Bendigo & Adelaide Bank Ltd. · ASX:BEN
Bendigo & Adelaide Bank — FY2008 Earnings Presentation
63 slides from Bendigo & Adelaide Bank's earnings presentation, Aug 11, 2008
Slide 1: Annual Results
For personal use only Annual Results 11 August 2008 11 August 2008 bendigobank.com.au adelaidebank.com.au1
Slide 2: Agenda
For personal use only Agenda Rob Hunt Overview Managing Director Merger Integration David Hughes Financial result Chief Financial Officer Jamie McPhee Group risk Chief Executive – Wholesale Bank Mike Hirst Funding and capital Chief Executive – Retail Bank Mike Hirst Retail Bank update Chief Executiv
Slide 3: Speaker
For personal use only Speaker Rob Hunt Overview Managing Director Merger Integration David Hughes Financial result Chief Financial Officer Jamie McPhee Group risk Chief Executive – Wholesale Bank Mike Hirst Funding and capital Chief Executive – Retail Bank Mike Hirst Retail Bank update Chief Executi
Slide 4: Overview - results at a glance
Overview - results at a glance For personal use only Cash earnings $201.9m ⇑ Up 70.4% Cash earnings per share 93.7c ⇑ Up 13.0% Profit after tax $170.5m ⇑ Up 40.0% Full-year dividend $0.65 ⇑ Up 12.1% 4
Slide 5: Overview - current market conditions
Overview - current market conditions For personal use only • Confidence levels in the financial system have been severely impacted • Non-retail funding – harder to access and costs more • Available funding will be applied: • To the most profitable business opportunities • To enhance relationships an
Slide 6: Overview - growth at profitable prices
Overview - growth at profitable prices For personal use only •As always, growth targets are subordinate to profitability targets •Demonstrated commitment to pricing for risk •Leveraging our retail investment: •Strong retail deposit growth •Maturing and growing branch network •Conservative retail fun
Slide 7: Overview - group milestones
Overview - group milestones For personal use only •Celebrating 150 years of Bendigo Bank •Celebrating 10 years of Community Bank® •Successful merger between Bendigo Bank and Adelaide Bank •Two complementary business strategies (wholesale and retail), both using partners to improve effectiveness •Ada
Slide 8: Merger integration - progress and opportunity
Merger integration - progress and opportunity For personal use only •Integration program on track •Expect to be operating under one ADI by end of calendar year •Cost synergy run-rate on target •Increased scale and diversity •Improved talent pool •Early opportunities for retail banking in SA •Expande
Slide 9: Speaker
Speaker For personal use only Rob Hunt Overview Managing Director Merger Integration David Hughes Financial result Chief Financial Officer Jamie McPhee Group risk Chief Executive – Wholesale Bank Mike Hirst Funding and capital Chief Executive – Retail Bank Mike Hirst Retail Bank update Chief Executi
Slide 10: Financial results - consistent, reliable earnings growth
Financial results - consistent, reliable earnings growth* For personal use only 2006 2007 2008 Cash earnings ($m) 102.5 118.5 201.9 Cash earnings per share 73.2 82.9 93.7 Profit after tax ($m) 116.7 121.8 170.5 Full-year dividend 52.0 58.0 65.0 *2008 figures represent 12-months contribution from Ben
Slide 11: Financial results - further detail
Financial results - further detail For personal use only •Significant items – $35.1 after tax •Visa IPO proceeds ($17.6m) •Cash flow hedge reserve $19.8m •Equity investments impairment $21.1m •Integration costs $6.6m •Other $5.2m •Merger synergies •$20m run-rate reduction achieved •On track for $60-
Slide 12: Financial results - growing shareholder returns
Financial results - growing shareholder returns For personal use only Cash earnings per share (cents)* Group dividends (cents)* 65 58 93.7 52 82.9 37 73.2 34 30 24 28 22 2005/06 2006/07 2007/08 2005/06 2006/07 2007/08 13% 12.1% Interim Final *2007/08 figures represent 12-months contribution from Ben
