Bendigo Bank (ASX:BEN) share price lifts amid 32% jump in profits

Residential lending helps Bendigo bag a big jump in earnings…

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Key points

  • Bendigo Bank shares are moving to the upside on Monday following the bank's interim results
  • Further growth in residential mortgages has provided uplift in earnings
  • Margin compression in interest income comes as customers opt for fixed-rate loans

The Bendigo and Adelaide Bank Ltd (ASX: BEN) share price is in the green this morning, trading 1.94% higher.

Shares in Australia’s fifth-largest retail bank closed Friday afternoon at $9.26 and are $9.44 at the time of writing.

Today’s move is propelled by Bendigo Bank’s interim results for the half-year ending 31 December 2021. Here’s a closer look at the details.

Bendigo Bank share price up on earnings jump

  • Revenue up 8.5% from prior corresponding period to $965.1 million
  • Statutory net profit up 31.7% to $321.3 million
  • Cash earnings after tax increased by 18.7% to $260.7 million
  • Net interest margin compressed by 14 basis points (2.1%) from previous half year
  • Cash earnings per share (EPS) up 13.5% to 47 cents per share
  • Declared fully franked interim dividend of 26.5 cents per share, up 12.8%

What else happened during the half year?

Bendigo Bank said it was another half dominated by residential lending growth, cementing its sixth consecutive half of above system home loan growth. The period saw residential lending grow by 8.4% as settlements rose 4.3% from the previous half.

The bank experienced below system growth for its overall lending. This was put down to weakness in its agribusiness lending due to seasonal factors and softness in business lending. However, Bendigo Bank still grew its overall lending by 4.3% compared to system growth of 8.3% — playing into the Bendigo Bank share price strength today.

A milestone for the bank during the December ending half was the acquisition of Ferocia Pty Ltd. Importantly, this gives Bendigo Bank full ownership of the mobile-only digital bank Up. The acquisition was announced in August of last year and adds 460,000 customers to the Aussie bank.

Additionally, the bank’s interest margin compression is said to be a reflection of its increase in liquidity. The move is a result of “fierce competition” across the lending market and a preference for fixed-rate loans.

What did management say?

Commenting on the interim result, managing director and CEO Marnie Baker said:

This strong result would not be possible without our strategy and our focus on execution. We are committed to removing complexity, keeping cost growth low and, above all, remaining a customer-centric organisation.

Barker added:

We have made significant progress over the half with the acquisition of financial technology company Ferocia and digital bank Up accelerating our strategy. Capital levels are again higher and support our strong balance sheet, and our return on equity is above 8 percent.

Regarding the impacts of the Omicron variant on bank customers, Baker stated:

Pleasingly, the onset of Omicron has only seen 25 new retail customers require some form of assistance, underscoring the resilience of our customers and their financial position.

What’s next?

There are a few key points for Bendigo Bank during the second half of FY22. Firstly, the lender expects to see a continuation in outperforming residential loan growth. Although, net interest income will be negatively affected by margin pressures.

Secondly, the bank earmarked $170 million to $180 million across investment spending in FY22. For comparison, FY21 racked up $165 million.

Lastly, Bendigo Bank considers a rising interest rate environment as a positive for its “deposit-heavy” funding mix.

Bendigo Bank share price snapshot

It is a subdued start to the year for the Bendigo Bank share price with its shares up 2% so far in 2022. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is down 5.3% since the start of the year.

Over the last 12 months, Bendigo shares are down 2.11% compared to the ASX 200’s 4.6% gain.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended Bendigo and Adelaide Bank Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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