National Australia Bank Ltd (ASX: NAB) shares will be on watch on Thursday.
That's because the big four bank has just released its half-year results. Let's see how it performed.
NAB shares on watch following half-year results
- Net operating income down 0.9% over the prior corresponding period to $10,138 million
- Operating expenses up 5.8% to $4,677 million
- Cash earnings down 12.8% to $3,548 million
- Fully franked interim dividend per share up 1.2% to 84 cents
- $1.5 billion increase to on-market share buyback
What happened during the half?
For the six months ended 31 March, NAB reported net operating income of $10,138 million, which was a 0.9% decline compared to the prior corresponding period.
This reflects a small decline in net interest income to $8,397 million and a 15.2% reduction in other operating income to $1,741 million. Positively, compared to the preceding half, NAB's net operating income was a fraction higher.
The bank's net interest margin (NIM) decreased by 5 basis points (bps) to 1.72%. Excluding a 5 bps increase from Markets and Treasury, NAB's NIM declined 10 bps year on year. Management advised that this mainly reflects lending margin competitive pressures, primarily relating to housing lending. In addition, higher term deposit costs and deposit mix impacts weighed on margins.
NAB's expenses increased by 5.8% year on year due largely to continued uplift in technology and compliance capabilities. These impacts were partially offset by productivity benefits. Things looked a bit better compared to the preceding half, with expense growth moderating to just 1.6% over the six months.
This ultimately led to NAB reporting a 12.8% decline in cash earnings to $3,548 million for the half.
However, despite this earnings decline, the NAB board elected to increase its interim dividend by 1 cent to 84 cents per share and announced an additional $1.5 billion on-market share buyback.
Finally, NAB's asset quality remained strong despite the tough economic environment.
Though, it did note that the ratio of 90+ days past due and gross impaired assets to gross loans and acceptances increased 13 bps to 0.79%. This mainly reflects higher arrears across the Australian home lending and business lending portfolios, partially offset by lower impaired assets.
How does this compare to expectations?
The good news for NAB shares today is that this result was largely in line with expectations.
The consensus estimate was for cash earnings of $3,553 million, which is just $5 million more than what NAB reported.
In addition, the market was expecting the bank to keep its interim dividend flat at 83 cents per share. So, a small increase is a surprise and is likely to go down well with investors.
How did its businesses perform?
The key Business and Private Banking segment was NAB's best performer, reporting a modest 2.4% decline in cash earnings compared to the prior corresponding period.
Whereas the business that dragged on its results was its Personal Banking segment.
It posted a 29.6% decline in cash earnings to $553 million. Management advised that this reflects competitive pressures more than offsetting disciplined volume growth and benefits from the higher interest rate environment.
NAB shares are up 16% over the last 12 months.