Slide 13: Financial results - quality earnings
Financial results – quality earnings For personal use only Cash based earnings ($m) Other Income Cash based earnings ($m)* $70.4M Operating Expenses Provision for $201.9 ($129.8M) Doubtful Debts ($14.9M) Income Preference Other non- Movement Tax/Minority Share Dividends cash items in General $118.5M
Slide 14: Financial results - growth at profitable prices
Financial results - growth at profitable prices For personal use only Analysis of net interest margin (%)* 1.69% Cash to bills 1.64% spread Funding mix Repricing and 0.02% 0.02% product mix 0.01% June 2007 June 2008 14 *Normalised margin assuming 12-months contribution from Adelaide Bank and compara
Slide 15: Financial results - growth at profitable prices
Financial results - growth at profitable prices For personal use only We take a disciplined approach to the allocation of available funding 30-6-2007* 30-6-2008 Variance Assets ($m) ($m) ($m) % Retail Mortgages 8,077 9,364 1,286 15.9% Wholesale Mortgages 17,475 16,738 (737) (4.2%) Business Lending
Slide 16: Financial results - continuing to invest in the business
Financial results - continuing to invest in the business For personal use only Operating expenses ($m)* 256.3 187.7 44.2 43.0 110.1 34.8 31.5 78.9 20.4 20.2 13.4 11.1 10.3 5.4 S a l a r i e s a nd Oc c u p a n c y c o st s I nf o r m a t i on F e e s a nd P r op e r t y , P l a nt I nt a ngi bl e s
Slide 17: Financial results - continuing to invest in the business
Financial results - continuing to invest in the business For personal use only Cost to income ratio (%)* 66.6% 64.6% 59.6% 2006 2007 2008 17 *2008 figures represent 12-months contribution from Bendigo Bank and 7-months contribution from Adelaide Bank
Slide 18: Group credit - remaining vigilant
Group credit - remaining vigilant For personal use only Credit quality remains sound across the group Some deterioration in isolated sectors Strong industry diversity Strong geographical diversity Both heritage banks had low risk appetites (and have not increased risk appetite as a result
Slide 19: Group credit - maintaining quality
Group credit - maintaining quality For personal use only Gross impaired loans/total assets (%) 0.11 0.10 0.09 2006 2007 2008 19
Slide 20: Group credit - conservative provisioning
Group credit - conservative provisioning For personal use only Total group provisions of $135m as at June 2008 (0.28%)* (0.28%)* Loan loss provisions and reserves ($m) 22.0 22.1 34.4 36.8 (0.34%)* (0.23%)* (0.38%)* (0.24%)* 12.0 13.6 51bps of total 8.4 10.1 11.4 10.4 Risk Weighted 23.0 26.4 81.2 7
Slide 21: Group credit - general and specific provisions
Group credit - general and specific provisions For personal use only Ongoing conservative approach to provisioning General and collective provisions (combined) steady at 51bps of group Risk Weighted Assets No underlying systematic or product failure in specific provisions Composition of specif
Slide 22: Group credit - conservative lending exposure
Group credit - conservative lending exposure For personal use only Top 30 exposures = $876.8m (1.77% of total assets) Only 6 loans greater than $30m All top exposures performing well Diversity by geography and industry 22
Slide 23: Group credit - diversity of portfolio
Group credit - diversity of portfolio For personal use only Group lending Business lending by geography by industry 1% 4% 3% 4% 3% 2% 32% 3% 3% OTHER 15.5% VIC 8% 29.2% VIC SA NSW 13.9% 5% QLD 5% SA 4% OTHER 6% QLD 17.3% NSW 19% 24.0% 1% P ro perty and business services Co nstructio n Health and co
Slide 24: Speaker
Speaker For personal use only Rob Hunt Overview Managing Director Merger Integration David Hughes Financial result Chief Financial Officer Jamie McPhee Group risk Chief Executive – Wholesale Bank Mike Hirst Funding and capital Chief Executive – Retail Bank Mike Hirst Retail Bank update Chief Executi
