NAB posts mixed interim result: FY22 cost reset, dividend up

National Australia Bank (ASX: NAB) delivered an interim profit this morning of $3.6bn up 10.7%, while cash earnings - a more meaningful measure favoured by banks – was 4% higher at $3.5bn.

At face value the result appears reasonable, but what might play on investors minds at the open today is the realisation that the result was an earnings miss against some broker expectations.

Goldman Sachs was expecting the banking giant to report first half cash earnings of $3,545m.

Highlights within the first half result include:

Underpinning a 4.6% increase in revenue to $9,071m was strong growth in lending and deposits, up 10% and 12%, respectively, versus the prior corresponding period.

Due to lower credit impairment write-backs, plus reduced and mix shift in the housing lending portfolio, Personal Banking reported an -8.3% decline in cash earnings to $788m.

Other key takeaway this morning were:

• Net interest margin (NIM) down 11 basis points to 1.63%

• CET1 ratio of 12.48%, 52 basis points lower than in September last year

• Fully franked interim dividend per share up 22% to 73 cents

• Business & Private Banking segment reported a 17.5% increase in cash earnings to $1,429m

• Corporate & Institutional Banking segment delivered a 3.1% increase in cash earnings to $806m

• NZ reported an 8.4% lift in cash earnings to NZ$668m

• Capital levels remain above bank targets despite completing a $2.5bn buy-back, with a further $2.5bn buy-back commencing in May 2022.

Cost reset

What’s also likely to weigh on investors’ minds this morning is CEO, Ross McEwan’s warning that costs growth will be higher than previously forecast.

Embedded within McEwan’s commentary this morning was the following important footnote:

“Focused investment has been key to delivering strong momentum across our businesses. The recent shift to a higher growth outlook provides greater scope to keep investing while continuing to deliver productivity benefits."

"This, along with inflationary pressures has prompted a reset of our FY22 cost growth target to approximately 2-3%, to ensure we drive shareholder returns while balancing cost disciplines and growth opportunities."

"This target includes costs associated with the essential work underway to deliver the requirements of our Enforceable Undertaking (EU) with AUSTRAC.”

The stock was down -2.57% at the open.

NAB: A three-month share price snapshot.