Impairment expenses continued to dominate the major bank reporting season yesterday, with ANZ recording a 54 per cent increase in its provision for credit impairment. The provision wiped $3 billion off its bottom line.On Wednesday National Australia Bank reported a 53 per cent increase in its provision for bad and doubtful debts, a charge of $3.8 billion.ANZ reported a net profit of $2.9 billion for the year to September, down 11 per cent from $3.3 billion reported the previous year. For the second half the net profit was $1.5 billion, a rise of eight per cent.After adjusting for $196 million of tax on New Zealand conduits, a $248 million hedging loss and a couple of other small items, the group declared cash earnings of $3.4 billion, an increase of 12 per cent over the previous year. On an underlying basis the cash profit fell two per cent in the second half.ANZ chief executive Mike Smith preferred to talk to underlying earnings of $3.7 billion, which were calculated after subtracting several non-recurring items including a $121 million payout to ING New Zealand investors, $83 million of restructuring costs and a $69 million loss on credit intermediation trades.The decision to use underlying earnings as a benchmark generated quite a bit of heat in discussion with analysts at the release of the half-year results in April, with argument about the classification of some supposedly non-recurring items, but passed largely unremarked yesterday.Interestingly, underlying profit for the second half was lower than the cash profit reported for that half (explained by the treatment of the credit intermediation trades). ANZ's idea of underlying profit also differs from the practice of other banks.Bank CEOs like to explain away high bad debt charges by referring to the economic cycle but Smith brought some refreshing candour to the subject when he said: "If you look at our provisions there has been a lot of bad lending."The bank's net loans and advances fell by one per cent. While there was 10 per cent growth in Australian mortgages, commercial lending was flat, as was lending in New Zealand. Lending in Asia Pacific went backwards.Return on equity fell from 14.5 per cent in 2007/08 to 10.3 per cent in the latest year (13.3 per cent on an underlying basis).Earnings per share fell 23 per cent (three per cent on a cash basis and four per cent on an underlying basis). The big drop in EPS was due to the bank's capital raising, which increased the number of shares on issue by 23 per cent.Two pieces of good news were the higher net interest margin, up from 2.01 to 2.29 per cent, and the bank's strong capital position. The Tier 1 capital ratio was 10.6 per cent. Smith said: "We have the capacity to grow because of our capital position. I am happy to deploy it and take opportunities."The bank achieved a small reduction in its cost to income ratio - down from 46.8 to 45.7 per cent (44 to 42.2 per cent