Slide 25: Group risk - a challenging environment
Group risk - a challenging environment For personal use only Com m ercial Margin 13% lending Group loans by purpose 9% Residential Consum er 69% 9% Mortgages form the majority of loans by purpose and security Unsecured consumer lending a minor part of the portfolio Key areas of focus for credi
Slide 26: Group risk: mortgages - maintaining a vigilant approach
Group risk: mortgages - maintaining a vigilant approach For personal use only 90+ day arrears levels are increasing – from a very low base Of those in 90+ day arrears: Average historical LVR is 60.95% 66.7% are fully verified 33.2% are lo-doc LMI insurance covers more than 60% of all MIP
Slide 27: Group risk - diversity by geography
Group risk - diversity by geography For personal use only Group Mortgagee in Possession loans State Number $ value (m) NSW 74 $39.4 0% 15% Victoria 30 $6.0 4% Queensland 20 $11.0 4% South Australia 5 $1.1 55% Other 6 $3.4 22% 1% 27
Slide 28: Group risk: mortgages - lo-doc loans MIP
Group risk: mortgages - lo-doc loans MIP For personal use only Lo-doc loans represent 13.1% of group loans Lo-doc loans represent 37.7% of all loans MIP 250 Mortgagee in Possession full-doc v lo-doc 100% 90% 200 80% 80 82 70% 82 73 150 63 60% 60 53 47 50% 45 45 51 100 40 45 40% 140 137 30% 130 1
Slide 29: Group risk: mortgages - product design provides additional security
Group risk: mortgages - product design provides additional security For personal use only High levels of LMI in lo-doc portfolio (all loans more than 60% LVR) Full valuations for all lo-doc loans – regardless of LMI status While 90+ day arrears trends higher, actual losses remain low All lo-do
Slide 30: Group risk: mortgages - 90+ day arrears remain at historically low levels
Group risk: mortgages - 90+ day arrears remain at historically low levels For personal use only All loans under management – 90+ day balances $300m 0.01 0.009 $250m 0.008 0.007 $200m 0.006 $150m 0.005 0.004 $100m 0.003 0.002 $50m 0.001 $0m 0 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Se
Slide 31: Group risk: Margin Lending - business model tested and proven
Group risk: Margin Lending - business model tested and proven For personal use only 12 consecutive down days (most since 1982) 18% cumulative decline 12th day – down 7.26% (1989 – fell 8.09%) Significant volatility (highest since 1987) Large falls in single stocks - Allco, MFS, ABC, Centro
Slide 32: Group risk: Margin Lending - self-calibrating portfolio
Group risk: Margin Lending - self-calibrating portfolio For personal use only Margin calls effectively re-calibrate portfolio LVR Unweighted LVR increasing due to more granular portfolio with fewer single stock loans 70% Weighted and unweighted LVR (%) 60% 50% 40% 30% 20% Mar-07 Apr-07 May-07 Ju
Slide 33: Group risk: other initiatives - fraud prevention
Group risk: other initiatives - fraud prevention For personal use only Implementation/refinement of automated fraud detection systems Internet Banking Cheque Staff and Credit Applications Dedicated Phishing Takedown service Increased resources in Financial Crimes team Greater analytics
Slide 34: Speaker
Speaker For personal use only Rob Hunt Overview Managing Director Merger Integration David Hughes Financial result Chief Financial Officer Jamie McPhee Group risk Chief Executive – Wholesale Bank Mike Hirst Funding and capital Chief Executive – Retail Bank Mike Hirst Retail Bank update Chief Executi
Slide 35: Capital adequacy - maintaining conservative approach
Capital adequacy - maintaining conservative approach For personal use only Total group capital (%) 10.77 10.24 10.43 •Capital refinancing task for FY09 - $80 million of sub debt maturities 2.44 2.26 2.91 •Range of capital raising options available, including non-innovative T1 instrument 8.33 7.98 7.
