Bendigo and Adelaide Bank managing director Marnie Baker says her company is clearly “building momentum” after virtually sidelining itself from the cashback-fuelled mortgage war last year. Speaking after the release of a record annual cash profit of A$576.9 million, Baker said the benefits of the group’s strategy to simplify its operations, including the streamlining of technology platforms and the reduction of active brands, was showing in higher returns. “Our momentum in delivering improvement in shareholder returns continues with our return on equity up 90 basis points to 8.62 per cent,” the Bendigo boss said. “This has been achieved through managing our costs and reinvesting back into value-enhancing areas of our business. “This financial result demonstrates the progress we have made to deliver on our strategy.” While the cash result for the 12 months to the end of June 2023 was a record, it fell short of many analysts’ forecasts. As a result, Bendigo’s share price, which has rallied strongly since the start of July, closed down 27 cents or 3 per cent to $8.92. Analysts issued wide-ranging forecasts in the weeks leading up to the profit announcement, with some experts including UBS analyst John Storey tipping the cash profit would surge as high as $625 million. Baker pointed to the cost improvements over the year as evidence of the bank’s productivity improvements. Bendigo reported a big improvement in its cost-to-income ratio, which fell 420 basis points to 54.9 per cent in the 12-month period. However, the ratio actually increased slightly in the June half amid higher wage and technology costs. The bank recorded modest growth in most of its lending businesses, which meant that most of its revenue gains were attributable to material expansion of its net interest margin. NIM increased by 20 basis points to 1.94 per cent over the 12-month period, with most of the recovery recorded in the December half. Broking analysts quizzed chief financial officer Andrew Morgan on why the bank was continuing to exclude non-cash writedowns from the calculation of its net interest margin. In the second half Bendigo wrote off about $33 million in capitalised technology intangibles that were excluded from the cash earnings and NIM calculations. Bendigo’s approach remains somewhat controversial because most of Australia’s listed banks now count impairments to capitalised technology assets as an expense against cash earnings. If Bendigo followed the practice of the four major banks the improvement in its net interest margins would have been less impressive. Morgan was not prepared to give any outlook guidance on the likely direction of margins in 2024, saying only that the bank saw both headwinds and tailwinds for the key metric. However, S&P Ratings analysts Mark Symes and Lisa Barrett suspect the bank’s margins might have peaked in the June half. “Ongoing competition and rising funding costs will likely compress Bendigo and Adelaide Bank's net interest margin over the next 12 months,” the S&P analysts said. “The Australia-based bank's NIM, like that of its peers, benefited from rising interest rates and relatively low funding costs in the year ended June 30, 2023.” Bendigo is currently sitting on regulatory CET 1 capital well