CBS Canterbury returned to profit in the March year and will make a bonus share issue to investors, instead of paying dividends, due to the building society's potential merger with Marac and the Southern Cross Building Society.
CBS said today a solid second-half performance helped deliver a NZ$1.91 million profit for the year to March 31 versus a NZ$3.48 million loss in the previous year. CBS chairman Gary Leech said although this was below desired long term profit targets, it was "very positive" given market conditions.
Returning to the black came despite a 37% drop in revenue to $NZ 32.7 million. Last year's loss stemmed from hedging costs on fixed rate loans, impairment costs and a NZ$4.15 million goodwill write-down.
Leech said In lieu of a final dividend given the merger talks, the board had decided to make one-for-forty fully imputed bonus share issue. This was equivalent to 7.5 cents per share at the current NZ$3 per share share price.
"This will preserve shareholder net value overall and give those shareholders who choose to do so, the chance to liquidate some of their shares for cash," Leech said.
Total lending rose 6.7% to NZ$445.2 million with new lending to first home buyers a particular area of growth. Deposit rollovers were running at 89%. Total assets fell 1.6% to NZ$540.8 million due to lower levels of cash on hand and investments at year end.
CBS is also looking to establish a wholesale warehouse facility with its bank Westpac to diversify its funding options. See story.
See CBS's announcement below:
A solid second half has delivered a very respectable result for CBS Canterbury leaving it well positioned to create a bigger footprint in Canterbury and potentially beyond. “An after tax profit of $1.91m (2009 loss $3.48m), while below desired levels long term, is still very positive given market conditions” says CBS Canterbury Chairman, Mr Gary Leech.
In consideration of our improving financial performance, and in light of the formal discussions announced last week regarding a possible merger initiative, the Board has resolved that in lieu of a final dividend a 1:40 (one for forty) fully imputed bonus issue will be made. This is equivalent to 7.5 cents per share at the current share price of $3.00 per share.)
This will preserve shareholder net value overall and give those shareholders who choose to do so, the chance to liquidate some of their shares for cash.
“We have maintained our proactive focus on credit quality during the period and have been rewarded with impairment losses back 82% to $0.59m ($3.36m) and 90 day Past Due Advances (excluding impaired assets) back 26% to $0.39m ($0.53m).” Both impairment losses and past due advances are at very pleasing levels relative to others in the industry for the period. Total lending was up 6.7% to $445.2m ($417.4m) with growth predominantly in the residential lending area especially new lending to first home buyers.
“We have had to be very patient with our new lending and have continued to focus on low risk and high quality clients. The continued slow residential market and uncertainty with both residential and commercial investment properties have restricted potential lending growth. These two factors are also impacting on margins. We fully appreciate the need to move to diversify our revenue base,” Mr Leech said.
Having both the Crown Retail Deposit Guarantee and the undrawn funding line facility during the period we have been able to progressively manage down surplus liquidity to 22% (29%).
The target range is to maintain the liquidity ratio (surplus cash, cash equivalents and liquid investments as a percentage of total net tangible assets) between 20% and 25%, comfortably above the Trust Deed required minimum of 15%.
“We are comfortable with this level of liquidity given our very loyal depositors, very high deposit rollover percentage of 89% (90%) and the Extended Crown Retail Deposit Guarantee now through to December 2011.”
Mr Leech said that CBS was in the process of establishing a wholesale warehouse facility with its bankers as was signalled in another recent announcement. This provides a valuable diversification to our funding source.
Despite an increase in total lending, total assets reduced by 1.6% for the period to $540.8m ($549.6m) due predominantly to the reduced levels of cash on hand and investments at year end. Total equity for the period however did increase by 6.1% to $51.6m ($48.6m).
“Most pleasingly, the Net Tangible Assets per share for the period increased to $3.41 ($3.18), an increase of 7.2%,” says Mr Leech.
Much of the effort of management during the period was on positioning CBS Canterbury with even greater banking discipline and focus within an environment of greater regulatory requirements. “The achievement of a very respectable BB+ (Stable) Credit Rating from Standard and Poor’s in November 2009 was an appropriate reward for many of the Board and Management initiatives over the past decade.
“This work has positioned CBS Canterbury to not only be one of the most “bank-like” of the non bank sector, but also enabled CBS Canterbury to be a leader in industry consolidation having already completed two mergers with SMC Building Society and Loan and Building Society,” he said. “All in all, our financial ‘dashboard’ has the pointers going in the right direction.
” Late in the 2009 calendar year, CBS Canterbury undertook a significant project to reposition the business in the Christchurch and Canterbury market. Many of these initiatives are being rolled out in the 2010 calendar year. On 1 June 2010, we announced the signing of a formal Memorandum of Understanding with respect to engaging in in-depth evaluation for further industry consolidation with the financial interests of PGC/Marac and Southern Cross Building Society.
Much of this initiative has already been covered in the news media but we believe it appropriate, in these circumstances, to give an addendum to this formal annual results announcement that provides some more background and detail about CBS Canterbury itself. The Board, management and staff share the vision of a banking institution emerging from consolidation that underpins our core values and would serve ‘heartland’ New Zealand very well, whilst also addressing the revenue diversification mentioned earlier in this announcement.
“Importantly I want to acknowledge the continued ongoing support of our local community, staff, deposit and lending customers, and shareholders as CBS Canterbury looks to increase our presence within Canterbury and potentially beyond. Our people can be very proud of what has been achieved and for what we bring to further industry development” said Mr Leech.
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