Slide 36: Capital adequacy - maintaining conservative approach
Capital adequacy - maintaining conservative approach For personal use only •$89 million of ordinary share capital raised in May 2008 under Share Purchase Plan •Basel II and Adelaide Bank merger impacts 7.98% 7.53% Balance sheet Other Basel II - grow th 0.11% Merger Basel II - RWA SPP (0.34%) investm
Slide 37: Funding structure - adapting to market conditions
Funding structure - adapting to market conditions For personal use only $millions Balance at Balance as at Balance at Change (13- 30/06/07 30/6/08 31/07/08 months - %) Wealth/HNW/Corporate 8,540.0 7,950.4 8,168.6 (4.4) Branches 13,378.3 15,966.1 16,346.5 22.2 Total Retail 22,323.5 23,916.5 24,515.1
Slide 38: Funding mix - growth in retail deposits
Funding mix - growth in retail deposits For personal use only 7.56 7.26 7.03 6.85 53.5% 6.71 6.56 6.48 6.31 6.21 6.14 6.01 5.94 46.5% Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- 07 07 07 07 07 07 08 08 08 08 08 08 2008 Term deposits ↑ 27% Call Accounts Term Deposits 38
Slide 39: Funding trends - branch performance
Funding trends - branch performance For personal use only •Community Bank® network remains relatively immature •Liability growth strongest in first seven years of branch life Deposits per Community Bank® Community Bank® branches by age branch 35 30 No. of branches 25 CAGR 26.1% 20 No. of branches 15
Slide 40: Securitisation - market fundamentals have changed
Securitisation - market fundamentals have changed For personal use only • Costs have increased for all industry participants • Not reliant on future securitisation issuance • Will remain open to opportunistic deals (e.g.: July Torrens) October 2006 October 2007 May 2008 July 2008 0.20% ABL* 0.43% AB
Slide 41: Speaker
Speaker For personal use only Rob Hunt Overview Managing Director Merger Integration David Hughes Financial result Chief Financial Officer Jamie McPhee Group risk Chief Executive – Wholesale Bank Mike Hirst Funding and capital Chief Executive – Retail Bank Mike Hirst Retail Bank update Chief Executi
Slide 42: Retail overview - strong performance
Retail overview - strong performance For personal use only Annual Growth Assets 10.1% Liabilities 15.8% 400 branches 1 Branches 31 per year Customer 75,000 per year2 numbers 4 38 80 35 49 177 ACT 3 14 1. New branches per year since 2003 2. New customers per year since 2005, excluding additional 180,
Slide 43: Retail overview - our customers like us
Retail overview - our customers like us For personal use only 43
Slide 44: Retail overview - our customers want to do business with us
Retail overview - our customers want to do business with us For personal use only Retail Banking Customer Satisfaction Business Banking Customer Satisfaction 100% 100% 90% 90% 94% 90% 80% 80% 70% 72% 75% 70% 60% 60% 50% 50% Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Bendig
Slide 45: Retail overview - full year highlights
Retail overview – full year highlights For personal use only •400 branches spread across diverse markets •Added 48 branches (23 Bendigo Bank, and 25 Adelaide Bank) •Integrated ADB network into retail management •Continue to move staff from transactional to relationship positions •Associate planner p
Slide 46: Speaker
For personal use only Speaker Rob Hunt Overview Managing Director Merger Integration David Hughes Financial result Chief Financial Officer Jamie McPhee Group risk Chief Executive – Wholesale Bank Mike Hirst Funding and capital Chief Executive – Retail Bank Mike Hirst Retail Bank update Chief Executi
Slide 47: Wholesale Bank - a diverse portfolio of businesses
Wholesale Bank - a diverse portfolio of businesses For personal use only • Wholesale Mortgages • Margin Lending • Business Partners • Funds Management 47
Slide 48: Wholesale Mortgages - a challenging environment
Wholesale Mortgages - a challenging environment For personal use only •A commitment to write business with an appropriate economic return •Variable cost base •Asset growth is being actively managed •Repriced portfolio •110bps above RBA for Lo-Doc (existing portfolio) •70bps above RBA for standard va
Slide 49: Wholesale Mortgages - managing for the new world
Wholesale Mortgages - managing for the new world For personal use only Variable cost base Commissions have been adjusted Focus on achieving an appropriate economic return Portfolio size ($b) $20 Billions $15 $10 $5 $0 2002/2003 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 49
