareholders on 31 March. Provided that it maintains its 31c final dividend, investors could recognise a fully franked yield of 5.2% at today's price of $11.84 a share.
Foolish takeaway
The bank is a leader in customer satisfaction and demand for its products remains strong. Particularly given its yield, investors could consider this a good alternative to the bigger banks, namely Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corporation (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB), which I believe are still overpriced at today's levels.