Slide 50: Margin Lending - remains a growth opportunity
Margin Lending - remains a growth opportunity For personal use only •Portfolio adjusted to current equity values •Integrity of business model tested and proven •All margin calls made, all settlements met •Anticipate future portfolio growth through: • Improved equity market sentiment • Further opport
Slide 51: Margin Lending - future growth prospects
Margin Lending - future growth prospects For personal use only Historical growth of 25-35%pa was always unsustainable Decline has been in line with equity market falls Portfolio showing signs of growth – in line with market sentiment Margin lending portfolio ($b) Customer account numbers 6 $ B
Slide 52: Business Partners - portfolio funding and specialised lending
Business Partners - portfolio funding and specialised lending For personal use only Specialised lending opportunities in growth sectors Health Aged care Portfolio Funding Funds portfolios originated by third parties Granular portfolios with high quality assets 22 partners Margins hav
Slide 53: Business Partners - portfolio funding
Business Partners - portfolio funding For personal use only Case Study 89.4% Class A Note held by ABL Client in the business of P.O.S. IT leasing Currently $54m portfolio Granular portfolio (> 21,000 loans) Average size $2,500 per loan Subordination > 10% of portfolio Current arrears (60
Slide 54: Funds Management - opportunities
Funds Management - opportunities For personal use only •Funds continue to perform well •Growth sector •Opportunity for product innovation and business growth •Opportunity to leverage: •Increased retail customer base •Increased business and partner relationships •Customer and community connections Sa
Slide 55: Speaker
For personal use only Speaker Rob Hunt Overview Managing Director Merger Integration David Hughes Financial result Chief Financial Officer Jamie McPhee Group risk Chief Executive – Wholesale Bank Mike Hirst Funding and capital Chief Executive – Retail Bank Mike Hirst Retail Bank update Chief Executi
Slide 56: Conclusion
For personal use only Conclusion The 2008 result Strong performance Clear management focus and strategy Illustrating diversity and strength of the business Outstanding retail performance The future role for banks Australian banks are in good shape Good strategies will succeed through
Slide 57: Questions
For personal use only Questions 57
Slide 58: Appendix
For personal use only Appendix 58
Slide 59: Group risk: mortgages in possession - high levels of LMI insurance
Group risk: mortgages in possession - high levels of LMI insurance For personal use only LMI insurance covers more than 60% of all MIP loans 250 100% Mortgagee in Possession LMI details 90% 200 80% 60 66 63 70% 64 150 59 60% 56 53 50% 59 54 50 49 100 48 52 40% 160 153 30% 149 135 123 116 50 101 20
Slide 60: Group risk: mortgages in possession - non LMI loans managed closely
Group risk: mortgages in possession For personal use only - non LMI loans managed closely Group MIP loans 49 properties with no LMI coverage 49 loans Total group exposure $24.7m No LMI Average current LVR of 74% coverage Only 11 properties with a LVR greater than 90% 86 loans LMI covered 8
Slide 61: Group risk: mortgages 90+ day arrears - non LMI loans managed closely
Group risk: mortgages 90+ day arrears For personal use only - non LMI loans managed closely Group 90+ day arrears 354 loans 90+ day arrears with no LMI 40% no LMI 264 of these have an LVR less than 80% 75 of these have an LVR between 80% and 90% 15 of these have an LVR of 90%+, with a total
Slide 62: Funding trends - liabilities exceed assets
Funding trends - liabilities exceed assets For personal use only •Liability growth outstrips asset growth by $7.6m after 7-years of operation Average deposit and loan balance per Community Bank® branch ($m) 43.9 41.7 33.6 $7.6m 26.4 34.1 30.6 32.6 23.2 4 5 6 7+ A g e o f B r a n c h i n Ye a r s Ave
Slide 63: Wholesale Mortgages - portfolio re-pricing
Wholesale Mortgages - portfolio re-pricing For personal use only Existing portfolio Date Lo-Doc Full-Doc (% increase) (% increase) Sept 07 0.30% (0.55%) (0.25%) Dec 07 0.25% (0.50%) 0.25% (0.50%) Mar 08 0.15% (0.40%) 0.15% (0.40%) May 08 0.10% (0.35%) 0.10% (0.35%) July 08 0.30% (0.30%) 0.20% (0.20%
Bendigo and Adelaide Bank — FY2008 Earnings Presentation on 6ix